Can someone ELI5 what has happened here?
- starting state had FTX as insolvent, but had enough money to cover the withdrawals of their token (FTT)
- Binance CEO announces that they're going to dump all of their FTT because they don't trust the stability of it
- now there's a bank run, and people are making enough withdrawals to expose that FTX is insolvent
- FTX pauses withdrawals (because they don't have the cash)
- Binance bails out FTX by purchasing it
I don't understand it either to be clear. I know a little about crypto, a decent amount about finance but it does seem that the problem is not limited to FTX.
This might go down as an LTCM. Would be quite nice. Haven't had nerds setting fire to the financial system for a while.
The hedge fund, and thus FTX, had less money than they owed lenders and customers. FTX found a bail-out in Binance; otherwise everyone would have lost their money.
[1] https://www.coindesk.com/business/2022/11/02/divisions-in-sa...
[2] https://www.coindesk.com/markets/2022/11/08/ftt-plummets-as-...
It's a bit early to speculate on this one.
We’ve seen the balance sheet. The facts have been on the table for FTX as much as they are for Tether.
I can’t say when they will fail. But as soon as we saw the Alameda books and Alameda and FTX’s responses (the former, an irrelevant statement about other assets; the latter, a claim of solvency without proof), the endpoint was sealed. Insolvent, leveraged entities don’t pay out junior creditors absent a bail-out.
They've admitted to illiquidity transforming into insolvency. That doesn't happen if you aren't betting client assets.
Imagine McDonald's makes its own money, let's call them clown-bucks, keeps most of it, and sells some to the market.
McDonald's then uses their remaining clown-bucks as collateral for actual loans.
And then people remember clown-bucks aren't real.
And then Starbucks comes and market sells the clown-bucks they were holding, while reminding the market that clown-bucks aren't really a thing.
McDonald's balance sheet is trashed, with their clown-bucks wiped out.
Anyway, that's what happened in crypto-land this week.
https://pbs.twimg.com/media/FhEKHDuVIAUfg7g?format=jpg&name=...
real bank - fdic protected for people. maybe fed govt bailout
ftx - bailed out by competitor Binance