Yesterday, <a href="https://twitter.com/mrjasonchoi" rel="noopener noreferrer nofollow">Jason Choi</a> released &#39;The Definitive Thread on FTX&#39;. He met <a href="https://twitter.com/SBF_FTX" rel="noopener noreferrer nofollow">Sam Bankman-Fried</a> before FTX started, and witnessed their rise and fall. We loved the thread so much that we condensed the 60 tweets down to 20 tweets for easier consumption.From the very start, <a href="https://twitter.com/SBF_FTX" rel="noopener noreferrer nofollow">SBF</a> wanted to bet BIG. Acquiring more leverage was the main strategy from the inception. This included deceptive fundraises, financial engineering, and ultimately, fraud. Starting his fund named <a href="https://twitter.com/AlamedaResearch" rel="noopener noreferrer nofollow">Alameda Research</a>, promising HIGH RETURNS WITH NO RISK.<img src="https://academy-public.coinmarketcap.com/optimized-uploads/7fead70261e94849a5ca98fb568cb1af.jpeg" /><a href="https://twitter.com/FTX_Official" rel="noopener noreferrer nofollow">FTX</a> raised its first seed round of $8M in 2019. According to <a href="https://twitter.com/mrjasonchoi" rel="noopener noreferrer nofollow">Jason Choi</a> sources, FTX started as an easy way to access capital for Alameda. Employees told him that Alameda had a trading API key that gives faster access - allowing them to front-run client trades.Around September 2019: Alameda allegedly made a failed attempt to manipulate futures on <a href="https://twitter.com/binance" rel="noopener noreferrer nofollow">Binance</a>A market maker from a smaller futures exchange tried to attack &#64;binance futures platform. NO ONE was liquidated, as we use the index price (not futures prices) for liquidations (our innovation). Only the attacker lost a bunch of money, and that was that.FTX capitalized on DeFi hype by creating <a href="https://twitter.com/ProjectSerum" rel="noopener noreferrer nofollow">Serum</a>, a decentralized exchange on <a href="https://twitter.com/solana" rel="noopener noreferrer nofollow">Solana</a>. Serum raised funds in a way that prioritized speed and not diligence - the faster investors committed, the lower the price. Below is a screenshot of their fundraising tranches.<img src="https://academy-public.coinmarketcap.com/optimized-uploads/a501f5b189a943d58e32672f231f2bbc.jpeg" />FTX became directly involved with multiple Serum / Solana projects such as <a href="https://twitter.com/search?q&#61;%24FIDA" rel="noopener noreferrer nofollow">$FIDA</a>, <a href="https://twitter.com/Oxygen_protocol" rel="noopener noreferrer nofollow">Oxygen</a> and <a href="https://twitter.com/search?q&#61;%24MAPS" rel="noopener noreferrer nofollow">$MAPS</a>. Allegedly, much of Serum was operated by full-time FTX employees. Some projects were internally incubated or operated.Around winter 2020: Alameda moved AWAY from delta-neutral strategies and started taking massive directional risks in crypto with massive leverage. It is likely, Serum assets were used as collateral to get that leverage.This is likely how Alameda/FTX suffered the multi-billion dollar hole: Alameda used illiquid collateral to borrow funds to finance risky bets, which got margin called as markets went down this year, leading to the theft of FTX user funds to cover the losses.Meanwhile, SBF was actively pushing for establishing more regulation of crypto. This would ensure the equity value of FTX and <a href="https://twitter.com/search?q&#61;%24FTT" rel="noopener noreferrer nofollow">$FTT</a> - which they used to finance leveraged bets - do not collapse.The double down on marketing paid off when subsequent rounds of fundraises pushed FTX&#39;s valuation to $32B (Jan 2022), with investment from <a href="https://twitter.com/paradigm" rel="noopener noreferrer nofollow">Paradigm</a>, <a href="https://twitter.com/Sequioa" rel="noopener noreferrer nofollow">Sequioa</a>, <a href="https://twitter.com/TomBrady" rel="noopener noreferrer nofollow">Tom Brady</a>, <a href="https://twitter.com/Temasek" rel="noopener noreferrer nofollow">Temasek</a>.In Oct 2022, FTX proposes a standard for regulation that widely favored FTX over any DeFi competitors: <a href="https://www.ftxpolicy.com/posts/possible-digital-asset-industry-standards" rel="noopener noreferrer nofollow">read here</a>.<a href="https://twitter.com/AlamedaTrabucco" rel="noopener noreferrer nofollow">Sam Trabucco</a>, co-CEO of Alameda steps down from the firm in Aug 2022. A month later, FTX acquired Voyage Digital for $1.4B, a brokerage firm that went under due to the collapse of Three Arrows Capital. Despite &gt;100K creditors and billions in liabilities.It is likely that FTX was bailing out entities with large <a href="https://twitter.com/search?q&#61;%24FTT" rel="noopener noreferrer nofollow">$FTT</a> holdings as collateral to prevent forced selling, much of its own leverage is backed by <a href="https://twitter.com/search?q&#61;%24FTT" rel="noopener noreferrer nofollow">$FTT</a>. Not long after, <a href="https://twitter.com/SBF_FTX" rel="noopener noreferrer nofollow">&#64;SBF_FTX</a> takes a jab at <a href="https://twitter.com/cz_binance" rel="noopener noreferrer nofollow">&#64;cz_binance</a>:<img src="https://academy-public.coinmarketcap.com/optimized-uploads/3309a42ac78e4d86bd8b1759537764da.png" />Shortly thereafter, <a href="https://twitter.com/CoinDesk" rel="noopener noreferrer nofollow">CoinDesk</a> releases a concerning piece regarding Alameda&#39;s balance sheet, citing that a huge part of its $14.6B in assets are assets issued by the FTX team itself: <a href="https://www.coindesk.com/business/2022/11/02/divisions-in-sam-bankman-frieds-crypto-empire-blur-on-his-trading-titan-alamedas-balance-sheet/" rel="noopener noreferrer nofollow">read here</a>.Nov 6, 2022: <a href="https://twitter.com/cz_binance" rel="noopener noreferrer nofollow">Changpeng Zhao</a> (CZ) states that in light of revelations regarding Alameda&#39;s balance sheet, Binance will liquidate the entirety of its whopping ~$584M in <a href="https://twitter.com/search?q&#61;%24FTT" rel="noopener noreferrer nofollow">$FTT</a>.<a href="https://twitter.com/carolinecapital" rel="noopener noreferrer nofollow">Caroline Ellison</a>, CEO of Alameda then makes a public offer to CZ to purchase all <a href="https://twitter.com/search?q&#61;%24FTT" rel="noopener noreferrer nofollow">$FTT</a>. Shortly after, SBF publicly claimed that FTX DOES NOT INVEST CLIENT ASSETS and that it has enough to cover all withdrawals, however, withdrawals were soon frozen on Nov 8.<img src="https://academy-public.coinmarketcap.com/optimized-uploads/33a30efa7b0c4be89b41c8b4c64f223e.png" />Nov 9: a potential deal to acquire FTX by <a href="https://twitter.com/binance" rel="noopener noreferrer nofollow">&#64;binance</a> was announced by CZ and SBF. Meanwhile, FTX still sent Alameda $10M in USD while freezing withdrawals for users (see image below). Nov 10: CZ called off the potential bail-out deal.<img src="https://academy-public.coinmarketcap.com/optimized-uploads/acb2085dfa5548c8b1c2389b769107cf.png" />Shortly after, withdrawals seemed to have resumed on FTX. Below is a DM leaked to Jason Choi, where SBF seemingly instructed one of his employees to once again commit fraud publicly. Bahamian regulators later refuted making such a statement.<img src="https://academy-public.coinmarketcap.com/optimized-uploads/a533c1ea0f7c413c9ea5198cbacec10b.png" />Speculation began to arise that insiders were cashing out, and commingling their withdrawals with actual Bahamian users. After the bankruptcy announcement, withdrawals were finally paused; however, hundreds of millions began to be siphoned from FTX.Then, <a href="https://twitter.com/zachxbt" rel="noopener noreferrer nofollow">ZachXBT</a> revealed a potential hack has likely occurred on FTX.According to primary sources from FTX, only 4-5 senior executives knew the extent of FTX&#39;s woes until the very end. These are: SBF, Caroline Ellison, Gary Wang, Ramnik Arora, Constance Wang, Nishad Singh.This is just a summary, check out the comprehensive thread <a href="https://twitter.com/mrjasonchoi/status/1592502785873825794?s&#61;20&amp;t&#61;2iM6RVWvOXv8jFqJaLRnFA" rel="noopener noreferrer nofollow">here</a>:The Definitive Thread on FTX I met SBF before FTX started, and witnessed their rise and fall. I can&#39;t stand &#64;nytimes&#39;s puff piece. If anyone wants to know what happened, send them this.Prefer to listen to this? Jason Choi recorded an abridged, 20-min version of this on his podcast <a href="https://twitter.com/theBlockcrunch" rel="noopener noreferrer nofollow">Blockcrunch</a>:--Subscribe to receive our weekly newsletter and in-house research content!<a href="https://www.0xilluminati.com/p/jason-chois-the-definitive-thread" rel="noopener noreferrer nofollow">Subscribe</a>Please Share, Leave Feedback, and Follow Us on <a href="https://twitter.com/0x_illuminati" rel="noopener noreferrer nofollow">Twitter</a>, <a href="https://t.me/illuminatiDaily" rel="noopener noreferrer nofollow">Telegram</a>, and <a href="https://www.linkedin.com/company/0x-illuminati" rel="noopener noreferrer nofollow">LinkedIn</a> to stay connected with us.

The Crypto Illuminati: Jason Choi's 'The Definitive Thread on FTX' Summarized

M6 Labs 🔬

Other articles published on Nov 17, 2022

FTX Crisis: USDD Depegs from Justin Sun's Algorithmic Stablecoin

Welcome to — MOMO Cup 2022!

How Sustainable Are You? Measure your Sustainability Score

Crypto investment strategies in the bear market

New Shido Wallet V1.0.3 available to Download!

TRON-Based Tokens Trading At 1200% Premium As FTX Users Rush To Withdraw

Join our free newsletter for daily crypto updates!