Stranger still, when six figures’ worth of USDC stablecoin arrived, it became clear it originated from a crypto wallet belonging to FTX.com.
The person said they wondered privately whether the money could have been drawn down from customers’ assets on the platform.
They didn’t probe further.
Investigations Underway
FTX’s lax oversight, ad hoc spending and potential mishandling of customer funds are at the heart of what regulators in the US and Bahamas are now investigating. Even after filing for bankruptcy on Nov. 11, analysts say about $662 million in tokens mysteriously flowed out of both FTX’s international and US exchanges.
The collapse is already drawing comparisons to Lehman Brothers, Enron and Bernie Madoff’s Ponzi scheme -- another “vast explosion of wealth that nobody quite understands where it comes from,” as former Treasury Secretary Larry Summers put it.
Bankman-Fried could yet be in a league of his own.
FTX.com, a Bahamas-based exchange that took in customer money directly, ran up a $32 billion valuation since its founding in 2019, drawing in the biggest names in venture capital including Sequoia Capital, Tiger Global Management and SoftBank Group Corp. and using endorsements from Gisele Bundchen and Tom Brady to tout its services.
It lured more than 1 million traders from all around the world by allowing them to borrow large sums for highly speculative wagers on the price movements of more than 300 virtual currencies.
Even though Bankman-Fried assured customers that they were protected, the reality is they were at the mercy of oftentimes violent swings in the crypto markets. The day before its bankruptcy filing, FTX held $900 million in liquid assets against $9 billion of liabilities, according to the people familiar with its balance sheet.
That shortfall ballooned in large part because many of the tokens, like Serum’s, hold no obvious inherent value -- as Bankman-Fried himself explained. The Serum protocol, built on the Solana blockchain, emerged two years ago with a vague promise to offer an order book-based decentralized exchange. In return, investors including Tiger Global showered the project with tens of millions of dollars.
A Tiger Global representative didn’t immediately reply to a request for comment.
Hype Man
But in the brave new world of decentralized finance, or DeFi, it was Bankman-Fried who proved to be the biggest hype man of all for new ideas.
Projects sprouted up all the time with his support -- Maps.me and Oxygen among them.
This new world of investing and protocols came with its own lexicon (multi sig wallets, Merkle trees, crosschain interoperability), making it difficult for outsiders to cut through to the underlying meaning, if it existed in the first place.
Oftentimes, it was Bankman-Fried who stepped up to break it all down, whether through professorial-sounding Twitter threads or with his signature banter on any number of podcasts and online videos.
In one interview, proselytizing Serum, he explained why it made sense to use Solana for the project.
“This gets back to, what’s the vision here?” he said. “If the vision here is to support the current power users as much as possible, then I think Ethereum makes a ton of sense. If the vision is to grow out the DeFi ecosystem to 10,000 times as big as it is right now, then I think not only do you have to look at alternatives, but I think there are fewer costs to doing so.”
Serum’s Struggles
Though the Serum protocol was supposed to hold so much promise as recently as January, when it received funds from 18 investors, development nearly ground to a halt just months after it began. Like many promising projects Bankman-Fried imagined, it didn’t fully materialize before FTX unraveled.
Other tokens left hanging on the FTX balance sheet tell a similar tale. Maps.me token, which claimed to be part of an “omnichain infrastructure” and listed on FTX ten months ago, comprised more than $600 million of its “less liquid” holdings. A sister token, Oxygen, was similarly billed as a pivotal piece of the rapidly developing DeFi infrastructure, with prime broker functions.
The tokens collapsed in the wake of FTX’s Chapter 11 filing, and are each worth fractions of a penny.
Just about every coin is feeling the pinch. Crypto altcoin Solana dropped as much as 14% on Sunday, while other altcoins including Polkadot, Avalanche and Tron fell between 1.7% and 5.4%. Dogecoin tumbled as much as 7.5%. Bitcoin remains near a two-year low and Ether is still down more than 70% from its peak.
For much of the past two years, crypto served as an extreme reflection of the mood in financial markets broadly. Not anymore: the S&P 500 posted its best week in more than four months as digital assets buckled and FTX hurtled into bankruptcy.