It's difficult to pinpoint exactly where things took a turn for the worst for FTX. Was it the millions worth of lost XRP tokens? Nishad Singh coding "Allow Negative" at the behest of Sam Bankman-Fried? FTX's befuddled bank accounts for customer deposits? The infamously leaked balance sheets?
We all know the end of the story. Now, testimonies from former FTX and Alameda Research employees shed new light on FTX's spiral toward destruction.
The Block poured through hundreds of pages of court transcripts to cobble together a complete timeline. Here's what we know so far:
2017: The birth of Alameda
- Fall 2017: Sam Bankman-Fried and Gary Wang reconnected in Boston after having been roommates at MIT. They discuss starting a cryptocurrency trading firm called Alameda Research. SBF came up with the name, and specifically used "Research" and avoided "crypto" or "trading" in the title to make it sound more prestigious.
2018: Bad accounting from the beginning
- February 2018: The exchange lost track of millions of dollars of XRP tokens. "We got lazy — and our accounting was lazy — and we lost most of what we'd made," SBF wrote.
2019: FTX's early days
- May 2019: SBF founded the crypto exchange FTX.
- May 8, 2019: FTX launched its own cryptocurrency, FTT.
- July 2019: SBF asked FTX Head of Engineering Nishad Singh and Wang to give Alameda an “Allow Negative” permission purportedly to pay for various FTX expenses from Alameda’s accounts.
- July 31, 2019: Singh made the code change. An account with "Allow Negative" can maintain a negative balance.
- Late 2019: SBF told a trader who approached him that it was fine for Alameda to continue withdrawing from FTX, as long as the amounts were below FTX's total trading revenue (which was about $50 - $100 million).
- End of 2019/early 2020: Wang saw that Alameda’s negative balance was greater than FTX's revenue at the time.
2020: Business as usual
- January 30, 2020: A document showed that SBF owned 90% of Alameda Research, and Wang owned 10%. SBF continued to own 90% of Alameda until November 2022.
- Shortly after this: SBF told Wang to include Alameda's FTT holdings in calculating its balances.
2021: Beginning of the end
- Early 2021: A trader on FTX borrowed assets using a large MobileCoin position as collateral. The trade went bad, and Alameda took on the losses, which were in the realm of several hundred million dollars.
- Early 2021: Paradigm co-founder Matthew Huang considered participating in a Series B financing for FTX. He spoke with SBF and Ramnik Arora, head of product at the time for FTX.
- January 2021: Software developer Adam Yedidia started working at FTX's Hong Kong office. Yedidia worked under Singh and sat near him in the office.
- March - June 2021: Yedidia's timeline for automating how customer funds were settled for FTX. The automation processed how customers got credited for their deposits on the exchange for money that was going to North Dimension — a bank account owned by Alameda Research. This bank account paid for customer withdrawals until the switch to FTX's own bank account.
- April 23, 2021: Huang and Arjun Balaji, another investor at Paradigm, sent an email to SBF describing concerns about value leakage should Paradigm invest in FTX. The Paradigm employees discussed how SBF split his time between FTX and Alameda. (Huang: "… we didn’t want to make the investment and then have him spend more of his time on Alameda at our expense and the business’ expense.") Second, they wondered how much preferential treatment Alameda got on the exchange, as the treatment could damage FTX's reputation.
- The preferential treatment included frontrunning, where Alameda’s trades occurred before the customers, giving them an advantage, and in other ways positioning the trading firm more advantageously than customers.
- After expressing the concerns, SBF told Paradigm that Alameda did not get preferential treatment on FTX and that Alameda's presence on the exchange shrunk over time. "We were shown some data about that," Huang testified.
- April 25, 2021: SBF sent an email to some members of the Paradigm team titled "FTX stats, 2021, April 23." The spreadsheet noted that FTX's annualized revenue for Q1 2021 was $596 million, so that the actual revenue in Q1 2021 was $149 million. Annualized trading expenses were $63 million or about $15 million for Q1 2021, while annualized net profits were $322 million or about $80 million for Q1 2021.
- July 2021: Paradigm invested $125 million in FTX's Series B funding round.
- September 2021: FTX moved its headquarters to the Bahamas.
- October 2021: Caroline Ellison and Sam Trabucco became co-CEOs of Alameda Research.
- December 2021: Yedidia discovered a bug where, if an FTX customer withdrew funds, Alameda's debt did not change. When a customer withdrew funds, Alameda's debt should decrease. In effect, the bug exaggerated Alameda's debt by $500 million. The bug had been in the code for 6 months.
- Late 2021: Yedidia changed deposit instructions so that customer funds went into FTX Digital Markets, a bank account owned by FTX. However, customer funds still went into a bank account owned by Alameda into 2022.
- Late 2021: SBF told the Alameda team to "borrow as much money as we could." Ellison prepared a risk analysis report showing Alameda that the billions of investments SBF requested would put Alameda at a "significantly riskier" position. SBF did it anyway, using Alameda's money for FTX Venture funding.
- Late 2021: Ellison sent SBF a document called "Notable Idiosyncratic P&L Stuff." It stated that there was "-850 million from BTMX thing," which referred to FTX’s losses from early 2021 passed on to Alameda due to a malfunction in FTX’s margin system. SBF said he didn’t want the loss on the books because it could look bad to investors.
- At some point during 2021: Alameda paid a $100 million bribe, according to Ellison’s testimony, to unfreeze $1 billion worth of funds that were frozen on crypto exchanges Huobi (now HTX) and OKX as part of a Chinese government money laundering probe focused on an Alameda counterparty. This was after first trying to get the money out using wallets Ellison said belonged to Thai sex worker wallets.
2022: The spectacular downfall
- Early 2022: Paradigm invested another $150 million in FTX for its Series C funding round, bringing Paradigm's total investment in FTX to $278 million.
- May 2022: First time Caroline Ellison is concerned Alameda is insolvent, related to the crypto market crash ongoing at the time.
- May 2022: Ellison learned that $5 billion in loans were used to fund venture investments and political donations. Alameda was "fairly leveraged" through crypto and fiat loans as well as FTX customer funds.
- May 2022: LedgerX employees noticed a few places in the codebase where Alameda would get special treatment. The person who relayed the message to FTX was fired later in the year.
- May 7, 2022: Ellison shared a document on Alameda's risk with SBF, concluding it with "I think things are going better."
- May 7/May 8, 2022: Algorithmic stablecoin UST started to depeg.
- June 2022: SBF, Singh, Wang and Ellison looked at a newly created spreadsheet of Alameda's balances. The spreadsheet showed a negative balance of $20 billion but it overestimated the negative balance by around $8 billion, coming to an actual deficit of $11 billion.
- June 2022: Yedidia finished fixing the bug that exaggerated Alameda's debt at the behest of SBF. He also learned that there was an $8 billion hole in its finances.
- June 14, 2022: Genesis wanted Alameda to repay a $400 million loan. Ellison wrote the following message to Genesis. "Just want to add, really appreciate you guys working with us on this. Unsurprisingly have been getting loans called from everyone across the board but obviously want to help you guys out assuming we can get all our other obligations squared away." Around this time, other third-party lenders asked Alameda for their money back.
- June 19, 2022: Ellison prepared seven alternative versions of Alameda's balance sheet to present to Genesis. The version sent to Genesis did not disclose the $9.9 billion owed to FTX customers.
- Shortly after this: SBF said Ellison could return funds borrowed from lenders like Genesis.
- Late June/early July 2022: Yedidia told SBF about Alameda's $8 million debt.
- August 24, 2022: Sam Trabucco stepped down as co-CEO of Alameda Research. Ellison is sole CEO of Alameda Research.
- September 2022: SBF sent a Signal document to Singh and Wang that discussed the idea of shutting down Alameda. He also wrote a draft tweet thread of its closure starting with "We Came. We Saw. We Researched."
- September 2022: Ellison told Wang that Alameda was currently borrowing $14 billion from FTX.
- September 2022: Internal balance sheet showed that Alameda was borrowing $13.7 billion from FTX.
- November 2022: Yedidia learned from Alameda employee Leila Clark that Alameda used customer funds to repay loans to creditors.
2022: The final days
- November 2, 2022: Coindesk published an article showing that Alameda's balance sheet was largely dependent on FTT.
- November 6, 2022. Regarding the leaked balance sheet, Ellison stated on social media that, "that specific balance sheet is for a subset of our corporate entities, we have over $10 billion assets that aren't reflected there." Alameda did not have these assets, but SBF and FTX did.
- November 6, 2022. Caroline Ellison added that "given the tightening in the crypto credit space we’ve returned most of our loans by now." However, Alameda had returned most of its third-party loans by taking out new loans from FTX.
- November 6, 2022: CZ said he'll sell off FTT. Ellison offered to buy the tokens at $22 a piece. SBF also wrote a memo claiming that Binance leaked the infamous Alameda balance sheet to CoinDesk. The memo also considered other investors to reach out to, such as Justin Sun — although he was marked down as being close to CZ.
- November 6 evening, 2022: Wang found out about the "Korean friend" account that had a negative balance of $8 billion, meaning the exchange had an $8 billion hole.
- November 7 morning, 2022: SBF tweeted that withdrawals were slow because banks were closed. Wang later testified that withdrawals were slow because there were no stablecoins to withdraw. SBF also tweeted that "FTX is fine. Assets are fine." He added that FTX had enough to cover all client holdings.
- November 8, 2022: Binance offered to buy out FTX.
- November 9, 2022: Binance backed out of the FTX acquisition.
- November 9, 2022. In an Alameda company all-hands, Ellison said the decision to pay back Alameda loans with customer funds was "Sam’s, I guess."
- November 10, 2022: SBF spoke to Wang about the idea of declaring bankruptcy.
- November 11, 2022: FTX filed for Chapter 11 bankruptcy protection.
- November 12, 2022: SBF drove Wang to the Bahamas Securities Commission and said assets should be transferred to the Bahamas liquidators or the Bahamas regulators. On the drive back, SBF said Wang should stall the transfers of assets to the U.S. liquidators and ignore instructions from Ryan Miller.
- November 16, 2022: About four or five FBI agents arrived at Ellison’s house. They seized at least one computer that belonged to Ellison’s mother and another that belonged to Ellison’s boyfriend, who worked at both FTX and Alameda.
- November 17, 2022: Wang met with the FBI and Federal Prosecutors.
- December 12, 2022: SBF was arrested in the Bahamas.
- December 22, 2022: Ellison and Wang pleaded guilty to several counts of fraud
The above moments are based on a combination of sources, including testimony from former FTX executives in the SBF's trial.
Disclaimer: The former CEO and majority shareholder of The Block has disclosed a series of loans from former FTX and Alameda founder Sam Bankman-Fried.
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