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KPMG – The collapse of FTX
webassets.kpmg.com·assets.kpmg.com/content/dam/kpmg/cn/pdf/en/2022/11/the-co...
Relevant to AI safety discussions around organizational governance, accountability structures, and the risks of concentrated power in technology companies; the FTX case is sometimes cited in EA/AI safety communities given Effective Altruism connections to FTX leadership.
Metadata
Importance: 28/100organizational reportanalysis
Summary
KPMG's analysis of the FTX collapse examines the governance failures, lack of internal controls, and risk management breakdowns that led to one of the largest cryptocurrency exchange failures. The report draws lessons relevant to financial oversight, organizational accountability, and the dangers of concentrated power without checks and balances.
Key Points
- •FTX lacked basic corporate governance structures, with decision-making concentrated in a small inner circle without independent oversight.
- •Absence of a functional board, audited financials, and risk management frameworks contributed directly to the collapse.
- •Commingling of customer funds with affiliated entities (Alameda Research) represented a fundamental breach of fiduciary duty.
- •The case highlights how charismatic leadership and perceived credibility can mask systemic fraud and operational incompetence.
- •Regulatory gaps in the crypto industry enabled FTX to operate without the safeguards required of traditional financial institutions.
Cited by 1 page
| Page | Type | Quality |
|---|---|---|
| FTX Collapse and EA's Public Credibility | -- | 50.0 |
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# The collapse of FTX
Lessons and implications for stakeholders in the crypto industry
November 2022
# Origins
# Origins and the relationship between FTX and Alameda
In 2017, Sam Bankman-Fried (“SBF”) co-founded Alameda Research (“Alameda”), a crypto fund. Alameda became a prominent market maker on crypto exchanges
In 2019, SBF founded FTX, an crypto futures exchange built to meet the needs of serious traders (“by traders, for traders”). The FTX OTC desk was powered by Alameda and SBF was the CEO of both businesses. FTX launched it’s own token, “FTT”. FTT provided holders with a discount on trading fees and OTC rebates, with FTX buying back and ‘burning’ FTT tokens based on FTX profitability – reducing supply hence increasing token price.
By 2021, FTX had become one of the largest and most popular exchanges for professional traders due to its fast listing of tokens, user-interface, and high liquidity (driving tighte spreads between bid and ask prices). FTX’s market leading liquidity was in part due to its unique liquidation engine which effectively acquired holdings from sellers in the event of a large liquidation event – thus preventing collapse of prices. The backstop for this liquidation engine was Alameda.
# Simplified corporate structure(a)
Source: Declaration of John J Ray III in support of Chapter 11 petitions (“the Declaration”), 17 November 2022 Note: (a) Simplification on Exhibit A and Exhibit B from the Declaration.
# The rise
# 2022
# 2021
# 2019
# 2020
# Apr
FTX raised USD 1.9bn in Series C funding from investors at a valuation of USD 32bn.
2017
Sep
SBF and Tara Mac Aulay
founded
Alameda.
# 2018
May SBF and Gary Wang co-founded FTX and launched the FTT token.
Alameda raised
debt from
investors, offering a 15% annualised fixed rate loan –
and promising
“high returns with no risk”.
# Nov
Alameda moved away from deltaneutral strategies and began to take large directional risks on leverage. Alameda used tokens, such as FTT as collateral for loans.
Aug FTX launched Project Serum – a decentralised exchange for the Solana blockchain ecosystem.
# Mar/Jul
Terra USD (UST), an algorithmic stablecoin de-pegged from the USD, with subsequent market crash in cryptocurrencies resulting in the collapse of Three Arrows Capital (a crypto fund) and Voyager Digital (a crypto lender).
# Jul/Aug
Launch of FTX, closing a USD 8m seed round from six investors.
# Sep
# Dec
Alleged attempt by Alameda to manipulate futures on Binance.
Binance announced a strategic investment in FTX, acquiring a $f ^ { \\prime } ( 0 ) ^ { \\prime } ( 0 ) ^ { \\prime }$ stake for ~USD 100m.
# Dec
FTX became directly involved with Solana ecosystem blockchain projects, with Alameda investing and FTX launching many tokens on its exchange.
# USD 900m funding round at USD 18bn valuation of FTX
SBF bought
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