🐻 How deep does the FTX rabbit hole go?

This is Web3 Seems Legit, the weekly newsletter that gives you the good, bad and FUDgly news in web3. 

In this issue, the big screen film on FTX continues, with the story picking up from Binance walking away from the FTX acquisition deal. What does this mean for the industry? Is it doomed? 😱 Keep reading to find out what happened next. 

The story continues in the following parts:

• Inside the FTX bankruptcy filing (& the Bahamas home)

• The deep political rabbit hole within FTX

• The contagion spreads

Inside the FTX bankruptcy filing (& the Bahamas home)

After Binance backed out of the FTX acquisition deal, we knew things were about to get much worse 😔. Surprise, surprise, as we all expected, FTX moved forward to file for bankruptcy after the major unwinding that took place last week. Conveniently, Sam Bankman-Fried (SBF) also announced that he would be stepping down as CEO of FTX.

While SBF may be "shocked to see things unravel the way they did", we can't help but believe that this 30-year-old millionaire knew exactly what he was doing when he decided to trade customer assets.

Let's dig into this bankruptcy filing a bit, shall we? An early look at their balance sheets shows that:

• FTX had $900M in liquid assets vs. $9B in liabilities

• Most of their asset holdings are in illiquid VC investments or obscure crypto

• Almost half of their holdings are in Robinhood shares and held by an entity owned by SBF, meaning even if he sold his HOOD stocks, it would just go straight to SBF

• SBF bet $7.3M of user's money for Trump to lose the election

While all this was happening, insiders were frantically trying to withdraw their funds from FTX through a little loophole.

For some regulatory reason, residents in the Bahamas were still able to withdraw their assets. So Bahamian residents were creating and selling NFTs to help non-residents (basically the crypto whales), withdraw their funds for a substantial fee. 

The Bahamas SEC quickly stepped in, but not before millions of dollars were withdrawn. They also revealed in a statement that they never directed FTX to prioritize Bahamian withdrawals. It's all a bit strange until you realize that FTX is headquartered in the Bahamas and SBF and his inside team have been residing there in a $300M mansion. Unbelievable.

Following the bankruptcy filing, news broke Saturday morning that FTX was "hacked" out of $662M. The hack also included a malware infection of FTX apps.

Who could the hacker possibly be 🙄?

But hold on, it gets worse. It was revealed by Reuters that SBF had a "backdoor" built into the FTX book-keeping system to allow customer funds to be moved without alerting internal compliance or accounting red flags. 

If you had any seed of doubt before, this should confirm for you, without a doubt, that SBF knew exactly what he was doing and how wrong it was. 

The deep political rabbit hole within FTX

Thought you've had enough? Beyond all the hacks, lies and deception is a rabbit hole that runs even deeper. You may have forgotten to pay attention, but while the FTX blowup was happening last week, the US midterms also took place.

Turns out, beyond betting $7.3M in customer funds on Trump losing, FTX/SBF is quite friendly with the Democrat party. In the name of "effective altruism", FTX was the sixth-largest donor in this year's midterm cycle, giving more than $40M to mostly Democratic candidates. 

To be fair, a lot of corporations do this. We don't agree with it, but it's part of lobbying and getting on the "good side" of political figures and regulators. Basically, we scratch your back, you scratch ours. 

Too bad it's never as simple as it seems.

A few months ago, FTX partnered up with Ukraine to launch a crypto donation site. Instead of using the money raised for military aid, Ukraine "re-invested" that money into FTX, which FTX "donated" (aka laundered) back to the US Democrats. 

Incredible scheme, right? It all makes even more sense when you see the line of connections between the Democrat party and SBF's family and team 👇. 

You might be wondering, why does a company's political stance matter? Everyone is entitled to support their own political party, right? Well remember: we scratch your back, you scratch ours.

The contagion spreads

When one leader falls, they must take the rest down with them.

For one, Blockfi, another popular crypto lending company almost immediately paused withdrawals, though we're not sure why, even after Celsius, people would still keep their assets in Blockfi. 

Meanwhile, FUD is running rampant for centralized exchanges. While withdrawals are technically still open, it also feels like a ticking bomb waiting to explode ⏰. 

More specifically, Crypto.com seems like the next big target after "accidentally" sending 320,000 ETH ($400M) to the wrong wallet address. Don't worry, it was returned, but we don't trust it one bit.

Not to add to the FUD, but no centralized exchange and wallet is safe right now. The best thing you can do is to get yourself a cold wallet asap and self-custody your assets. This is what crypto was meant to be in the first place 💯. 

In the words of CZ, stay safu everyone 🙏. 

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