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."
The Securities Commission of the Bahamas freezes FTX assets, appoints provisional liquidator
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.
- Media release by the Securities Commission of the Bahamas
DFX Finance suffers $5 million loss
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.
BlockFi suspends withdrawals
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."
The Binance/FTX deal is off
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
FTX is insolvent; Binance offers bailout
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.
Speculation emerges around Alameda Research and FTX solvency; Binance liquidates holdings
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."
Federal judge rules that LBRY sold tokens in violation of federal securities laws
LBRY is a blockchain-based social network and video sharing protocol that was described by a researcher at The International Centre for the Study of Radicalisation and Political Violence as "the new YouTube for the far-right" in 2021.
In March 2021, the SEC sued LBRY over their LBC tokens, which were used for paid streaming, tipping, and as rewards for using the platform inviting other users. On November 7, 2022, a federal judge of the District Court for the District of New Hampshire ruled that "because no reasonable trier of fact could reject the SEC's contention that LBRY offered LBC as a security, and LBRY does not have a triable defense that it lacked fair notice, the SEC is entitled to judgment." The judge granted the SEC's motion for summary judgment, meaning the case will not go to trial.
U.S. Attorney convicts individual in 2012 theft from the Silk Road, announces seizure of over 50,000 Bitcoin priced at more than $1 billion
The U.S. Attorney's Office for the Southern District of New York announced that they had convicted James Zhong with wire fraud pertaining to his 2012 theft of around 50,000 Bitcoin from the Silk Road online marketplace. Zhong pled guilty to one count of wire fraud.
The government has filed a motion in the case against Ross Ulbricht, the founder and operator of the Silk Road who is serving life in prison, seeking to retain the seized Bitcoin. At the time of seizure in November 2021, the Bitcoin were notionally worth $3.36 billion. On the date the charges were announced, they would be notionally worth $1.06 billion.
- "U.S. Attorney Announces Historic $3.36 Billion Cryptocurrency Seizure And Conviction In Connection With Silk Road Dark Web Fraud", U.S. Attorney's Office for the Southern District of New York
Pando exploited for $20 million
The defi protocol Pando suffered a $20 million loss when it was exploited with an oracle manipulation attack. The protocol suspended several of its projects in response to the hack, and wrote that they hoped to negotiate with the hacker to regain some of the stolen proceeds. Some of the stolen funds were able to be locked, although it's not clear if it was the total amount.
Telegram repossesses usernames so they can sell them as NFTs
In August, the popular messaging app Telegram started repossessing some desirable usernames that were already being used. Shortly afterwards, Telegram founder Pavel Durov explained that he had been impressed by a quarter-million-dollar domain sale by the TON blockchain domain project, and wrote, "Let's see if we can add a little bit of Web 3.0 to Telegram in the coming weeks."
Telegram later introduced some of the repossessed usernames for sale as pricey NFTs on their new "collectible usernames" market, dubbed Fragment. Although Durov had claimed that "70% of all Telegram usernames had been reserved in inactive channels by cybersquatters from Iran", and that the only usernames that were "withdrawn" had been out of use, users were given no warning or option to keep their names.
On October 27, Durov announced that "in a few days, we will also introduce the ability for users to sell their existing usernames on Fragment" — unwelcome news for those whose usernames were sold out from under them by Telegram.
Some of the usernames that have sold on the marketplace include brand names like Facebook (which sold for 60,000 TON, or ~$94,200), FIFA (sold for 600,000 TON, or ~$972,000), Amazon (sold for 262,500 TON, or ~$425,000), and Meta (sold for 404,000 TON, or ~$723,000). There is no indication the buyers are necessarily associated with the brands in question. Furthermore, the username marketplace is not available in the USA.