To blunt the crypto contagion effect, Binance CEO Changpeng “CZ” Zhao -- whose dumping of FTX’s FTT coin precipitated Bankman-Fried’s demise -- said on Monday that his exchange plans to set up an industry recovery fund. He didn’t specify how big it might be, or what it would take for a project facing a liquidity crisis to qualify.
It’s the kind of position in the crypto world previously assumed by Bankman-Fried.
Money Made
One of the key questions as FTX’s bankruptcy progresses is who got rich from FTX’s money spigot.
It’s an open secret that crypto, with its loose regulations, is fertile ground for pump-and-dumps, often called “rug pulls.”
But more pertinent to FTX is its close ties with Alameda -- a relationship it boasted about in its public white paper. Bankman-Fried claimed Alameda booked $1 billion in profit in 2021. Without the kind of guardrails keeping traditional financial institutions in check, the possible avenues of mischief are numerous.
Could Alameda view the levels of FTX customers’ margin, giving it knowledge of where to push prices to force customer positions to unwind? What boundaries existed to prevent the firm from jumping ahead of FTX users’ trades? With two corporate entities rolling up to Bankman-Fried, was the temptation to share information too tantalizing to resist?
Bankman-Fried and Alameda CEO Caroline Ellison, whose Massachusetts Institute of Technology and Stanford University imprimaturs and coveted roles at Jane Street, had an aura of untouchable genius and credibility with even the wonkiest math geeks. As more details come to light, it looks as if what they were doing wasn’t particularly sophisticated at all.
Regulators are scrutinizing whether it was above board.
The Bahamian police are working with the Bahamas Securities Commission to investigate whether there was any criminal misconduct in the collapse of FTX. He was questioned by Bahamian police and regulators Saturday, according to a person familiar with the matter.
Bankman-Fried and Ellison shrugged away concerns over conflicts earlier this year.
“We definitely have a Chinese wall in terms of information sharing” between the two, Ellison said when asked for a Bloomberg News article in September.
Yet four executives at FTX and Alameda are said to have known about a backdoor between the exchange and trading firm, according to a Wall Street Journal report.
As for Serum, it and other crypto projects are a long way removed from the “summer of DeFi” that it declared in a white paper around mid-2020. That was just as digital assets were on the brink of an epic boom that spawned Super Bowl ads, stadium naming rights and crypto bandwagoners who were all-too-eager to tell non-believers to “have fun staying poor.”
The paper also contained a note of caution for anyone willing to listen during those heady times.
“Serum isn’t perfect; nothing is.”
--With assistance from Yueqi Yang.
This article was provided by Bloomberg News.