The downfall of FTX

GM and welcome to Decentra Daily, your safe harbor in stormy web3 seas.

I hope you like acronyms 😬 Because today's story has lots of them!

On the docket:

• What just happened with CZ, SBF & FTX?

• The infinite conversation

WTF happened with CZ, SBF, and FTX yesterday? (SMH!)

Binance and FTX were two of the most successful centralized crypto exchanges around.

They accounted for about a third of all trading volume, facilitating the movement of many trillions worth of digital currencies.

Then they got into a fight, and only one emerged victorious. Here's the summary...

Best frenemies

At the center of yesterday's shenanigans were CZ, the CEO of Binance, and Sam Bankman-Fried (or SBF) who's CEO of FTX.

CZ and SBF have an on-again-off-again relationship. In 2019, Binance was an early investor in FTX, helping fuel its stratospheric growth.

By 2021, FTX had become so big that they bought back Binance's shares. They paid most of the roughly $2 billion in FTT – their own digital currency.

Since then, CZ & SBF's relationship seems to have suffered, with both making thinly-veiled digs at each other via Twitter. Fast forward to this weekend...

The turn

On Sunday, CZ tweeted that “recent revelations” caused Binance to sell their entire FTT holdings – around 7.4% of the entire supply.

Within hours, the FTX currency dropped over 30%. Now, it’s fast plunging toward 0. 😱

"Recent revelations?"

It's likely CZ was referring to leaked balance sheets from Alameda Research – SBF's trading firm with opaque ties to FTX.

The data doesn't paint a pretty picture. It turns out a large portion of Alamada's assets is actually FTT – the coin made by SBF's other company – and, it's being used as collateral for loans.

That’s not great. In fact, it's a similar scheme to the one used by now-collapsed crypto giant, Celsius.

Using your own currency as collateral makes it an illiquid asset, which means Alamada can't sell its FTT if the company becomes insolvent.

Appearance ≠ reality

All of this comes in sharp contrast to FTXs activity over the past weeks and months. The company has participated in huge funding rounds, while SBF has spent tens of millions lobbying politicians on crypto regulation.

FTX was even involved in bailing out other crypto companies as recently as September!

In a now-deleted Tweet, SBF tried to downplay the quickly escalating crisis, saying that "a competitor is trying to go after us with false rumors...FTX is fine. Assets are fine.”

But FTX was not fine.

With the value of FTT plunging and FTX users spooked about insolvency, a billion-dollar bank run started.

Early yesterday, it was reported that FTX.com temporarily halted withdrawals, while the status of funds held in FTX US is now unclear.

Today, the US gov is beginning a probe into FTX's handling of clients funds.

And then came the twist nobody predicted: Binance signed a deal to acquire FTX.

So, pending due diligence, two of the biggest exchanges will now be owned by CZ, undoubtedly the most dominant figure in crypto.

Wait... did CZ just 4D chess this whole saga? (He says no.)

Where do we go from here? DD's questions:

• How low will $FTT go?

• Exactly how shady is the relationship between Alameda and FTX?

• Is this whole thing a Pak art project?

• Will an arrest warrant for SBF be released like Do Kwon?

• If FTX goes down, how bad is the fallout for web3?

• What if CZ started a run on FTT to get SBF to admit that FTX is insolvent – and then he backs out of the acquisition..?

😳😳😳 ...no way.

First Luna, then Celsius, now FTX. No matter how professional the company seems, how many ads they run at the Super Bowl, or how many people use the product – volatility is the one constant in crypto.

Listen to an infinite conversation

No, we don't mean your favorite influencer's Twitter Spaces.

This is an AI-generated, never-ending discussion between two GOAT voices: Werner Herzog and Slavoj Žižek – made by developer Giacomo Miceli.

Clicking the link takes you to a random point in intellectual titans' conversation. Each day, more conversation is added at a faster speed than it takes to listen – meaning you could theoretically listen to their soothing (?) voices forever.

Check it out!

Like every generative AI model right now, sometimes the two mensches make sense; other times they ramble on in a fever dream of half-ideas and weird imagery.

Miceli calls the conversation the "hallucinations of a slab of silicon."

We love this project – it counts as fine art in our book! But the motivations behind it are more serious.

Miceli wants to raise awareness about the ease and danger of using AI to synthesize real people's voices:

Sure, it's hard to confuse this AI Herzog with the man who was shot mid-interview and carried on.

But when language models start consistently talking-sense, things will change fast. Infinite content from your favorite creators – anyone?

So remember in last week's Steve Jobs email where we said that SBF was worth over $14 billion? Yeah, not anymore...

See you tomorrow!

Next email: What's in Decentra Daily's wallet? 👀

Tweet of the day!