The resounding bankruptcy of a cryptocurrency giant
Posted: Sun Jan 12, 2025 5:34 am
In November 2022, one of the world's largest cryptocurrency platforms collapsed. The crash of FTX made headlines and is reminiscent of Bernard Madoff's gigantic financial Ponzi scheme, which involved paying off old investors with the money of new entrants. Sam Bankman-Fried, aka SBF – a young American investor, founder of FTX and rising crypto star, is suspected of a similar fraud.
The cryptocurrency line database exchange platform FTX (the world's second - largest platform after Binance ) allegedly allowed its founder to collect funds from users to reinvest them in his investment company Alameda Research , with which he engaged in risky bets. In other words, Sam Bankman-Fried invested, like Bernard Madoff, his clients' assets to make bad investments. The transactions between FTX and Alameda also allegedly served to cover the losses of Alameda , which found itself in difficulty last spring following the collapse of the Three Arrows Capital fund. The FTX exchange platform is said to have lent up to $10 billion to Alameda , according to the New York Times.
The other aspect of the scam concerns FTT, FTX's token, an " internal currency " whose highly volatile value depends mainly on the company 's reputation . However, it turned out that Alameda 's funds were largely denominated in FTT, and the company was subsequently unable to reimburse its customers with its heavily devalued "currency".
A growing need for regulation
What will be the consequences of this industrial crash for the cryptocurrency ecosystem ? "There is a significant risk of seeing a contagion effect," observes Alexandre Stachtchenko, Blockchain & Cryptos Director at KPMG France. FTX also played the role of a bank: individuals but also companies - most of them linked to the crypto world - had funds with them. Players will probably find themselves in difficulty, or even in default of payment with their own customers in the coming weeks."
The cryptocurrency line database exchange platform FTX (the world's second - largest platform after Binance ) allegedly allowed its founder to collect funds from users to reinvest them in his investment company Alameda Research , with which he engaged in risky bets. In other words, Sam Bankman-Fried invested, like Bernard Madoff, his clients' assets to make bad investments. The transactions between FTX and Alameda also allegedly served to cover the losses of Alameda , which found itself in difficulty last spring following the collapse of the Three Arrows Capital fund. The FTX exchange platform is said to have lent up to $10 billion to Alameda , according to the New York Times.
The other aspect of the scam concerns FTT, FTX's token, an " internal currency " whose highly volatile value depends mainly on the company 's reputation . However, it turned out that Alameda 's funds were largely denominated in FTT, and the company was subsequently unable to reimburse its customers with its heavily devalued "currency".
A growing need for regulation
What will be the consequences of this industrial crash for the cryptocurrency ecosystem ? "There is a significant risk of seeing a contagion effect," observes Alexandre Stachtchenko, Blockchain & Cryptos Director at KPMG France. FTX also played the role of a bank: individuals but also companies - most of them linked to the crypto world - had funds with them. Players will probably find themselves in difficulty, or even in default of payment with their own customers in the coming weeks."