FTX meltdown recap + All the Web3 news you missed this week
This week’s biggest ongoing story is the meltdown of FTX, the crypto exchange led by Sam Bankman-Fried. Here’s an overview of what went down.
On November 2, CoinDesk reported that Alameda Research, a trading firm founded by SBF, had assets totaling $14.6 billion as of June 30 — roughly $5.8 billion of which were tied to FTT, a token issued by FTX. “While there is nothing per se untoward or wrong about that, it shows Bankman-Fried’s trading giant Alameda rests on a foundation largely made up of a coin that a sister company invented, not an independent asset like a fiat currency or another crypto,” wrote CoinDesk’s Ian Allison.
Then came the rush. In the 72 hours leading up to the morning of November 8, FTX saw roughly $6 billion in withdrawals, according to an internal message reviewed by Reuters. On November 6, Changpeng “CZ” Zhao, CEO of FTX competitor Binance, tweeted: “Due to recent revelations that have came to light, we have decided to liquidate any remaining FTT on our books.” At one point during the withdrawal stampede, FTX’s bitcoin balance dropped to 1 BTC.
Aid seemed to be on the way on November 8, when CZ tweeted that Binance had signed a non-binding letter of intent to fully purchase FTX and “help cover the liquidity crunch.” (That afternoon, FTX halted all withdrawals.) But by November 9, the deal was dead. “In the beginning, our hope was to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to help,” Binance’s official account tweeted.
In a series of tweets on November 10, SBF addressed the situation, leading with an apology: “I'm sorry. That's the biggest thing. I fucked up, and should have done better.” He announced that Alameda would wind down trading and that “in any scenario in which FTX continues operating, its first priority will be radical transparency,” noting that “this shitshow” was limited to FTX International and that FTX US remains “100% liquid.”
At this point, it seems “highly likely” that FTX will file for bankruptcy, reports Felix Salmon of Axios, comparing the situation to the excess leverage that brought down Lehman Brothers. “If Tuesday was crypto's Bear Stearns moment — the day that a central player in a financial ecosystem collapsed into the arms of a much bigger rival — then Wednesday was its Lehman Brothers moment, with that same central player simply imploding into a balance-sheet hole of unknowable size,” writes Salmon.
Here’s the Web3 news from the past week
The Positive Cultural Impact of Web3 (RollingStone)
Web3 could be a “better alternative” to social media, enabling creators to connect with fans directly while allowing fans (rather than record labels or film studios) to take an ownership stake in creators’ projects. “The cultural relevancy and economic potentials of internet communities have become more evident with Web3,” writes Brian D. Evans.
The collapse of one of crypto’s biggest exchanges presents potential “contagion risks” to the rest of the sector. On Thursday, the Tether stablecoin USDT fell 3% below its $1 peg, though a Tether rep told CoinDesk that it has no exposure to FTX or Alameda.
Why NFT Artists Shouldn't Expect 'Royalties' (CoinDesk)
OpenSea has added a new tool ensuring that NFT creators get paid every time their work is resold, running against a recent trend in marketplaces eliminating their royalty systems or treating royalties as tips. “OpenSea’s new tool makes it easier for creators of new NFT collections to blacklist non-royalty exchanges,” writes Daniel Kuhn. “Some have called this move anti-competitive… But [it] seems like a practical solution considering the actual tech behind NFTs.”
Meta is undergoing its biggest round of layoffs ever, cutting 13% of its workforce. (The entire organization will be affected, though certain teams, like recruitment, will be hit particularly hard.) In a memo published on Thursday, Mark Zuckerberg noted that Meta’s hiring freeze will continue through Q1 “with a small number of exceptions.”
Some takeaways from a humbling year in DeFi? Hunker down during a bear market and work on scaling your infrastructure, consider full-service offerings, and keep plugging away on making products safer and easier to use.
As the EU mulls a digital version of the euro, EU Commissioner for Economy Paolo Gentiloni addressed the challenges of creating central bank digital currencies: “How do you avoid the risk of infringing the sovereignty of other jurisdictions through a digital currency … while developing a digital currency with global ambition, as the digital euro will be?”
In case you missed it - this was the most opened article from last week’s news roundup
Many companies don’t understand what makes a metaverse experience worthwhile, designing them as “pricey ads that might draw a few eyes at first, and then fritter off into forgettable detritus.” Here are a few of their errors: focusing on technology over people, treating metaverse experiences as a way to connect with products and not other people, and designing activations in a top-down way. “Successful metaverse experiences… are often community driven, ground-up, and spontaneous,” writes Samantha Cole.
Hi, I’m Andrew Chang - I created the Web3 Roundup to share what I’m learning in this space. I’ve spent my career at the forefront of the technology industry in areas such as crypto/blockchain (Former COO @ Paxos, co-founding partner of Liberty City Ventures), video and adtech. I learn by meeting with founders, investors and other thought leaders and approach Web3 with the same enthusiasm – and skepticism – I had about crypto/blockchain technologies 10 years ago.
You can connect with me on LinkedIn