You will remember the cases Luna/Ust, Celsius, Voyager, Three Arrows Capital, Hodlnaut and if you want also Wonderland it certainly hasn't been a quiet year for cryptocurrencies. Many other minor scams which need not be pointed out. The cases mentioned above concern both "insolvency" and scam. The latest major player to join the list is . In this regard it should be noted that a lot of FUD was also thrown on KUCOIN a few months ago. The exchange was considered insolvent, in reality then there were no implications.
FTX IN THE PREVIOUS MONTHS
I would like to point out a few things: FTX is sponsoring several F1 cars, it is the official sponsor of the Miami Heat arena and also of the MLB referees. This exchange headed by Sam Bankman Fried bought BlockFi (another lending platform that was in trouble), Voyager (promising to repay 72% of customer deposits) and made an offer of up to $ 15 billion to buy Twitter. According to rumors, they also tried to buy Coinbase. All of this has happened in the last few months.
IS ALAMEDA INSOLVENT?
is a fund (market maker) that manages exchange capital and in particular also of FTX. At the head of Alameda is Sam Bankman Fried, the founder of FTX. It should be noted that Alameda and FTX are linked but they are not the same. The two companies have different earnings and profits.
The accusation made by rumors that follow one another on Twitter and on social networks would be the insolvency of Alameda for mismanagement of money. According to a survey as of June 30th, Alameda had a balance sheet of $ 14.6 billion, a large part of which are illiquid assets: (1/3 of total assets and about double the total assets of FTT), Solana, Serum, Oxygen, Fida, Maps + $ 2 billion in equities. All of these tokens were used as collateral to generate debt and ask for loans - for a total of $ 8 billion. 93% of FTT's supply is held by 10 wallets (including BitDAO) and only 200 would be active addresses. If Alameda needs liquidity to pay off its debts, FTT could quickly go to 0 because it has little demand. The other tokens on the Solana blockchain have the same problem: Alameda holds most of the supply and also balances blocked (non-liquid) supply which in case of need would immediately bring these tokens to 0 (SRM, OXY, FIDA, MAPS) .
What happens if these tokens go down in value? Liquidations? Non-collateralized loans? Who owns Alameda's debts and how will they be able to repay them? Who will pay for it?
If you think about it, Celsius Network had been accused of "wash trading", that is, of artificially inflating volumes by increasing the value of the Cel token, using it to ask for loans. The main holder of the Cel token was Celsius himself and the token was illiquid (it could not be transformed entirely into liquidity because the token would have gone to $ 0 so we can say that the balance sheet had been falsified. This is the danger of the holding of most supply of a token that nobody wants to have). According to the accusations made against FTX they would have done the same: the value of FTT would have been inflated to take on debt with illiquid collateral.
The flywheel pattern would have been this:
-create token (X token) and keep most of the supply
-pump token price and increase in volumes (wash trading)
-mark gains balance sheet
-show gains to investors
-raise cash through equty sales or loans for free
You should consider that as you increase the price of your token, it is increasingly difficult to keep the price high. People who own the token are increasingly incentivized to sell because they are in profit, forcing you to buy tokens at higher prices. In the end, you either get to own the entire supply or stop buying because you run out of money. Which you can't do, because if you stop everything collapses. Sam had talked about this business model in this interview: Sam Bankman-Fried Described Yield Farming And Left Matt Levine Stunned
The straw that broke the camel's back with the subsequent "bank run" were the statements by CZ (Binance) who decided to sell all its FTT with references also to Luna (to sow panic among traders?).
The answer came from Caroline, CEO of Alameda, according to which the leaked balance is partial and there would be another 10 billion unspecified assets. They would also have hedges to cover themselves against any collateral dumps.
Obviously FTX reiterated that Alameda is not insolvent, moreover that balance does not belong to FTX, they would have enough liquidity to make up for any withdrawal because the users' funds are not invested. I remind you that an exchange has different revenues: trading fees (several million dollars a day), withdrawals, launchpad (IEO), lending, clearance fee on margin trading, listing of tokens. It should also be noted that FTX burns 33% of trading fees (markets). Consider that $ 3to $ 5million in FTT is burned per week. Here:
The negative rumors continued in the day of November 7 with the Solana dump, according to these rumors they are selling Solana for liquidity. There is no evidence of this. Similarly, another FTT holder reiterated that if Alameda fails to provide financial evidence they will be forced to sell their FTT.
's response? First of all, as already pointed out, the CEO of Alameda and FTX is the same, however the two companies are different. Certainly Alameda is FTX's market maker, however the reported balances are those of Alameda. For the moment, FTX has always honored withdrawals, which were also carried out quickly despite the incessant requests. The problems stem from the fact that this 2022 has been disastrous for the entire crypto sector with the collapses of the Luna/Ust and Celsius. People are afraid. It should be noted that regardless of the situation in which FTX finds itself, resisting such large bank runs and capital flight is difficult for anyone.
Although FTX has stressed that it does not use client funds for investments, we know that a lot of liquidity (stablecoin) is used for margin trading, for example. If the capital flight is huge, no company in the world could resist even a bank or Binance. You should understand that this is not due to good / bad capital management. What is emerging in 2022 is that it takes very little to sow panic on social networks but this is also made possible by the Terra and Celsius Network disaster.
A few hours ago, FTT broke a major support at $ 22 and wrecked at $ 18. Solana also had a bearish collapse. In these situations of extreme volatility, I advise not to panic. People sell in total panic, traders open shorts. What strategy should be used?
If you are holding funds on FTX and you are not comfortable, I recommend that you remove the liquidity. Are you holding FTT? In this case if you are not trusting Alameda then FTX, you have also lost faith in FTT so it has no meaning to withdraw your FTT on LEDGER / Trezor. If FTX goes into trouble, FTT will also suffer the backlash.
Meanwhile, withdrawals from FTX continue, another issue to note is that there has been a large outflow of stablecoins from Kucoin as well (Alameda is also a market maker for Kucoin). Alameda transfer a large amount of stablecoins from Kucoin, Gate, Huobi, Okx to the addresses and send them to 0x2faf (FTX hot wallet) to deal with withdrawals. Also, , could sink if FTX faces insolvency issues.
I advise not to open any speculative operations. If you are long on FTT (holding), you may decide to open a short to hedge yourself. I personally removed my stablecoins from FTX 1 week ago due to the launchpool on Binance. Yesterday I also removed BTC. As I pointed out, Alameda and FTX are two separate entities, however IF all people withdraw, it is pretty obvious that the exchange can go into trouble.
WHAT DOES AN FTX COLLAPSE?
It would be disastrous for the whole market. What Sam, Alameda and FTX should do is show a full report with their balances, otherwise the "bank run" will continue indefinitely. I have stressed several times that an exchange has enormously greater revenues than a lending platform and they are also diversified. It is not the earn/yield that causes such a large exchange to go into trouble. The repercussions could also be long-term for Solana, as FTX and Alameda are among the largest investors. Almost all of the tokens on the Solana blockchain are listed on FTX. It will not be the end of Solana but be careful with "buy the dip". There could be great opportunities but also great risks. If you are a crypto investor/adopter you should hope that FTX survives this. Nobody will benefit from this situation. Getting informed is important but try to pay attention to what you read because in these cases there is always a lot of FUD around. It is really not being able to filter "fake news" and FUD that leads to disasters.
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