Anyone here able to do a tl;dr; for us? The FTX story is super confusing. Why are they screwed? What happened?
-SBF's other pet project Alameda Research suffered huge loses after Luna blew up.
-Alameda Research, a 'backer' of FTX was given billions of FTT tokens that they 'owned' by FTX because they participated in its 'ICO', transferred it FTX, and then used it as collateral to 'borrow' FTX user assets, hoping they could gamble with it and make back their money.
CZ, of Binance, got wind of this somehow, and holding billions of FTT on Binance, decided to tank the price by saying it will all be sold immediately
-SBF gets caught with his pants down
Excellent explanation.
Appears to be confirmed by the WSG "FTX Tapped Into Customer Accounts to Fund Risky Bets, Setting Up Its Downfall"
Original: https://www.wsj.com/amp/articles/ftx-tapped-into-customer-ac...
Compare this to traditional finance with events like the collapse of Lehman, then Bear Stearns, with Morgan Stanley next in line to fall. Their competitors stepped in, with a major push from the Fed, to prevent the collapse because they knew it would trigger a domino effect that would crash prices and bring them all down. Binance seems to be doing the exact opposite.
Of course, there's a risk that the hedge fund could lose some or all of the customers' funds. And the exchange promises that customers can have their assets back on demand, which could be a trifle problematic if they are locked up in leveraged positions held by the hedge fund. But this is crypto. There's an easy solution. The exchange can issue its own token to replace the customer assets transferred to the hedge fund. The exchange will report customer balances in terms of the assets they have deposited, but what it will actually hold will be its own token. If customers request to withdraw their balances, the exchange will sell its own tokens to obtain the necessary assets - after all, crypto assets, like dollars, are fungible. ["The FTX-Alameda nexus" - emphasis mine]
The loans had very poor collateral behind them, meaning that FTX were exposed.
It is not currently clear if or how Alameda lost the $billions of client assets, or if they are just illiquid.
There is noise that the client assets were spent on things like the summer bailouts of defunct crypto firms, but I think we are just speculating at that point.