In-depth interpretation of FTX's balance sheet, reproducing the whole process of being run on

Original author: Degg_GlobalMacroFin

Some time ago, the Financial Times disclosed a balance sheet that was said to be the last moment of FTX. Not only does it show what FTX looked like at the last second before Chapter 11 went bankrupt, but it also shows how FTX has suddenly fallen into the abyss of doom since last weekend. It can be said that this balance sheet is the perfect "banking crisis" textbook .   

1. Let’s take a look at FTX’s balance sheet before the run broke out.

There are about 24 billion US dollars in total assets on the asset side.  

6 billion liquid assets, including various stable coins, currency deposits, etc.; 

15 billion of various encrypted assets, labeled as "less liquid assets", including 6 billion of its own issued FTT, 2.2 billion of SOL, 5.4 billion of SRM; < /p>

3.2 billion illiquid assets , mainly various types of venture capital.

2. These tokens on the balance sheet are actually the combined statements of FTX and Alameda (FTX provided about 8 billion loans to Alameda).  

On the liability side, FTX has about 14 billion U.S. dollar liabilities, including at least 5 billion U.S. dollar liabilities, as well as a large number of BTC and ETH liabilities. At this time, FTX's net capitalization (total assets minus liabilities) is approximately $10 billion.     

3. Change In other words, before the accident, the leverage ratio of FTX was only 1.4 times, and SBF was indeed a billionaire worth tens of billions last Saturday.  

SBF estimates FTX funds per day on weekdays Withdrawals averaged $250 million per day. Therefore, even if there is no new inflow of funds, SBF estimates that its 6 billion liquid assets can withstand the withdrawal demand for about 24 days (similar to the concept of "liquidity coverage multiple" in traditional banking).   

4. This will give FTX Sufficient time to liquidate various token holdings, or find funds elsewhere. But the run that kicked off on Sunday exceeded SBF's imagination. SBF stated in the document that on Sunday (November 6) FTX encountered 25 times the withdrawal demand of normal days, and the net outflow of funds reached 5 billion US dollars in just a few days, including At least 20,000 BTC and a large number of stable coins.   

5、Run The result: FTX's total liquid assets dropped from 6 billion to only 1 billion.  

At this time, FTX’s 1 billion liquidity reserves For the outflow pressure of 5 billion per day (which of course cannot be sustained by so much), the coverage multiple will drop from 24 times (60/2.5) to 0.2 times (10/50). In other words, if it does not suspend cash withdrawals, it can only survive for a few hours.   

6. Evaporation with fluidity There is also a plunge in the price of FTX-related assets. It is not clear how much assets FTX has sold in the secondary market, but the prices of FTT, SRM, and SOL have fallen by about 90%, 60%, and 60% since last week. This caused the total market value of FTX's illiquid holdings to drop by 2/3, from $15 billion to $5 billion.   

7. After suffering a run and asset impairment, the situation of FTX before bankruptcy is: there are only 1 billion liquid assets left on the asset side, 5 billion tokens and illiquid assets with a book value of 3 billion but the actual value is likely to be very low, while On the liability side, there are still about $9 billion worth of liabilities, of which $5 billion is denominated in U.S. dollars. At this time, FTX is not just a liquidity crisis, but a repayment crisis, and it is already insolvent.   

8. The collapse of FTX in just a few days is a textbook example of a bank run. Almost all features of an investment bank run: 

 ( 1) It implements a large number of risk conversion and liquidity conversion functions, and uses customer funds as high-risk and low-liquidity asset investment.

 (2) The run pressure is completely underestimated, The seemingly abundant liquidity reserves were depleted in just one or two days.   

 (3) Assets are priced by the market value method, which is very easy to fall into a run - sell-off - falling asset prices - falling equity - a death spiral intensified by the run. What makes FTX more brutal is that it holds a large number of its own stocks, which is equivalent to banks buying their own stocks and injecting themselves.