Thread by @wassielawyer

1/ Ok so just processing this out loud because I am pretty mindblown that FTX chose - of all options, a buyout from Binance.

These were the options open to SBF: (a) seek emergency debt financing, (b) seek new money investment, (c) liquidate assets and/or (d) buy time...

2/ via seeking bankruptcy protection to facilitate (a) - (c). Sam has chosen to seek a bailout from Binance - the very party that has triggered the bank run in the first place.

What we can gather from this is that FTX was indeed lending out customer funds to other parties...

3/ likely to Alameda. This means that, as I speculated earlier, FTX was working on a fractional reserve model where it was not prepared to meet withdrawals on the bank run which CZ triggered on FTX. In order to meet these bank runs, FTX needed to unwind its Alameda loans.

4/ Alameda itself did not have the liquidity to return the funds to FTX, thus leading to it liquidating whatever liquid assets it could and returning whatever it could so that FTX could try to continue to meet the withdrawals.

5/ But this was not enough since customer confidence was not returning - there were no deposits, only withdrawals. So some sort of external third party funding was required to meet the cash outflows.

6/ Instead of seeking finance from any other party or buy more time by throttling withdrawals or seeking a moratorium, SBF bent the knee to Binance.

Does this mean that FTX was in such a deep hole that we weren't talking about an emergency swingline but full on rescue financing?

7/ Rescue financing would have been incredibly expensive - which means SBF didn't believe that FTX would be able to meet those financing costs. SBF also didn't think that buying time via a process like Chapter 11 would have done any good.

8/ The conclusion? FTX must have had a massive hole in its balance sheet (likely Alameda) that could not be plugged by other financiers which forced SBF to kiss the ring. But what now?

CZ is only buying FTX which means the liability likely owing from Alameda to FTX remains.

9/ So customers are going to be made whole (because CZ is plugging the gap) but FTX (under new management) will surely be looking to recover the outstanding amounts from Alameda.

Are we now then looking at a potential Alameda insolvency scenario?

10/ Thats enough excitement for one night. Going to go to sleep and see what spicy shit comes out of this.

Can't wait to see the details of the Alameda-FTX relationship.