The Defiant

SBF Surfaces With Apology and Details on FTX’s Condition

Embattled Crypto Head to Close Alameda; confirms $5B in Withdrawals on Sunday

SBF Surfaces With Apology and Details on FTX’s Condition

Breaking his silence during a two-day period when the crypto market erased $131B in value, Sam Bankman-Fried finally offered up a mea culpa for the damage wrought by the murky practices at his exchange FTX, and the hedge fund he controls, Alameda Research. 

“I’m sorry,” he tweeted Thursday. “That’s the biggest thing. I fucked up, and should have done better.”

On that point, most crypto investors would agree. They watched in horror as a historic bear market just got a whole lot worse. And fears are rampant that Bankman-Fried’s management of FTX, which was doing $10B in daily trading volume, has destroyed the credibility of crypto’s value for mainstream users.

Whipsawed Sector

And while the U.S. government’s lower inflation numbers for October offered a respite for a whipsawed sector, investors are tense as they wait to see how the next act of the FTX fiasco plays out. 

In the thread, Bankman-Fried said Alameda, a firm he co-founded with more than $1B in assets, will wind down operations. 

“One way or another, Alameda Research is winding down trading,” Bankman-Fried said. “They aren’t doing any of the weird things that I see on Twitter–and nothing large at all. And one way or another, soon they won’t be trading on FTX anymore.”

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And he confirmed that on Sunday FTX suffered $5B of withdrawals, the largest it ever had to process in a single day “by a huge margin.”

Bankman-Fried said FTX did not have enough liquid assets to cover the run on user deposits due to a labeling and subsequent math error. While the exchange maintains greater assets than it does liabilities, he said, the illiquid nature of those assets means it will be hard for the exchange to line up investors who can honor customer deposits. 

“Right now, we’re spending the week doing everything we can to raise liquidity,” he wrote. “I can’t make any promises about that. But I’m going to try.”

Nothing to Fear

On the other hand, users of FTX’s U.S. subsidiary have nothing to fear, according to Bankman-Fried. FTX U.S. is a separate entity that has had little trouble honoring customer withdrawals this week.

It has been a humbling experience for the one-time billionaire, whose T-shirt and Bermuda shorts uniform and disheveled hair stood in stark contrast to the financial empire he built.

Bankman-Fried became the face of crypto to many outside the industry, gracing magazine covers and receiving comparisons to the original J.P. Morgan for his rescue of crypto firms that wobbled this summer. He became one of the most generous donors in Washington D.C., spoke at Congressional hearings, and shared a stage with former President Bill Clinton and Tony Blair, the onetime prime minister of the U.K.. 

Behind the scenes, the symbiosis between FTX and Alameda Research was creating unsustainable risk. Last week, CoinDesk reported that FTX’s homegrown token, FTT, anchored 40% of Alameda’s tradebook and served as collateral for billions in debt, stunning investors and triggering a classic bank run. 

In the 15-part thread, Bankman-Fried provided details on FTX’s financial condition. 

“FTX International currently has a total market value of assets/collateral higher than client deposits (moves with prices!),” he tweeted. “But that’s different from liquidity for delivery–as you can tell from the state of withdrawals.”

Two Mistakes

That was due to two mistakes, he said. 

“The first time, a poor internal labeling of bank-related accounts meant that I was substantially off on my sense of users’ margin. I thought it was way lower,” he said. 

When he thought FTX had the liquidity to honor 24 times the platform’s daily average withdrawals, FTX only had enough to handle eight-tenths of Sunday’s withdrawals, which totaled $5B. 

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Alameda’s $4B Bailout

Bankman-Fried did not provide any details regarding the mislabeling of bank-related accounts, nor did he address a story in The Defiant and other outlets that reported  FTX had shifted $4B in FTT tokens, some of it user money, to bailout Amaneda’s weakening positions in September.

“Right now, we’re spending the week doing everything we can to raise liquidity,” he said. “There are a number of players who we are in talks with, LOIs, term sheets, etc. We’ll see how that ends up.”

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Any money raised will go toward users first, then investors and FTX employees, he added. And Bankman-Fried, who criticized traditional banks’ opaqueness during the subprime mortgage crisis in Congressional testimony last December, pledged to practice “radical transparency” if the company survives.

“Transparency it probably always should have been giving,” he wrote. “Giving as close to on-chain transparency as it can: so that people know *exactly* what is happening on it.”

‘Well Played’

Bankman-Fried also hinted he would have more to say on Changpeng Zhao, the founder of Binance, whose pledge to sell $500M in FTX token FTT sparked the run on its deposits Sunday. 

“At some point I might have more to say about a particular sparring partner, so to speak,” he wrote. “But you know, glass houses. So for now, all I’ll say is: well played; you won.”

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