Visualized: FTX’s Leaked Balance Sheet
Visualizing FTX’s Balance Sheet Before Bankruptcy
In a difficult year for the crypto space that has been full of hacks, failing funds, and decentralized stablecoins going to zero, nothing has compared to FTX and Sam Bankman-Fried’s (SBF) rapid implosion.
After an astronomical rise in the crypto space over the past three years, crypto exchange FTX and its founder and CEO SBF have come crashing back down to earth, largely unraveled by their misuse of customer funds and illicit relationship with trading firm Alameda Research.
This graphic visualizes FTX’s leaked balance sheet dated to November 10th, and published by the Financial Times on November 12th. The spreadsheet shows nearly $9 billion in liabilities and not nearly enough illiquid cryptocurrency assets to cover the hole.
How did FTX wind up in this position?
How FTX’s Bankruptcy Unfolded
FTX’s eventual bankruptcy was sparked by a report on November 2nd by CoinDesk citing Alameda Research’s balance sheet. The article reported Alameda’s assets to be $14.6 billion, including $3.66 billion worth of unlocked FTT and $2.16 billion of FTT collateral.
With more than one-third of Alameda’s assets tied up in FTX’s exchange token FTT (including loans backed by the token), eyebrows were raised among the crypto community.
Four days later on November 6th, Alameda Research’s CEO, Caroline Ellison, and Sam Bankman-Fried addressed the CoinDesk story as unfounded rumors. However, on the same day, Binance CEO Changpeng Zhao (CZ) announced that Binance had decided to liquidate all remaining FTT on their books, kicking off a -7.6% decline in the FTT token on the day.
Back and Forth with Binance’s CZ
While Ellison publicly offered to buy CZ’s FTT directly “over the counter” to avoid further price declines and SBF claimed in a now-deleted tweet that “FTX is fine. Assets are fine.”, FTX users were withdrawing their funds from the exchange.
Less than 24 hours later on November 7th, both SBF and CZ tweeted that Binance had signed a non-binding letter of intent for the acquisition of FTX, pending due diligence.
The next day, the acquisition fell apart as Binance cited corporate due diligence, leaving SBF to face a multi-directional liquidity crunch of users withdrawing funds and rapidly declining token prices that made up large amounts of FTX and Alameda’s assets and collateral for loans.
FTX’s Liabilities and Largely Illiquid Assets
In the final days before declaring bankruptcy, FTX CEO Sam Bankman-Fried attempted a final fundraising in order restore stability while billions in user funds were being withdrawn from his exchange.
The balance sheet he sent around to prospective investors was leaked by the Financial Times, and reveals the exchange had nearly $9 billion in liabilities while only having just over $1 billion in liquid assets. Alongside the liquid assets were $5.4 billion in assets labeled as “less liquid” and $3.2 billion labeled as “illiquid”.
When examining the assets listed, FTX’s accounting appears to be poorly done at best, and fraudulently deceptive at worst.
Of those “less liquid” assets, many of the largest sums were in assets like FTX’s own exchange token and cryptocurrencies of the Solana ecosystem, which were heavily supported by FTX and Sam Bankman-Fried. On top of this, for many of these coins the liquidity simply wouldn’t have been there if FTX had attempted to redeem these cryptocurrencies for U.S. dollars or stablecoin equivalents.
While the liquid and less liquid assets on the balance sheet amounted to $6.3 billion (still not enough to equal the $8.9 billion in liabilities), many of these “less liquid” assets may as well have been completely illiquid.
Relationship with Alameda Research
When looking at FTX’s financials in isolation, it’s impossible to understand how one of crypto’s largest exchanges ended up with such a lopsided and illiquid balance sheet. Many of the still unfolding details lie in the exchange’s relationship with SBF’s previous venture that he founded, trading firm Alameda Research.
Founded by SBF in 2017, Alameda Research primarily operated as a delta-neutral (a term that describes trading strategies like market making and arbitrage that attempt to avoid taking directional risk) trading firm. In the summer of 2021, SBF stepped down from Alameda Research to focus on FTX, however his influence and connection with the firm was still deeply ingrained.
A report from the Wall Street Journal cites how Alameda was able to amass crypto tokens ahead of their announced public FTX listings, which were often catalysts in price surges. Alongside this, a Reuters story has revealed how SBF secretly moved $10 billion in funds to Alameda, using a bookkeeping “back door” to avoid internal scrutiny at FTX.
While SBF responded to the Reuters story by saying they “had confusing internal labeling and misread it,” there are few doubts that this murky relationship between Alameda Research and FTX was a fatal one for the former billionaire’s empire.
Mapped: The State of Economic Freedom in 2023
How free are people to control their own labor, property, and finances? This map reveals the state of economic freedom globally.
Mapped: The State of Economic Freedom in 2023
The concept of economic freedom serves as a vital framework for evaluating the extent to which individuals and businesses have the freedom to make economic decisions. In countries with low economic freedom, governments exert coercion and constraints on liberties, restricting choice for individuals and businesses, which can ultimately hinder prosperity.
The map above uses the annual Index of Economic Freedom from the Heritage Foundation to showcase the level of economic freedom in every country worldwide on a scale of 0-100, looking at factors like property rights, tax burdens, labor freedom, and so on.
The ranking categorizing scores of 80+ as free economies, 70-79.9 as mostly free, 60-69.9 as moderately free, 50-59.9 as mostly unfree, and 0-49.9 as repressed.
Measuring Economic Freedom
This ranking uses four broad categories with three key indicators each, both qualitative and quantitative, to measure economic freedom.
- Rule of law: property rights, judicial effectiveness, government integrity
- Size of government: tax burdens, fiscal health, government spending
- Regulatory efficiency: labor freedom, monetary freedom, business freedom
- Open markets: financial freedom, trade freedom, investment freedom
The 12 indicators are weighted equally and scored from 0-100. The overall score is then determined from the average of the 12 indicators.
Here’s a closer look at every country’s score:
|#5||🇳🇿 New Zealand||78.9|
|#15||🇰🇷 South Korea||73.7|
|#24||🇦🇪 United Arab Emirates||70.9|
|#25||🇺🇸 United States||70.6|
|#28||🇬🇧 United Kingdom||69.9|
|#45||🇨🇷 Costa Rica||66.5|
|#47||🇨🇻 Cabo Verde||65.8|
|#48||🇧🇳 Brunei Darussalam||65.7|
|#56||🇲🇰 North Macedonia||63.7|
|#59||🇻🇨 Saint Vincent and the Grenadines||63.5|
|#63||🇧🇦 Bosnia and Herzegovina||62.9|
|#65||🇩🇴 Dominican Republic||62.6|
|#66||🇧🇸 The Bahamas||62.6|
|#74||🇸🇹 São Tomé and Príncipe||61.5|
|#79||🇱🇨 Saint Lucia||60.7|
|#81||🇨🇮 Côte d'Ivoire||60.4|
|#88||🇹🇹 Trinidad and Tobago||59.5|
|#98||🇸🇦 Saudi Arabia||58.3|
|#101||🇬🇲 The Gambia||57.9|
|#107||🇸🇧 Solomon Islands||56.9|
|#111||🇧🇫 Burkina Faso||56.2|
|#114||🇸🇻 El Salvador||56.0|
|#116||🇿🇦 South Africa||55.7|
|#136||🇱🇰 Sri Lanka||52.2|
|#140||🇵🇬 Papua New Guinea||51.7|
|#148||🇸🇱 Sierra Leone||50.2|
|#153||🇬🇶 Equatorial Guinea||48.3|
|#157||🇨🇩 Democratic Republic of the Congo||47.9|
|#166||🇨🇫 Central African Republic||43.8|
|#176||🇰🇵 North Korea||2.9|
Only four countries in the world have a score of 80 or above, Ireland, Singapore, Switzerland, and Taiwan, categorizing them as completely free economically.
Let’s now look at things from a more regional perspective.
From a regional perspective, Europe ranks the strongest in economic freedom.
Despite being a powerhouse within Europe, Germany ranks 10th in the continent, with a score of 73.7. One of the categories Germany scored the weakest in was government spending (28.3/100). Over the last three years, government spending has averaged 49% of GDP.
Ireland ranks third globally, scoring particularly high in categories like property rights and judicial effectiveness. The country also has no minimum capital requirement—which is typically a banking regulation and corporate law issue determining how many assets an organization must hold—making it attractive for businesses to set up shop on the Emerald Isle.
Currently, Africa is the continent with the least economic freedom in the world, however, it is also the region with the highest potential for economic growth. A booming population, and thus, labor force, are promising for future innovation. In fact, it’s anticipated that Africa will see an increase of 2.5 billion people by the end of the century.
The lowest scoring country in Africa is Sudan, a country under further strain thanks to rife civil conflict. Historically, economic development has been constrained by rampant corruption and a lack of institutional capacity.
Conversely, Botswana registered the highest score on continental Africa (64.9), ranking higher than countries like France and Italy.
In the Americas, the United States ranks 3rd regionally—25th overall—with a score of 70.6. The report attributes the categorization of U.S. as only “mostly free” to issues like inflation, increasing government debt, and unchecked deficit spending. Public debt currently sits at a figure equivalent to more than 128% of GDP.
In South America, Chile comes out on top, ranking above many other economic powerhouses like the U.S., the UK, and Japan. However, the 2021 election of a new Constitutional Assembly could risk the current economic state, as it favors a much more socialist approach to the economy.
East Asia and Oceania
China’s score is among the lowest in East Asia & Oceania, ranking 154th in the world categorizing it as a repressed economy. The ruling Chinese Communist Party routinely exercises direct control over economic activity. China’s protectionist stance towards foreign investment and a plethora of trade tariffs imposed by other nations also factor in here.
In India, where public debt is equivalent to about 84% of GDP, fiscal health is the worst-scoring category. Additionally, much of the economy remains quite informal; a large share of people work in jobs without tax slips, recorded income, or formal contracts protecting them, which challenges labor freedoms.
The Middle East and Central Asia
It may come as no surprise that the United Arab Emirates has the highest score in the Middle East. The UAE has implemented various measures and initiatives, such as tax exemptions, duty-free zones, streamlined business registration processes, and flexible regulatory frameworks to encourage entrepreneurship and foreign direct investment. As well, the top individual and corporate tax rates in the country are 0%.
Türkiye’s lowest scoring category relates to judiciary effectiveness and the rule of law. President Recep Tayyip Erdoğan, who has already been in power for two decades, recently won the country’s election, again cementing his authority over Turkish politics. This makes it unlikely that Türkiye’s economic freedom score will recover in the short to medium term.
Where Does This Data Come From?
Source: The Index of Economic Freedom from the Heritage Foundation
Data notes: A number of countries were not ranked due to unavailable data or other factors, like ongoing war, that made it difficult to properly assess the economy. These countries include: Ukraine, Afghanistan, Iraq, Libya, Liechtenstein, Somalia, Syria, and Yemen.
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