That escalated quickly: FTX’s fall catches the world by surprise

In Token Issue this week, we look at the latest crypto collapse: FTX. Was it taken down by a rival or by its own bad finances? [Read from your browser]( Token Issue Welcome to Token Issue! Delivered every Friday, this free newsletter breaks down the biggest stories in Asia’s crypto scene and beyond. View past issues [here]( or [sign up here]( to receive future newsletters. Written by Scott Shuey Crypto journalist Hi {NAME} This week started with [Sam Bankman-Fried]( - a crypto entrepreneur better known as SBF - as a billionaire, 15 times over. It will end with both his projects, [FTX]( and [Alameda Research]( in ruins. Still standing in the crater of what was once two of the most powerful and respected organizations in crypto is [Binance]( CEO [Chengpeng Zhao](. Also known as CZ, he is a former ally-turned-rival of SBF. Whether CZ was the architect behind the failure of those two projects or was just acting to protect his own company will be a point of contention, probably for years. Things escalated quickly after [Coindesk]( released its news report. The publication claimed to have seen documents showing that Alameda Research had an unusually large exposure - over half of its net assets - to FFT, the native token on FTX. Before the report, there were generally no concerns about the financial health of FTX. Sequoia Capital, which had invested US$150 million in FTX in 2021, said its due diligence found a company [making US$1 billion in revenue and US$250 million in operating income.]( There's nothing illegal about Alameda holding FTT, but it raised concerns that the project had too much of a stake in a sister company that was supposed to be operating independently. If the value of FTT were to drop, it could have adverse effects on both. Remember, FTT is a volatile cryptocurrency and not a fiat-backed stablecoin. Anyone with a memory that goes back further than six months [will understand why that’s a concern](. Enter CZ, stage right. Binance had bought out of FTX last year and taken an estimated 23 million in [FFT]( as payment. CZ certainly remembered the Luna crash, and said so. He also announced to the world that Binance [would liquidate its entire holding of FTT]( over the next few months. Why CZ said this is unclear, but you’d expect that the head of the largest centralized exchange in the world would understand the consequences of that statement. There was a sell-off, which drove down the price of FFT from US$22 to US$16. Caroline Ellison, CEO of Alameda, offered to [buy Biannce’s FTT at US$22 a token](. But CZ [turned it down]( saying he’d rather take his chances on the open market. After that, the run was on. [Reuters reported]( that over US$6 billion was pulled from FTX, and Binance on Tuesday ceased withdrawals of everything except fiat money. SBF [took to Twitter]( and tried to persuade everyone that everything was OK and assets were secure. The [short position on FTX kept growing]( underscoring the point that much of the market didn’t believe him. CZ claimed FTX turned to him for help, so he offered to buy the company pending due diligence. That process lasted less than a day before [the deal was called off](. Everyone wants to know what Binance found there, but the company did release a statement that mentioned mishandled customer funds and alleged US agency investigations into FTX. By Thursday, SBF was [no longer a billionaire]( and FTT, which once traded at US$22, was worth only US$2.35. FTX, which used to be the world’s third-largest crypto exchange, announced that without a capital injection to cover an [US$8 billion shortfall]( bankruptcy is the likely end. See also: [Why the FTX collapse is a big deal]( What comes next? CZ has clarified that [he did not orchestrate FTX's downfall](. In an email to Binance employees, Zhao claimed that he had “little knowledge of the internal state of things” at FTX before striking a deal to buy it. “I was surprised when [SBF] wanted to talk,” he wrote. That said, not everyone believed CZ. Many investors are now feverishly looking for a safe positions to weather the upcoming storm. [JPMorgan said]( on Wednesday that markets face another round of cascading of margin calls similar to the ones that followed the UST crash. It predicted Bitcoin prices could fall as low as US$13,000. The collapse of a major crypto player isn’t just devastating to its employees or creditors. Investees could be hurt by an equity or token dump in an effort by the player to survive a liquidity crunch. [Robinhood]( which [counts FTX as a shareholder]( saw its stock drop 20% to around US$9.74. Alameda [allegedly dumped]( Bit tokens despite a three-year no-sale commitment, though the trading firm has denied making such a move. For Web3 startups, reverse due diligence will prove to be important. To that end, the crypto scene’s push towards transparency of treasury reserves in the wake of this disaster will be helpful. That’s not to say there aren’t efforts to save FTX. Justin Sun, founder of the Tron cryptocurrency network, [tweeted]( late Wednesday that he and his team were "putting together a solution." The tweet came hours after the Binance deal fell through. Sun provided no details, only saying that his team "has been working around the clock to avoid further deterioration." After this week, everyone must be wondering if there is anywhere we can safely invest in crypto. Probably not, since all investments involve risk, but finding a company that was wise to FFT or FTX in the first place would be a good start. That leads us to one of this week’s Big Stories by my colleague Shihan on Independent Reserve. The Australian-headquartered exchange is assuring investors that it has no exposure to either of SBF’s creations, attributing this feat to its conversative approach in managing assets. – Scott  ---------------------------------------------------------------  THE BIG STORIES 1️⃣ [Independent Reserve pivots from retail investors as regulatory tightening looms]( Independent Reserve is the first cryptocurrency exchange to receive a license to operate in Singapore. In an interview with Tech in Asia, the platform said it will shift its focus away from retail investors and instead concentrate on the country’s institutional and accredited investors as well as family offices. In light of some recent issues, Independent Reserve is playing it safe with Singapore regulators. It is also assuring customers that it is not exposed to FTT or FTX. 2️⃣ [Buy this NFT, get a ‘lifetime’ lifestyle membership]( New technology can have strange effects. Pong is still credited with helping people understand the potential of computers. Now we have NFTs, a technology that has both legal (contracts) and consumer (receipts) applications. And now we’re using them to … check notes … buy images of anthropomorphized and [occasionally racist]( images of primates as “investments” that we use as profile pics so we can “[flex]( Love or hate them, NFTs are off to a weird start, but already we’re seeing them morph into something normal, such as a membership card. Shihan also talked to the folks at LifeDAO, a company offering NFTs that function as lifetime membership passes for a network of salons, gyms, and spas around Singapore. It sounds pretty convenient, but there are some caveats, as you’ll find out. P.S. If that’s just too normal for you, I’ve got a story here on using [NFTs to sell satirical panties](. 3️⃣ [Hodlnaut assets hit by FTX debacle]( Bankruptcy courts are usually where companies go to protect their assets, but not even an interim judicial management - the Singapore equivalent of a restructuring - could protect Hodlnaut from the FTX fiasco. Hodlnaut, the Singapore-based crypto lender under judicial protection after halting withdrawals on August 9, may face further losses due to solvency issues at FTX, which ceased withdrawals on Tuesday. Hodlnaut had S$18.1 million in assets as of October 27 in the Bahamas-based exchange, according to court documents.  --------------------------------------------------------------- ⭐ TO THE STARS A look at what’s pushing Web3 forward Japan’s NTT Docomo to set up $4b Web3-focused firm The mobile operator giant has set aside between 500 billion yen and 600 billion yen (between US$3.4 billion and US$4 billion) to invest in Web3 tech, [Nikkei Asia reported](. It will use the funds to set up a company that will develop blockchain-centered solutions and begin operating in 2023. The development is not [NTT Docomo]( first Web3 push. Earlier this year, the firm announced that it had [opened a unit]( dedicated to the metaverse. [Qonoq]( was last said to have 200 staff.  --------------------------------------------------------------- 🌙 TO THE MOON Tokens, NFTs, and yield generators we’re noticing [Delysium]( Delysium is a Southeast Asia-focused Web3 gaming firm creating an open-world MMO title. The company, headquartered in the US, has raised $10 million. --------------------------------------------------------------- 🌏 BACK TO EARTH The week’s biggest roadblocks [Pharma bro reassures crypto bro about life in prison]( When you are arguably one of the [most wanted men in the world]( it’s not a good look to be seen hanging out with a man convicted of securities fraud and discussing a possible deal to save FTX. But that’s what happened when Do Kwon and Martin Shkreli showed up to talk on a Twitch podcast. Kwon is wanted in Korea (and elsewhere) for the collapse of TerraLabs, which culminated in the UST/Luna crash in May. Shkreli is an American former hedge fund manager and convicted felon. “In the list of villains for this year, Do is moving further down,” said Wintermute CEO Evgeny Gaevoy, another guest on the show.  --------------------------------------------------------------- STILL A PONZI SCHEME The dark underbelly of Web3 and crypto today You’ll excuse us if we skip this section this week. If you’re looking for stories about losses, mayhem and general Ponzi-ishness, we suggest you reread our stories on FTX. --------------------------------------------------------------- MORE TO CHEW ON 1️⃣ [Binance looking at buying banks]( In between liquidating his company’s FTT holdings and helping Elon Musk take over Twitter, Binance founder and CEO Changpeng Zhao told Bloomberg he is also looking into buying banks as a way of bridging the gap between Web2 and Web3. Zhao has said in the past Binance has over US$1 billion to spend on acquisitions. 2️⃣ [Musk tells Twitter to pause development of crypto wallets]( Before FTX, it was new Twitter CEO Elon Musk who seemed to be having the worst week. Focused on monetizing the social network apparently doesn’t include crypto at this time. According to The Platformer, Twitter’s Web3 wallet project has been put on hold. 3️⃣ [Nearly $1b of Solana is set to be unstaked]( Validators were scheduled to unlock 49.6 million [Sol]( (US$945 million) starting Thursday. The timing isn’t ideal, as the token plummeted 53.6% just over the past week. It's the second-largest volume of tokens to be unlocked in any Solana epoch and comes as crypto markets are falling due to concerns over the collapse of FTX. An epoch in Solana usually takes two to three days. 4️⃣ [Temasek engaging with FTX]( In comments to Reuters, Singapore’s state investment firm [said]( that it was "aware of the developments between FTX and Binance, and are engaging FTX in our capacity as shareholder."  --------------------------------------------------------------- That’s all for this issue - we hope you liked it. WAGMI! P.S. Don't miss out on the biggest tech news and analysis. Add newsletter@techinasia.com to your address book, contacts, or safe sender list. Or simply move us into your inbox. Too many emails? Switch to a different frequency or get new content through our [preference center]( or [unsubscribe](. You can also break our hearts and remove yourself from all Tech in Asia emails over [here](  Copyright © 2022 Tech in Asia, All rights reserved. 63 Robinson Road, Singapore 068894