In the span of just one week, FTX went from being the world's third-largest cryptocurrency exchange to filing for Chapter 11 bankruptcy in Delaware.
The sudden and rapid downfall of FTX came after the company — facing a liquidity crisis — agreed to sell itself to rival Binance for an undisclosed amount. Customers fled the exchange after becoming concerned about whether FTX had sufficient capital.
But Binance, the world's largest crypto exchange, backed out of the non-binding deal after taking a look at the books of FTX, at which point it became clear that the smaller exchange’s problems were too big to solve.
CEO Sam Bankman-Fried had warned investors earlier this week that without an imminent infusion of $8 billion in cash, the company may have no choice but to file for bankruptcy.
Here's everything you need to know about the bankruptcy.
What is FTX?
FTX is a cryptocurrency exchange, meaning that it enables consumers to buy, sell and store digital currencies like bitcoin and ethereum as well as other digital assets such as NFTs.
The company, which is headquartered in the Bahamas, was founded in 2019 by Bankman-Fried. As of 2019, FTX had more than 1 million users.
Prior to this week, FTX and Binance processed the majority of all crypto trades worldwide, according to CoinMarketCap, an industry data tracker.
Who is Sam Bankman-Fried?
Bankman-Fried is a 30-year-old entrepreneur who, over the last three years, built FTX into a $32 billion empire. Until Friday, Bankman-Fried served as the CEO of FTX.
A regular presence on Capitol Hill and a prominent political donor to Democrats, Bankman-Fried is also a major advocate for the cryptocurrency industry. But the implosion of FTX has drawn scrutiny from the Biden administration and top Democratic lawmakers, who criticized FTX and called for greater oversight of the crypto industry.
"I f---ed up, and should have done better," Bankman-Fried tweeted on Thursday.
Bankman-Fried's net worth has all but evaporated: As of Monday, he was worth an estimated $15.6 billion, according to the Bloomberg Billionaires Index, making him one of the 100 richest people in the world. In March, the index valued him at around $26 billion.
But on Friday, Bloomberg estimated his net worth is about zero.
Why is FTX filing for bankruptcy?
FTX, short billions of dollars, is seeking bankruptcy protection after the exchange experienced the crypto equivalent of a bank run. FTX, its affiliated hedge fund Alameda Research, and dozens of other companies filed a bankruptcy petition on Friday.
Although Binance and its CEO Changpeng Zhao initially agreed to step in and acquire FTX, the company changed course citing reports of "mishandled customer funds and alleged U.S. agency investigations."
"In the beginning, our hope was to be able to support FTX’s customers to provide liquidity," Binance said in a tweet Wednesday. "But the issues are beyond our control or ability to help."
Filing for Chapter 11 bankruptcy will allow FTX to continue operating while it develops a plan to pay off its creditors.
How will this affect the crypto industry?
Cryptocurrency lender BlockFi announced on Twitter late Thursday that it is "not able to do business as usual" and pausing client withdrawals as a result of FTX’s implosion.
In a letter posted to its Twitter profile late Thursday, BlockFi — which was bailed out by Bankman-Fried’s FTX early last summer — said it was "shocked and dismayed by the news regarding FTX and Alameda."
The company ended by saying any future communications about its status "will be less frequent than what our clients and other stakeholders are used to."
Bitcoin tumbled immediately after the letter was posted, losing close to 5% before inching back above $17,000 overnight.
The original cryptocurrency, bitcoin had been hovering around $20,000 for months before the FTX’s problems became public this week, sending it briefly to around $15,500.
The Associated Press contributed to this report