Leaked FTX balance sheet deepens discord between SBF and CZ

On November 2, CoinDesk scoop revealed a huge overlap between Sam Bankman-Fried’s crypto exchange FTX and his trading firm Alameda Research. And then things started to go haywire.

Image: Sam Bankman-Fried (@SBF_FTX) on Twitter

Fresh doubts about the financial health of Sam Bankman-Fried’s crypto empire emerged on Wednesday after CoinDesk obtained Alameda’s financial documents. The leaked balance sheet shows that a significant portion of Alameda’s asset holdings were in FTX’s native token, FTT.

As of June 30, Alameda had a total of $14.6 billion in assets, of which $5.82 billion were in FTT tokens ($3.66 billion in "unlocked FTT" and another $2.16 billion worth of "FTT collateral"). Meanwhile, the market cap of FTT on that day was just $3.32 billion, which may suggest that the actual value of listed assets is much less. In a footnote cited by CoinDesk, Alameda says, “locked tokens conservatively treated at 50% of fair value marked to FTX/USD order book.”

Additionally, Alameda holds $1.2 billion worth of SOL tokens and $3.37 billion in other cryptocurrencies that include SRM — a native token of Serum DEX co-founded by SBF — MAPS, OXY, and FIDA. Then there are also a $2 billion “investment in equity securities” and just $134 million in cash.

Against all these assets, Alameda has $8 billion in liabilities, including $7.4 billion in loans and $292 million in “locked FTT.”

FTT is FTX’s utility token that incentivizes users to hold it by granting them discounts on trading fees and access to extra features on the platform. The token’s value mainly comes from FTX fees, since the exchange allocates one-third of its revenue to buy and burn FTT, therefore reducing the supply of the coin and driving up its price.

The report by CoinDesk indicates that Alameda clearly has immense exposure to FTX despite having previously maintained that they operate independently. Since the single biggest asset of Alameda is FTT, the rapid decline in the token’s price may severely harm its market cap, and the relative illiquidity of its balance sheet would make it difficult to convert to cash if Alameda is forced to sell. Moreover, FTT price plunge may, in theory, trigger a margin call on FTT-backed loans, triggering a death spiral similar to Terra/Luna’s.

However, such a grim outcome seems highly unlikely, since, unlike Do Kwon, Alameda can actually deploy more capital. On Saturday, Alameda’s CEO Caroline Ellison sought to clarify the situation, stating that the leaked balance sheet only tells a part of the story. According to Ellison, the balance sheet obtained by journalists misses billions worth of other assets.

“That specific balance sheet is for a subset of our corporate entities, we have [more than] $10b of assets that aren’t reflected there,” she tweeted.

"The balance sheet breaks out a few of our biggest long positions; we obviously have hedges that aren’t listed. Given the tightening in the crypto credit space this year, we’ve returned most of our loans by now,” Ellison continued.

Despite the assurance from Ellison, Binance CEO Changpeng "CZ" Zhao announced that his exchange plans to liquidate its FTT holdings "due to recent revelations that have came to light." Ellison responded with a proposal to buy Binance’s FTT at a $22 price.

TradingView FTT chart
Since Saturday, the price of FTT token plunged 12.33%. Image: TradingView

CZ said that he expects liquidation to take a few months to complete, mostly due to market conditions and limited liquidity. He also denounced speculations that his actions were “a move against a competitor.” At the same time, CZ made pointed allusions to SBF’s recent push for more stringent crypto regulation.

Following Zhao’s announcements, Bankman-Fried called on Binance and FTX to “work together for the ecosystem.” FTX CEO also insisted that his exchange was “fine.”

"A competitor is trying to go after us with false rumors," he tweeted. "FTX is fine. Assets are fine. FTX has enough to cover all client holdings. We don't invest client assets (even in treasuries). We have been processing all withdrawals, and will continue to be."