The FTX Collapse: A Deep Dive into the Crypto Drama

hello everyone um so today's episode is about the FTX drama or I should say the FTX collapse

now and uh it's probably you know easy to say that this is the FTX Saga has been the biggest drama that crypto has

ever seen in the last decade um even surpassing that of you know I would say and it was almost like a Bollywood or a

Hollywood style uh script that was written and it was played out in two parts and I covered this in two parts in

Tamil and I'll do the same thing in English as well so it's a story about you know in this episode we'll we'll

focus on what happened between F text and binance till that point and then in the second part we'll carry forward from

that point so just as two part stories and as usual disclaimer and warning I'm not a financial advisor or investment

expert and none of my videos are for financial advice and I'm active on Twitter at the returning to London

that's my handle and not only me you can get quicker updates in crypto especially in the film in the finance sector you

can get quicker updates if you're on Twitter so let's start with the climax on part one right even when I when I

made this video in Tamil this was the point I actually stopped the part one and then part two played out after this

point so the part one the climax that we started out was um Finance was going to acquire FDX

completely so it was such a shock to everyone that the scale of the acquisition the scale of what we were

talking about is that banan's world's number one Exchange in FTX world's number two exchange and they were going

to take over or fully acquire um FTX because of a liquidity crunch that that was happening or that was

boiling over right so um it's quite significant it's a basically uh that that point in time was

a milestone moment um so what what happened like at that point the entire world was thinking that

there were basically two heroes or two main leads right one was Caesar chat fungzer which is the owner of C1 and

owner and CEO of finance.com the leading crypto exchange we've talked about him a few times in our videos is a very

influential figure in crypto and the richest crypto billionaires in the world by far even in fact uh for Elon Musk to

buy Twitter for 44 billion binance had given 500 million out of that 44 billion to Elon Musk two Pi Twitter so they also

had a hand in buying Twitter I would say so that that gives you something about the influence of this person uh in the

crypto world and in general and then Sam bankman tried SPF as he was called he's the founder and CEO of

fdx.com and that's the fastest growing crypto actions in the world it's also the number two one act crypto exchange

next only to finance and he had a lot of influence and is known for a strategy to

um you know take over other struggling crypto exchanges he's bought a lot of struggling crypto action just for small

companies and he's grown FTX into the huge entity that it is and he also manages another entity called alamada

research which again is one of the biggest um you know Center points of this

controversy we'll talk about it later as a crypto trading form right so there's always this constant

debate in crypto about people versus them uh them is like governance and governments and governing bodies and so

on right so um finance and there is an angle to it so why not an FTX there's a big history

behind it in fact in 2019 when FTX was started when SBF was launching um FTX binance was already a big exchange by

the time and seize it supported salmon invested heavily in FTX you know billions of dollars of Investments were

made at that point of time in FTX by finance and they got the ftt token which was uh fdx's own token they had a large

portion of it allocated to binance because of this reason and this became you know a big part of the uh play at a

later point in time we will talk about that as well but that is where it started that is how it started they

started as friends binance actually helped FDX to start and to grow and uh fast forward you know Finance started in

2017 uh still the leading crypto exchange by a huge March in about five years and

FTX started only in 2019 and has grown so rapidly and aggressively that they are number two is ranked Exchange in the

world so up until a few days back if you go to coin market cap or any uh listing website and see you will see FTX at

number four but that's practically because the spot trading volume spot trading revenue and the spot trading and

the derivatives trading are shown separately in most uh websites right and that's because not everyone has both the

products and but if you see FTX is number four in in both and the number two and number three are nowhere in in

sight in terms of the spot and derivatives so ah there are some exchanges which are exclusively spot and

some exchanges exclusively derivatives or do not have the volume FDX combined volume of spot and derivative make it

very clearly the number two spot in in terms of the overall volume I would say and also despite that balance is still

about 10 times the size of x f t x you know spot in derivatives combined binance is still 10 times the size of 52

but it's still probably a point of concern at some point for f for see that you know having a rapidly growing

organization another point of concern is the amount of clout that SBF had with regards to politics he was heavily

getting involved with substantial donation in the U.S midterm elections you know there's a you know this

constant debate that I talked about as a people versus government or regulating bodies and personalities like vitalik

pattern and you know these these people are seen as uh people who are on the side of people or decentralization they

are talking about crypto as a concept is about decentralization it's about giving power to the people

and SPF however has recent times sided with with the government or with the them part and because it makes

significant donations towards politics both to Democrats and Republicans like you know there are two parties of two

major parties of U.S he's been donating heavily to both sides so whoever becomes a senator who overcomes to power you

know he is still going to be enticed with them right so um it that kind of alienated him from

the rest of the crypto world because you know he was it was seen as something corrupt I would say the fact that he was

donating heavily uh for for uh his own benefits and the biggest divide started I would

say on October 19th when SPF clearly posted a crypto regulation framework or his view on crypto regulation framework

on what should be the uh digital industry standards for crypto assets right so

and you have to remember this is a man who's been siding with the U.S politics and with with people in power and

whatever he was going to propose is a crypto regulation framework was obviously going to be taken by the

lawmakers to the next step and would have become crypto regulation or probably will still become crypto

relation but what was so controversial about this crypto regulation was that he talked about it's a lengthy thread and

there is also a separate white paper on theftex.com website so which you can go and see I'll give a link to it but

primarily the problem that he's talking about is is regulating crypto so much that uh you know it he wants to take it

away from defy and make it only about centralized where everybody is trying to move to a web 3.0 or a decentralized

ecosystem and he wants to again actually get control of crypto and become more like a centralized control system so and

that's where the backlash from the crypto industry started pretty much everybody was saying that you know you

should be really ashamed of even proposing something like this you're taking everything that was done in

crypto in the last 12 years and you want to take it away completely strip it and make it go back to the the monetary

system that that it was before crypto rate so um

and it was a complete backlash I don't even think there was probably you know uh more than one percent of the crypto

industry that supported his framework or said that there is anything good about it except SBF nobody had backed that

framework or nobody said that from a crypto perspective that framework was good and

um this is the reason is because you know if you think about traditional Banking and crypto the fundamental

difference is that in case of crypto you are in total control of error it can be in total control of your assets in

crypto D5 if you hold it in non-custodial wallets unlike traditional banking where the banks control most of

your money and you can get logged out of your own money it has happened in many countries where you deposited money into

your own bank in some of the European banks for example the banks have collapsed so much that people cannot

even get their own money I mean we've seen videos about a gunman going to a bank and robbing the bank just to

withdraw his own money from his own account and he had to hold people at gunpoint to get the money out of the

bank that's how Banks can control this how much Banks can control your money in a centralized ecosystem in traditional

banking so access to decentralized financial again you know U.S apart you know the a lot of these ah decentralized

finances is available without any geographical restrictions you can transfer in near speeds and you don't

need to wait for the government or you don't need to wait for another third party they're all permissionless and

that's the main advantage and if a government wants to block your funds because you're advising opinions like in

dictatorship or in countries where there's no true democracy if the government wants to block your assets or

funds just because you're voicing a different opinion they can easily do it with traditional banking but that that's

not entirely possible in crypto and as a collective industry you know there has been events where they've blocked

scammers and hackers but that's a collective agreement between a lot of parties and not just one party deciding

that it needs to be blocked SBI framework was seen against all of this right and that's why he was riding up

with the uh the others I would say the notable flash one of the probably the the Pinnacle clashes of this was a

person called Eric foreigners in moneystead.com in his article he wrote a very critical article

about this this framework and he tore it apart literally tore it about piece by piece he exposed the fact that the

mindset that SBF was operating with um was anti-people mindset right it was he was trying to control people and by

controlling people he was trying to control their crypto as well taking them back to

um the the government structure that it was and doing so much damage this this framework The Proposal of this framework

was doing so much damage to everything that was being built for crypto till this point of time and Eric worris not

only in this article but there was also a video an AMA discussion that happened

where in the interview Eric was basically tore apart SPF and kind of exposed him um that's where we come to

the second part of the story where which is the the ftt token in this episode right there is one more part to it this

is the FTD token so ftt token while all this was going on there was a concern that was building on the f3.com the FTD

token is a utility token of FDX exchange now you can compare it with the BTR token of bit true or wrs token of

wasirex for example but with a lot more utility than that where you get trading debates trading free discount is

probably the biggest advantage that you get from derivative market trading because in derivative market trading the

trading fees for pro Traders could be in thousands of dollars so using ftt holding ftt gives them you know hundreds

and hundreds of dollars in terms of savings on a daily basis which means that Pro Traders really like the fact

that they can go and trade using this ftt token for their fees perspective and save a huge amount in the fees and it

also gave the FTX exchange lot of investment money because they were able to sell this ftt token for investment

money and make money out of it and they were able to use it as collateral borrow money from it so they were basically

using it like a like primarily like how the lunar ecosystem was using lunar token right to make money out of it

that's how they were seeing it the big difference between a token like BNB or cro with ftt is that BNB is also a

blockchain fee token right it was uh it is as part of BNB smart chain it has become a big enabler of decentralized

finance and decentralized finance Revenue so BMB is no longer just an exchange token it's no longer a

centralized token it's kind of becoming more and more on a daily basis uh at the defy token for the BNB is blockchain so

despite the brutal bar Market ftt token had not been impacted so much it was maintaining at about 25 to 30 dollars

and uh this week or in the in that week where the collapse had happened it plummeted

to about 4.5 dollars and continued to plummet and it plummeted more than 90 at one point in time so the on Ninth of

November when I was putting this this whole content together the market Capital had dropped from nearly 3.2

billion dollars to 650 million dollars and dropping so why did that happen so what what was the connection so uh this

is where the alamada research comes into picture so FTX is the crypto exchange for spot and mainly derivatives trading

and that's why their main Revenue comes from but however SPF also owned a firm called as alamata resource which is

basically a trading form now apart from the fact that he owned both FTX exchange and lamada research not much was clear

between the relationship of the two entities like how much of Alabama researches money is in FTX how much of

FTX money is in Alma results it wasn't very clear and that was a key point to understand that you know while a crypto

exchange makes its revenue from spot rating or derivative trading it should not take unnecessary risks in crypto

like a trading firm right so it it's very important to keep it separate because a crypto Exchange in in terms of

the strict principles it should never trade you know but that's not the case there's no law against it and that's

what SPF was doing so elementa research has used ftt token from FDX as a collateral a few times which is natural

they might have borrowed it or bought it and used it a collateral but it is wasn't clear the extent to which it

relied on ftt to be very precise and on 2nd of November when all this was going on the balance sheet of alamata research

was leaked coin desk and this is probably what triggered everything from that point on time and this was a very

important key article which talked about how much of the 14.6 billion dollars of Alama does assets on paper on document

was relying on ftt token which is not a stable coin which is a a liquid coin basically it could fall down any moment

is exactly the same problem that happened with Luna where it was relying on on a token whose price can fall at

any point in time right so this much of Reliance on ftt token by a trading firm on their balance sheet was completely

unexpected you know trading from which had 14.6 billion dollars a huge portion of it was FTD

tokens and not enough in stable coins so as a trading form or investment firm if people try to withdraw their assets

and stable coin at the same time the the balance sheet exposed so much of a weakness at the over Alliance on FTD

token could result in exact lunar excitation and if the ftt values started falling it's going to result in a

cascading effect or its going to result in an exact collapse similar to the Terra lunar situation so Bank Run is

what is called basically and Bank Run is a self-fulling uh prophecy it's a self-fulfilling prophecy I would say so

what is a banker Bank Run is basically you know we as a public we deposit money you know Banks and the banks then loan

the money into uh as loans and various products to the public they don't keep all the money themselves it's very clear

that they don't always maintain so if if thousand of us have put like you know one billion into the bank there will

probably never be one billion in the bank there'll probably be half a billion or maybe less than that because that's

how the market Works Bank never retains it's not like a safety deposit by the maintaining all our money but

if people want to withdraw their money there's probably enough liquidity if if a rational amount of people have a drive

money but if there is a panic in it everybody tries to withdraw money from the bank the more and more people try to

withdraw the more and more the bank will run out of liquidity and the more the bank will start collapsing so it is a

self it's a loop and all it needs is just a viable Panic I'm a spark and it will create this Loop and the banks will

start failing which is why in UK in countries like UK for example the FCA says that up to 85 000 pounds of your

money is protected in a bank and they give you guarantee that 85 000 of pure pounds can be returned but if you keep

more than that then there is no guarantee even from the bank that it can be withdrawn and this amount is much

much lesser in the other countries where if you keep money in in the bank like for example even if you keep a million

pounds you probably not even get 10 percent of that as a guarantee from bank or the government to say that you can

take the money out that's what is written in the terms and conditions this is exactly what a bank run is

and this is where finance and sees it stepped in after the number second article that

as part of exit risk manifest exit risk management learning from Luna he said that you know he was using Luna as as an

example and said we do not want to continue the risk and we want to liquidate our you know nearly 2 billion

dollars worth of ftt at the point in time this was the ftt that they had received for the funding that they gave

to FDX in 2019 if you remember where they were where they were a supporting partner or investment partner with FTD

with FTX as well as a launch right so this tokens were always with binance and he used that moment to say that I'm

going to liquidate or we're going to liquidate and it was quite clear because ftt after the number second article

there was an element of risk that started being exposed and you know there was a lunar like scenario that was

potentially possible that was pointed out all right so he said we're going to liquidate it and that kind of triggered

the bank run that kind of triggered the coindust cartel and the liquidation um tweet from CZ both of it triggered

the bank run of fifty or the collapse of ftt as a token ftt as a token and see that was probably right in in saying

that because you know the risk was clearly highlighted by the Alameda researchers League balance sheet and the

over Reliance of ftt as a token by all models such was probably never so alarmingly brought up into public life

till that point in time so and also he used the fact very clearly that you know it was it was we don't we won't pretend

to make love after Divas which means that he was talking about the regulatory framework that SBF was hiding with and

he combined both these stories into one narrative at this at this point and till this point the two stories that we were

talking about were running in parallel and this is where it started combining together and uh what happened was that

uh immediately after that point Caroline who's uh was the CEO of binance who we've now looked at you know all the

Articles after that and look how immature she is but at that point she was probably the only person who made

some a mature remarks and she said Allah research will happily um buy the ftt tokens from you at a OTC

rate of about 22 dollars that's so OT ftt was about 25 dollars and she didn't want to trigger a panic and she want to

have a OTC deal so if banance had sold privately to um to alamata Resource then there wouldn't have been a public panic

and there would have been a public Panic selling but unfortunately it was beyond repair at this point the background had

already been triggered so uh immediately from that point onwards research was sending stable coins to FTX and they

were getting millions and millions of dollars in 24 hours the amount of money that was being withdrawn out of alamata

research was about 257 million dollars that's how much money that they were selling and how much assets that they

were selling and they were drawing from protocols paying even high penalties whether like fixed deposits were being

broken so like we said the intent of Caesar was very clear that he wasn't in full favor of supporting Alameda or FTX

for that matter and he also very clearly said that you know the biggest lesson that we've

learned from Luna was that never use your token your own token as a collateral and if you're running a

crypto exchange or crypto business do not borrow money and use your Capital uh you know you you have to use a large

Reserve you have to have a big reserve of money you're not going to be sitting at an illiquid funds at any point of

time that if somebody is starting to withdraw then you are scrambling for for selling your assets to just give the

money back right so um this could happen to binance but then you know from from the perspective of

binance they have practically covered this better than any other exchange they don't trade they don't borrow as an

exchange they never borrow they don't over use BNB as a collateral in fact they've completely taken BNB into a

smart chain blockchain enabler and sort of an exchange token so and they have probably more reserves than any other

Exchange in terms of proof and they have shown it as well a few times so he was very clear and and he wasn't letting it

go so he was explaining that this is what the scenario is and this is what FTX has not done all of this that

bananas had done if texts are not done and then come to the climax and what we started with he said that okay now FTX

has asked for our help and we will now go on uh into a non-binding agreement and we will fully acquire ftx.com this

is what he tweeted on that particular day on November 10th and this is where we we will stop this part because

binance is one of the largest exchange showed intent to buy FDX and this is how the story played out at this point of

time and like I said on that point itself you know if this was a plan from the perspective of that day you

know FTX was taking over so many companies was behind the scenes it was minting FTD tokens binance must have

known all of the stressed all of this and if this was a just a takeover attempt then yes they could have waited

for the opportune moment and you know revealed his political stand his regulations and he was being branded as

one of them the balance sheet of Alameda research was leaked at an opportune moment and combined with the fact that

immediately sees it announced the selling of ftt token using Luna as an example triggering the banker and

triggering the collapse of ftt price and triggering the FTD price he knew or everyone knew at that point would would

collapse the position of FTX and Alamanda research and so the only two choices that SBF was left with at the

point either go bankrupt or sell the FTX business to a binance so the acquisition deal was offered and this played out

like an entirely like a hostile takeover till that point right and uh that's where the the twist comes in and

the twist is going to start mainly in the second part of this episode or the second episode for this uh Saga or the

story uh but the reality the crash was much much worse than doona in case of Luna the signals were very clear

sensible investors stayed completely away from lunar for example in our channel 50 videos not once we mentioned

about the Luna ecosystem or the lunar token or the USD stablecoin we've talked about stable coins and we've kept

completely away from USD as a stable coin never even regarded usds's stable coin so it was very clear that Luna was

going to crash in and dokon was basically fooling everyone in terms of you know what he was offering but there

were no such warnings or danger signs for FTX or La model research there were probably very very minor if at all they

were right and nobody expected this magnitude of failure from FTX and Alameda so if uh even if ca's went on to

save FTX it was very clear that he was not going to save the Ft token so a limited research as a trading firm have

borrowed heavily from several lenders using FTD as a collateral if that collateral goes to zero then all the

lenders have a useless collateral they cannot get their funds back they cannot get their loans back so a lot of these

ah you know investors retail investors trade investors have been trading and investing in La model research all of

their positions are going to go to zero and these are not just trade positions they are leveraged rate positions which

means that there are millions and millions of dollars so the the impact of this crash was going to be very very

high it was very clear at that point of time and so Bitcoin experience probably the biggest ever crash in the recent

times going from 21 000 to about fifteen thousand seven hundred dollars in just less than two days in about 36 hours it

crashed from twenty one thousand to fifty Seven thirteen thousand seven hundred twenty two percent crash that

has seldom being seen in Bitcoin and it practically eliminated a liquidated a lot of the Liberty trading positions

which caused a massive Cascade of the other assets the reason why Bitcoins crash a significant crash like that in

Bitcoin crashes the entire crypto Industries because it's it's one asset that moves very slowly and and up and

down right and a lot of people have collateral positions or leverage positions which means that if you buy a

leverage position on bitcoin at twenty thousand dollars you expect to be liquidated eighteen thousand dollars

which is an event that happens very very rarely and when the Bitcoins price starts crashing people sell all of their

assets dump all of their assets to get liquidity in usdt or usdc to lower their liquidation threshold from 18 000 to 17

000 and when it is continuing they'll keep selling even more to lower it from 17 to 16. it goes into a spiral that's

why the entire Market um goes into a crash and you know at this point with everything that was

playing out I was already at a loss for birth but um the number of parties that was

getting wrecked in the bloodbath and then the worst bloodbath that was happening

um it was already chaos it was already too much but the biggest shock was yet to come that is what we will continue in

the next part because this didn't end here what felt like the the biggest event of crypto or the biggest uh twist

in crypto only got worse and it nobody saw what was coming after this point and that's what we'll talk about in our next

episode part two of this FTS Sagan FTA story stay tuned