FTX CEO Warns of More Insolvencies in Crypto Companies

ByEdward Thompson

Jul 3, 2022

Founder of renowned crypto exchange FTX, Sam Bankman-Fried warned in a recent interview that there were several crypto exchanges out there that had become ‘secretly insolvent’ and would soon fail. Bankman Fried’s Alameda Research and FTX have already offered their assistance to Voyager Digital and BlockFi, respectively, in order to get out of the tight financial position they have found themselves in. According to the 30-year-old billionaire, he had decided to help in order to stabilize the market and protect investors.

Crypto market issues

The current bear market has wreaked havoc in the crypto market and also because of the implosion of the UST stablecoin and the LUNA token in the previous month. The downfall of the Terra blockchain triggered a domino effect, which saw numerous companies suffer from substantial losses, as they had been exposed to the stablecoin and its sister token.

The massive leverage is the primary reason behind the problems of most of the crypto community and lenders and borrowers are the ones who are feeling the most pain. Almost two weeks ago, renowned crypto lending platform Celsius Network announced that it was pausing its withdrawals service and those familiar with the matter said that the company was dealing with financial problems.

This could be because Celsius had also been exposed to the TerraUSD stablecoin. A Singapore-based crypto hedge fund, Three Arrows Capital (3AC) had also seen massive liquidations and its locked Luna classic (LUNC), which had been valued at $200 million came down to just $700. Other crypto companies have also suffered similar, such as Babel Finance, BlockFi and Voyager Digital.

Bankman-Fried steps in

In this situation, Alameda Research, the quantitative crypto trading firm owned by Bankman-Fried, decided to provide a $500 million line of credit to Voyager Digital in order to help it cope with its exposure to 3AC, which has gone into liquidation. Likewise, his crypto exchange i.e. FTX decided to help out BlockFi, as it extended a line of credit worth $250 million to the firm on June 21st.

Speaking about his investments in Voyager and BlockFi, the billionaire admitted that there was a strong possibility that he would not get a return on this investment. However, he said that he was ready to do a bad deal if it could help in restoring stability and protecting people.

More trouble to come

But, the FTX CEO also added that there would be more financial burdens surfacing in the future. On June 19th, he had spoken about the financial hardships of 3AC and said that the lack of transparency of the onchain protocol had resulted in this situation. On June 28th, he said that there were ‘secretly insolvent’ crypto exchanges in the market.

He asserted that these third-tier exchanges have already lost too much and it would not be practical to stop them because of reasons like regulatory issues, a massive hole in their balance sheet, or not enough left to be saved. In May, Bankman-Fried had said that his company was willing to spend billions on M&A.

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