Tracking the ripple effects of FTX’s collapse

While 2022 has already been a rollercoaster year for the crypto industry, the downfall of Sam Bankman-Fried (SBF)’s egregiously mismanaged FTX empire takes the cake as one of the most catastrophic events in the sector’s history.

In a CoinDesk report, it was revealed in a leaked Alameda balance sheet that the FTX sister company had US$14.6 billion of assets against US$8 billion of liabilities, of which US$5.8 billion was primarily held in FTX’s printed-out-of-thin-air FTT token among other illiquid locked tokens and equity securities. In addition, 37% of the FTT tokens Alameda held were allegedly collateralized to borrow USD stablecoins, inciting doubts about the two companies’ actual asset position and their solvency.

Impact of FTX’s insolvency

As the largest cryptocurrency derivatives exchange and one of the biggest spot exchanges – with a combined daily volume exceeding US$16 billion, according to CoinGecko – FTX was at the center of the crypto ecosystem. Its failure has major implications for many of the industry’s stakeholders.

To give a sense of its impact, we’ve broken down these implications into short-term and long-term effects.

Immediate impact

Following the rumors of FTX’s insolvency, many users rushed to withdraw their assets from the exchange. On November 7, the exchange processed US$2.8 billion in outflows in just a single day. These outflows only consider Bitcoin (BTC), Ether (ETH), USD Coin (USDC), and Tether pairs – they don’t take into account other altcoin withdrawals.

According to data from Arkham Intelligence, the value of FTX’s asset reserves in its public Ethereum wallets fell from over US$8.4 billion a few days prior to the bank run to just US$700 million as of November 16.

Mass customer withdrawals coupled with market participants short-selling FTX’s FTT token – which the firm held more than US$6 billion worth when valued at US$25 per FTT – resulted in the exchange’s reserve balance falling drastically overnight.

Upon halting withdrawals and filing for Chapter 11 bankruptcy, many users and institutions reported they had significant asset holdings on the insolvent exchange. In a Financial Times report, a copy of FTX’s balance sheet as of November 10 revealed that the exchange has US$8.9 billion in net liabilities, of which US$8.4 billion are customer deposits.

Although FTX had a significant amount of liquid and semi-liquid assets lying around in its public wallets, the majority of it was held in its own FTT token along with other FTX-backed Solana ecosystem tokens like SRM, MAPS, and OXY. The situation was made worse as the platform’s wallet private keys were compromised and subsequently hacked, resulting in a further US$600 million being drained from its reserves.

Short-term effects

By the end of 2021, FTX had more than 5 million registered users and peaked at 1 million daily active users on its platform, so the immediate impact on retail users who kept their crypto assets on the exchange was devastating.

Direct exposure

With that said, many prominent institutional trading firms, venture funds, and market makers were not spared. These institutional investors and organizations had direct exposure to FTX based on their respective public statements:

1. Silvergate:
2. SkyBridge: 30% stake held by FTX, US$10 million in FTT
3. BlockFi: US$600 million loan
4. Paradigm: US$290 million
5. Temasek: US$275 million
6. Sequoia Capital: US$213.5 million
7. Multicoin Capital: 15.6% of total fund assets under management (AUM)
8. Genesis Trading: US$175 million
9. SoftBank: US$100 million
10. Galois Capital: ~US$100 million
11. Galaxy Digital: US$77 million
12. Amber Group:
13. GSR:
14. Ikigai: “a large majority of the hedge fund’s total assets”
15. Pantera Capital:
16. Selini Capital: 3% of AUM
17. Star Atlas: ~50% of treasury funds
18. Signature Bank:
19. CoinShares: US$30.3 million
20. Hodlnaut: US$13 million
21. Celsius: US$12 million
22. Circle: US$10.6 million
23. Crypto.com: US$10 million
24. Vauld: US$10 million
25. Sino Global Capital: “mid-seven figures held in custody”
26. Solana Foundation:
27. Liquid Meta: US$4.3 million
28. Voyager Digital: US$3 million
29. Mechanism Capital: “non-trivial sum”
30. BlackRock: “a very small minority position”
31. NEAR Foundation: “minimal exposure”
32. Wintermute: “not a significant impact, within risk tolerance”
33. Kraken: 9,000 FTT
34. Jump Trading: Undisclosed

Other than direct exposure to having assets on FTX, other centralized finance (CeFi) companies are experiencing a liquidity crunch. Crypto lenders Genesis, SALT, and BlockFi have since halted withdrawals, citing liquidity issues following FTX’s collapse. Liquid Global, a crypto exchange owned by FTX, has also suspended its fiat and crypto withdrawals in compliance with the latter’s Chapter 11 proceedings.

Loss of trust in centralized exchanges

Closely affiliated blockchain ecosystems

Network security

Solend

Sollet wrapped assets

Serum

Long-term effects

Impact on Web3 venture capital

Bailouts

Regulatory crackdown

Consumer confidence

Conclusion