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What happened to FTX? Here’s what you need to know.

    Update: FTX has filed for bankruptcy on Friday and Sam Bankman-Fried resigned as CEO

    When the cryptocurrency market experienced a $2 trillion crash in May, crypto firm FTX offered financial lifelines to several collapsing companies.

    But this week, FTX needed a bailout, which its rival Binance was about to deliver. Then Binance returned and said it was pulling out of a deal to acquire the company.

    FTX and Binance are cryptocurrency exchanges, meaning they allow customers to trade digital currencies for other digital currencies or traditional money, and vice versa. The two exchanges handle the majority of all crypto transactions in the world, according to CoinMarketCap, an industry data tracker.

    FTX, one of the world’s largest exchanges, is run by Sam Bankman-Fried and headquartered in the Bahamas. It has spent millions of dollars lobbying US lawmakers to introduce crypto-friendly regulations.

    Binance, the largest exchange, is run by billionaire Changpeng Zhao. The company, which has no official headquarters and largely operates outside the United States, has come under scrutiny for circumventing regulatory rules. Binance was an early investor in FTX.

    Both companies have built their business on risky trading options that are not legal in the United States. They each have smaller US weapons, Binance.us and FTX.us, which are separate from their sister companies and intended to comply with US regulations.

    The crypto industry is increasingly the target of regulatory oversight on Capitol Hill and around the world. Mr. Zhao, 45, and Mr. Bankman-Fried, 30, have been publicly mulling over how to regulate cryptocurrency — or if they should do so at all.

    FTX has a native cryptocurrency token called FTT, which traders use for operations such as paying transaction fees. Last year, Mr. Zhao sold his stake in FTX back to Mr. Bankman-Fried, who partially paid for it with FTT tokens.

    On November 2, the crypto publication CoinDesk reported on a leaked document that appeared to show that Alameda Research, a hedge fund run by Mr. Bankman-Fried, owned an unusually large amount of FTT tokens. FTX and Alameda are intended to be separate companies, but the report claimed they had close financial ties.

    Binance announced on November 6 that it would sell its FTT tokens “due to recent disclosures”. In response, the price of FTT plummeted and traders rushed out of FTX, fearing it would be yet another fallen crypto firm.

    FTX rushed to process withdrawals requests, estimated to be $6 billion in three days. It appeared to be in a liquidity crisis, meaning it did not have the money to fulfill requests.

    On Tuesday, Binance said it had reached an agreement to save FTX by buying the company. But, Mr. Zhao added in the announcement, “Binance has the freedom to withdraw from the deal at any time.”

    In a simultaneous announcement, Mr Bankman-Fried . said said the deal would protect customers and allow FTX to complete their withdrawals. He tried to dispel rumors of a conflict between FTX and Binance, adding, “we are in the best hands.”

    On Wednesday, Binance announced it would no longer buy FTX, saying it had come to that decision “as a result of corporate due diligence.” It also cited regulatory research and reports of mishandled funds.

    “Every time a major player in an industry fails, retail consumers will suffer,” Binance said in a statement. “We have seen the crypto ecosystem become more resilient in recent years and we believe in time outliers that misuse user funds will be wiped out by the free market.”

    On Thursday, FTX announced it had reached an agreement with Tron, a blockchain platform, to exchange certain tokens from FTX to other crypto wallets.

    The cryptocurrency industry has long struggled to convince regulators, investors and regular customers that it is trustworthy. The fall of FTX, which seemed more stable than other companies, and the withdrawal by Binance have shocked the market.

    The price of FTT has fallen about 80 percent since Tuesday. The prices of Bitcoin and Ether, some of the most valuable tokens, have both fluctuated sharply since Tuesday, falling more than 20 percent at one point.