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Third-Tier Exchanges "Secretly Insolvent," Says FTX's Sam Bankman-Fried

The founder of one of the largest exchanges and principal trading firms in the space has said that certain crypto companies are “too far gone” and have little business “left to be saved.”

Third-Tier Exchanges "Secretly Insolvent," Says FTX's Sam Bankman-Fried
Photo credit: Lam Yik/Bloomberg

Key Takeaways

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

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

SBF Warns of Crypto Exchange Insolvency

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

In a Forbes interview published late Tuesday, the founder of FTX and Alameda Research warned that several crypto businesses are facing similar liquidity issues to those experienced by Celsius, BlockFi, and Voyager Digital in recent weeks. “There are some third-tier exchanges that are already secretly insolvent,” he said, indicating that, unlike with certain top-tier crypto firms, certain exchanges won’t have anyone to save them.

Bankman-Fried’s FTX and Alameda Research recently made headlines for bailing out the distressed crypto lender BlockFi and crypto broker Voyager Digital to a combined tune of $800 million. FTX extended a $250 million revolving credit facility to BlockFi, the firm rumored to be facing a liquidity crisis, while Alameda loaned $200 million in cash and 15,000 Bitcoin to Voyager to ensure its solvency. Voyager had reduced customer withdrawal limits amid liquidity issues after the crypto hedge fund Three Arrows Capital defaulted on its $667 million loan to the broker.

Despite the bailouts that Bankman-Fried’s firms extended to key industry stakeholders throughout June, the 30-year-old billionaire underscored similar points to those recently made by Binance CEO Changpeng Zhao, saying that certain firms 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 like a substantial hole in the balance sheet, regulatory issues, or that there is not much of a business left to be saved.”

Although Bankman-Fried refused to name any specific names of crypto firms or exchanges he believes could fail next, he did calm longstanding fears that the industry’s largest stablecoin provider, Tether, could be on the list. “I think that 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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