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Bankman reveals 5-step path to FTX collapse

Dubai: Khansa Al-Zubair
In a letter to employees of bankrupt cryptocurrency exchange FTX, Sam Bankman-Fried, the company’s founder and former CEO, blamed circumstances for his irrational decisions.
He said he was nervous in the face of pressure and leaks, as his cryptocurrency empire quickly lost investor confidence and customers quickly withdrew billions of dollars from the exchange, noting that he had lost most important things in the turmoil. which drove the company into bankruptcy. He told the staff that he cared about all of them deeply and that they were his family, and he felt sorry for them.
In an interview with CNBC, a current FTX employee said it was a bit late and stated that he has never heard an emotional pitch from Sam, so he doesn’t imagine Sam will change his tune now.
Sam explains to his staff the events leading up to the company’s eventual bankruptcy, along with some rough accounting, as in about a week the stock went from a $32 billion company filing for bankruptcy protection according to the Chapter 11.
Even as he accepted what had happened, he still seemed convinced he was going to save his empire in the final hours before he entered the protection of Chapter 11.
He wrote that they likely raised significant funding, perhaps billions of dollars in interest funding within about eight minutes of signing the Chapter 11 filings, and that among those funds were billions of dollars in collateral that the company still held and the interest he was receiving from other third parties, he thinks he could return significant value to customers and save the company.
In the letter, he wrote to his employees that he wanted to give them a better description of what happened and that he believed the events leading up to this month’s incident included:
1) a market crash this spring that led to a nearly 50% drop in the value of the collateral; From ($60 billion in guarantees, $2 billion in liabilities), to ($30 billion in guarantees, $2 billion in liabilities)
2) Most field loans dried up immediately; ($25 billion of guarantees, $8 billion of liabilities)
3) a highly correlated concentration collapse in November that led to another ~50% fall in the value of collateral in a very short period of time, as there was very little liquidity on the supply side of the market; ($17 billion in guarantees, $8 billion in liabilities)
4) crowding out of banks for the same reasons in November; ($9 billion in guarantees)
5) As we frantically put it all together, it became clear that the position was too large for the admin/users due to old cash deposits before FTX had bank accounts: ($9B in collateral, vs $8B in liabilities)
Sam said he never intended for this to happen and that he didn’t realize the full extent of the margin position, nor did he realize the amount of risk posed by a highly correlated crash. The Loans and the Sales secondary companies have generally been used to reinvest in the business , including the purchase of Binance, and not for large amounts of depreciation.
lack of monitoring
He regretted not observing in the past and said he wished he had done many things differently. For example, but not limited to:

  • He has never been more skeptical of high-margin trades
  • A “stress test screening” scenario involving highly correlated incidents and concurrent bank assaults
  • To be more attentive to cash transactions on FTX
  • Have ongoing monitoring of total deliverable assets, total client positions and other key risk metrics
  • Put more controls on margin management

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