The FTX collapse is the defining fraud event in crypto history — surpassing Mt. Gox in scale, Bitconnect in complexity, and Terra/LUNA in systemic impact. Between November 2–14, 2022, the world’s third-largest crypto exchange evaporated under disclosures that its trading arm (Alameda Research) had been using FTX customer deposits as its own trading capital. $8 billion in user funds was gone. Sam Bankman-Fried — once the industry’s most prominent spokesperson, covering the pages of Forbes and Fortune, meeting with US Senators and regulators, and serving as the largest Democratic donor in the 2022 midterms — was arrested in the Bahamas December 12, extradited to the United States, and convicted on November 2, 2023 on all seven fraud counts. He was sentenced to 25 years in federal prison. The collapse triggered a cascade of crypto bankruptcies (BlockFi, Genesis, Babel Finance), crashed Solana from $35 to $10 in 72 hours, and drove regulatory urgency in every major jurisdiction.
Background: The Rise of FTX and Sam Bankman-Fried
The following sections cover this in detail.
FTX’s Ascent (2019–2022)
FTX founded: May 2019 by SBF (Sam Bankman-Fried) and Gary Wang
Business model: Derivatives exchange with sophisticated features for professional traders:
- Futures and options on crypto
- Low fees, high leverage (up to 101x initially)
- Innovative products: tokenized stock trading, prediction markets
- Moved headquarters to Bahamas in 2021
FTX’s growth:
- 2019: $0 in daily volume
- 2021: #2 crypto derivatives exchange behind Binance; $10B+ daily volume
- January 2022: Valued at $32 billion in funding round from Sequoia, SoftBank, BlackRock, Temasek, Tiger Global
SBF’s public persona:
- “Effective altruist” — pledged to give away majority of wealth
- Appeared on magazine covers (Forbes, Fortune, NYT Magazine)
- Regular Congressional testimony — representing “responsible” crypto to regulators
- Largest Democratic donor in 2022 midterms: ~$40M
- Called for crypto regulation; recommended himself as the responsible industry figure
Alameda Research
Founded by SBF alongside FTX, Alameda Research was a quantitative trading firm:
- Trade cryptocurrency markets globally
- Market-maker on FTX and other exchanges
- Run by CEO Caroline Ellison (SBF’s ex-girlfriend) from 2020–2022
- Co-CEOs Gary Wang (FTX CTO) and Nishad Singh (FTX Head of Engineering) also involved
The hidden relationship: FTX gave Alameda special privileges undisclosed to customers:
- No automatic liquidation when margin requirements not met (secret backdoor)
- Access to customer deposits as working capital
- FTT token (FTX’s exchange token) used as collateral for Alameda loans
The Collapse: November 2–14, 2022
Here is what happened.
November 2: The CoinDesk Report
An internal Alameda balance sheet was leaked to CoinDesk — published November 2.
Key finding from the balance sheet:
- Alameda’s assets: Mostly FTT (FTX’s exchange token) — ~$5.8B+
- Alameda’s liabilities: Billions in external loans
- Problem: FTT is a token FTX itself created with limited external float; it’s not liquid like BTC or ETH; the “assets” could not be sold without crashing their own value
November 6: Binance Announces FTT Sale
CZ (Changpeng Zhao) of Binance tweeted that Binance would sell its entire FTT position (~$576M):
> “Due to recent revelations that have come to light, we have decided to liquidate any remaining FTT on our books.”
Market reaction: FTT price crashed. Twitter speculation about FTX/Alameda solvency exploded.
SBF’s response: [November 7] Tweeted “FTX is fine. Assets are fine.” — A provably false statement; customers began withdrawing.
November 8: Bank Run
- Withdrawal requests flooded FTX: $6B+ in 72 hours
- FTX unable to process all withdrawals → suspended withdrawals
The reveal: FTX’s cold wallets didn’t have the customer deposits. The $8 billion was gone — lent to Alameda and lost in trading.
November 8–9: Failed Binance Rescue
- CZ announced Binance signed a non-binding letter of intent to acquire FTX
- Markets briefly stabilized — then Binance pulled out within 24 hours after reviewing FTX books:
“It is not feasible for [Binance] to help” — citing mishandled customer funds and regulatory investigations
November 11: FTX Bankruptcy Filing
- FTX, FTX US, Alameda Research, and ~130 affiliate companies filed Chapter 11 bankruptcy
- SBF resigned as CEO; John J. Ray III appointed (same restructuring expert who handled Enron)
- Ray’s statement: “Never in my career have I seen such a complete failure of corporate controls… this is unprecedented”
December 12: SBF Arrested in Bahamas
- SBF arrested at request of US Department of Justice
- Extradited to United States December 21
- Charged with 7 counts: wire fraud (customers), wire fraud (lenders), securities fraud, commodities fraud, money laundering, and conspiracy to violate campaign finance laws
FTX Trial and Conviction (October–November 2023)
Co-conspirators who pleaded guilty and testified:
- Caroline Ellison: Pleaded guilty; key witness; testified that SBF directed Alameda to borrow FTX customer funds
- Gary Wang: Pleaded guilty; described the backdoor that exempted Alameda from margin calls
- Nishad Singh: Pleaded guilty; described knowing about customer fund misuse
- Ryan Salame: Pleaded guilty; $1.5B in assets forfeited; described political donations made from misappropriated funds
SBF’s defense: Denied knowing funds were misused; claimed it was a management failure, not fraud
Verdict: November 2, 2023 — Guilty on all 7 counts
Sentence: March 28, 2024 — 25 years federal prison + $11B in forfeiture
Contagion Effects
FTX’s collapse triggered a cascade:
BlockFi: FTX had provided a $400M credit facility; filed for bankruptcy November 28
Genesis Trading: $175M of customer funds in FTX; suspended withdrawals November 16; filed bankruptcy January 2023
Babel Finance: $10M in FTX exposure; earlier suspended withdrawals in June 2022 from 3AC losses
Digital Currency Group (DCG): Barry Silbert’s DCG had exposure via Genesis subsidiary
Investment firms: Sequoia, SoftBank, Multicoin Capital — wrote down $150M–$2B in FTX investments to zero in November 2022
Market prices:
- SOLANA: $35 → $10 (Solana had strongest ties to SBF’s ecosystem; FTX/Alameda held large SOL)
- Bitcoin: $21,000 → $15,500
- FTT: $22 → $1.50
- Overall crypto market cap: $1T → $800B
“Not Your Keys, Not Your Coins”
The FTX collapse revived the Bitcoin/crypto community’s foundational rule:
> “Not your keys, not your coins” — If you don’t control the private keys to your crypto, you don’t truly own it.
FTX customers who held crypto on FTX trusted SBF to hold their assets. He didn’t. Hardware wallet sales (Ledger, Trezor) surged 200–300% in November 2022 as holders moved assets off exchanges.
Social Media Sentiment
FTX’s collapse is universally described as the most damaging event in crypto’s history from a reputational and regulatory perspective — worse even than Terra/LUNA because FTX was supposedly “responsible” regulated crypto. SBF had testified before Congress as the face of good-faith crypto regulation, then was discovered running the biggest fraud in the industry’s history. The effective altruism angle (pledging to donate profits while stealing customer funds) added moral outrage to legal consequences. The contrast between SBF’s arrest and the MtGox collapse is striking: Karpeles received a suspended sentence; SBF received 25 years. The regulatory aftermath was direct: every major jurisdiction accelerated stablecoin/exchange regulation timelines (US, EU, UK, Singapore, Hong Kong). The FTX collapse is the single biggest argument for DeFi and self-custody — that trustless systems eliminate the custodial fraud risk that FTX exploited.
Last updated: 2026-04
Related Terms
Sources
Ray, J.J., III. (2022). First Day Declaration in the FTX Bankruptcy. United States Bankruptcy Court, D. Delaware, Case No. 22-11068.
DOJ v. Samuel Bankman-Fried. (2024). Judgment and Conviction. U.S. District Court, S.D.N.Y., Case No. 22-CR-00673.
Cong, L.W., Harvey, C.R., Rabetti, D., & Wu, Z.-Y. (2023). An Anatomy of Crypto-Enabled Cybercrimes. NBER Working Paper 30234.
Markham, J.W. (2003). A Financial History of the United States: From the Age of Derivatives to the New Millennium. M.E. Sharpe.
Brunnermeier, M.K., & Sannikov, Y. (2014). A Macroeconomic Model with a Financial Sector. American Economic Review.