The past two weeks have been among the most eventful in crypto’s short history. The fall of FTX marked one of most catastrophic corporate blow ups of all time, the aftershock of which will likely be felt for months to come, if not years.
The FTXplosion has already sent the first round of shockwaves rippling through the system, the result of which is mass uncertainty around the solvency of almost every centralized exchange in crypto. Proof of reserves (POR) has become the focus for users and investors, as centralized exchanges scramble to produce favorable numbers in efforts to assure customers that funds really are safu. But as we’ve seen with the now unemployed Sam Bankman-Fried, talk is cheap, and those at the helm will say anything in order to save themselves from falling victim to the same fate.
So how much collateral damage is there?
Damage Control
On November 8, despite SBF’s now deleted tweets claiming that “everything was fine”, FTX paused customer withdrawals. Following the withdrawal halt, several large exchanges engaged in crowd control in an attempt to ease the minds of their users and mitigate potential rumors of liquidity issues or insolvency…
Nov. 9
Coinbase makes claims of financial strength:
Jeremy Allaire of Circle claims “no material exposure”:
Genesis Trading also alleges limited exposure to FTX, and reported $7M in losses after hedging against market volatility:
Crypto.com dismisses accusations of financial trouble and claims minimal exposure to FTX. Promises to release an audited POR publicly:
The Block reports that Multicoin Capital had 10% of their assets under management on FTX and the funds are now stuck.
Amber group claims no exposure to FTT or Alameda, oh, except that 10% of their funds are stuck on FTX:
Wintermute states that it has funds on FTX but the amount is ‘not significant’:
Galaxy Digital reported a Q3 loss of $68.1M on Nov. 9, revealing the loss was due to $76.8M FTX exposure.
Sequoia Capital, a large early investor in FTX, discloses a $213M loss on FTX.
Nexo announces that they had withdrawn all funds prior to the halt, reports no further exposure:
Kraken claims they are not affected in ‘any material way’, and reposts the release of a full audited POR to the public:
Nov. 10
Tether freezes $46M worth of USDT held by FTX following law enforcement requests.
Binance releases a statement on transparency, shows balances of all hot and cold wallets under management. Binance plans to release a full audited report in the coming weeks.
Genesis resurfaces a day later to add to their previous claims of limited exposure to FTX. Turns out the damage was less than minimal, unless your definition of minimal is $175M…
The bad news continued as BlockFi halted withdrawals, stating that they could not continue operations as usual:
It was this day that FTX US also halted withdrawals, further highlighting the fact that Twitter promises are not always the full truth; talk is cheap.
Nov. 12
Kraken freezes accounts owned by FTX and Alameda executives:
Nov. 13
Binance announces recovery fund to assist projects affected by the collapse:
Nov. 14
Ikigai discloses that they had a “large majority” of their assets on FTX, and was only able to withdraw a portion of them:
BlockFi pauses withdrawals, stating that they “would not be able to operate as usual”.
Nov. 16
Genesis halts withdrawals after previous claims of ‘limited exposure’, yet another example of attempts to quell customer doubts in order to save face before revoking access to funds:
Genesis is a large crypto lending institution owned by a parent corporation Digital Currency Group (DCG). As per their Q3 2022 report, Genesis had roughly $2.8B in outstanding loans at the end of the quarter. The halt of withdrawals is of obvious significance considering their massive loan issuance to other crypto institutions. One direct result revealed itself just hours later, when lending partner Gemini announced a withdrawal pause for their Earn program”
According to the Wall Street Journal, Genesis sought an emergency loan of $1B from investors before halting withdrawals. Their parent company DCG has since injected $140M into the lending firm, a strange amount considering Genesis’ locked funds on FTX amount to “only” $35M more…
Coinbase doubles down on contagion fear mitigation, stating: “zero exposure to Genesis”.
Sino Capital, an early investor in FTX, discloses a ‘mid 7-figure’ loss on their FTX investments:
Crypto lender Vauld apparently has $10M worth of assets stuck on FTX, The Block reported.
Final Thoughts
Troubling information surrounding FTX’s bankruptcy surfaces hourly. The events I’ve covered happened only within the span of a week, and it’s still unclear how much collateral damage there will be following such an epic fall from “grace”. What is becoming clear is the amount of disingenuous assurances from major exchanges and lenders prior to locking user funds due to glaring liquidity issues. As a user, you must protect yourself from such calamities by taking proactive measures and not relying on empty promises, even if they come straight from a horse’s mouth. Horses are liars anyhow…
