three questions about the bankruptcy of the FTX platform which plunges the sector into crisis

The debacle, in a few days. FTX, the second largest cryptocurrency platform in the world, went bankrupt on Friday, November 11, plunging this very little regulated sector into turmoil. The group was valued at some 32 billion dollars (30 billion euros). According to the American media, the fortune of its ousted boss, Sam Bankman-Fried, strong of some 16 billion dollars, evaporated in a few days.

Franceinfo takes stock of this crash, already compared to that of Lehman Brothers, the bank at the origin of the 2008 financial crisis.

What is FTX?

FTX is a platform that allows, like its competitor Binance, to exchange cryptocurrencies against other digital or traditional currencies. Just over a week ago, the group was considered the second largest cryptocurrency platform in the world.

Until Friday, it was run from the Bahamas, where its headquarters are, by Sam Bankman-Fried, known as “SBF”. The 30-year-old entrepreneur was a privileged interlocutor of the regulators of this new sector of activity and a major donor to the Democratic Party in the United States.

FTX enjoyed the support of many American personalities. The ex-star couple formed by the American football player Tom Brady and the model Gisèle Bündchen had invested in the company and had promoted it, like the former basketball player Shaquille O’Neal. The Miami Heat NBA team had renamed its venue FTX Arena.

Why did the company go under?

The meltdown began on Nov. 2 when news reports revealed that the Alameda Research fund, owned by Sam Bankman-Fried, was investing in crypto-assets issued by in a risky financial arrangement that carries the risk of major conflicts of interest. . Based on an internal document, the CoinDesk* site was surprised that Alameda Research’s assets are largely denominated in FTT, a cryptocurrency used only on the FTX platform.

Four days later, FTX competitor Binance announces plans to sell its FTT tokens “because of recent revelations”. This decision causes the price of this cryptocurrency to collapse and many customers rush to sell their assets stored on the FTX platform. Faced with the influx, FTX is quickly unable to meet these withdrawal requests, due to lack of money.

At first, Binance came to the rescue of its competitor, offering to buy it out. But the company eventually waived November 9*, after an audit, invoking a “mismanagement” client capital and an ongoing investigation by US authorities. The move dealt the deathblow to FTX, which filed for bankruptcy on November 11. “SBF” let go of the reins and the business was handed over to liquidation specialist John J. Ray III.

This fall was accompanied on Saturday by a computer attack. Of the “unauthorized transactions“have been observed, said Ryne Miller, chief legal officer of FTX, on Twitter on Saturday morning. According to the cryptocurrency analysis firm Elliptic, “477 million dollars would have been stolen”.

What are the consequences ?

In the world of cryptocurrencies, some players are quick to compare the crash of FTX to that of Lehman Brothers, the bank whose bankruptcy triggered the 2008 financial crisis. Changpeng Zhao, the boss of Binance, estimated that this was a “relevant comparison”*. “It’s disappointing to see technology created in response to the collapse of Lehman Brothers in 2008 producing its own version of that event”, reacted Jeremy Allaire*CEO of Circle, another player in the sector.

It seems very unlikely that FTX will be able to repay all of its creditors. “A lot of average users will lose their money, so it will be catastrophic for the ecosystem in the short term”, estimates on CoinDesk * Jay Jog, co-founder of Sei Network, another company in the sector. He fears a “loss of trustworthy” in cryptocurrencies from both institutional and individual investors.

After this spectacular bankruptcy, the small world of cryptocurrencies is also preparing for a regulatory tightening. FTX is under investigation by the Securities Exchange Commission and the Department of Justice in New York, according to the New York Times* citing sources familiar with the investigation.

* All links marked with an asterisk are in English

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