FTX claims it was hacked as more than $400 million is withdrawn

November 11, 2022

FTX claims it was hacked as more than $400 million is withdrawn

Telegram screenshot of a message by Rey: "Ftx has been hacked. All funds seem to be gone. FTX apps are malware. Delete them. Chat is open. Don't go on ftx site as it might download Trojans."

Screenshot of a message from an FTX Telegram admin (attribution)

Over $477 million was mysteriously withdrawn from FTX and FTX US late on November 11, despite the company freezing withdrawals.

An FTX account administrator wrote on the FTX support Telegram, "FTX has been hacked. FTX apps are malware. Delete them. Chat is open. Don't go on FTX site as it might download Trojans". The message was pinned by FTX General Counsel Ryne Miller.

Miller later wrote on Twitter, "Investigating abnormalities with wallet movements related to consolidation of ftx balances across exchanges - unclear facts as other movements not clear. Will share more info as soon as we have it."

A Telegram admin subsequently wrote, "Not all hope is lost. Engineers have managed to retrieve substantial amount of funds," but no details were provided beyond that. A later announcement by Miller claimed that FTX had "initiated precautionary steps to move all digital assets to cold storage", suggesting some of the transfers may have been a part of that effort.

Many speculated that the so-called hack had been coordinated by insiders.

November 11, 2022

FTX files for bankruptcy, Sam Bankman-Fried resigns

(attribution)

Aaaand there it goes.

FTX announced that it had filed for Chapter 11 bankruptcy in the United States. Sam Bankman-Fried resigned as CEO.

SBF had spoken about trying to raise additional funds. In leaked Slack messages, he had allegedly written that "One could maybe say, if they wanted to be optimistic, that we have a lot theoretically in and/or potentially for the raise". No one was actually saying this.

November 10, 2022

Early crypto investor loses $42 million in wallet compromise

Bo Shen (attribution)

Bo Shen, a general partner at Fenbushi Capital and an early adopter of cryptocurrencies, tweeted on November 22 that two weeks prior, someone had stolen $42 million in cryptocurrencies from his personal wallet. "The stolen assets are personal funds and do not affect on Fenbushi related entities," he wrote.

Analysis by the crypto security firm SlowMist attributed the theft to a compromise of Shen's seed phrase. Shen had been using the Trust Wallet software, though the theft does not appear to be related to security issues with the wallet software.

November 10, 2022

Users attempt to circumvent FTX withdrawal freeze with bribes and NFTs

Users panicked when FTX stopped processing withdrawals, particularly those with substantial amounts of funds locked in the exchange. When the exchange tweeted that they had "begun to facilitate withdrawals of Bahamian funds", some saw an opportunity.

"Any FTX employees willing to change my accounts country of residence to Bahamas to facilitate withdrawal I am offering $1 million and unlimited legal fees", wrote one trader (who later claimed to be joking).

A popular crypto Twitter user named "Algod" offered $100,000 to any FTX employee who would process their KYC documents, allowing them to withdraw. He was subsequently seen to be successfully withdrawing over $2 million in assets from the platform. He also shared links to a Telegram group where his partner was offering to buy people's FTX accounts for 10¢ on the dollar, from customers who feared they may never see the money again, or would only regain access to a fraction of it after years of court proceedings. Algod later denied "erroneous and defamatory statements" that he'd bought discounted claims/assets", admitting that he'd considered it, but claiming he ultimately decided not to.

Some observers noticed over $21 million withdrawn via NFT trades, that appeared to be being used as a way to bypass the internal blocks on users transferring balances to one another. People with funds locked in FTX bought NFTs from Bahamas-based users, spending their full account balance on the NFT and thus enabling the Bahamian user to then withdraw the funds. "This appears to be the first recorded case of NFT utility in existence 👍", wrote Cobie.

November 10, 2022

The Securities Commission of the Bahamas freezes FTX assets, appoints provisional liquidator

(attribution)

The Securities Commission of the Bahamas (where FTX is headquartered) announced they had frozen the assets of FTX and "related parties" — presumably Alameda. They also disclosed that they had suspended FTX's registration, and appointed a provisional liquidator.

The announcement went on to say, "The Commission is aware of public statements suggesting that clients' assets were mishandled, mismanaged and/or transferred to Alameda Research. Based on the Commission's information, any such actions would have been contrary to normal governance, without client consent and potentially unlawful."

Media release by the Securities Commission of the Bahamas

November 10, 2022

DFX Finance suffers $5 million loss

(attribution)

An attacker was able to use a flash loan to exploit a vulnerability in the smart contract for DFX Finance, a decentralized forex trading platform. The platform suffered a loss amounting to around $5 million. The attacker subsequently laundered the funds through the Tornado Cash cryptocurrency tumbler. The attacker didn't make off with the entire amount lost from the platform, partly due to an MEV bot snagging a significant amount of the funds.

November 10, 2022

BlockFi suspends withdrawals

(attribution)

BlockFi had a tough time this past June, floundering after substantial losses in the crypto downturn. They were bailed out by FTX, who extended them a $250 million loan, then shortly after reached a deal that would give them the option to acquire BlockFi, and also extended BlockFi $400 million in revolving credit.

Now, the bailer is the one requiring the bailing, and the possible bailout of FTX by Binance fell through. This means that BlockFi is in a tough and uncertain spot, which is why they announced through Twitter that "until there is further clarity, we are limiting platform activity, including pausing client withdrawals". They also wrote that they had learned about the FTX collapse via Twitter.

BlockFi founder and COO Flori Marquez had tweeted only two days prior, just after the FTX news, that "All BlockFi products are fully operational. BlockFi is an independent business entity. We have a $400MM line of credit from FTX.US (not FTX.com) and will remain an independent entity until at least July 2023. We are processing all client withdrawals."

November 9, 2022

The Binance/FTX deal is off

(attribution)

It's over as quickly as it started, and it started pretty dang quickly. Binance walked away from the non-binding letter of intent that Binance signed to acquire FTX, which doesn't come as a huge surprise given how much they couched the announcement in caveats that it was subject to due diligence and that Binance could exit any time.

According to Binance, "As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of FTX.com."

FTX is really up a creek. Reports suggest that the hole on their balance sheet is looking like $8 billion, a circumstance that is certainly not improving as FTT prices continue to plummet.

There is still no news about what will happen to Alameda, but the SBF-owned quant firm's website has ominously been taken offline.

Tweet by Binance
"Binance Walks Away From Deal to Rescue FTX", The Wall Street Journal

November 8, 2022

FTX is insolvent; Binance offers bailout

(attribution)

Surprising just about everyone, FTX's Sam Bankman-Fried and Binance's Changpeng "CZ" Zhao announced suddenly that Binance had signed a "non-binding [letter of intent], intending to fully acquire FTX.com" after a "liquidity crunch". FTX, a major crypto exchange, had recently been rumored to be insolvent, and had stopped processing withdrawals earlier that day.

It appears that the Binance move was a last-ditch effort to save FTX, which went from being a powerful player in the crypto market offering bailouts and looking to acquire bankrupt companies to an insolvent exchange struggling to stay afloat in an incredibly short period of time.

CZ of Binance hedged a bit in his announcement, underscoring that "Binance has the discretion to pull out from the deal at any time" and would be performing "full [due diligence]" before the deal moved forward. It's not yet clear how much the Binance sell-off of FTX tokens contributed to the instability of the exchange.

November 7, 2022

Speculation emerges around Alameda Research and FTX solvency; Binance liquidates holdings

(attribution)

On November 2, CoinDesk published a leaked balance sheet from Alameda Research (a trading firm also owned by FTX founder and CEO Sam Bankman-Fried). The sheet suggested that Alameda held substantial amounts of FTX's $FTT token. "While there is nothing per se untoward or wrong about that, it shows Bankman-Fried's trading giant Alameda rests on a foundation largely made up of a coin that a sister company invented, not an independent asset like a fiat currency or another crypto," CoinDesk wrote.

Following the report, Binance CEO Changpeng "CZ" Zhao announced they would be liquidating their FTT holdings. CZ also took a shot at SBF's recent controversial policy recommendations, writing, "Liquidating our FTT is just post-exit risk management, learning from LUNA. We gave support before, but we won't pretend to make love after divorce. We are not against anyone. But we won't support people who lobby against other industry players behind their backs."

SBF first appeared conciliatory towards Binance, writing "I respect the hell out of what y'all have done to build the industry as we see it today, whether or not they reciprocate, and whether or not we use the same methods. Including CZ. Anyway -- as always -- it's time to build. Make love (and blockchain), not war." However, he later wrote that "A competitor is trying to go after us with false rumors" and urged that "FTX is fine. Assets are fine."

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