On The morning of November 2nd, 2022, FTX was worth $32 billion. Within The span of minutes, everything fell apart. FTXs Trading firm, Alameda Research, had just suffered from a news leak. An article by CoinDesk revealed that Alameda Research held $5.1 billion worth of FTT tokens, which was FTXs flagship Cryptocurrency.

while Subtle at the time, this was the iceberg that would sink the Titanic. On November 6th, FTX began to sink. The CEO of Binance, CZ, had announced that he would be liquidating $2.1 billion of FTT tokens. This was a declaration of war.

cz had just discovered that Alameda Research was not just a company tied to FTX, but practically was FTX. If he could make Alameda Research sink, FTX would as well. As the FTT token began tanking, so did the value of Alameda Researchs assets. Hundreds of millions of dollars were almost instantly withdrawn from FTX.

the Bank run had officially begun. By The end of November 6th, over $5 billion of assets were withdrawn from FTX. FTX only had a little over $6 billion on hand, so that only left $1 billion in cash left for customers to withdraw. The CEO of Alameda Research, Caroline Ellison, was terrified.

she tweeted, CZ, if youre looking to minimize the market impact on your FTT sales, Alameda will happily buy it all from you today at $22! CZ Knew this was a sign of weakness. He knew that if he kept selling the FTT token, Alameda Research and FTX would go down. So Rather than taking on Alamedas offer, CZ stated, I think we will stay in the free market. The CEO of FTX, Sam Bankman-Fried, also known as SBF, was in shock.

cz was about to destroy SBFs entire career within days. As the withdrawals continued, SBF frantically tweeted, A competitor is trying to go after us with false rumors. FTX is fine. Assets are fine.

these were all lies, but SBF was desperate. He needed to stop the withdrawals now or the credibility of FTX would be tainted forever. SBF further soothed the crowd by saying, FTX has enough to cover all client holdings. We dont invest client assets .

we have been processing all withdrawals and will continue to be. This was, again, three more lies. FTX did not have enough to cover all client holdings. They did invest client assets.

and They were not going to continue processing all withdrawals. By Tuesday, November 8th, $6 billion was withdrawn from FTX. Users were trying to withdraw even more money, but FTX simply didnt have the cash on hand. The numbers on their screen were all a facade.

sbf had no choice but to give into CZs demands. In A shocking turn of events, he called CZ with an offer to sell FTX to Binance. "I got a call from Sam 24 or 48 hours after I made the tweet and then he wanted to talk, So at the beginning I thought he would just wanted to, you know, do a buyout - do an OTC deal to buy out the FTT tokens we had. and then he wanted actually a buyout of the entire firm, of the entire FTX platform." CZ Saw this as a modern opportunity to become the Rockefeller of crypto. FTX was the #2 exchange by volume and Binance was the #1 exchange.

If CZ Were to buy FTX, he would not just become a crypto giant. He would become the crypto monopoly. But After taking a closer look at FTXs financials, CZ was appalled by several red flags. SBF was committing fraud.

in Order to understand why CZ was so horrified by FTXs financials, we have to rewind all the way back to how SBF started. FTX. Shortly After graduating from MIT, SBF began his career as a quant trader at Jane Street Capital trading. ETFs. This Experience that SBF obtained at Jane Street set the stage for the founding of Alameda Research. Jane Street is one of the most prestigious trading firms focused on marketing, making for ETFs.

market Makers aim to buy and sell identical assets near the market price. If A buyer willing to buy an ETF for $100.5 and a seller willing to sell for $100, then Jane Street would buy the ETF from the seller for $100 and sell it for $100.5. This would provide liquidity to the buyers and sellers, because they would be able to buy and sell ETFs almost instantly. As A trader at Jane Street, SBF recognized the potential that market makers have to generate substantial amounts of money.

while Still trading at Jane Street, SBF was fascinated by a blooming opportunity. In 2017, the price of Bitcoin took off to almost $20,000. This caught the attention of SBF, who recognized an opportunity to use the same strategies he learned at Jane Street but for Crypto. According to SBF himself, the reason why he wanted to enter the crypto industry was because of his insane appetite for risk.

on Sequoia Capitals website, SBF stated that he wanted to make riskier decisions to amass larger sums of wealth. So In order to fuel his risk appetite,, SBF started Alameda Research, a new quant fund that would engage in arbitrage trading. Arbitrage trading is when you trade identical assets between different markets to make money on the price difference. SBF saw that in Korea and Tokyo, there was a significant price premium for Bitcoin relative to the US.

in Korea, the price of Bitcoin was 30% higher and in Tokyo, the price of Bitcoin was 10% higher. Within months, Alameda Research made $20 million moving Bitcoin from the US to Tokyo and Korea. This was a dream come true. It was a riskless money machine.

but As all Money Printers are,, everything is glamorous until it all stops working. By Early 2018, the opportunity dried out as other traders caught onto the trading scheme. The Money Printer was gone and SBF needed to expand into new opportunities. In April 2019, SBF registered FTX as an Antigua and Barbuda company.

antigua and Barbuda is known as one of the greatest tax havens in the world. Antigua International Business Corporations or IBCs pay practically zero taxes. So After incorporating FTX in Antigua and Barbuda, SBF incorporated numerous FTX subsidiaries. One of these subsidiaries included FTX Digital Markets Ltd in the Bahamas, which would be used to create FTXs headquarters.

This marked the start of SBFs biggest venture ever. Within The first six months of starting FTX, SBF was contacted by CZ from Binance. CZ saw the potential in FTX and was interested in buying a portion of the exchange. So In October 2019, CZ had an offer for SBF.

he would be buying 20% of FTX for $100 million. SBF knew that Binance was the biggest player in the industry and saw the $100 million as an opportunity to accelerate the growth of FTX. So, As a result,, SBF accepted CZs offer. Unbeknownst to SBF. At the time, this would be the worst decision in his life, but more on that later.

for The first year of FTXs launch, Alameda Research played a crucial role in the crypto exchanges success. Alameda accounted for almost half of the trading volume on FTX through market making. As We discussed earlier, market making is when a firm buys and sells the same asset at different prices to allow them to speed up the time for trading. The fact that FTX was dependent on Alameda was not great long term, and SBF knew that.

first Of all,, there were many conflicts of interest between the two companies. It would be strange if not illegal for Alameda to obtain secret access to FTXs proprietary trading data. Despite The obvious conflicts of interest of such a corporate structure,. the two companies continued to operate as if they were one.. But To say that these two companies were only two entities would be a total understatement..

in Order to avoid a series of regulations that were set on cryptocurrencies,, SBF and his team set up a convoluted corporate structure.. Rather Than making just two entities,, SBF and his team created a structure of entities that would be difficult for accountants to follow. For Instance,, Alameda Research had several entities. One was a British Virgin Islands entity named Alameda Research LTD.

another was a US entity in Delaware called Alameda Research LLC. This Structure allowed SBF to engage in illegal activities through Alamedas British Virgin Islands entity while still operating in the US. Its Important to understand that while SBF is intelligent, he can also be extremely lazy. He once admitted that he would frequently play League of Legends while on phone calls..

sbfs Laziness would reveal itself soon. In May 2021, FTX was applying for a license in Gibraltar, an overseas territory. In the United Kingdom. One of the requirements for the license was a request for information from its major shareholders. One of these shareholders was CZ, who had purchased 20% of FTX just one and a half years ago.

between The months of May and July 2021, FTX contacted Binance over 20 times for various details about CZ. This included information like CZs sources of wealth, what his banking relationships were, and how much of Binance he owned. When FTX asked for this information, there was no response. By July, SBF was tired of CZs lack of response and bought back CZs stake for an astounding $2 billion.

This $2 billion was paid through crypto. A significant part of that $2 billion was paid through FTXs token, the FTT token. This would set the stage for CZ to have a frightening edge over FTX Later on., In July of 2021, SBFs alleged romantic partner, Caroline Ellison, was appointed as the CEO of Alameda Research.

sbf had recruited Caroline from Jane Street and believed that she would be able to run Alameda without a problem. This was a horrible decision considering Carolines consistent use of amphetamines, which is better known as Adderall or Ritalin. In Addition to this, Caroline also publicly stated that she only used elementary school math. "I used very little math.

Used A lot of like Elementary School math, like arithmetic, probability, but not really any of the advanced stuff I learned in college." Carolines incompetence would reveal itself in less than one year of being appointed as CEO of Alameda Research. During This time, SBF wanted to get retail investors to join FTX. One Of the primary ways to do This was to get on the rankings of the top crypto exchanges. FTX was a relatively new firm, so SBF needed to solidify its credibility.

in Order to do this, SBF agreed to have FTX audited by an accounting firm, but this wasnt just any accounting firm. SBF decided to work with Prager Metis, the first accounting firm in the Metaverse. Thats right,? the first accounting firm in the Metaverse. Prager Metis was known to operate in Decentraland, a Metaverse where people buy and sell virtual land.

prager Metis was also the sponsor of the Decentraland Babydolls, a group of Metaverse dolls that would dance in the Decentraland doll house. All of this sounds ridiculous, but in SBFs eyes, this was a perfect opportunity.. By Hiring an incompetent auditing firm, SBF would be able to easily pass its audit. In August Of 2021, SBF announced on Twitter that FTX and FTX US passed GAAP audits.

the Entire crypto world fell into SBFs deception. If FTX had passed a US GAAP audit, Then, how could the company be fraudulent? In Addition to passing an audit,, SBF also testified before lawmakers in December 2021 to improve the oversight of crypto. In SBFs Introductory speech, he described how FTX had an unparalleled risk monitoring system that was stronger than the traditional financial infrastructure. "It's true of our risk engine, which is a 24/7 risk engine that is unlike the traditional financial ecosystem where risk builds up overnight, where there need to be separate missed risk models for weekends and overnight activity and holidays, where hours or days can go by with no ability to mitigate risk to the system." The Fact that SBF not only passed a GAAP audit, but also testified, caused many investors to trust FTX as a risk-free exchange.

Nevertheless, FTX would soon face major challenges that would ultimately reveal the truth about the company.. In May and June of 2022, two major crypto players, Voyager and Celsius, suddenly went bankrupt. Alameda Research had significant exposure to both Celsius and Voyager, so Alameda had to deal with substantial losses. Because Alameda had a large sum of liabilities, the firm would go bankrupt unless some capital was supplied to the firm.

sbf was desperate to save Alameda, but there was no easy way to do so. There was one option that was illegal and would go against FTXs promises. FTX had $16 billion in customer assets that were supposed to be backed 1 to 1. This meant that each dollar that a customer deposited should have be backed by real US dollars.

sbf knew that if he were to transfer these funds to Alameda, this would go against his promises. In Fact,, it could lead to bankruptcy if everyone withdrew their money from FTX. The Problem was that Alameda and FTX were so intertwined that if Alameda were to go bankrupt, FTX would as well. In June Of 2022,, it was reported that Alameda was the biggest depositor of stablecoins on FTX.

if Alameda were to go bankrupt, then FTX would lose its biggest depositor and potentially collapse as well. So In order to save his two companies,, SBF lent Alameda more than $10 billion, which was over half of FTXs customer deposits. In A typical firm, such a humongous transfer would alert the internal compliance team. However, SBF had a solution.

he would use a backdoor. A backdoor is when someone sets up illegal accounting software to move money without triggering alerts to internal compliance and auditors. Using A backdoor, SBF was able to transfer funds without alerting the compliance team. So Instead of the FTX compliance team being notified,, only SBF, Caroline Ellison, and two other FTX executives were made aware of his decision.

in June 2022, the crypto lending platform BlockFi was also in trouble. Alameda, once again, had considerable exposure to BlockFi. Rather Than having Alameda take the losses,, SBF decided to give BlockFi a $250 million credit facility. In The midst of this entire mess, SBF further solidified his credibility by signing the Giving Pledge.

the Giving Pledge is a commitment from billionaires to give away most of their wealth to philanthropy. The Fact that SBF signed the pledge showed others that he was not only in the crypto game for the long run, but also had a high moral standard. Some People even called him the most generous billionaire in the world. "Okay, the guy you see next to me is the most generous billionaire in the world and I found him!" For The next few months, everything went smoothly for FTX and Alameda.

Because Everything was going as planned, SBFs Ego got to him. FTX was still lower in rankings than Binance in terms of trading volume, and SBF was not happy about that. Binance was being investigated by several federal agencies for insider trading and money laundering, whereas SBFs record was almost completely clean. On October 29th, SBF dissed CZs legal troubles by saying, excited to see him repping the industry in DC going forward! Uh, he is allowed to go to DC, right?.

CZ was understandably furious at SBFs words. SBF implied that CZ would be going to DC to testify for his criminal actions. As I Mentioned earlier in his video, SBF has an enormous risk appetite. His criticism of CZ was fueled by adrenaline, ego, and risk.

however, CZ wouldnt just let SBF disrespect him like that. He was about to take down SBF once and for all. Because CZ had over $2 billion in FTT tokens,. He knew that he had enormous leverage through his FTT tokens. So On November 2nd,, a leaked report revealed Alameda Researchs balance sheet.

According to SBF, CZ was the one who leaked the report. Just Four days later, CZ began to dump his FTT tokens. By November 8th, CZ received the offer from SBF to buy FTX. CZ agreed to accept the offer with one contingency: he would be able to back out of the deal at any time.

as CZ was looking over FTXs financial statements to buy FTX, he was dismayed by the hole that SBF dug himself into. Between $1 billion and $2 billion of Alamedas assets had mysteriously vanished. Thats right,? billions of dollars mysteriously vanished. CZ couldnt save the disaster that was FTX because it would take billions to do so.

as A result,, CZ immediately backed out of his deal to buy FTX. "It was pretty clear pretty soon that this, you know,, um,, this misappropriation of user funds - the user funds are gone. And at that point,, um,, it's clearly that he lied to his users, his investors, his VC investors,, his employees. At That point, I thought I couldn't - like whatever data that was in the data room, we couldn't trust anymore. So, it's quite hard for us to do that due diligence.

so, we didn't go very far." Later That day, SBF announced that he would be looking for $9.4 billion in rescue funds. The Size of the request revealed that FTX wasnt like the Lehman Brothers in 2008. Lehamn was a relatively well-run firm in the wrong place at the wrong time. FTX was not Lehman.

FTX was a fraud. It was like Enron in the 2000s. SBF made numerous lies about FTXs operations and all of this went under the radar because of SBFs deceptive tactics. For Instance,, because FTX was based in the Bahamas, SBF was able to get away with having questionable financial accounts.

the Bahamas did not have the proper oversight to catch FTXs questionable activity. It also had numerous subsidies overseas, one of which included FTX US. On November 10th, SBF declared that FTX US was totally fine and 100% liquid. FTX US was supposed to be a separate entity from FTX International.

Because It was a separate company, SBF claimed that FTX US was not affected by FTX International. This was, once again,, a lie. Just One day later, SBF abruptly filed FTX, FTX US, and Alameda Research for Chapter 11 Bankruptcy proceedings. The Fact that FTX US was filed for bankruptcy was outrageous for many FTX users.

sbf had just stated that FTX US was completely fine the day before. Everything was falling apart, and it seemed like it couldnt get worse until it did.. On The same day that FTX filed for bankruptcy,, a mysterious hacker began to take advantage of the company. Over $600 million was suddenly siphoned out of FTXs crypto wallets.

this included $215 million in Ethereum, $48 million in DAI, $44 million in BNB, $4 million in Tether, and several other well-known tokens. At The time that Im recording this video, nobody knows who this hacker is. Multiple FTX Employees have confirmed that they do not recognize these transactions, but that still doesnt mean that the hack was not an inside job. An FTX Insider may have stolen hundreds of millions of dollars.

this Will remain a mystery going forward until the authorities find out who the hacker was.. The Story of how FTX was an unprecedented event will have numerous regulatory implications. The Failure of SBF reveals how ego, greed, an insane risk appetite, and questionable ethics will ultimately end in destruction.. If You enjoyed this video and want to see more videos like this, please hit the like button and subscribe.

thank You all for watching, and Ill See you in the next one.