Crypto exchanges: What happened, what is happening, and what will happen? A Timeline of accusations, scandals, and… Hope?


The beginning of the end for FTX has a date: it is August 19 when Changpeng Zhao, CEO of Binance, posted a tweet calling out the “bad players” in the exchange business, defining them as “jitters” for the practice of leaving behind inconvenient buy or sell orders.

Many saw in it a reference to the FTX exchange, as it had been lambasted the same day by the FDIC (they had never been insured with them) and it was of little use to delete the tweet where they claimed this.

The skirmishes continued until late October, when Sam Bankman-Fried (CEO of FTX) made a tweet wondering if Changpeng Zhao could actually travel to the states, alluding to an ongoing money laundering investigation by the federal prosecutors.

Things went south on November 2, when it emerged that Alameda Research, the FTX trading firm with combined assets of $14.6 billion, had nearly half of its equity exposure in FTT tokens created out of thin air.

The full story of exactly how Alameda Research incinerated over $20 billion dollars of fund profits and FTX user deposits will take months to unpack, but however altruistic Sam Bankman-Fried (SBF), Sam Trabucco, and Caroline Ellison may have been at the start (or whether that was all PR) it’s obvious now they were way in over their heads when it comes to running a profitable trading firm.

In all of this, BitDAO, which had sold 100 million BIT Tokens to Alameda a year ago on the condition that it would hold them for 3 years, wanted proof that they had indeed not been sold to a third party, with Alameda stalling on the matter for days until the tokens finally resurfaced.

A Proof of Reserves (PoR) is an independent audit to ensure that exchanges are properly managing customer assets. While Zhao was holding FTX’s hands to the fire over their reserves, he also announced via a Tweet that Binance would begin issuing its own PoR.

On November 6, Zhao pulled the plug, reporting that Binance would liquidate its FTT positions “due to recent revelations.” This led to a 40 percent drop in FTT in just 3 days, and on Nov. 7 withdrawals from the FTX exchange were suspended.

On Nov. 8, Zhao, also known as CZ, stretches out his hand to buy FTX with a non-binding agreement, but the situation was so compromised that within hours it was clear that the deal could not be done. While SBF Tweeted about the time lost with his hands tied (one single day), various U.S. commissions begin to investigate the fraudulent linking FTX to Alameda Research.

On November 10, during the 4 hours of the Twitter Space Live of Mario Nawfal, with Wendy Wang, Huobi’s director of international affairs, some interesting things emerged:

  • SBF first took out LUNA by dumping 285 million UST (making him the whale, then).
  • SBF then took out 3AC (a competitor of Alameda Research). 
  • SBF used FTX user funds to support Alameda after 3AC collapsed. 
  • CZ knew everything and questioned SBF about the matter, but was ignored.
  • CZ eventually had no choice but to make that infamous November 6 tweet.

Ironically then, on November 11, FTX filed a Chapter 11 bankruptcy and SBF resigned as CEO while his jet was on its way first to Argentina (a country that is now a specialist in changing crypto for cash) and then home to the Bahamas to be questioned by prosecutors.

To date, there is at least a billion-dollar hole in the FTX exchange, the leakage of which is probably more due to a rug pull than a hacking attack. All funds have therefore been frozen, pending an attempt to clarify what actually happened to FTX’s million-plus creditors.

The first class action lawsuit was filed on November 16th against not only SBF, but Tom Brady and other celebrities who the suit accuses of deceptive practices promoting FTX’s yield-bearing accounts.

FTX’s collapse has had a ripple effect across crypto markets. What’s really going on with these exchanges? Is there a lack of liquidity, or is it simply over-precaution?

AAX, in Hong Kong, suspended withdrawals, blaming “third party partners” while at the same time denying exposure to SBF’s scandal. The company is now scrambling to raise more capital.

BlockFi, another exchange, has also suspended withdrawals, citing the “lack of clarity on the status of FTX and Alameda,” an honest assessment for a company that admitted exposure to FTX. They are now exploring all options to determine the best way forward.

The spotlights are currently on KuCoin and suspended deposits and withdrawals of USDC/USD and USDT/USD on Solana SOL/USD blockchain on November 9th.

KuCoin’s CEO, Johnny Lyu said on November 13th that “demand for transparency” will become investors top priority when determining what exchanges to do business with. KuCoin is reportedly working on their own PoR dashboard.

Governments are, of course, watching these exchanges with renewed scrutiny and there’s going to be calls for more regulation. The silver lining is that exchanges are going to be forced to perform the due diligence that will ultimately serve the customer.

Ask anyone who has lost money that they couldn’t afford to lose to crypto; they would be willing to put up with more regulation if it means a safer investment for them and their families. Because transactions made on the blockchain are transparent and traceable by anyone, regulatory actions will always be conducted in the open.

In case there is overreach by regulatory boards or governments into crypto markets in the future, it will happen in public, in the open, and the large, strong community of peers that crypto has built over the years will have an equal opportunity to voice their concerns and lobby for a compromise that serves the interests of the investor, while still protecting them.


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