The collapse of FTX, a crypto giant with a celebrity tech CEO, reveals the precarity of current systems, and raises questions about what comes next.
It’s been a wild year for tech giants: between Mark Zuckerberg’s faltering Metaverse, Elon Musk’s ruinous takeover of Twitter, and significant crashes on cryptocurrency exchanges, a lot of precarious digital systems are hitting key tipping points. The latest news out of the crypto world is no different: FTX, an industry giant once valued at $32 billion is filing for bankruptcy. Sam Bankman-Fried (SBF), its founder and a celebrity tech mogul, is stepping down as CEO.
This news has been a little over a week in coming, after a series of events that illustrates the precarity of crypto markets under their current formations. On November 2, Ian Allison of CoinDesk reported that SBF, a quantitative trader, major political donor, and advocate for private-industry-driven philanthropy, had unusually close ties between his two major holdings: the crypto exchange FTX, and the trading firm Alameda.
How close? Well, according to Allison, Alameda’s “balance sheet is full of FTX—specifically, the FTT token issued by the exchange that grants holders a discount on trading fees on its marketplace.” Allison noted that over $5.8 billion of the company’s $14.6 billion in assets was tied to the FTT token. In a more stable relationship between two discrete legal entities, one would expect a stronger reliance on “an independent asset like a fiat currency or another crypto,” so that depreciation in one business cannot devastate the other.
Stability went out the window soon after Allison’s piece. On the level of competitors? Once told that FTT tokens were a key pillar of a rival firm’s finances, the obvious move played out: companies like Binance started liquidating holdings of FTT, destabilizing its value and escalating the overall bank run. Alameda then worsened consumer confidence by publicly offering to buy FTT from Binance, which seemed to confirm market cause for alarm.
On the level of average investors, FTX saw $6 billion in withdrawals in a 72-hour window. In this chaotic interim, Fortune‘s Jeff John Roberts covered the Twitter feuding between SBF and Binance’s CEO, Changpeng Zhao (CZ), before making the obvious point on behalf of average crypto-users: namely,
[M]any are chiding SBF for the lack of transparency he’s shown when it comes to the overlap between his exchange and his trading fund, and are calling for him to disclose the full reserves of both companies. It’s not much to ask, critics note, given SBF’s recent grandstanding about the need for more regulation and better governance in crypto.Roberts, “FTX-Binance feud puts crypto-markets on edge”, Fortune Crypto
Then, on the level of acquisitions? FTX started looking for a bailout within the industry. It almost had one with Binance on November 8, at which point it froze crypto withdrawals for all remaining clients, but that arrangement has also fallen through. The Securities Commission of the Bahamas has frozen FTX assets, and the team for SBF’s “Future Fund” (part of his grand “effective altruism” plan) has resigned. Bloomberg pulled no punches with its assessment of what this bankruptcy will mean for SBF personally, when writing that
BlockFi, is now halting withdrawals due to “a lack of clarity” about the status of its onetime savior’s empire.
It’s just another way in which the rapid downfall of Bankman-Fried is reverberating around the globe. He’s being investigated by the US Securities and Exchange Commission for potential violations of securities rules, while his major assets have become worthless. The Bloomberg Billionaires Index, which at the start of this week estimated Bankman-Fried’s net worth at $15.6 billion, now considers him to have no material wealth.
Here at OnlySky, the dangers of relying on private industry to shape the future have come up before: around the Saudi megacity project, with the importance of degrowth in lieu of hyper-reliance on technological fixes, and in Nathan Alexander’s “Trust us: The problem with crypto-billionaires and effective altruism”, which in July outlined a wealth of issues with even SBF’s most well-meaning plans to change the world.
The one saving grace in all these cascade-failure events for prominent tech businesses is the opportunity they provide, for taking stock of the world they’ve built and its distance from the world we want. Cults of tech personality, undue allegiance to people based on net worth, unfounded reliance on corporate monopolies to do the right thing (eventually): all of these hallmarks of the contemporary digital era need not dictate our future.
As these platforms fall apart, we should consider the unmet needs that led to their emergence in the first place. What was going wrong with our local and global financial systems, that led so many to put their trust into alternative currencies in the first place? What was failing us, in the way of real town-hall discourse, that led us to rely so much on social media to set the terms of democratic conversation in the first place?
And what can we do now, to stimulate the creation and maintenance of systems more worthy of our confidence and investment going forward?