FTX - A Story Of Traditional Finance Masquerading As Something Else
Centralization Strikes Again - November Edition
“The ‘Cypherpunk spirit’ isn’t just about idealism; making systems that are easier to defend than they are to attack is also simply sound engineering.” - Vitalik Buterin
May as well have dedicated this entire month’s edition to FTX. - Tim
Timeline
Nov 1 - Leaked documents outline the US Department of Homeland Security’s plans to expand censorship and police “disinformation” using popular tech platforms. Source
Nov 1 - All trading is halted on Canada’s Toronto Stock Exchange due to a connection problem. Source
Nov 2 - Crypto news outlet CoinDesk leaks the balance sheet of Alameda Research, a sister hedge fund to crypto centralized exchange (CEX) FTX. The report shows more than 1/3rd of the firm’s capital is tied to its self-issued exchange token (FTT). Source
Nov 6 - Alameda CEO Caroline Ellison and FTX CEO Sam Bankman-Fried (SBF) both declare insolvency rumours as “unfounded”. Source
Nov 6 - Elon Musk confirms former Twitter employees were making pay-to-play sales selling verification badges behind the scenes. Source
Nov 7 - FTX CEO SBF reveals a competitor CEX is trying to go after FTX and that “FTX is fine. Assets are fine.” Tweets deleted soon after. Source
Nov 8 - FTX temporarily halts all trading amidst insolvency rumours. Source
Nov 8 - CEX Binance reaches non-binding deal to acquire FTX to help address balance sheet issues. Source
Nov 9 - Binance backs out of FTX acquisition following a financial review, citing issues “beyond control and ability”. Source
Nov 9 - FTX CEO SBF begins raising “emergency” funds to cover shortfall of nearly $9bn. Source
Nov 10 - User reports indicate connection problems under Canadian telecom company, Telus. Source
Nov 10 - Stablecoin issuer Tether (USDT) freezes $46mn worth of assets held on the TRON blockchain by FTX, at the request of US authorities. Source
Nov 11 - FTX CEO SBF files chapter 11 bankruptcy for all FTX-affiliated organizations. Source
Nov 11 - Centralized crypto lending platform BlockFi releases official statement on FTX insolvency issues and pauses all client withdrawals. Source
Nov 12 - Hundreds of millions of dollars begins flowing out of FTX-held wallets. FTX releases official statement on a “hack”. Source
Nov 13 - CEX Crypto.com confirms rumours that it had sent large amounts of user funds to CEX Gate.io, coincidentally during Gate.io’s proof-of-reserve audits. Source
Nov 14 - Crypto token-launch platform, Tokensoft, doxxes personal details of over 4,500 users, calling them ‘bad actors’. Source
Nov 14 - HK crypto exchange AAX suspends withdrawals as FTX contagion spreads. Source
Nov 15 - NFTs representing lifetime tickets to Coachella previously sold on FTX’s NFT platform become unusable due to insolvency. Source
Nov 16 - Over 500mn data records for WhatsApp users become available online on a hacking forum. Source
Nov 18 - As FTX contagion spreads, significant outflows testing exchange reserves occur on CEX’s including Crypto.com, Gemini, OKX, etc. Source
Nov 22 - On-chain mixing service Tornado Cash’s developer Alexey Pertsev, previously jailed by Dutch authorities without being charged, to remain in jail until late February on money laundering charges. #CodeIsSpeech Source
Nov 23 - Web3 self-custody hot wallet provider, MetaMask, releases new privacy policy, unveiling the collection of IP addresses and leading to mass outcry from the crypto community. Source
Nov 27 - Amidst the anti-lockdown protests in China, Chinese users of Apple’s iPhone discover the receiving ability of AirDrop having been severely throttled by the company in an earlier November update. The update had only been applied to Chinese mainland iPhones. Source
Nov 28 - Meta (previously Facebook) receives fine of $276mn over data leak involving 500+mn users in April 2021. Source
Nov 28 - HK-based crypto exchange AAX deletes social media accounts under mysterious circumstances and faces exit-scam accusations. Source
Nov 28 - Twitter data leak exposes over 5.4 million accounts. Source
Nov 29 - Elon Musk reveals that Apple has discontinued advertising on Twitter, and even threatening to withdraw Twitter from its App Store amidst ongoing feud over Apple’s 30% tax on subscription revenues. Source
Nov 29 - BlockFi files for bankruptcy. Source
Op-Ed
If you are interested in contributing to this OpEd, please reach out!
The views expressed are those of the author’s and may not reflect those of ChainSafe’s.
The Bull Case For FTX
I will not waste my reader’s precious mental capacity on the well-documented FTX collapse. Everything about the debacle invokes within me a sense of vile contempt for unchecked centralization. Worse, FTX was the wolf in sheep’s clothes — an organization playing at decentralization theatre — an act we’ve unfortunately had to see play out in semi-automatic bursts. First, with Luna/UST, and then followed by the incapacitating shots of Celsius, Three Arrows Capital, Bancor, FTX, BlockFi… you get the picture. (And I extend my condolences if you were at all caught in the crossfire.)
Yet, as one trojan horse collapsed after another, I saw a community prop itself up in defence, aided by one of the most powerful force for public good ever created — the blockchain. More crucially, the two aforementioned combined to enable a sobering self-examination: why exactly are we building this tech? Who are the bad actors? What were the warning signs? And how can we do better? This is, in fact, the bull case for FTX. Allow me to explain.
The FTX collapse saw unprecedented participation from the web3 community in citizen journalism. While traditional media outlets wrote softball puff pieces in service to their overlord SBF, the Twitter and Substack sleuths came out to play ball. Scores of citizen journalists unearthed, observed, tracked, and shared an unrelenting amount of data, with around-the-clock coverage that would put any TradMedia to shame. No stone was left unturned, as conspiratorial-level connections were discovered between FTX and the establishment — including SBF’s parents and regulators like the SEC’s Gary Gensler and US Senator Elizabeth Warren. FTX made way for the best of us to shine during crypto’s Lehman Brothers moment.
Ofcourse, none of it would have been possible without the virtues of the always online public ledger of on-chain record. This, folks, is “privacy for the weak, transparency for the powerful” manifested: a tiny preview of what it could mean if we bridged our most important institutions on-chain — where activities like financial transactions are transmitted and recorded in a transparent and verifiable way. Is this not a public good worth preserving? It allowed our citizen journalists to track the movements of funds between exchanges, follow the FTX hack, and push the needle on innovations like mandatory proof-of-reserves and proof-of-liabilities.
And as suggested earlier, these forces enable a crucial level of self-scrutinization. It empowers us as a community to ask the important questions, keep our institutions honest, and demand the continued evolution of our space. In the well-trodden analogue of web3 as an organic, emergent biological ecosystem, the forest fire plays a crucial role in stimulating new growth. It clears away the diseased, the stagnant, the hollow in an unforgiving hellfire. Just as the previous forest fire cleared away ICO-era zombie projects which made way for newer species like Gitcoin to thrive, this fire will also clear away parasites of the FTX-variant and provide precious fertilizer for newer forms of coordination tech.
That is the silver lining. The entirety of the response has been nothing short of an incredible thing to witness, and is something that we should expect for future on-chain catastrophes. We’re speedrunning black-swan events and naturally selecting for the strongest organisms to survive. The ‘08 financial collapse managed to forge a new path in humanity’s tech tree. In similar fashion, we too will come out of this for the better as a united community under the banner of decentralization.
]If you have any feedback, send them my way or reach out via Twitter or Telegram (@haochizzle) 💛
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It is huge. Look at all the connections too with FTX:
https://joshketry.substack.com/p/what-the-hell-is-going-on-here-if