How did FTX scam us all — TLDRed
Learn about how FTX and Alameda commingling customer funds and carry out their fraudulent activities in this 3 minutes TLDRed video. (btw script refinement with help of ChatGPT :) )
In this video, we’ll be discussing the alleged scam perpetrated by FTX and Alameda Research, including the commingling of FTX customer funds. For a quick summary of the situation, check out our TLDR video on what has been called the biggest financial fraud ever.
Before we get started, here’s some key information you need to know:
Alameda Research is a cryptocurrency quantitative trading firm that specializes in market making, yield farming, and trading.
FTX is a cryptocurrency exchange that allows customers to trade cryptocurrency. At one point, it was the second-largest crypto exchange in the world.
Both companies were founded by Sam Bankman-Freed in 2017 and 2019, respectively.
FTX created FTT Tokens as the utility token of their exchange, used for trading fees, incentives, and leveraged requirements.
Here’s what happened behind the scenes:
First, FTX printed a large number of FTT Tokens, which they then lent to Alameda Research. Allegedly, Alameda was allowed to borrow unlimited funds from FTX.
Alameda then used these FTT tokens as collateral to borrow loans from other lenders, such as other exchanges. Because Alameda is an established company, they were often able to borrow at leverage ratios as high as 20 times the collateral amount.
This means that if they had $1 million worth of FTT tokens, they could effectively borrow $20 million worth of USDC or BTC from another exchange. It’s easy to see how FTX and Alameda could print FTT tokens, which have no real intrinsic value, and swap them for 10 to 20 times the real assets, such as fiat currency or other crypto assets.
With the free money obtained from these loans, Alameda used the funds for their trades on FTX and other personal luxury indulgences, such as properties in the Bahamas. Millions of dollars were even transferred to SBF and other executives, which they termed as personal loans.
As Alameda traded more on FTX, it helped drive up the FTT token price and enabled them to borrow more leveraged money from other lenders. At the same time, with solid trading volume and inflow of trading funds in FTX, they continued to raise more funds via external venture capitalists.
However, things started to turn really bad when the entire crypto market took a downturn. Alameda started losing a lot of money from their risky trades, particularly because they were trading on leverage. They continued the cycle of borrowing more money for their big bets, and it only got worse, with estimates suggesting that they had accumulated up to a billion dollars of losses.
This is where the real problem began. Alameda had no money to service their loans, and FTX allegedly committed a sin by secretly transferring billions of dollars of their customer funds to Alameda to cover their losses. This cycle repeated itself, and this is how the entire FTX Ponzi scheme supposedly worked.
We will continue to cover the FTX saga on our channel, so stay tuned. In the meantime, please like, subscribe, and share this video with others. Thank you!
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