FTX repurchased burned FTT tokens based on 33% of fees generated on FTX markets, 10% of net additions to a backstop liquidity fund and 5% of fees earned from other uses of the FTX platform. The FTT token does not entitle its holders to FTX revenue, shares in FTX nor governance decisions over FTXโs treasury.
Alamedaโs balance sheet was first mentioned in this Coindesk article showing that the fund held $3.66 billion in FTT tokens while $2.16 billion of that was used as collateral. The game was to drive up the perceived market value of FTT then use the token as collateral to borrow against it. The rise of Alamedaโs balance sheet rose with the value of FTT. As long as the market didnโt rush to sell and collapse the price of FTT then the game could continue on.
FTT rode on the backs of the FTX marketing push, rising to a peak market cap of $9.6 billion back in September 2021 (not including locked allocations, all the while Alameda leveraged against it behind the scenes. The Alameda assets of $3.66b FTT & $2.16b โFTT collateralโ in June of this year, along with its OXY, MAPs, and SRM allocations, were combined worth tens of billions of dollars at the top of the market in 2021.
The price of FTT with a side profile showing FTT trading volume on FTX (logarithmic scale)
FTT Market Cap (logarithmic scale) โ Source: CoinMarketCap
CZ Chooses Blood In one decision and tweet , CEO of Binance, CZ, kicked off the toppling of a house of cards that in hindsight, seems inevitable. Concerned that Binance would be left holding a worthless FTT token, the company aimed to sell $580 million of FTT at the time. That was bombshell news since Binanceโs FTT holdings accounted for over 17% of the market cap value. This is the double edged sword of having the majority of FTT supply in the hands of a few and an illiquid FTT market that was used to drive and manipulate the price higher. When someone goes to sell something big, value collapses.
As a response to CZโs announcement, Caroline of Alameda Research, made a critical mistake to announce their plans to buy all of Binanceโs FTT at the current market price of $22 . Doing that publicly sparked a wave of market open interest to place their bets on where FTT would go next. Short sellers piled in to drive the token price to zero with the thesis that something was off and the risk of insolvency was in play.
Ultimately, this scenario has been brewing since the Three Arrows Capital and Luna collapsed this past summer. Itโs likely that Alameda had significant losses and exposure but were able to survive based on FTT token loans and leveraging FTX customer funds. It also makes sense now why FTX had an interest in bailing out companies like Voyager and BlockFi in the initial fallout. Those firms may have had large FTT holdings and it was necessary to keep them afloat to sustain the FTT market value. In the latest bankruptcy documents, it was revealed that $250 million in FTT was loaned to BlockFi .
With hindsight, now we know why Sam was buying up all of the FTT tokens he could get his hands on every week. No marginal buyers, lack of use cases and high risk loans with the FTT token were a ticking time bomb waiting to blow up.
How It All Ends After pulling back the curtain, we now know that all of this led FTX and Alameda straight into bankruptcy with the firms disclosing that their top 50 creditors are owed $3.1 billion with only a $1.24 cash balance to pay it. The company likely has over a million creditors that are due money.
The original bankruptcy document is riddled with glaring gaps, balance sheet holes and a lack of financial controls and structures that were worse than Enron. All it took was one tweet about selling a large amount of FTT tokens and a rush for customers to start withdrawing their funds overnight to expose the asset and liability mismatch FTX was facing. Customer deposits werenโt even listed as liabilities in the balance sheet documents provided in the bankruptcy court filing despite what we know to be around $8.9 billion now. Now we can see that FTX never had really backed or properly accounted for the bitcoin and other crypto assets that customers were holding on their platform.
It was all a web of misallocated capital, leverage and the moving of customer funds around to try and keep the confidence game going and the two entities afloat.
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This concludes an excerpt from โThe FTX Ponzi: Uncovering The Largest Fraud In Crypto History.โ To read and download the full 30-page report, follow this link .