Restarting FTX - Myth or Reality?
$10 million per week is leaving FTX to pay for the bankruptcy legal fees!
Between February 1st to April 30th, FTX under the leadership of new CEO John Ray III, paid $121.8 million in legal fees. Depositors who have lost billions are not getting anything.
Due to the massive costs of FTX’s bankruptcy, some clients are asking for a re-launch of the exchange, dubbed FTX 2.0. But how realistic is that and what made FTX so special to become one of the most profitable crypto companies?
FTX seemed to have “super-powers” nobody was able to replicate:
1. Acceptance of a wide range of collateral
2. Super fast & efficient fiat-crypto global onramps
3. Amazing liquidity for many perpetual
4. High leverage
5. Borrowing & lending engine offering high rates
6. Auto liquidation that always worked
How was all of this possible……?
Back in 2019, FTX seemed to come out of nowhere and managed to establish itself as the most competitive exchange.
Later on, we learned how all of that was possible: it turns out FTX was a MASSIVE SCAM, supported by Alameda Research’s infinite balance sheet, made up from client deposits.
Let’s look into the “super-powers”:
1. FTX allowed the use of highly illiquid tokens as collateral. Tokens nobody else would touch were magically transformed as collateral to get fire-power & leverage to trade on the exchange. This was “possible” because Alameda was the counterparty of last resort & could always step in. Volume on FTX was actually “fictitious”, making the exchange look more profitable.
2. FTX was able to move massive amounts of money in and out quickly, like they had a bank partner no one knew how to replicate. That was due to a fake company called “North Dimension Inc”, where FTX set up a fake tech website and claimed to be a bulk electronics dealer. The banking relationships were based on fraud.
3. FTX seemed to have liquidity no one could match. It’s because Alameda stepped in on every trade with their unlimited credit. Alameda was losing money like crazy to make FTX liquid and let people trade large sizes that no other exchange could offer.
4. FTX didn’t have proper risk limit levels for max leverage, because Alameda was absorbing every loss. Instead of growing an insurance fund, FTX allowed for unrealistic leverage.
5. Since Alameda was the key borrower, willing to pay high rates, FTX could offer the most competitive lending rates of 8% and higher.
6. FTX didn’t liquidate positions until the last moment because Alameda was taking the hit.
It’s easy to think that the restart of FTX will make another profitable business, but their “super-powers” and competitive edge, were due to #Alameda Research & their massive balance sheet all made of from clients’ #deposits.
#FTX was a MASSIVE SCAM abusing client deposits, all enabled by Alameda’s infinite liquidity that came from client deposits.
#Liquidity is key for an #exchange, but if there is no trust, the restart will never work.