Third-Tier Exchanges ‘Secretly Insolvent,’ Says FTX’s Sam Bankman-Fried

Key learning points

  • FTX CEO Sam Bankman-Fried has warned that some third-tier crypto exchanges are “secretly insolvent” and that more crypto firm bankruptcies may be on the horizon.
  • Despite his companies donating $800 million to bail out key industry stakeholders, he said some companies are “too far gone” and not worth saving.
  • He added that he thinks the widespread fears surrounding a possible Tether explosion are wrong.

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Sam Bankman-Fried, whose FTX exchange recently bailed out ailing crypto firms BlockFi and Voyager Digital for a combined $800 million, has warned that more crypto exchange failures are to come.

SBF Warns of Crypto Exchange Insolvency

Sam Bankman-Fried has suggested that more crypto companies are on the brink of collapse.

In a Forbes interview The founder of FTX and Alameda Research, published late Tuesday, warned that several crypto firms are facing similar liquidity problems as Celsius, BlockFi and Voyager Digital in recent weeks. “There are some third-tier exchanges that are already secretly insolvent,” he said, indicating that unlike certain top-tier crypto companies, certain exchanges have no one to bail them out.

Bankman-Fried’s FTX and Alameda Research recently made headlines for bailing out ailing cryptocurrency lender BlockFi and crypto broker Voyager Digital for a combined $800 million. FTX has extended a $250 million revolving credit facility to: BlockFiThe company was rumored to be experiencing a liquidity crisis as Alameda loaned $200 million in cash and 15,000 Bitcoin to Voyager to ensure its solvency. Voyager had lowered client withdrawal limits due to liquidity issues after crypto hedge fund Three Arrows Capital defaulted on his $667 million loan to the broker.

Despite the bailouts Bankman-Fried’s companies provided to key industry stakeholders in June, the 30-year-old billionaire underlined similar points to those recently made by Binance CEO Changpeng Zhao, who says certain companies are not worth saving. He said:

“There are companies that are basically too far gone and it’s not practical to backstop them for reasons such as a substantial balance sheet hole, regulatory issues or because there isn’t much left to save.”

While Bankman-Fried declined to name specific crypto companies or exchanges he believes could fail afterward, he calmed long-standing fears that the industry’s largest stablecoin provider, Tether, could be on the list. “I think the really bearish views on Tether are wrong…I don’t think there is any evidence to support them,” he said.

Disclosure: At the time of writing, the author of this article owned ETH and several other cryptocurrencies.

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