Troubled crypto exchange FTX files for chapter 11 bankruptcy, CEO Sam Bankman-Fried resigns
FTX Trading Ltd. has published a press release announcing that FTX.com, FTX US, Alameda Research and 130 affiliated companies have filed for Chapter 11 bankruptcy. The company is seeking bankruptcy protection in the U.S. state of Delaware.
In addition, FTX CEO Sam Bankman-Fried has resigned from his position, and John J. Ray III has been appointed as the new CEO.
In the press release, John J. Ray III stated:
“The immediate relief of Chapter 11 is appropriate to provide the FTX Group the opportunity to assess its situation and develop a process to maximize recoveries for stakeholders.”
Press Release pic.twitter.com/rgxq3QSBqm
— FTX (@FTX_Official) November 11, 2022
The sudden collapse of one of the industry’s biggest exchanges
FTX was widely seen as one of the strongest players in the cryptocurrency industry as recently as a week ago, making its sudden collapse highly unexpected. Negative rumors about FTX began circulating after CoinDesk published a report on November 2 outlining the balance sheet of Alameda Holdings, a trading firm closely affiliated to FTX.
The makeup of Alameda’s balance sheet, especially the large amount of FTT held by the company, spooked investors. On November 6, the Binance cryptocurrency exchange announced plans to sell all of its FTT holdings, which sparked a sell-off for the token. Combined with the large FTT token sell-off, FTX customers began withdrawing their assets from the exchange en masse, which eventually exposed the fact that FTX did not have sufficient liquidity to meet all withdrawal requests.
On November 8, plans were announced for Binance to acquire FTX and help it cover its liquidity crunch. However, the agreement between the two parties was non-binding, and Binance stepped away after a single day of looking into FTX’s internal information.
According to reports, it appears that the downfall of the exchange was caused by FTX lending customer funds to Alameda Research, which then deployed them in risky bets.