Why FTX collapsed: what happened in the week of its failure

Transcript

it is time to dive into the Mayhem of FTX binance and everything else going on in this space we're going to tell you a little bit of a story and I know we don't typically talk markets we actually don't even really talk like crypto I guess you know we try to focus three business use cases Etc but I mean this one's a big one and it's impacting the entire industry and you're probably wondering what's going on in the markets and so I think we just need to do a little bit of Justice here we need to explain a little bit about what's happening and uh just get everyone up to speed how's that sound Jay what do you think I think that's very helpful for everybody okay so let's start with just a little bit of a background sort of figure in the details what's going on Sam makeman

freed um the sort of poster boy of crypto you know billionaire at uh you know before he was age 30. uh he did that basically arbitraging Bitcoin uh and its price uh with Japan I don't know years ago anyway from that he's kind of either you know your boy genius and uh this amazing Financial Trader and he started a hedge fund and that hedge fund uh was making a bunch of money doing some crazy trading and whatever else he was doing and they realized that he needed more Capital if he wanted to make more money he needed more Capital so they started FTX FTX became the third biggest crypto Exchange in the world uh and just like blew up over the last few years they were sponsoring Tom Brady they sponsor I

forget what an arena is but some Arena Sports Arena in the US they became kind of the darling of of crypto over the last few years well it turns out that there was a lot of shady stuff going on between Almeida which is his hedge fund and FTX and who we thought Sam bakeman freed was is not actually who he is um and so that brings us to the last week so what happened here was FTX had created a token called ftt and this was sort of like their utility token of their exchange it's actually a pretty cool idea um you know binance does this as well a few other exchanges do this but what and I guess what happens here is um the ftt token allows users to like

get discounts and to access certain features inside the app Etc well that token ended up gaining a lot of market cap and was worth a lot of value and so they started using that as collateral and as essentially like lending it out to get loans to have more Capital to do their trading and things that they do for Almeida but what they started to do was some shady stuff between Almeida and FTX where they were basically giving each other the money and duplicating and making it look like they had all this this collateral and all these assets but they didn't it was all basically just this one token which is essentially all owned by Almeida and FTX so anyway where the story really kind of comes into fruition here is last week um CZ the founder of binance they invest

in FTX many years ago when they pulled out of it they actually uh were given ftt tokens and they had two billion dollars worth of this stuff well binance got uh supposedly finance and CZ heard that there was some stuff going on with liquidity and actually Sam bakeman freed was doing some shady stuff between their two companies and he was like well ftt is not going to make it we need to get rid of this so he tweeted out uh was it November 6 and said you know due to recent news things that we've heard of we are going to start to basically dump all of our ftt two billion dollars worth well that's a lot of a lot of liquidity I mean they wouldn't even be able to sell that much but they wanted to start getting rid of it and as a result when

they started doing that the price of that token just tank completely I think it was like 35 in like one day now Sam bankman freed came out and tweeted the next day and said a competitor is trying to go after us with false rumors FTX is fine assets are fine well it turns out uh he ended up deleting that not too long after uh because that was another true turns out everything's not fine and what happens uh not too long after is FTX stops withdrawals from their exchange so this started to give us the Vibes of Terra Luna the Celsius you know Vibes that happened you know a few months back and anyway then we get some weird tweets from Sam bacon freed someone is it Moon

Carl I think says can't wait for my FTX airdrop for not moving any of my funds and sand banking freed retweets that basically trying to say like it's all good just keep your funds in FTX less than a day later what comes out all of a sudden an announcement from both binance and SPF that FCX is insolvent and binance is going to bail them out and buy them and basically do it for like a dollar essentially so he was basically lying to us the whole time uh customers funds are frozen uh we don't know if they're going to get it back we'll kind of see what happens but it looked like CZ was either the darling and he was going to save crypto or he actually pulled the like craziest stunt of all time which was he bluffed that he

was going to sell these ftt tokens started selling them which made the market dump them which made FTX insolvent which made him be able to acquire them for nothing which is the most gangster move I've ever heard of or seen uh anyway turns out that's not really the case let's go to the next one CZ did address his uh his employees with a nice letter basically I'm not going to read this whole one here but basically said look let's forget about the price let's just keep building let's just keep doing what we're doing doing and we'll see where all this goes and how this plays out and ultimately you know FTX failing even if binance does buy it it is not a good thing for the industry it's not even a good thing for binance they're doing it to kind of save the industry because there are billions of

dollars of assets here that are all customers funds that are about to be lost so this is not a as much as the story has some laughter to it because it's just crazy and just like who knows what's going on ultimately there's a lot of bad that's that's coming as a result of this but anyway because nothing happens straightforward in crypto a turn of events last night we find out that binance backs out of the deal and they are no longer going to buy FTX and bail them out so now FTX is sitting there I think they owe eight billion dollars and basically all of that is client funds and so now we're wondering well what's going to happen with all these funds what's going to happen with all these assets and then out of nowhere Justin's son and if you have not been in

crypto for a while Justin sun is the founder of Tron which is a blockchain that still exists today but he was Justin's son was kind of big deal maybe like five six years ago in blockchain uh in the blockchain world he made a lot of money with Bitcoin he's a billionaire um he made a lot of money with this TRX Tron uh blockchain and um he was kind of known as a scammy dude back in the day as well but people kind of just forgot about it and now he's just does weird stuff he just kind of like copies a lot of the people in crypto it's very odd um like he started making a an algorithmic stable coin when do Quan was doing it because he wanted to be the next you know stable coin uh so anyway all of a sudden now he announces that

he's gonna buy FTX and save everyone in FTX so all of a sudden that news is swirling and then this morning we wake up and we still don't know if that's true but now all of a sudden uh SPF is putting out and looking for Investments and so he's trying to basically sell FTX to others and over this week he's trying to figure that out SPF has not said anything to anyone for the last 48 or whatever to 72 hours everyone's been wondering what's going on and all of a sudden about I don't know an hour before we went live here SPF tweets out and puts this 20 tweet thread basically just apologizing and saying a bunch of gibberish that really didn't make a whole lot of sense

um he kind of like he apologized for what he did you know he said he made a bunch of mistakes he kind of explained what those were and then oddly he starts to go if we bounce back from this here's the way that we're going to run FTX and start saying that they're going to be open and transparent and like he sounds like some like needy ex-boyfriend that like just wants you know his girlfriend or wife back or whatever and he's just like bagging I have a feeling SPF hasn't slept in like two weeks and he's just deranged there's no idea what's going on but at the end of this which is kind of interesting on the the last tweet he goes at some point I might have more to say about a particular sparring partner so to speak but you know glass houses so

for now all I'll say is this well played you won so he's basically insinuating that CZ did plan this and was actually trying to tank and make uh FCX and solvent I mean look if someone can make you insolvent you probably screwed up and you made a lot of mistakes so you can't blame CZ he saw a hole maybe and he went for it um it's tactical I guess uh I mean I guess it screws over a lot of people so was it good for the industry definitely not but it is what it is if if they were insolvent they would have I mean it was going to happen at some point right um so it is what it is uh here's my take this sucks it is really really frustrating to be trying to build

businesses in web3 in crypto and we basically have these dumbass billionaires who keep just doing ridiculous greedy um just risky things with tons of normal retail people and it sucks like I think I saw uh spf's you know net worth went from 18 billion to like 900 million so he's no longer a billionaire the guy still has 900 million dollars though right and what about all the others that now have no money and that's their investment their maybe it's their life savings it's for their kids it's to buy a house I don't know you know whatever retail people typically do with their money

um they're gone right and I've seen so many tweets of people who are just crushed from this which we saw three months ago with three Rose Capital and everything so I don't know it's just it's a [ __ ] show and it sucks and it just makes this industry look so damn bad when like we're just trying to build something that's really good and it's just if we keep [ __ ] it up and it just sucks yeah it's such a shame it's such a shame because we you know we we have so many amazing doers on this podcast who are building real utility and real value for the world but this is all the media gets hold of obviously because this is you know crazy news and it keeps on happening how many how many Black Swan

events can happen in a year that's great and the thing that is really crazy about this one is SBF he was the guy that was in DC dealing with all the Regulators for crypto trying to like lead I mean what is debatably good or bad regulation in the way that he was doing it um but now how does this make us look he's been face to face with politicians for the last year saying that crypto is the way and this is the the good you know this is the future and then he was scamming them the entire time and this tweet here by uh Rob lashner he says the whole damn point of crypto so that you don't have to say I wonder what that company is actually doing with my money that is the point yet we continue to have the essentialized exchanges that

just keep ruining the space for everybody um it's very very frustrating I mean some weird stuff happened yesterday too I just wanted before we go on this last meeting here I just want to say one more thing so you remember suzu who was the the founder of Freedom's Capital the one that kind of started this whole [ __ ] dokwan actually I guess this was probably the one that said it all the founder of of Luna that like tanked and we lost you know 40 billion dollars worth of market cap or whatever so we haven't heard from them much in the last level excuse me we haven't heard from it all since everything went down dokwan has tweeted every once in a while all of a sudden yesterday when all this [ __ ] hits the fan who starts tweeting against suzu who starts appearing on the uh up only podcast with

Kobe doe Quan all of a sudden these guys just start showing face it was just like yesterday was the weirdest day probably in the history of crypto it was just Next Level uh and gainsey tweets out here this is so funny he says calling it now Jonah Hill plays Sam in the subsequent movie made after all this [ __ ] unfolds and there's no doubt a movie comes from this this whole year 2022 is yeah just the craziest year ever and this picture of Jonah Hill is so funny because it looks identical to uh the same thing