FTX founder and former CEO Sam Bankman-Fried apologized to his former colleagues and explained why the crypto exchange failed in a new letter.
According to the letter, which was sent on Tuesday and reviewed by The Block, a series of events led to the demise of FTX.
It began with the market’s crash in the spring, followed by credit “drying up,” and ended with customers withdrawing their funds in large numbers, according to SBF.
To compound matters, FTX’s poor margin management and risk controls eventually led to the company filing for bankruptcy, according to the letter.
After that, SBF apologized in a new letter saying,
“I never intended this to happen. I did not realize the full extent of the margin position, nor did I realize the magnitude of the risk posed by a hyper-correlated crash.”
According to Bankman-Fried, FTX had around $60 billion in collateral and $2 billion in liabilities this spring, but the collateral’s value was reduced by half due to a market crash.
Because of the industry’s credit crunch, FTX’s collateral was worth around $25 billion, but liabilities increased to $8 billion.
Another crash in November “led to another roughly 50% reduction in the value of collateral over a very short period of time,” with the value of collateral at the time being $17 billion.
Then, in November, a bank run caused by what Bankman-Fried called “attacks” reduced the collateral to $9 billion, he said.
In addition, the letter states, “As we frantically put everything together, it became clear that the position was larger than its display on admin/users, because of old fiat deposits before FTX had bank accounts.”
In the letter, Bankman-Fried did not address allegations that FTX loaned customer funds to its affiliated trading firm, Alameda Research, in order to cover its liabilities.
He also failed to explain why customer funds appeared to be backed by illiquid tokens rather than simply being held as they were.
He stated that he was “deeply sorry for what happened” and was pressed to file for bankruptcy protection, which he appears to regret.
Furthermore, the letter stated,
“An extreme amount of coordinated pressure came, out of desperation, to file for bankruptcy for all of FTX–even entities that were solvent–and despite other jurisdictions’ claims.”
“We likely could have raised significant funding; potential interest in billions of dollars of funding came in roughly eight minutes after I signed the Chapter 11 docs. Between those funds, the billions of dollars of collateral the company still held, and the interest we’d received from other parties, I think that we probably could have returned large value to customers and saved the business.”
Despite the bankruptcy proceedings, Bankman-Fried believes FTX can be saved. “I believe there is genuine interest from new investors in making customers whole worth billions of dollars.
But I can’t guarantee anything will happen because it’s not my choice “he wrote in the letter
Bankman-Fried resigned as CEO of FTX on November 11 and is no longer employed by the company.
He reportedly does not have access to the company’s Slack account, but a current employee forwarded the letter to the remaining staff.