Insider Insights October 2022 Issue

FTX and Alameda Research Go Bankrupt: What Happened?

Over the past two weeks, previously trusted exchange FTX has been rocked by a scandal where it was discovered that customer funds from FTX were misappropriated and funneled to quantitative investing firm Alameda Research. Following this news, a crisis of confidence and subsequent liquidity crisis struck the exchange, sending a shock throughout the digital asset world that had previously already endured similar turmoil earlier this year following the collapse of LUNA.

The Collapse of FTX and Alameda – The Story Thus Far

FTX is a digital assets platform founded by Sam Bankman-Fried specializing in products including futures, leveraged tokens, options, and spot market. Prior to the events of early November, FTX was a trusted player in the ecosphere with over $1 billion in revenue and being valued at $32 billion as of 2021. Concurrently with the operation of FTX, Bankman-Fried also founded and operated Alameda Research, a quantitative trading firm. Since its inception, FTX was seen as one of the most respected firms in the industry.

All that changed at a moment’s notice on November 2nd, 2022 when it was reported by CoinDesk that a large amount of Alameda Research’s assets were stored in FTT, FTX’s exchange token. This represented a major conflict of interest that would not only have been prohibited by regulations applying to traditional securities, but was also disallowed by the rules that Bankman-Fried himself set; he referred to the move as a “poor judgment call” but according to anonymous sources as reported by the Wall Street Journal he along with other members of his team knew of the conflict of interest and decided to move ahead anyhow.

In the days following the report, investors began losing faith in FTX, with Binance announcing that it would divest itself of its FTT holdings on November 7th. A liquidity crisis soon ensued at FTX, with FTT losing four-fifths of its value. At this time, Binance was in talks to acquire FTX, which they then also declined to move forward. Withdrawals were then entirely paused on November 9, and Bankman-Fried admitted that it would not be able to meet demands for withdrawals. Many individuals involved in FTX resigned at this point, including its investor relations, legal, and compliance teams, further hamstringing its ability to manage the crisis. Due to the large amount of negative press FTX had generated, regulators began examining the situation, and both FTX and Alameda Research filed for bankruptcy on November 11. During this process, it was alleged that nearly half a billion funds were removed from FTX as “unauthorized transaction” and that up to $2 billion in customer funds could not be accounted for.

The Fallout in Digital Assets and Beyond 

As a result of the proceedings, many investors wrote off their stakes in FTX; prominent stakeholders included firms such as Sequoia Capital and SoftBank Group. FTX was also involved in several sports organizations, including the MLB, the Miami Heat, and the Mercedes-AMG Petronas F1 Team. These organizations began cutting ties with FTX during the proceedings. The Bahamian police have also launched an investigation into FTX, along with United States regulators, and some members of Congress such as Senator Elizabeth Warren have indicated that they would push for further regulation of digital assets in an effort to protect consumers.

The digital asset world, having already reeled from the crash of LUNA in May suffered another blow, especially since FTX was a crucial linchpin between the ecosystem as well as the more secular world. Bitcoin, after resting near the $20,000 mark for several months was dealt another blow to a new low below $16,000, though it has since recovered some. Ethereum, previously at about $1,600 had also suffered a drop down to just above $1,000, with a recovery back to about $1,300. Even Tether lost its peg and fell 3% before recovering. All things considered, and much like LUNA, asset prices have proven surprisingly resilient in the face of such a massive shock, although it is certainly frustrating to have the price recovery suffer another setback when all eyes are looking towards a potential recovery.

As of now, the situation is still developing, and future events may come to light that could further impact asset prices, though for now the situation seems relatively stable. The events that occurred once can highlight the need for transparency and trust when handling digital assets. Trust has always been important when it comes to investment and custody of assets, but due to the pseudonymity and permanency involved in digital asset transactions, breaking that trust has even a larger impact than it would in traditional finance. In this case, customer funds were taken from the FTX exchange to fund risky speculative bets through Alameda Research, which would have been viewed as an elementary conflict of interest had the speculation been made public knowledge. It is important that you know where your money is being invested and where it is being put to work – values that Varys Capital was founded on.


This is not the first time the digital asset world has experienced what FTX investors and employees have both called a “betrayal” – which is why it is so important to choose investment firms and exchanges that you can trust. Had FTX been more open about its speculation or even opened it up as a product to its customers, it is quite probable that they would have enjoyed a great deal of interest. However, using customer funds without their consent or knowledge is highly unethical and it stands as yet another cautionary tale to only choose a firm with values and procedures that are transparent, moral, and ethical.

If you have questions about our fund or would like to be sent investor documents, you can contact our investor relations department at


Darius Askaripour
Managing Partner

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