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The world’s second largest cryptocurrency exchange, FTX, filed for bankruptcy in the US on November 11, 2022. Following market concerns about the financial stability of FTX and related transfers to Alameda Research, a trading company owned by FTX founder Sam Bankman-Fried, FTX was unable to meet customer withdrawals (approximately $5 billion worth).
The filing follows FTX’s failed attempt to gain support from Binance, the world’s largest cryptocurrency exchange, through an acquisition. The FTX run disrupted the market considerably, and other cryptocurrency exchanges were forced to reassure their clients that they would have sufficient liquidity reserves to handle the necessary client withdrawals.
Cryptocurrency firm FTX’s ownership of a US bank raises concerns
One very small asset that could cause major problems was found among the many unexpected assets revealed in the bankruptcy of cryptocurrency exchange FTX: a stake in one of the smallest banks in the country.
Farmington State Bank in Washington state has just one location and three workers this year. He didn’t even provide a credit card or online banking.
The relationship between the minor bank and the demise of FTX has led to additional inquiries about the exchange and its operation. Among them: How integrated is FTX into the larger financial system, which is based in the Bahamas? What else could the authorities have overlooked? How will Farmington engage in mass bankruptcy as it searches for missing FTX assets?
Farmington State Bank and FTX began working together in March after Alameda Research, a small trading firm and sister company of FTX, invested $11.5 million in FBH, the bank’s parent company.
Ramnik Arora, a top adviser to exchange creator Sam Bankman-Fried, oversaw FTX’s investment, which financial officials said was more than four times the bank’s net worth.
Farmington is connected to several cryptographic networks. Bank was purchased by FBH in 2020. Jean Chalopin, president of Deltec Bank, which, like FTX, is based in the Bahamas, and co-creator of the 1980s police cartoon Inspector Gadget, is also president of FBH . Deltec’s best-known client is Tether, a cryptocurrency corporation with $65 billion in assets that provides a dollar-pegged stablecoin.
Due to its reclusive founders and offshore bank accounts, Tether has long faced financial problems. FTX was one of Tether’s biggest trading partners through Alameda, raising concerns that the stablecoin would be connected to FTX’s fraudulent activities without anyone knowing.
What FTX had in mind for Farmington is unclear. Farmington is currently known as Moonstone Bank Online. A few days before the FTX investment, the name was registered. There is nothing related to Bitcoin or other digital currencies on the Moonstone website. According to the statement, Moonstone wants to help “the development of next-generation finance.”
Neither Deltec nor Moonstone responded to a request for comment.
It is unclear how FTX obtained a banking license in the United States, which would require approval from federal regulators. Banking industry veterans find it hard to imagine regulators knowingly allowing FTX to take over a US bank.
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