Special Post: The Collapse of FTX

By Brian in Chicago on November 13, 2022 • ( 0 )

[Note: the weekly headlines post will be published on Monday the 14th]

The third largest exchange, FTX, and its origin trading company, Alameda Research, filed for bankruptcy.

The tl;dr is that there was a CoinDesk report that questioned the nature of the nature of the assets at Alemeda, which caused a run of confidence for the FTX exchange token, FTT. Alemeda used a substantial sum of FTT as collateral for loans, and as the value began going down, it began a liquidity crunch that fed a crisis of confidence, which led to panic withdrawals on FTX (which did not have full reserves,) and then an industry-wide cascade effect that unraveled in mere DAYS.

Fast-forward to Friday evening, and we have Sam Bankman-Fried (SBF) stepping down as CEO, all withdrawals halted, and the collateral damage is spreading: (Blockfi, which FTX bailed out after the Luna/Three Arrows/Voyager debacle of May/June, has halted withdrawals and they even shut off their credit card to prevent the liability balance sheet from growing (Fold card for the win.)

Expect the regulatory hammer to fall. Just three weeks prior, SBF opined on his views for regulation, which, irony of ironies, may come in the form of legislation that he helped to craft with the US Congress (see Charles Hoskinson’s video below.)

Just when we thought it was safe to go back into the water after the Terra Luna debacle, we get hit by the FTX drive-by shooting.

All of this is a good lesson in third-party risk and doing self-custody of your crypto.

Keep an eye out for any services that uses Fireblocks or Prime Trust as their custodian (Swan Bitcoin and Strike being two such services [Full disclosure, I’ve used both, good services in and of themselves.) As a means of protecting yourself from the contagion spread that’s sure to occur as balance sheets collapse, move your crypto and bitcoin off of those platforms and into self-custodied wallets you control (there is a link below for the Coinomi hot wallet, plus you can also use a cold-wallet service like Nano, Ledger, and many others out there.)

Err on the side of caution- worst case, you miss out on some gains. Best case, you avoid being locked out from access to your assets.

Comments and suggestions, questions, reach out -> hello @ tinycryptoblog.com

Be well and be safe, Everyone.