The consequences of the FTX collapse

Aaron Kaplan, a securities attorney and co-CEO of trading platform Prometheum, says that while the ultimate outcome for FTX and its clients is not yet crystal clear, in scenarios like this there is a precedent of people never getting their money back. Unfortunately, those involved in the collapse have few legal resources, Kaplan says. “The facts will come out in time. What is clear at this point is that FTX took advantage of a gray area where the expectation of profit was central, regardless of the interests of customers.”

In a Twitter thread When he announced bankruptcy, Bankman-Fried suggested he still hopes to help customers get their money back. But deeming this unlikely, some FTX customers try to beat their account balances at a steep discount. As reported by CoinDesk on Nov. 9, buyers on messaging platform Telegram are bidding $0.10 to $0.15 cents on the dollar for funds tied up in FTX, betting on the odds of their eventual release.

The financial ramifications of the collapse also extend far beyond the direct FTX customer base. The events of the week sent other cryptocurrencies into a tailspin, with the price of both bitcoin and ether falling more than 10 percent, wiping more than $60 billion from the market. Large amounts of SOL, the original token of the Solana network, are owned by FTX and its subsidiaries and have therefore been hit even harder. Between November 7 and November 9, the value of SOL fell from $32 per coin to $13.

A crypto trader named Mando CT had at one point lost $637,000 on his SOL holdings and several Solana-based NFTs yesterday. (A slight recovery in SOL’s price, coupled with other bets, has since helped him make up for some of these losses.) He says he remains confident in Solana’s core value proposition and quality of the technology, and even more SOL has bought in an effort to “buy the dip”, but admits that the fall of FTX will have “a huge impact on the entire market”.

While developers whose apps sit on top of Solana claim it’s still the best network for building services at scale — the CEOs of both Audium and Ireverent Labs, two such development studios, say they’re not worried about the price of SOL – others predict the knock-on effects of the FTX crash will adversely affect the overall health of the ecosystem.

“Developers in the blockchain space tend to put their efforts where the most money is,” said Francesco Melpignano, CEO at Kadena Eco, which helps incubate new projects linked to the Kadena blockchain. “If we see money leaking out of Solana, developers will definitely be more incentivized to build elsewhere.”

Elsewhere, BlockFi says it had to cease operations, quote “a lack of clarity” about the situation at FTX. The cryptocurrency lender was itself rescued by FTX US earlier this year after being caught up in the collapse of Three Arrows Capital, but its future is now uncertain, illustrating the contagion effect described by CZ earlier today. “Now that FTX is falling, we will see cascading effects,” he said. “Especially for those who are close to the FTX ecosystem.”

In the days since the crisis began, FTX’s Bankman-Fried, who is usually a prolific tweeter, has been unusually quiet. in a manic Twitter thread posted yesterday afternoon, he broke his silence: “I’m sorry,” he tweeted. “I screwed up, and should have done better.”

The FTX founder gave a puzzling explanation of the events leading up to the collapse (seemingly something to do with “poor labeling of bank-related accounts”) and devised a plan for customer benefit. “We are doing everything we can throughout the week to increase liquidity,” he wrote. “Every cent of that — and of the existing collateral — goes straight to the users unless or until we get it right.”

While it will come as cold consolation to those whose money has stranded in the stock market, Bankman-Fried himself has suffered extraordinary losses. Today, Bloomberg reported that his personal fortune, worth $16 billion last week, has been completely wiped out by the collapse of FTX – every dollar – in what has been described as “one of the greatest destructions of wealth ever in history.”

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