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.
Can someone explain why FTX created their own token in the first place? Was it just a way to raise money/distribute equity without dealing with stock market regulations?
Why does anyone create their own token? Once you get people using it, then you can just "print more" and make yourself incredibly rich. Creating wealth out of nothing but people like your foobar token and they will convert other tokens to/from it. You can sell it to sell fake equity (without usual oversight) in a company too.
FTX bet customer funds through the CEO’s hedge fund on an FTX token [1]. The token price fell when this was revealed [2].
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.
What it actually revealed that they embezzled customer funds? It's still speculation as far as I can tell (your sources say nothing about customer funds)
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.
- 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