Crypto is unregulated and volatile. Its true value is ephemeral. Investing in it is risky. In other words, for most CFOs, it’s a total nightmare combination that they’ve tried to stay far away from. (Most CFOs aren’t willing to put it on the balance sheet.) Which made the collapse of stock exchange FTX both a financial horror story—but also an “I told you so” moment.
Last week, FTX, one of the largest cryptocurrency exchanges in the world, once valued at $32 billion and helmed by 30-year-old Sam Bankman-Fried, collapsed. The exchange filed for bankruptcy last week, and Bankman-Fried stepped down as CEO. He was a crypto star who championed crypto on Capitol Hill and created high-profile business partnerships. For example, in October Visa announced a long-term global partnership with the company with plans to expand FTX account-linked Visa debit cards in 40 new countries.
“The situation with FTX is unfortunate and we are closely monitoring developments,” a Visa spokesperson told me via email. A “focus on security and trust remains paramount.” The company is working to put controls in place for the existing FTX.US Visa card program in the US, and plans for additional card programs with FTX in other countries are temporarily on hold. “The market uncertainty does not change our view that digital currencies and underlying crypto technologies have great potential for the future of financial services,” the spokesperson said.
FTX leadership structure
It is unclear whether FTX has a CFO. If you look at the leaderboard, there is none listed. I asked Dan Ashmore, a crypto analyst at Invezz, a London-based investment fintech, for his assessment of the company’s leadership. “FTX’s collapse was unique in that it arose out of the entangled relationship between the exchange (FTX) and the trading firm, Alameda Research, both of which were founded by Sam Bankman-Fried,” Ashmore told me. “There is a reason why there was no CFO at FTX – because the leadership structure was highly unusual, as Bankman-Fried essentially made all the decisions for both companies.”
FTX was “notoriously lean, with an employee count of only 75 — even as it expanded so rapidly, at one point valued at $32 billion,” says Ashmore. “It pales next to rival exchange Coinbase, which had more than 6,000 staff before 1,100 were laid off earlier this year.”
Because of a heavy workload, former Alameda co-CEO Sam Trabucco resigned earlier this year, he says. “That left only Caroline Ellison, co-CEO at Alameda, and Bankman-Fried as the senior leaders, although the latter was very much the number one,” says Ashmore.
The FTX “debacle” can be attributed in part to a “tailored management structure and lean staffing” with most of the legal and compliance team said to have quit, he explains. “There is no question that the aggressive leadership, concentrated power structure and entangled relationship between FTX and Alameda could have been contained with a more conservative and prudent leadership structure,” he says.
‘Poor internal labelling’
An on-board finance team could have provided the financial clarity Bankman-Fried needed when, for example, labeling bank-related accounts.
“The full story here is one that I’m still fleshing out every detail of, but at a very high level I screwed up twice,” Bankman-Fried wrote in a tweet last week. “The first time, poor internal labeling of bank-related accounts meant that I was significantly off my sense of users’ margin. I thought it was much lower.”
In an analysis, Fortune‘s Tristan Bove writes: “He claims that because of this poor labeling, his sense of leverage was 0x when it was actually 1.7x and his sense was that he had 24 times the average amount of daily withdrawals in liquidity when in fact he only had. 0.8x. In other words, he was more leveraged than he thought and had less cash to cover it than he thought – a lot less. Then, when about $5 billion in withdrawals were made on Sunday, he found himself here.”
To gauge CFO sentiment about crypto, CFOs at banks are in no rush to implement it. The US Federal Reserve’s senior financial officer survey was distributed to 80 banks. According to findings released in May, two-thirds of respondents said distributed ledger technology and crypto-related products are either not a priority or a low priority in their bank’s growth and development strategy over the next two years.
One thing is for sure: CFOs who were wary of crypto before are probably feeling even more wary now.
See you tomorrow.
Deloitte’s recently released its “2022 Global Corporate Treasury Survey”. Organizations are taking steps to address liquidity management, financial risk, business continuity and operating model priorities, Deloitte found. “With 54% voting, improving liquidity risk management is considered the most critical mandate given to treasury departments by the board or the CFO,” according to the report. Another key finding is that organizations are planning for more automation in various areas of treasury. In the next two to three years, the top three areas respondents said they expect to become more automated are cash flow forecasting (78%), cash management (74%) and FX and interest rate risk management (64%). The findings are based on a survey of 245 treasurers spanning all industries with most participants from the consumer and industrial products industries.
Courtesy of Deloitte
“Is there a better way to staff temporary teams?” a report in Wharton’s business journal suggests a new strategy for staffing high-performing work teams by focusing on the relationships between members, not just their skills. Wharton Professor of Operations, Information and Decisions Hummy Song co-authored research on assembling teams in hospital emergency rooms that balance both learning and efficiency. “We look at these potential levers related to team composition, specifically team familiarity and partner exposure. How do these things matter when it comes to performance?” Song told Wharton.
Mardi Animal, CFO and EVP at Ultragenyx Pharmaceutical Inc. (Nasdaq: RARE), is leaving the company, effective November 15. She will hold the dual role of Chief Financial Officer and Chief Business Development Officer at Acelyrin, Inc. officer, and Aaron Olsen, SVP of corporate strategy and finance, will lead ongoing financial activities during the search for a successor. Dier joined Ultragenyx in October 2020.
Chris Sousa has been named chief financial officer at JPA Health, a marketing and communications firm in Washington, DC Sousa brings nearly 20 years of experience. Prior to joining JPA, he spent over 14 years at Dataprise, where he led five acquisitions. He previously held operations and systems roles at Radical Support, StrategicFusion and Technical Systems Integrators.
“A lot of people compared it to Lehman. I would compare it to Enron.”
—Harvard professor and former Treasury Secretary Larry Summers commented on the demise of FTX, the once heralded crypto exchange, on Bloomberg Television’s Wall Street Week. Summers referred to FTX as “the smartest guys in the room,” referring to the classic documentary of that name that revealed how Enron kept a fake set of books before its own spectacular implosion, Fortune reported.