Implosion of FTX and its corporate sibling, trading firm Alameda Research
Got burnt again!
Table of Contents
FTX, one of the top crypto exchange, has collapsed in November 2022. There were some early rumors that I came across in a Telegram group before everything spiralled out of control. Out of caution, I had removed most of my assets from FTX, but left a few hundred USDC to DCA into the FTT token, thinking the rumors might be unfounded.
I also had a sizable amount of FTT tokens built up over the last few months via DCA. When the rumors about their insolvency first started, FTT dropped about 10% and I continued to held on. By now (mid November 2022), I think they can be written off as total losses already.
After Celsius, Finblox, Hodlnaut, Vauld, and Zipmex, I am starting to lose count of the number of times I have been burnt.
Thankfully, crypto was never a major portion of my assets.
FTX filed for bankruptcy on 11 November 2022, leaving an estimated 1 million customers and other investors facing losses in the billions of dollars.
17 Nov 2022: FTX Statement and FAQs
“It is apparent from this investment that perhaps our belief in the actions, judgment and leadership of Sam Bankman-Fried, formed from our interactions with him and views expressed in our discussions with others, would appear to have been misplaced”
Temasek decided to write off US$275 million (S$376.8 million) as well, due to their investment rounds into FTX.
It shared that it invested US$210 million in FTX International for a minority stake of about 1 per cent, and US$65 million for a minority stake of about 1.5 per cent in FTX US. This was across two funding rounds from October 2021 to January this year.
In its statement, Temasek also shed light on its due diligence process prior to its investment in FTX.
“Similar to all investments, we conducted an extensive due diligence process on FTX, which took approximately eight months from February to October 2021,” it said.
“During this time, we reviewed FTX’s audited financial statement, which showed it to be profitable. In addition, our due diligence efforts focused on the associated regulatory risk with crypto financial market service providers, particularly licensing and regulatory compliance and cybersecurity.
“Advice from external legal and cybersecurity specialists in key jurisdictions was sought, with legal and regulatory review done for the investments.”
“Separately, we also gathered qualitative feedback on the company and management team based on interviews with people familiar with the company, including employees, industry participants and other investors,” it said.
“Post investment, we continued to engage management on business strategy and monitor performance. We recognise that while our due diligence processes may mitigate certain risks, it is not practicable to eliminate all risks.”
Statement by Monetary Authority of Singapore (MAS)
- Cryptocurrency exchange FTX was not placed on the Monetary Authority of Singapore’s (MAS) investor alert list as it was not actively soliciting users in Singapore [21 Nov 2022]
- MAS also clarified that it was not possible to protect users in Singapore who dealt with FTX, such as ringfencing assets or ensuring that FTX backed its assets with reserves. MAS cannot do this as FTX is not licensed by MAS and operates offshore.
- “A further misconception is that if Singapore investors’ assets in FTX had been parked in Quoine, an FTX local subsidiary, they would have been protected. This is not so. Quoine, like other overseas subsidiaries of FTX, has been included in the US bankruptcy proceedings and has halted withdrawals.”
- MAS said that even if a crypto exchange is licensed in Singapore, it would currently only be regulated to address money-laundering risks, not to protect investors.
Crypto exchange AAX suspended activity, citing a scheduled upgrade that had been delayed by turbulent markets.
The failure of a third-party partner means services will be delayed for as long as 10 days, the Hong Kong-based company said Sunday.
“Withdrawals have been suspended to avoid fraud and exploitation. AAX will continue our best efforts to resume regular operations for all users within 7-10 days to ensure the utmost accuracy.”
Gemini suspended and paused withdrawals from its yield-earning program Gemini Earn on 16 November 2022, shaking users’ confidence in the exchange.
The exchange subsequently suffered $485M of outflows in 24 hours on 17 November 2022.
There was a brief outage, and Gemini later tweeted that:
Gemini exchange fully back online; all customer funds held on the Gemini exchange are held 1:1 and available for withdrawal at any time.
The lending unit of crypto investment bank Genesis Global Trading, which powered the Gemini Earn program for Gemini, announced that it was suspending customer redemptions citing “extreme market dislocation” and “loss of industry confidence caused by the FTX implosion.”
The Monetary Authority of Singapore (MAS) had in late June granted in-principle approvals to Genesis Asia Pacific, the Singapore arm of the company.
Reported in ChannelNewsAsia:
In a circular on Nov 11 from EY - Hodlnaut’s interim judicial managers - it said that prior to EY’s appointment, about 25 per cent of Hodlnaut’s assets were deployed on centralised exchanges.
About 71.8 per cent of these digital assets deployed by Hodlnaut on centralised exchanges were held with FTX, with an estimated market value of S$18.47 million.
Before the announcement of FTX’s collapse, the interim judicial managers attempted to withdraw the assets from FTX but it could not be processed. When EY contacted FTX several times to escalate the matter, no responsed was received except for an automated reply.
Liquid Global, which was bought by crypto exchange FTX earlier this year, said it is halting all withdrawals (fiat or cryptocurrency) after FTX filed for Chapter 11 bankruptcy in the U.S.
Statements by various crypto companies in the aftermath
Various crypto companies released statements on their exposure to FTX, FTT, proof-of-reserves, and transparency audit measures in place to reassure worried clients.
AAX said it had no financial exposure to FTX or its affiliates. It stores a “substantial amount” of its assets in cold wallets and doesn’t lend out user funds to venture activities.
We just wanted to let you know that Bitstamp has no exposure to FTX or Alameda Research.
13 November 2022: some contents in email from Bitstamp
All our customers’ and institutional clients’ funds are:
- Always safe and held separately from corporate funds.
- Held 1:1 in custody or in bank accounts, with market-leading crime insurance.
- Never lent out or otherwise repurposed without customers’ instruction.
9 November 2022: Email from Cake DeFi
We want to assure you that Cake DeFi is in no way affected by it.
Here is why we are protected:
- We have no significant exposure to outside parties
- Our user’s funds are protected and not used as operational funds
- Our treasury is mostly in fiat and will secure the company for another 5-8 years
Lending assets with institutional partners have been called back. The funds can all be accounted for at the following addresses:
- BTC lending reserves: 3HRPnc4SddsFjrLVTfuTZJ2kQhdyCaHT4G
- ETH, USDC and USDT lending reserves: 0x8b802fa7b71ea532187e432d9b87d24cc904243a
Email on 12 November 2022:
How we keep your funds safe:
- Healthy Financials: Our public, audited financials confirm our financial strength and ample liquidity — we largely hold our assets in USD. We ended Q3 with $5.6 billion in total available USD resources, including $5 billion in cash and cash equivalents.
- We hold your Assets 1:1: Coinbase holds customer assets 1:1, and we won’t lend those assets without your consent. This means funds are available to our customers at any time.
- Transparent: We are the largest publicly traded crypto exchange in the world, and we’ve been around for a long time, serving customers for over 10 years. Our financial statements are public and released quarterly.
- U.S. Based: Coinbase is based and incorporated in the U.S. We are seeking to work within the U.S. system, because we believe that transparency and trust are essential.
- Your Funds, Your Choice: Coinbase doesn’t use, or lend, your assets without your permission. Also, we offer one of the most secure and multifaceted risk management programs designed to protect our customers' assets.
- Industry-Leading Security: The technology that powers our platform was developed with industry-leading security and encryption at its core. Our security team is constantly working to make sure you and your assets are protected from emerging threats.
17 November 2022: contents of email from Yusho Liu and Gerry Eng, the co-founders of Coinhako
- business and operations remain operational and unaffected
- Coinhako has not extended any loans to FTX or Alameda Research
- Coinhako does not facilitate any leverage trading on the platform. All trades with Coinhako are required to be pre-funded and/or fully collateralized which ensures that credit default risk (if any) is kept to an absolute minimum.
15 November 2022: Email from Gemini
- For the avoidance of doubt, Gemini has no exposure to FTT tokens or Alameda and no material exposure to FTX.
- Gemini is a full-reserve exchange and custodian. This means that all customer funds held on Gemini are held 1:1 and available for withdrawal at any time.
- Gemini holds customer fiat currency in accounts that are segregated from our business, operating, and reserve bank accounts established specifically for the benefit of Gemini customers.We do not do anything with your fiat funds unless explicitly authorized and directed to do so by you.
- Gemini holds customer digital assets in accounts that are segregated from our assets. We do not do anything with your digital assets unless explicitly authorized and directed to do so by you.
12 November 2022: Email from Haru Invest
Haru Invest has been closely monitoring the recent volatile market situation and has been making immediate actions based on our internal risk management guidelines.
As a part of our risk management, Haru Invest has detected risk with FTX exchange before it spread and pulled all assets that were being managed on FTX.
During this process, there was no loss and was not impacted at all by the FTX exchange and the price drops in FTT tokens. To assure you, we have re-allocated assets only on exchanges with Proof of Reserve or posting guidelines regarding Proof of Reserve.
9 November 2022: Email from Haru Invest
- We do not rely on other entities. Haru Invest manages our members’ assets independently.
Received email message from Adrian Przelozny (CEO and Co-founder) of Independent Reserve on 17 Nov 2022.
- Independent Reserve has no exposure to FTX, Alameda Research, or the FTT token. As such, there is no impact to our customers from recent events.
- Independent Reserve is a pure orderbook exchange. This means that we provide a platform for investors to trade cryptocurrency amongst each other. Our revenue comes from charging a small fee on each trade.
- We will never lend, trade, use or reinvest your assets without your knowledge.
We would like to assure you that we:
- Have never engaged in any lending, borrowing or rehypothecation activities (i.e. pledging assets as collateral for debt).
- Maintain sufficient liquidity of our customers' assets to meet their obligations.
- Have all our customer assets (in both fiat currency and crypto) segregated from our proprietary assets.
- Have no debt on our balance sheet.
- Maintain 1:1 reserves of all client assets.
- Store the majority of our client assets in offline cold storage vaults.
- Have undergone an external audit in Singapore as required by MAS. The audit includes an independent assessment of the controls and compliance pertaining to our treatment of client assets in both fiat currency and crypto.
- Have voluntarily undergone multiple financial audits in Australia.
- Are ISO 27001 certified as assurance of our processes and security protocols.
We are currently working on producing our Proof of Reserves (PoR), that ensures Independent Reserve holds the assets we claim to hold on behalf of our clients. We will share the details as soon as they are available.
Kraken shares that Proof of Reserves audits have been conducted for the transparency and peace of mind of clients.
Blog post: https://blog.kraken.com/post/16139/how-kraken-continues-to-lead-the-way-in-transparency-and-trust/
- Kraken has no exposure to Alameda Research and we hold about 9,000 FTT tokens on the FTX exchange. We have not listed the FTT token on our spot or futures exchanges and Kraken is not affected by the recent FTX news in any material way.
- We hired a global accounting firm to produce two Proof of Reserve audits in 2022, and began regular audits in 2014
- Kraken clients can verify their balance from the audits within their Kraken account
We promise our users that, just like in the past, we would never misappropriate user funds and we will ensure full transparency. KuCoin will always guarantee 1:1 withdrawal. We will release Merkle tree proof-of-reserves or POF in about one month
Email on 12 November 2022: KuCoin is working on the Merkle-tree proof-of-reserves. The third-party auditor Armanino LLP, a leading audit firm requires about one month to complete the audit and KuCoin will publish the proof in early December.
KuCoin also shared details of their hot and cold wallet addresses in a blog article: Transparency and Trust
On 27 December 2022, Midas.Investments sent out an email announcing the closure down of the platform as a fixed yield CeFi platform with a 50 million deficit on their books. Many clients are set for a loss.
In the spring of 2022, the Midas DeFi portfolio suffered a cumulative loss of 50 million dollars (20% of $250 million AUM). After Celsius and FTX events, the platform experienced over 60% of AUM being withdrawn, creating a large asset deficit. Based on this situation and current CeFi market conditions, we have reached the difficult decision to close the platform.
More details on our Midas.Investment page
16 Nov 2022: Midas presents the Proof of Liquidity, revealing addresses for $91 mil AUM (out of $145 mil) and the decomposition across other parts of the portfolio.
Midas team is targeting 3rd party audit by the end of the year to verify the remaining assets without exposing their wallets to additional systematic risks.
We want to assure you that we have no exposure to FTX/Alameda and your digital assets are safe and secure at Nexo
Extract from email from Nexo on 14 November 2022:
- $0 Exposure to FTX/Alameda and Their Affiliates
- We proactively safeguarded all funds by withdrawing our entire balances from the FTX exchange, as evidenced by on-chain data.
- We also liquidated a small loan to Alameda (<0.5% оf our assets), resulting in 100% principal recovery and $0 losses for Nexo.
- 100%, Fully-backed Reserves
- Our reserves are verified in real time by a very reputable, independent third party – PCAOB-certified auditor and leading US accounting firm Armanino LLP
- $0 Lent to Failed Institutions
- Nexo had no exposure to UST/Luna, Three Arrows Capital, Celsius, Babel, Hodlnaut, struggling crypto miners, etc.
- The NEXO Token Represents Less than 10% of Assets
- the NEXO Token makes up less than 10% of our group’s assets and we have never borrowed using it as collateral
Contents from OKX email on 13 Nov 2022:
- We don’t trade your funds: OKX does not lend or trade customer assets nor company assets under any circumstance. We don’t operate as a hedge fund.
- We operate on full reserves: You can verify part of our reserves on Nansen while we work to publish a full proof-of-reserve audit in the next 30 days.
- We custody quality assets: The reserves listed on the Nansen dashboard are made up of 98% high quality assets (top 5 tokens by market capitalization). This helps us minimize risk in our treasury or balance sheet.
- We store funds with maximum safety: Most of these reserves haven’t moved since September 2021. That’s because we keep our customers’ funds safe in cold wallets, for maximum safety.
- We don’t use OKB for leverage: OKB is a utility token that helps customers unlock more value on the OKX platform. We DO NOT use it for leverage or collateral.
- OKX self hosted wallet: We are believers of “not your keys, not your crypto”. This is one of the reasons why we created OKX self hosted wallet so you can easily transfer funds between the OKX exchange and OKX self custody wallet where you are in complete control of your crypto.
OSL CEO Wayne Trench’s update message to clients and partners on the FTX Collapse:
OSL has had zero impact from this event, nor did we have any impact from the Luna/3AC related events earlier this year.
Email from Revolut on 17 November 2022:
Any cryptoassets you hold with Revolut are safe and held with our trusted custodians, who are fully licensed to provide cryptocurrency custody services.
10 November 2022: Email from Stablehouse
We’d like to reach out to assure you that Stablehouse has no direct exposure to either FTX or Alameda. However, due to the ongoing disruptions with FTX, new deposits and the purchasing and sales of FTT tokens are currently paused on our platform. Users holding FTT tokens can transfer these off the platform or leave them in their Stablehouse wallet.
14 December 2022: Email from Stablehouse
First and foremost, Stablehouse has not been impacted by recent events. We have had ZERO exposure to FTX, FTT token, Alameda, Genesis, Gemini, or BlockFi.
Your assets have been and continue to be safe. And you can withdraw them at any time, per our Terms and Conditions.
I agree with the following analysis by Stablehouse:
The risk-reward profile of ‘crypto yield’ is not attractive anymore. When US Treasuries yield north of 3% and regulated public market corporate bonds trade close to 5%, the risk-reward profile of ‘crypto yield’ offering is no longer a value-add to our investors.
Stablehouse has decided to phase out the ‘yield’ product in favor of alternative investment opportunities. In the meantime, Stablehouse will continue to pay a reduced yield of 3% on stables and 2% on BTC/ETH as a sign of appreciation.
Note this is only for existing clients. The reduced yield will go into effect at 23:59 UTC on the 21st of December 2022.
Email from Tokenize Xchange on 14 November 2022:
- Tokenize has no exposure to the FTT Token nor outstanding loans to FTX or its associated businesses.
- Tokenize’s own proprietary Token, TKX, is not used as collateral for loans and has no exposure to debt.