FTX was one of the leading crypto platforms. However, they have now declared bankruptcy and gone out of business. This article will discuss, "What Caused The FTX Collapse? The Downfall of FTX." Let's get started.
What Caused The FTX Collapse?
As abrupt as the FTX collapse may have seemed, its causes can be traced back months, when SBF intervened to support other cryptocurrency firms as the crypto market crashed.
According to a report, which cited three people familiar with the company's operations, some of those trades involving SBF's trading company, Alameda Research, resulted in a string of losses that ultimately proved to be his downfall.
After CoinDesk reported that Alameda Research, which has close ties to FTX, has a significant quantity of illliquid assets, concerns around liquidity issues at FTX began to develop early this month.
The majority of the holdings, including FTX's native token FTT, were in illliquid assets, hence there was not enough money to cash out in an emergency.
Meanwhile, Binance CEO CZ, whose relationship had sourced with SBF over the past months, announced that the exchange, which held 23 million FTX tokens worth about $529 million at the time, was going to liquidate any remaining FTT on its books.
The news further deteriorated confidence in FTX, leading to a surge in withdrawals. According to the Reuters report, FTX users rushed to withdraw $6 billion in crypto tokens in just 72 hours, while daily withdrawals normally totaled tens of millions of dollars.
The pace of withdrawals made the situation dire. After failing to find a backer or sell other assets on short notice, SBF contacted CZ, asking for help.
CZ later confirmed that SBF had called him. “FTX asked for our help. There is a significant liquidity crunch. To protect users, we signed a non-binding LOI, intending to fully acquire FTX com,” he said in a tweet.
However, in later, Binance walked away from the deal, citing that the "issues are beyond our control or ability to help,"
It remains to be seen just how big the hole is in FTX's balances but some estimates have put this figure to $8 billion.
What Caused The FTX Collapse? The Downfall of FTX - Hopefully, this article can help you to get some knowledge.
