Crypto Wars: the return of Self-Custody


Sam Bankman-Fried, CEO of the 2nd largest crypto exchange FTX, used clients’ savings to finance the operations of his own investment fund, Alameda. When rumors of a hole in FTX reserves started to come out, many users tried withdrawing their funds without success. A few days later, SBF filed FTX and Alameda for bankruptcy, while most users still haven’t seen their money back.

The setting

Crypto and exchanges

“Not your keys, not your coins”. This crypto saying means that if you’re not keeping your crypto in your own wallet, you don’t really own those coins. The “crypto banks”, called exchanges, own them for you. Most of the time, this is not an issue … until it is.

The birth and rise of FTX

It’s around the end of the 2018/2019 crypto bear market that Sam Bankman-Fried, CEO of the Alameda Research fund; launched a derivatives exchange “by traders, for traders”: FTX.

  • European and Asian regulators cracked down on crypto derivatives exchanges, forcing Binance to close derivatives trading there.
  • FTX created a separate US-regulated entity, and started an aggressive marketing directed towards the public (TV ads, Miami stadium naming, …).

Spring — Winter 2022


Here is some context to ease your understanding:

  • Three Arrows Capital (3AC) was the biggest crypto hedge fund at the time. It owed a lof of other funds money, and vice versa.
  • Luna and UST collapse is explained in this article. Basically, the UST stablecoin was backed by LUNA, an illiquid token like FTT.
  • FTT is FTX’s own token. The exchange and Alameda already owned most of the supply, and its value was artificially inflated.
  • The issue of having an illiquid token like LUNA or FTT as collateral is that when the loan needs to be repaid, you can’t sell the tokens easily on the market. This is why Alameda was trapped when FTT price started dropping.

The final blow

When Binance’s CEO, CZ, realized this, he had to react. Binance started moving their FTT stake to sell them on the market. When the word got out after a tweet from CZ, people started selling off FTT.

Events’ summary


The extent of FTX, Alameda, and SBF credibility in the eyes of the public is proportional to the disbelief now reigning among the crypto community. To give you an idea, here is how they looked before their fall:

  • Alameda was unequivocally seen as the most promising fund in crypto when it started around 2019, and one of the best in the last three years.
  • FTX was one of the top exchanges, praised by most traders and fund managers.
  • FTX sponsored the Miami Arena and renamed it FTX Arena.
  • FTX ran several ads on TV involving Tom Brady, one of the most known American football player.
  • FTX was listed as a sponsor of the World Economic Forum.
  • SBF made the cover of Fortune Magazine in August 2022 and Forbes more than a year ago.
  • SBF was the 2nd largest donor to the Democrats party, and regularly meeting with US government officials including Gary Gensler, SEC’s president.

Another argument for decentralized crypto

This is the topic that begins the article, and that needs to end it. This series of events is another testimony of the key role that crypto can play for society: giving the ability to self-custody financial assets without trusting a bank, a crypto exchange, or any other third-party. Any well-designed decentralized crypto protocol would have prevented this, without the need for any regulation.



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