Sam Bankman-Fraud?

So.. a lot has happened since last week. This time last week, we were in a position where Binance was looking at buying out FTX, which looked to be on the brink of collapse. But they took one look at FTX's financials and said "thanks but no thanks". Because they couldn't find a buyer, FTX and Sam himself had to file for bankruptcy. 

That brought up an important question:

Why?

What on FTX's books was so bad that the biggest crypto exchange didn't want to touch it? Well, as the week progressed we got the answers to that question. 

Remember FTX had paused withdrawals, so customers could not get their money out of the platform. They then resumed withdrawals… but only for customers in the Bahamas. FTX was headquartered in the Bahamas, so SBF and all of the FTX employees lived there. Coincidence? I think not.

But the madness didn’t end there. The day after they filed for bankruptcy, FTX announced they had been hacked! They saw mysterious outflows of more than $600 million. The timing of this, as well as the fact that the hacker had access to apps, wallets and other things was suspicious to a lot of people. How could there be a hack just as all of this was going down? Many people have been speculating that this hack was an inside job.

Reuters then released an article stating that SBF had implemented a “secret backdoor” in FTX’s accounting software which allowed him to move funds and alter financial records without alerting anyone. So in essence, FTX was taking customers’ funds, giving them to Alameida research and Alameida was gambling with these funds. And when some of those gambles went wrong, the whole thing came crashing down.

The Twitter DM Interview

After this had all unravelled, SBF gave an interview to a Vox writer via Twitter DM. And some parts of it were absolutely unbelievable. Before FTX had been found breaking rules, SBF had been cosying up to congress and calling for more regulation on crypto. He freely admitted that this was "just PR" and he even went on to say "f*k regulators". 

Sam was also big on "effective altruism" and "earning to give". That's a school of thought which says you should earn as much money as possible and then give it away to charitable causes. He made a big show of living frugally even though he was a billionaire. 

When news came out that he had been gambling away customer funds, people became began to question this altruistic nature. In fact, it turned out that Sam and his friends lived in a $20 million mansion in the Bahamas. Via twitter DM, he effectively admitted that his commitment to charity and altruism was all BS. 

Then the conversation came around to Sam's lies. He was questioned about the fact that he had claimed FTX don't invest customer deposits. He said, technically that was correct. Because FTX wasn't investing deposits - it was the sister company Alameida Research. But obviously, SBF owns both companies so this is an incredibly weak excuse. 

And that hacker we mentioned earlier? SBF confirmed that he thinks it may have been an FTX employee. 

Contagion

When a company as central to the ecosystem as FTX goes down, it sends shockwaves throughout the industry. This week, we have been feeling the first of these shockwaves. Crypto lender BlockFi is preparing for bankruptcy. They had previously been saved from bankruptcy by FTX, but when those trying to bail you out are also sinking, the end result can't be good. As well as this, crypto brokerage Genesis has suspended withdrawals and crypto exchange Gemini has seen outflows of $500 million as users worry they will also be caught up in the aftermath of FTX collapsing. SBF was a big backer of the Solana ecosystem. Since this news broke the Solana ecosystem has seen $700 million in value wiped out. 

As ever, this is an evolving situation so who knows what we may uncover next...