Sources have reported that the Singaporean holding firm Temasek Holdings invested $205 million in FTX, a cryptocurrency exchange that recently filed for bankruptcy protection.
Before FTX filed for Chapter 11 and was in the discussion of acquisition by Binance, Temasek had informed the public that it had been engaging with FTX representatives.
“We are aware of the developments between FTX and Binance, and are engaging FTX in our capacity as a shareholder,” a Temasek spokesperson told reporters.
On November 9, Binance withdrew from its acquisition plan, citing that FTX’s plan was “beyond” the company’s control.
As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of https://t.co/FQ3MIG381f.
— Binance (@binance) November 9, 2022
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Temasek participated in a $421 million funding, which pushed FTX’s valuation to $25 billion in the third quarter of 2021. This funding round also involved Tiger Global Management and the Ontario Teachers’ Pension Plan. In June 2021, FTX raised $1 billion from Sequoia Capital, Paradigm and SoftBank.
Temasek is a government-owned holding firm established in 1974. As of 2022, its estimated under-management asset is worth around $403 billion.
In the past years, Temasek has been involved in various blockchain projects. It led a Series C funding round for Immutable X in March, resulting in $200 million of funds. Last September, Temasek and Boyu Capital also led a $110 million funding round for Animoca Brands.
Despite the prolonged winter in the crypto industry, FTX was valued at $32 billion in early 2022. It also managed to gain another $400 million in a Series C funding round last January from more than 10 investors.
Two of FTX's investors, Sequoia Capital and Paradigm, already announced that they had written off investment in the now-defunct crypto exchange as $0.
Here is the note we sent to our LPs in GGFIII regarding FTX. pic.twitter.com/Cgp1Yxk1pz
— Sequoia Capital (@sequoia) November 10, 2022
Sequoia and Paradigm invested $214 million and $300 million in FTX, respectively. In a note to investors, Sequoia assured that its exposure to FTX’s implosion had been minimal, saying that the venture capitalist had only invested a small percentage of its fund in the crypto exchange.
FTX’s liquidity issue
Sources said that FTX’s then-CEO, Sam Bankman-Fried, used the exchange customer funds without the knowledge of investors, auditors and employees. The funds were borrowed by Alameda Research, a quantitative trading firm founded by Bankman-Fried.
According to several sources, FTX underestimated the amount of cash it needed to accommodate liquidation. Regulators require trading platforms to keep enough money based on the number of customers’ deposits.
A large volume of liquidation started to occur about two weeks before FTX collapsed due to a leaked balance sheet of Alameda. The balance sheet revealed that a large portion of Alameda’s collateral was FTT, the native token of FTX, raising questions about the company's financial health.
Investors grew more worried when Binance CEO Changpeng Zhao publicly said that his company would liquidate its remaining FTT tokens. FTT’s price went down by 75 percent within a day. Reports said that FTX had experienced an $8 billion shortfall in its balance sheet before declaring bankruptcy.
Bankman-Fried and FTX are currently under regulators’ scrutiny. The Securities Commission of The Bahamas announced that it already froze FTX’s assets within the region last week. The U.S. Securities and Exchange Commission and Department and Justice are also looking into the case to find violations of laws.