As said in my previous post, FTX, once a major exchange that ranked third globally in terms of trading volume, is expected to face the largest-scale bankruptcy in the history of virtual assets. According to documents submitted to the court, FTX’s debt ranges from a minimum of $100 billion to a maximum of $500 billion (approximately 13 trillion won to 66 trillion won), with creditors expected to exceed 100,000. The bankruptcy filing includes more than 130 affiliated companies of FTX.

The liquidity crisis triggered the massive bankruptcy. Founded in 2019, FTX had issued its own coin called ‘FTX Token’ (FTT). Concerns over the liquidity of Alameda Research, the investment firm owned by Sam Bankman-Fried (30), the founder and former CEO of FTX, grew as the price of this coin plummeted. Worried users began withdrawing funds, leading to an immediate liquidity crunch. Although the world’s largest virtual asset exchange, Binance, initially expressed interest in acquiring FTX, it later reversed its stance, stating, “We have decided not to pursue the acquisition after examining the results.”

According to a report by the Financial Times on the 12th, FTX’s liquidity assets were reported to be only $900 million as of the day before the bankruptcy filing on the 10th. Most of the assets were venture capital (VC) investments or rarely traded cryptocurrencies, making it impossible to quickly address the liquidity crisis.

The subsequent hacking on the day after the bankruptcy filing further added to the confusion. According to blockchain analytics firms like Elliptic, $662 million worth of tokens were leaked from FTX on the 12th. FTX also acknowledged the hacking incident using the term ‘unauthorized transactions’. The tokens withdrawn from FTX were reportedly converted into Ethereum, a major virtual asset.

Sam Bankman-Fried (30), the founder of FTX, founded Alameda Research in 2017. Two years later, in 2019, he established FTX and began issuing FTX tokens. Despite attracting large-scale investments, he also actively invested in small-scale virtual asset companies. Following the bankruptcy filing, he stepped down from his position as CEO.

While the liquidity crisis appears to be the main cause, there are also suggestions that internal oversight or control failures exacerbated the situation. On the 12th, Reuters reported that FTX had used customer funds to resolve the debt issues of its subsidiary, Alameda Research. The Wall Street Journal reported that the management of FTX and Alameda were aware of this fact. The lack of proper internal controls during the process of using customer funds suggests a breakdown in internal governance. Foreign media reports also suggest that the hacking on the day after the bankruptcy could be the actions of an employee who lost all their assets due to the company’s bankruptcy.

Renowned economist Lawrence Summers, a former US Treasury Secretary, compared the FTX incident more closely to Enron than Lehman Brothers. Enron, an energy company that went bankrupt in 2001, concealed financial insolvency through accounting fraud. Enron’s bankruptcy also led to the dissolution of Arthur Andersen, the large accounting firm responsible for auditing at the time. With FTX filing for bankruptcy, the court appointed John Ray III, a bankruptcy specialist, as the new CEO, who had led Enron’s bankruptcy proceedings. Summers remarked, “It smells not only of financial mistakes but also of fraud,” adding, “(FTX’s bankruptcy) is more about basic financial principles than the complexity of virtual asset regulation.”