Bahama-based crypto exchange FTX saw its valuation plummet from $32B to $0 in one day. It’s founder Sam Bankman-Fried (commonly known as SBF) saw his net worth evaporate from $16B to $0.

The SBF/FTX implosion is drawing parallels to Lehman but a more accurate analogy would be the infamous energy trading company Enron: a once high-flying firm taken down by criminal financial engineering. 

In the case of FTX, the criminal element is the misappropriation of ~$10B of customer deposits. 

Here are the basics you need to know to familiarise yourself with the FTX saga - 

• SBF is an MIT grad who worked at a quant trading firm (Jane Street) before starting his own crypto hedge fund / market maker (Alameda Research) and a crypto exchange (FTX) in 2019.

• The relationship between Alameda Research and FTX has always been opaque (eg. some people believe that Alameda front runs trades based on information it has from the FTX exchange).

• One of the earliest investors in FTX was Binance, the world’s largest crypto exchange that is run by Changpeng Zhao (CZ). In 2019, CZ invested $100m into FTX for 20 per cent of the firm.

• FTX has an underlying token called FTT, which offers certain benefits for users of the FTX crypto exchange but — in reality — has no underlying value outside of what people believe it is worth (like most crypto tokens).

• Over the past year, SBF’s profile has risen significantly as FTX raised >$2B from platinum investors and gained a valuation of $32B. SBF’s personal wealth swelled to $16B and he talked up his commitment to effective altruism (EA). SBF also became one of the Democratic party’s biggest donors.

• FTX deployed $300m+ on marketing to woo retail investors including stadium naming rights (Miami Heat, which has since dropped FTX), sports partnerships and Super Bowl ads. The PR push worked with FTX becoming the 2nd or 3rd largest crypto exchange in the world.

• CZ sells out of FTX. By the Fall of 2021, FTX had become a serious competitor to Binance and CZ wanted to sell his FTX stake. SBF bought CZ out for $2B+, but part of the deal included CZ receiving a lot of FTT tokens (remember this fact).

• In March 2021, the Fed started raising rates to battle inflation. Speculative assets (read Crypto) started tanking. A number of crypto funds and brokerages blew up. SBF came in as a bailout “savior” (crypto lender BlockFi was saved apparently with the purpose of sweeping in depositor funds into FTX’s scheme). Some compared him to the banker JP Morgan, who propped up the banking industry after a crash in the early 1900s). As we now know, SBF’s hedge fund Alameda Research was also hit hard by the crypto drop…but SBF was able to temporarily hide the problem by “borrowing” customer deposits at FTX (between $5B to $10B) to plug the hole at Alameda. This move is a violation of the terms of service and is an alleged crime.

• SBF was the face of the crypto industry’s push for regulation. He appeared before Congress a number of times and lobbied to have clear regulation written (the latest lobbying efforts looked to knee-cap decentralised trading exchanges in favour of centralised exchanges like FTX).