Sam Bankman-Fried’s Written Testimony Notes Dec 12, 2022, is part of
This is part 5 of 11.
What Went Wrong
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Alameda Research became insolvent when the economic environment changed (see here)
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Failures of FTX’s internal controls (see here)
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Binance’s role in FTX’ collapse.
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I won’t belabor this point, because at the end of the day I fucked up. I will note, briefly, the following:
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Alameda’s assets fell precipitously in value beginning on Nov. 6th 2022, hours after Binance’s CEO (CZ) tweeted his intent to sell his holdings in FTT
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The ‘run on the bank’ was triggered by the same tweet by Binance’s CEO.
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That tweet followed what I believe to be a month of sustained negative PR on FTX largely being driven by Binance.
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Alameda’s hedges failed in November 2022 because the crash was specific to its hedges, triggered by the same PR campaign by CZ.
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Around November 8th, we agreed with CZ on a deal that would have Binance acquire FTX at a small fraction of its value a week earlier.
- We signed an LOI that prevented us from talking to other potential investors as long as the negotiations with Binance were ongoing.
- During that time, I received serious expressions of interest from multiple potential investors who represented billions in capital that could have gone to customers. I was inhibited in responding by the LOI.
- A day later, Binance announced they were not going to go through with the deal. We learned about them backing out from their Twitter post.
- As best I can tell, Binance never intended to go through with the deal.
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Roughly ~$3b of capital was used buying Binance’s stake in FTX, because Binance’s equity ownership was causing KYC issues for FTX: Binance was not cooperative in supplying information about CZ to regulatory bodies FTX was applying for licensure with.
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A few months ago, FTX was generally considered to be Binance’s most significant competitor globally. After the crash, Binance has averaged roughly 70% of global cryptocurrency volume, up from roughly 50% before.
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There are reports that, due to its increase in market share following FTX’s collapse, Binance might be able to avoid regulatory enforcement:
https://www.reuters.com/article/fintech-crypto-binance-doj-idCAKBN2SW0ZY
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There is much more to say about Binance, its role in the cryptocurrency ecosystem, and its relationship with FTX, but this is neither the place nor the time for it.
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Continue reading here.