Embattled crypto exchange FTX, once the third-largest crypto exchange by trading volume, reportedly lent more than half of its customer funds to its affiliated trading firm Alameda Research, exposing further risks in the lightly regulate industry.
FTX’s chief executive Sam Bankman-Fried reportedly told an investor this week that it extended loans of about $10 billion to Alameda, using funds that customers deposited on the exchange for trading, according to an article by the Wall Street Journal, citing an anonymous source. That amounted to over half of the $16 billion of FTX customer assets, according to the report.
Representatives at FTX didn’t respond to a request seeking comment for this article.
The exchange saw about $5 billion of customer withdrawals on Sunday, Bankman-Fried tweeted Thursday.
Revelations about the inner-working at FTX in recent days have shocked investors, including as more information emerges about the company’s insolvency risks and about its opaque relationship with its affiliate firm Alameda.
See: ‘I f—d up’: Sam Bankman-Fried takes blame for liquidity issues at FTX
“I think that, hopefully, people learn their lesson this time,” Ian Weisberger, co-founder at CoinRoutes, told MarketWatch, adding that it could mean, “They don’t trust these kind of operations that have principal market makers attached to it.”
Still, other crypto heavyweights have attempted to calm markets about the potential for spillover at other exchanges. “Even though FTX is one of the biggest exchanges, its operating business model is still very different than all the other exchanges,” said Lennix Lai, managing director at OKX, the world’s second-largest crypto exchange by trading volume. “They are a hybrid of a trading firm and an exchange.”
Investors also remain worried that the insolvency crisis around FTX will put pressure on the already battered crypto market. Bitcoin
on Wednesday fell to as low as $15,552, the lowest level since November 2020, before it rebounded to around $17,583 on Thursday.