Sam Bankman-Fried explains the causes of the FTX collapse and the FTT token

The collapse of the FTX utility token (FTT) was not caused by a lack of liquidity, but by actions of investors who were gripped by fear amid the market conditions. This was stated by Sam Bankman-Fried, founder of the cryptocurrency exchange, in an interview with Tiffany Fong on 16 November (published on 29 November).

“I think FTT had real value. […] In many respects [the token] was more legitimate than many other digital assets. It had greater economic backing than other tokens. […] Illiquidity was not the reason for the collapse. It was a mass correlation of events during market moves, especially when they were driven by fear of the position,” Bankman-Fried said.

Facing the crisis, the exchange halted withdrawals for all clients. Later the company opened this option for users in the Bahamian Islands. At FTX, the move was explained as necessary to comply with the local regulator’s requirements.

In an interview with Fong, Bankman-Fried said the move was tied to avoiding angering people in the jurisdiction where the platform is registered.

“Within a day I warned the regulators of the Bahamian Islands that we planned to do this. They didn’t say ‘Yes’ or ‘No.’ They remained silent, and then we did it. All because it was very important for the future of the exchange. […] You don’t want to be in a country with many bad actors, and you don’t want your company registered in a country with many bad actors. […] We tried to reassure the public,” he explained.

Bankman-Fried called the compensation for FTX International clients “insignificant.” It is expected they will receive 25 cents for every dollar of assets frozen on the platform. FTX US users will receive funds on a one-to-one basis.

The founder of FTX refuted Reuters’ report that he allegedly used a backdoor in the exchange’s system that allowed him to move assets to Alameda Research accounts.

“I don’t even know how to program. I literally never opened the FTX codebase,” he emphasised.

Bankman-Fried also spoke about the investigation into the incident with unauthorized withdrawal of assets from the platform on the night of the filing for insolvency.

“I narrowed the circle of suspects to eight people. I don’t know exactly who among them, but I am fairly sure it was either a former FTX employee, or someone who installed malware on a former employee’s device,” he said.

According to Bankman-Fried, he couldn’t determine more because he lost access to the platform’s systems.

In the second part of the interview (the conversation took place on November 20), the founder of FTX said that the collapse was caused by a confluence of events he should have anticipated.

“This was a combination: the spring crash, when asset values fell by 50%, a hyper-correlated scenario this month — in two days the prices of the corresponding assets fell by 50%, “bank panic” at FTX, while the size of the margin position was significantly larger than it appeared,” he said.

Fong asked Bankman-Fried about how events might have unfolded without the statement by Binance chief Changpeng Zhao about selling FTT on the open market in light of recent disclosures.

“I think the situation would certainly have been much more stable. We would have had more opportunities to find liquidity. But there would still be too much margin in the system. Something like 50 to 50,” he replied.

Earlier, Zhao had allowed the possibility of purchasing FTX assets, saying that some of them could still be salvaged.

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