Sam Bankman-Fried explained the reasons for FTX’s collapse in his new letter to employees

time:2022-11-23 09:37 source:Internet

FTX founder Sam Bankman-Fried apologized to former colleagues and explained why the crypto exchange failed.According to Bankman-Fried, it all started with the market crash in the spring, followed by “drying up” loans and massive customer withdrawals. According to the letter, poor margin management and inadequate risk control also contributed to the bankruptcy.“I never planned for this to happen. I didn’t fully realize the size of the margin position, nor did I realize the magnitude of the risk associated with a hypercorrelated collapse. Loans and secondary sales were usually used for business reinvestment, including the buyout of Binance shares, not for large amounts of personal consumption,” he said.According to the former exchange chief, FTX had about $60 billion in collateral and $2 billion in liabilities this spring, but the market crash cut the value of the collateral in half. The depletion of credit meant that FTX’s collateral became valued at about $25 billion and liabilities jumped to $8 billion.In November, the value of the collateral dropped another 50%.According to Bankman-Fried, massive withdrawals from the accounts eventually reduced the collateral to $9 billion.“As we frantically pieced everything together, it became clear that the position was more than the administrator/users were displaying because of old fiat deposits before FTX had bank accounts,” he added.However, he did not comment in any way on FTX customer funds transfers in the form of loans to his trading subsidiary, Alameda Research. He also did not explain why customer funds were secured with illiquid tokens.In his letter, he hinted that he was forced to file for bankruptcy protection.“Because of desperation, there has been strong coordinated pressure to declare bankruptcy for all FTX – even solvent entities – despite the claims of other jurisdictions. We probably could have raised significant funding; the potential interest of billions of dollars in funding came about eight minutes after I signed the Chapter 11 documents. I believe there are billions of dollars of genuine interest from new investors who could go to help clients. But I can’t promise you anything will happen because it’s not my choice,” he concluded.
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