Bahamian regulators are not responsible for the $477M hack of bankrupt crypto exchange FTX on Nov. 11, according to blockchain research firm Chainalysis.
Chainalysis is among several firms hired by FTX’s new leadership to assist in bankruptcy proceedings, according to court documents filed this week.
“Some funds were stolen, and other funds were sent to the regulators,” Chainalysis said on Twitter.
The jurisdictional fight over the fate of bankrupt crypto exchange FTX — and the mystery surrounding a $477M exploit — escalated Thursday evening, when the Securities Commission of the Bahamas acknowledged attempting to take control of digital assets held by FTX Digital Markets.
On one side are Bahamian authorities and, seemingly, disgraced FTX co-founder Sam Bankman-Fried, both of whom want to keep bankruptcy proceedings in the island nation where FTX is headquartered.
On the other side are most of the 100-plus companies that make up his former empire, now under the leadership of corporate turnaround expert John Ray. Ray took over as CEO after Bankman-Fried’s resignation on Nov. 11 and promptly filed for Chapter 11 bankruptcy in Delaware.
In a statement released Thursday evening, the Securities Commission of The Bahamas acknowledged that court-appointed liquidators had ordered the transfer of “all digital assets of FTX Digital Markets Ltd. … to a digital wallet controlled by the Commission, for safekeeping.”
The announcement fueled speculation that Bahamian authorities ordered the Nov. 11 hack, one of the largest in crypto history. The hacker made off with almost $500M in various digital assets, according to blockchain forensics firm Elliptic.
The Securities Commission did not disclose the value of FTX Digital Markets’ assets it now holds, however, and declined to comment when contacted by The Defiant. Meanwhile, blockchain analysts voiced skepticism that the Bahamian regulator controlled the half-billion dollars FTX lost in the hack.
Crypto sleuth ZachXBT is among those who argue that the hack was, in fact, a hack. When swapping tokens, the wallet that received the stolen crypto executed the trades poorly, tolerating enormous slippage (the difference between the price at which a trade is quoted and the price at which it’s executed) due to the large size of the trades.
Furthermore, that wallet has routed funds through another wallet that, pre-hack, “had only sent small amounts to exchanges originating from sketchy sources,” ZachXBT tweeted.
Elliptic, a crypto forensics firm, said the Securities Commission’s statement suggests “the ‘hack’ was actually the seizure of FTX assets by the Bahamian government.”
When reached for comment, however, Elliptic co-founder Tom Robinson told The Defiant “there’s currently no clear evidence that I’m aware of regarding who took what – it’s all speculation.”
Nick Bax, head of research at Convex Labs, a blockchain intelligence firm, believes the Securities Commission was likely referring to almost $400M in FTT transferred to a yet-to-be-identified crypto wallet on Nov. 12.
“In connection with investigating a hack on Sunday, November 13, Mr. Bankman-Fried and [FTX co-founder and former CTO] Mr. Wang stated in recorded and verified texts that ‘Bahamas regulators’ instructed that certain post-petition transfers of Debtor assets be made by Mr. Wang and Mr. Bankman-Fried (who the Debtors understand were both effectively in the custody of Bahamas authorities) and that such assets were ‘custodied on Fireblocks under control of Bahamian gov’t,’” FTX said in a court filing this week.
Bax told The Defiant he is “99% sure [that] address [that received the FTT] is consistent with Fireblocks.”
An attorney for FTX did not immediately respond to a request for comment.
Some of the money has been deposited in crypto exchange Huobi, according to on-chain data reviewed by The Defiant.
On Sunday, Chainalysis and FTX both urged centralized exchanges to freeze any stolen money they receive from the hacker’s wallet and intermediaries.
“Exchanges should be aware that certain funds transferred from FTX Global and related debtors without authorization on 11/11/22 are being transferred to them through intermediate wallets,” FTX said on Twitter. “Exchanges should take all measures to secure these funds to be returned to the bankruptcy estate.”
The struggle over jurisdiction caps a week in which myriad issues facing FTX’s new leadership came to light, many via documents filed in bankruptcy court.
In an affidavit filed this week, Ray — who helped Enron creditors claw back most of their assets in one of the most high-profile bankruptcies in history — said the mess Bankman-Fried and associates left behind was “unprecedented.”
“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” Ray said in the filing.
Ray said he does not trust any of the financial statements prepared under Bankman-Fried’s leadership — not even the few that have been audited. On Saturday, FTX and its subsidiaries announced a “strategic review of their global assets,” to determine exactly how much of FTX’s money is left and where it resides.
In the affidavit, Ray also castigated Bankman-Fried for “the use of software to conceal the misuse of customer funds,” and “the secret exemption of Alameda [Bankman-Fried’s trading firm] from certain aspects of FTX.com’s auto-liquidation protocol.”
Bankman-Fried maintains that he did not set out to steal customer funds and was not aware FTX was, essentially, insolvent.
“Thought Alameda had enough collateral to [reasonably] cover [the loan],” he told a reporter at Vox in an interview published this week.
In that same interview, however, he seemed to admit to defrauding customers.
Pressed about his assertion that FTX never invested customer money, he said it was “factually accurate” – because that money had been loaned to Alameda, which, in turn, invested and lost it.
He also said his carefully cultivated do-gooder image was “mostly PR,” lashed out at regulators, and rued relinquishing control of the company and filing for bankruptcy.
Meanwhile, the fallout from FTX’s collapse continues to send shockwaves through crypto.
On Friday, The Defiant reported that Solana, an Ethereum competitor that has attracted users and buzz with high-speed, low-cost transactions, is enduring the most important test of its two-year existence.
Solana’s total value locked has plunged almost 70% to $303M since Nov. 7, and its token has lost a quarter of its value in the last seven days compared to a 7% slide in Ether.
On Thursday, Binance, the No. 1 cryptocurrency exchange worldwide, temporarily suspended deposits for USDC and USDT on the Solana blockchain with no explanation. It soon restarted accepting USDT deposits. OKX, another exchange, said on its website that it will be delisting USDC and USDT hosted on the Solana blockchain.
Then there’s staking action – Solana stakers have unstaked around 39M SOL tokens from epoch 370 to 372. This is drastically higher than the4.3M SOL tokens being staked during the same period. This indicates that many SOL investors may be looking to abandon ship.
Digital Currency Group
The crash has also rocked Grayscale, the issuer of the world’s largest publicly traded crypto fund.
Grayscale is owned by Digital Currency Group, which is being scrutinized by investors after another subsidiary, Genesis Global Capital, reportedly sought an emergency loan of $1B last week in the wake of FTX’s collapse.
“The holdings of Grayscale’s digital asset products are safe and secure,” the company said on Nov. 18. Grayscale’s products function both as independent companies and publicly traded securities representing single digital assets.