This memo was written from the 2021 deck and the sources available then. Nothing that happened later was used.
Verdict
Confidence · Highnothing here reopens it
Custody opacity is the dealbreaker.
The deck discloses no custody mechanics and no round terms. At $14.7B average daily volume, the absence of any statement on whether customer assets are segregated from FTX operating capital is the central risk, not a diligence footnote, and no investor can responsibly commit capital without audited proof of segregation and a term sheet.
Why this stage
The one blocker
Customer funds segregation never disclosed.
FTX's $1.2B ARR and fourth-largest global exchange ranking establish a credible large-outcome trajectory, but the category does not concentrate on a single winner, Binance's dominance and Coinbase's regulatory moat in the US mean the market splits rather than tips.
What moves this grade
The grade would move to 9 if FTX US achieves full derivatives licensing and begins compounding the retail-to-institutional flywheel in the largest single market.
A $1.2B annualized revenue run rate and $800M estimated profit achieved with a 75-person team implies a revenue-per-employee ratio that is materially above any public exchange comparable at this stage, though the profit figure is unaudited.
What moves this grade
A Big Four audit confirming the margin profile would move this to 9.
Sam Bankman-Fried and Gary Wang built Alameda Research as a functioning market maker before founding FTX in 2019, then scaled from $50M ADV in the first few months to $14.7B ADV by 2021, a build-and-scale arc that is among the fastest in the exchange category.
The cross-margining wallet is a genuine product differentiator that creates real switching costs for sophisticated traders, but it is an engineering advantage rather than a structural lock-in, and a well-funded competitor with the will to build it could reach parity within 12-18 months.
What moves this grade
The moat would move to 7 if FTX demonstrates that the cross-margining wallet produces measurable retention lift in cohort data, evidence that switching costs are real rather than theoretical.
Deck does not disclose the current funding round being raised: no round name, amount, valuation, or investor information provided.
Slide 3 states $800M estimated profit in 2021 with asterisk noting 'numbers are approximate, based on recent performance. They do not incorporate any additional growth.' This qualifier undermines the precision of the headline traction figures.
Deck claims FTX is the 'fourth largest crypto exchange' globally by volume (slide 2) but also 'largest non-Chinese crypto exchange' (slide 2). These two claims are consistent only if three of the top four exchanges are Chinese, which is not verified in the deck.
Do next
Pass pending audited financials and custody proof.
Audited financials confirming the $800M profit figure, a written proof of customer fund segregation from a Big Four auditor, and a term sheet with round size and governance terms would reopen this as an Invest conversation.
The full memo
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Verdict
PASS
Confidence · High · nothing here reopens it
Custody opacity is the dealbreaker.
The deck discloses no custody mechanics and no round terms. At $14.7B average daily volume †, the absence of any statement on whether customer assets are segregated from FTX operating capital is the central risk, not a diligence footnote, and no investor can responsibly commit capital without audited proof of segregation and a term sheet.
Scored 1 to 10 per axis against a fixed rubric. B means the company meets the bar for its category on that axis; no band is a default or a target, and stronger or weaker bands must be earned by the evidence. Letters are shorthand for the number.
Custody and flow-of-funds mechanics entirely absent from the deck, the single most dangerous undisclosed fact at this volume scale †
Profit figures explicitly approximate and unaudited, with the deck's own disclaimer undermining the headline †
No round terms disclosed, round name, amount, valuation, and governance rights are all absent †
Strongest case
FTX's founding team built the trading infrastructure at Alameda Research before building the exchange, giving them a founder-operator fit that is rare in crypto and that produced $1.2B in annualized revenue by 2021 †.
What would change the verdict
Audited financials confirming the $800M profit figure, a written proof of customer fund segregation from a Big Four auditor, and a term sheet with round size and governance terms would reopen this as an Invest conversation.
Thesis
Fastest-growing non-Chinese crypto exchange.
Moat
Cross-margining wallet; replicable by funded rivals.
Next step
Request audited financials and custody proof.
The three questions to press on first.
Where do customer funds sit? Are customer assets held in segregated accounts, separate from FTX operating capital and the Alameda Research balance sheet? Provide a Big Four auditor's attestation or a proof-of-reserves report.
What are the current round terms? Provide the round name, raise amount, pre-money valuation, cap table, and governance rights being offered.
Provide audited financial statements for FY2020 and the most recent available period in 2021. Specifically: gross revenue by product line, operating costs broken down by category, and net income reconciled to the $800M estimated profit figure †.
About this memo
Verdict picked this company and ran the memo on its pitch deck. You are reading it in full, as it came out, with no edits after the fact. Because the company is one you can look up, the call is yours to judge rather than take on trust. Verdict is not affiliated with it, and a memo is a view formed from one deck at one moment.
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