Here Is What Lead To The Collapse Of FTX Crypto Exchange

Here Is What Lead To The Collapse Of FTX Crypto Exchange.

As we all know, Binance and FTX 2 of the biggest crypto exchanges, gave a mind-blowing news on Twitter yesterday with  Binance CEO Changpeng Zhao tweeting he had penned a nonbinding acquisition deal with FTX.

A lawyer who goes by the pseudonym @wassielawyer tells his 16.5K Followers about the FTX CEO Bankman-Fried decision.

SBF Indeed Lending Out Customers Funds to Other Parties

As part of his long-winded tweet, the Lawyer listed a number of options that SBF could choose from.

“These were the options open to SBF: (a) seek emergency debt financing, (b) seek new money investment, (c) liquidate assets and/or (d) buy time..,” he tweeted. 

Among those options, SBF “has chosen to seek a bailout from Binance – the very party that has triggered the bank run in the first place.” This suggests that FTX indeed lent out customer funds to third parties, according to him.

Read More: Here’s The Reason Why Bitcoin Price Drop Today 

In @wassielawyer’s view Alameda is most likely. This implies, as he speculated earlier, that FTX was using a fractional reserve model and could not handle withdrawals as a result of the bank run that CZ initiated against FTX. To meet these bank runs, FTX had to unwind its Alameda loans.

“Alameda itself did not have the liquidity to return the funds to FTX, thus leading to it liquidating whatever liquid assets it could and returning whatever it could so that FTX could try to continue to meet the withdrawals,” @wassielawyer explained.

However, this was not enough for the customer to rebuild confidence – deposits were not being made, only withdrawals were occurring. For the cash outflows to be met, some sort of external third party funding had to be obtained. 

Instead of seeking financing from any other party or buying more time by throttling withdrawals or applying for a moratorium, SBF bowed to Binance.

FTX Seems had a Massive Hole in Its Balance Sheet 

The lawyer was of the opinion that FTX was in such a deep hole that a swingline was not the answer, but a full-on rescue package was the solution.

As rescue financing would have been incredibly expensive, SBF did not expect FTX to be able to cover those costs, nor did SBF believe buying time through a Chapter 11 process would have made any difference, according to him.

Read More: Binance Signed a Nonbinding Agreement to Acquire FTX 

“The conclusion? FTX must have had a massive hole in its balance sheet (likely Alameda) that could not be plugged by other financiers which forced SBF to kiss the ring. But what now?. CZ is only buying FTX which means the liability likely owing from Alameda to FTX remains.” he tweeted.

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Jamilatul Mahmudah

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