The crypto exchange FTX collapsed after documents revealed that the company had been using customer funds to make risky loans. The collapse was caused by a token called FTT, which was effectively a share in FTX that the company issued to itself. Customers were promised that FTX would buy back the tokens using a portion of its profits.
However, the documents leaked to CoinDesk showed that the company’s hedge fund, Alameda, was using the FTT tokens to make risky loans. This prompted Binance, a major holder of FTT, to sell its holdings, causing a run on the exchange as other customers withdrew their funds.
The collapse of FTX highlights the risks of investing in crypto exchanges. Customers should be aware of how their funds are being used and should be able to withdraw their money at any time.
FTX, a cryptocurrency exchange, collapsed after it was revealed that the company had been using customer funds to trade and had lost $8 billion.
The collapse was due to deeper issues with the company’s link to Alameda, an exchange that did not have the ability to accept wire transfers. This meant that customers would send money to Alameda, and FTX would credit their accounts. However, the actual money was never passed on.
Alameda had been keeping, trading, and losing customer funds for three years before the collapse. When the run on the exchange started, FTX couldn’t find the money it thought it had, because it had never taken it.
This led to a loss of confidence in the company, and the collapse of the exchange.
The fall of FTX was a long time coming. The company was a mess, with little corporate control and no trustworthy financial information. Ray, the bankruptcy specialist, said he had never seen such a complete failure of a company. FTX’s collapse was inevitable, and it’s a wonder it took as long as it did.
