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FTX Effort to Save Itself Failed on Questionable Assets

FTX desperately tries to save itself yet fails to answer on questionable assets

Serum and the other three tokens appeared on FTX’s balance sheet in November, when the company asserted monies used as collateral by Alameda after the trading company ran out of cash, according to Mr. Sam Bankman-Fried.

FTX and Alameda possessed two-thirds of all Serum coins that could be produced. Alameda was primarily responsible for trading in Serum. According to a news release from its proponents, the company’s goal was to “imbue Serum with extraordinary liquidity.” After the bankruptcies, Oxygen and claimed that FTX and Alameda retained 95% of their tokens in a statement.

Following the bankruptcies, the cash dried up. On a Serum Discord channel shortly after the FTX bankruptcy, a member questioned, “Why is there no trade in the market?” No other person stood up; Alameda is gone,” a moderator answered. “We’re all alone now,”

According to the platform’s literature, Serum, which Mr. Sam Bankman-Fried helped create in the middle of 2020, was intended to be an independent, decentralized cryptocurrency exchange that its users rather than FTX ran. Smart contracts, bots that automatically execute trades between buyers and sellers, would replace the need to deposit money with a centralized exchange like FTX.

The promoter of Serum, Mr. Sam Bankman-Fried, mentioned in the interview how he enjoys supporting initiatives like this, mainly when he is acquaintanced with the founders. In addition, employees claim that he employed a public relations company to assist market the new exchange and at least one person to respond to Telegram messages where users raised problems.

Several persons with knowledge of the situation and a portion of a July 2020 credit agreement viewed by the Journal state that at least two early Serum investors bought tokens from Cottonwood Grove Ltd., whose CEO was Mr. Sam Bankman-Fried. In the bankruptcy case, Cottonwood is one of more than 100 FTX affiliates.

Serum appeared to be flourishing shortly after. While just a tiny portion of its 10.16 billion tokens was traded, in September 2021, each of them reached a high price of $12.50, valuing them at more than $127 billion.

The proponents of Serum said in January that they had raised $100 million from 18 investors, including Commonwealth Asset Management and Tiger Global Management. According to cryptocurrency statistics provider CoinGecko, the site was handling about $1 billion in daily transaction volumes by February, making it the third-largest exchange of its kind in the globe at the time.

However, FTX workers still had sway. As two people familiar with the project’s progress and a Journal study of Telegram chat logs, they had access to the credentials that allowed programmers to alter the platform. Moreover, according to chat logs and multiple persons active in the project, some Serum backers set up a fork—or duplicate—of the platform after the bankruptcy to block FTX’s access.

In the world of cryptocurrency, people were aware of Serum’s connections to FTX, Alameda, and Mr. Sam Bankman-Fried. According to people who know the situation, financial-services company withdrew loans from Alameda when the value of frequently traded cryptocurrencies, Bitcoin and Ethereum, fell. In addition, because of their tight ties to Mr. Sam Bankman-Fried, it wouldn’t accept other coinage like Serum on the company’s balance sheet.

Olaf Carlson-Wee, the creator of the cryptocurrency fund Polychain Capital, also has concerns about the tokens. Mr. Sam Bankman-Fried gave Mr. Carlson-company Wee 24 hours to decide whether to invest, he claimed in a tweet. Instead, he turned them down repeatedly, partly because he thought the Oxygen, Serum, FTT, and tokens were all overvalued.

The Oxygen and tokens raised $90 million in total. Mr. Sam Bankman-Fried served as the projects’ advisor, and Alameda invested alongside other parties like Genesis Capital, a division of the Jump Trading Group, and Jump Crypto. These parties included Digital Currency Group Inc. and Mr. Sam Bankman-Fried. Jump and Genesis declined to comment.

Alex Grebnev and Viktor Mangazeev were the two in charge of Oxygen and Maps. According to a LinkedIn message from Mr. Mangazeev, he stopped working on the projects in February. Emails asking Mr. Grebnev for a remark has yet to receive a response.

Before the token’s launch, a news release stated that was previously held by the Russian internet giant Group, currently known as VK Co. The initiative was then sold to a Cyprus-registered company.

Speaking on behalf of the company, a VK spokeswoman said, “We would prefer not to elaborate on goods and related plans that are no longer appropriate to the group.”

Mr. Sam Bankman-Fried was also a part of the management of Bonfida, whose tokens later appeared on the FTX balance sheet. In addition, a failing cryptocurrency hedge fund called Three Arrows Capital was one of the investors in the project, which was run by a former FTX employee, who in December 2020 raised $4.5 million.

In truth, the new project was little more than a continuation of FTX, said Ezra Lim, a former Bonfida worker who Mr. Sam Bankman-Fried previously employed to reply to Serum inquiries over Telegram before switching to Bonafide. In regards to a Bonfida personnel issue, Mr. Sam Bankman-Fried expressed his opinion, he stated. Data from The Tie shows that its token reached an all-time high of $11 billion in November 2021.

Former FTX employee David Rainey, CEO of Bonfida, claimed Mr. Sam Bankman-Fried had no authority over the project. He said that because Alameda was a Bonfida investor, Mr. Sam Bankman-Fried was contacted about handling the personnel conflict.

After raising funds, Bonfida updates have slowed, and it has yet to release final versions of any of the trading tools it marketed, according to Mr. Lim.

“After the launch, we proceeded differently,” Mr. Lim added. He felt like he was deceiving, but as the token price was surging, nobody cared about it.