This week we have experienced one of the most important events in crypto history.

Once admired as the king of crypto, Sam Bankman-Fried (SBF) and his investment arm Alameda Research and centralized exchange FTX are on the brink of insolvency.

For a long time, SBF was idolized in the space and became famous for his arbitrage trading and later more importantly for Founding FTX and Alameda. Sam accrued an impressive estimated net worth of $10-14.5b at his peak.

Recently, FTX has been extremely busy leading huge fundraising rounds for new projects like Aptos ($150M) or Sui ($300M) and many others.

Besides new project investments, they were bailing out institutions after the Luna crash like BlockFi or Voyager.

SBF felt invincible and acted like a crypto savior, a true hero, who deeply cares about the space and innovations. But in the background there was something shady happening when 24/9/2022 previous CEO of Alameda Sam Trabucco resigned

and a month later CEO of FTX International as well.

SBF was also involved in donating politics, he even became one of the biggest donors of US midterm elections 2022 ($50M), right after Ken Griffin of Citadel with nearly $70M, Elizabeth and Richard Uihlein at over $80M and George Soros with over $120M.

Problems really started appearing after FTX's balance sheet numbers went public, first reported by CoinDesk, stating that Alameda had a total of $14.6 billion in assets and about $8 billion in liabilities, including $7.4 billion worth of loans, as of June 2022.

Among its assets, Alameda listed $3.66 billion in "unlocked FTT," the native token of crypto exchange FTX, and another $2.16 billion worth of "FTT collateral".

This is where it starts being interesting.

To make a long story short, FUD started spreading across twitter and people started slowly withdrawing their funds. After Binance's CEO CZ stated they are about to sell their entire balance of FTT, panic accelerated quickly.

As the withdrawals from FTX were fully running by the speed and volume unseen until now, the price of FTT was declining at a similar speed like LUNA earlier this year. For a while it partially recovered due to the fact, that CZ and SBF considered a deal for Binance option to acquire FTX. This itselves is something probably no one expected a few days earlier, as FTX was the 3rd biggest exchange in the world. Already before Binance decided to pass on the deal, the price of FTT was declining sharply. Once this was publicly revealed, this decline just speeded up. While experiencing this price tragicomedy, many users left stuck with their funds on the exchange because of disabled withdrawals.

Why was FTX not able to process withdrawals? Well, running centralize exchange is very profitable business.

And how big is the hole? Big enough for Binance, rather to step out of the acquisition deal. It has been revealed that Alameda had problems during the Luna and 3AC crisis, but SBF saved them with FTT customers' funds secured by FTT tokens.

There are also many other misbehaviours that will be revealed later by those in charge of investigation. One more thing to mention and to think of is how FTX served as a space where it was very easy and tempting to pump the price of tokens, that were in their portfolio. Most of those tokens were illiquid, due to lockups and vestings, but by accounting them in their highest values, FTX was able to raise funds from investors with the last round valuation of 32B. And yes, a lot of that valuation came from FTT tokens.

We are sure the hole FTX is facing has to be much bigger and it is really unbelievable how the company that was able to capitalize in the crypto market so much went insolvent so quickly.

Especially Solana and its ecosystem coins prices suffered, due to huge backing by FTX, which was forced to gain liquidity from everywhere possible, een such crumbs like Ethereum Name Services rewards in value of not more than $5k.

Next steps for SBF is to raise a few billions in an upcoming week and hopefully for him and users whose funds are stucked to run the show further. As we could experience before, not many are able to do that, not especially in this macro environment and after such a lost battle against CZ with public revelation of users' funds misuse .

This case is far from over and will affect many companies in industry, not only because of the size of FTX, but also due to its connection with Alameda and its investments. We will surely see some more regulations coming. But as we could experience, during price selloffs all major decentralized protocols proved their value, while centralized entities, who are not transparent again proved their greedy behavior practices and again reminded users of something so well known - not your keys, not coins.

Probably and hopefully users will turn on decentralized alternatives like dYdX, or GMX so they don't have to end up with their entire worth relying on irresponsible centralized entities that are destined to fail sooner or later.

Stay safe.

René Darmoš