How NOT to Run a Business w/ Crypto (Part 3)

If you have yet not heard of this subject, between 2021 and 2022, a so-called business owner by the name of Sam Bankman-Fried was largely notable for running an organization called FTX which promised to manage funds of various people through cryptocurrencies promising a substantial return if they were to invest in them through the company. With the attempt of landing on business acquisitions of companies notable for managing ‘stable coins’, especially with that of Binance and its branches, the once known organization was slowly distraught by skepticism of financial mismanagement and was instead given exposure to its large cycle of distrust on behalf of the company to its clients, replacing the once assumed business model with a financial plan with a scheme.

Amongst other events at which the government intervened with blockchain-related financial mismanagement, such as the NY state releasing a bill that doesn’t let developers of token campaigns sell over 10% of their cryptocurrency supply all at once (covered in the second part to ‘How NOT To Run A Business w/ Crypto’), the major sustenance that caught the media’s attention was not only the suspicious nature of the company exposed overtime by relinquished partnerships but as well as how court justice came into play. A large number of companies had partnered with the ownership of holding tokens within FTX, at which most of them had suffered the consequences without having looked into the root of an onion that was spoiled. FTX was established by a portfolio trading and research company that Sam Bankman-Fried had named ‘Alameda Research’, except on the surface level of the iceberg, this was only a title with a promise that would later vanish. The companies associated with FTX were mainly crypto lenders such as Celsius Network, that had purchased 13 million$ of tokens by the name of SRM (Serum Tokens), expecting a return, with the addition of extending their loans to the supposed ‘trading company’ as well.

As the world economy includes a particular bubble at which companies maintain a specific amount of market capitalization, where specific assets are measured and calculated by the accounts of financial managers within Forbes 500 companies, in this case due to the decentralized nature and a lack of notability with how companies are built on the blockchain network, Alameda Research only used FTX as a hack (“so to speak”) into the market, largely prioritizing promises over factual evidence of portfolios and returns having ever taken place to begin with. At the beginning, the collaboration between FTX and its supporting celebrity clients was the main driving force behind the ‘trust’ benefactor of the cycle, yet, when certainty takes place especially under the condition that the company is not working with pre-determined financial knowledge and a promising risk and return element within the cryptocurrency network, other companies with notable experience have taken the position of questioning the companies ethics.

In this case, the company at play was Binance, another cryptocurrency trading company established by Changpeng Zhao in July 2017, was a format for clients to exchange cryptocurrency tokens at a high volume. As exchanges are focused on specific attention to analytics and the economies reaction to tumbling capital within the market, Binance had owned a significant portion of FTX’s tokens valued up to 530 million$ at around the time of 2019, yet with the use of technical analysis tools the company was able to suspect of leverages which did not particularly make up to how much of private financial information FTX was managing at the time.

At first, it was believed that the leverage of FTX was 5 billion$, yet Binance discovered that the amount was instead tripled, questioning whether or not responsible information was possessively demonstrated by SBF himself within Alameda Research. With initial apologies haven taken place over errors in calculations over Twitter by Zhao, the specific exchange of messages did in fact create a ripple in questioning instead of accepting the reputation of FTX. Generally speaking, next to flaws in client relations due to flaws in passing information, especially when it’s rooted from a hidden negative quality within a company, what generally tends to take place for the sake of protection on behalf the most conscious corporation is something called a non-binding LOI (letter of intent). The meaning behind this term is partially explained by the word ‘non- binding’, at which a permanent deal is not set in place to secure the acquisition but one of which is temporarily confirming based on the premise that either of the two or more companies or both can walk away from an acquisition if specific terms are not agreed upon due to speculation of illegal activity or mishandling of due diligence.

It is important to be kept in mind that throughout this process, Binance had made a promise to purchase the company under the conditions with the non-binding LOI that the terms have been met, at which eventually FTX had largely broken a majority of them due to their financial mishaps. Now, you may be wondering, like all other companies mentioned thus far, was FTX not holding their own stable coin like that of Binance? Well, frankly speaking, a stable coin can be liquidized with given cash behind it as an asset, whereas FTX only created an altcoin by the name of FTT that would later disguise itself as a stable coin. As the decentralization of data spread across blocks with their own identified hash numbers and addresses can strew the way financial information is interpreted by connecting parties, in this case the CEO of Binance was carefully mentioning that their exchange with FTX on behalf of their own stable coin currency BUSD was the equivalent of 2.1 billion$. Although the initial acquisition seemed promising, the comparison to be made here is that one company knows what liquidation looks like whereas one that does not necessarily work within the same mainframe seeks loopholes instead of direct communication with their trusting clients.

If you have looked at any of our content regarding how social media tends to react as the core loophole to the appraisal of altcoins with invalid promises of financial returns made by influencers and celebrities, a core amount of the personal finances was largely invested into marketing campaigns that would try to sustain the demand deriving from ‘word of mouth’. A major example of this, is how FTX managed to land on another acquisition with the intention of building this word of mouth, by purchasing the naming rights to the Miami Heat Arena for a 19-year time period renaming it to the “FTX Arena” for 135 million $ by the time of June 2021. The key indicator behind this action, is the way the trust is built with these major corporations, and how it will ultimately either benefit or risk their reputation at the end, something that various of the celebrities’ such as Kevin O’Leary and Shaqueille O’Neal have suffered with alongside other major companies.

As of the bankruptcy, alongside the purchase of FTT on behalf of companies and celebrities, the total loss of finances by FTX has reached anywhere between 900 billion to 1 trillion $ USD, creating a major dent in the economy at the time of the pandemic. With SBF recently attempting to dismiss the charges from the court, and facing 115 years of prison over his actions as a result, the ultimate conclusion to understand and process here is that ‘trust’ can be interpreted many different ways. Whether or not you are an established businessman or someone just seeking to build a portfolio, it is important to maintain patience in order to get the most information possible about any company that supposedly promises something. In this era, marketing is incredibly easy to be done, and with a real or imagined product at hand, you can simply disguise it as much as you can through how you represent yourself to the people you choose to work with in favor of or against what they’d like in return. A great tool that may assist a person with building a beginner portfolio in the cryptocurrency sector is an AI-driven tool called Q.ai, which is an app used in assessing the spread of risk and return across the entirety of the markets on behalf of financial advisors in addition to this, in order to provide you a concrete analysis that will help in avoiding scheme-driven altcoins. You may access the link for more information here: https://help.tryq.ai/en/articles/5211544- what-is-q-ai