FTX, one of the world’s largest cryptocurrency exchanges, suffered a run on its deposits and, teetered on the verge of complete collapse, just days after a report questioned the financial stability of the company.
Crypto speculators on November 5 pulled $5 billion from the exchange, which is widely used for purchasing and storing cryptocurrencies, FTX Founder and CEO Sam Bankman-Fried revealed. As the rush for the exits continued, three days later FTX stopped processing withdrawals.
FTX then sought a financial lifeline, quickly arranging to be taken over by Binance, another leading crypto-exchange, only to see the deal fall apart after Binance said it had uncovered “mishandled customer funds.” The Wall Street Journal reported that FTX had lent more than half of its customers’ assets, a reported $10 billion, to fund risky bets by its sister trading firm, Alameda Research.
In a Tweet, FTX founder and CEO Sam Bankman-Fried said, “I’m sorry,” adding, “I f***ed up.”
The run on FTX began after crypto publication CoinDesk reported details of a leaked balance sheet that uncovered Alameda Research’s financial instability. The report revealed much of Alameda’s assets were in a cryptocurrency called FTT, which FTX had invented for traders to use on its platform. The price of FTT sank more than 60 percent after Binance announced it was selling its FTT holdings, triggering the rush on deposits at FTX.
FTX is among the highest profile cryptocurrency players. It has spent heavily to market itself, hiring sports legends as endorsers, including Tom Brady and Stephen Curry, purchasing the naming rights to the Miami Heat’s arena, and arranging for Major League Baseball umpires to wear FTX patches on their uniforms.