Jason Choi's 'The Definitive Thread on FTX' Summarized
Yesterday, Jason Choi released 'The Definitive Thread on FTX'. We loved the thread so much that we condensed the 60 tweets down to 20 tweets for easier consumption.
Yesterday, Jason Choi released 'The Definitive Thread on FTX'. He met Sam Bankman-Fried before FTX started, and witnessed their rise and fall. We loved the thread so much that we condensed the 60 tweets down to 20 tweets for easier consumption.
From the very start, SBF wanted to bet BIG. Acquiring more leverage was the main strategy from the inception. This included deceptive fundraises, financial engineering, and ultimately, fraud. Starting his fund named Alameda Research, promising HIGH RETURNS WITH NO RISK.
FTX raised its first seed round of $8M in 2019. According to Jason Choi sources, FTX started as an easy way to access capital for Alameda. Employees told him that Alameda had a trading API key that gives faster access - allowing them to front-run client trades.
Around September 2019: Alameda allegedly made a failed attempt to manipulate futures on Binance
FTX capitalized on DeFi hype by creating Serum, a decentralized exchange on Solana. Serum raised funds in a way that prioritized speed and not diligence - the faster investors committed, the lower the price. Below is a screenshot of their fundraising tranches.
FTX became directly involved with multiple Serum / Solana projects such as $FIDA, Oxygen and $MAPS. Allegedly, much of Serum was operated by full-time FTX employees. Some projects were internally incubated or operated.
Around winter 2020: Alameda moved AWAY from delta-neutral strategies and started taking massive directional risks in crypto with massive leverage. It is likely, Serum assets were used as collateral to get that leverage.
This is likely how Alameda/FTX suffered the multi-billion dollar hole: Alameda used illiquid collateral to borrow funds to finance risky bets, which got margin called as markets went down this year, leading to the theft of FTX user funds to cover the losses.
Meanwhile, SBF was actively pushing for establishing more regulation of crypto. This would ensure the equity value of FTX and $FTT - which they used to finance leveraged bets - do not collapse.
The double down on marketing paid off when subsequent rounds of fundraises pushed FTX's valuation to $32B (Jan 2022), with investment from Paradigm, Sequioa, Tom Brady, Temasek.
In Oct 2022, FTX proposes a standard for regulation that widely favored FTX over any DeFi competitors: read here.
Sam Trabucco, co-CEO of Alameda steps down from the firm in Aug 2022. A month later, FTX acquired Voyage Digital for $1.4B, a brokerage firm that went under due to the collapse of Three Arrows Capital. Despite >100K creditors and billions in liabilities.
It is likely that FTX was bailing out entities with large $FTT holdings as collateral to prevent forced selling, much of its own leverage is backed by $FTT. Not long after, @SBF_FTX takes a jab at @cz_binance:
Shortly thereafter, CoinDesk releases a concerning piece regarding Alameda's balance sheet, citing that a huge part of its $14.6B in assets are assets issued by the FTX team itself: read here.
Nov 6, 2022: Changpeng Zhao (CZ) states that in light of revelations regarding Alameda's balance sheet, Binance will liquidate the entirety of its whopping ~$584M in $FTT.
Caroline Ellison, CEO of Alameda then makes a public offer to CZ to purchase all $FTT. Shortly after, SBF publicly claimed that FTX DOES NOT INVEST CLIENT ASSETS and that it has enough to cover all withdrawals, however, withdrawals were soon frozen on Nov 8.
Nov 9: a potential deal to acquire FTX by @binance was announced by CZ and SBF. Meanwhile, FTX still sent Alameda $10M in USD while freezing withdrawals for users (see image below). Nov 10: CZ called off the potential bail-out deal.
Shortly after, withdrawals seemed to have resumed on FTX. Below is a DM leaked to Jason Choi, where SBF seemingly instructed one of his employees to once again commit fraud publicly. Bahamian regulators later refuted making such a statement.
Speculation began to arise that insiders were cashing out, and commingling their withdrawals with actual Bahamian users. After the bankruptcy announcement, withdrawals were finally paused; however, hundreds of millions began to be siphoned from FTX.
Then, ZachXBT revealed a potential hack has likely occurred on FTX.
According to primary sources from FTX, only 4-5 senior executives knew the extent of FTX's woes until the very end. These are: SBF, Caroline Ellison, Gary Wang, Ramnik Arora, Constance Wang, Nishad Singh.
This is just a summary, check out the comprehensive thread here:
Prefer to listen to this? Jason Choi recorded an abridged, 20-min version of this on his podcast Blockcrunch:
Subscribe to receive our weekly newsletter and in-house research content!
Please Share, Leave Feedback, and Follow Us on Twitter, Telegram, and LinkedIn to stay connected with us.