Crypto Gloss

FTX

FTX was a centralized cryptocurrency exchange founded in 2019 by Sam Bankman-Fried (SBF) that grew rapidly to become one of the largest in the world before collapsing in November 2022 following revelations that customer funds had been secretly transferred to its affiliated trading firm, Alameda Research. The collapse wiped out billions in customer deposits and led to SBF’s arrest, trial, and conviction on multiple fraud charges.

The Rise

FTX launched in 2019 with a focus on derivatives trading and quickly distinguished itself through aggressive sponsorship deals, celebrity endorsements (Tom Brady, Steph Curry, Shaquille O’Neal), and a naming rights deal for the Miami Heat arena. It was seen as among the most “legitimate” exchanges in crypto — SBF cultivated relationships with US regulators, donated heavily to political campaigns, and was a frequent guest on financial media and in Washington DC.

By 2021, FTX was valued at $32 billion and SBF was widely regarded as crypto’s golden boy — the effective altruist billionaire who planned to give away his fortune and wanted responsible crypto regulation.

The Collapse

On November 2, 2022, CoinDesk published a report showing that Alameda Research — FTX’s sister trading firm, also run by SBF — held a large portion of its assets in FTT, FTX’s own exchange token. This raised immediate questions about the relationship between the two firms.

Binance CEO Changpeng Zhao (CZ) announced he would sell Binance’s FTT holdings. Within 72 hours, a bank run began. FTX processed withdrawal requests normally for a short window, then froze withdrawals entirely. The exchange had an $8 billion hole in its books.

On November 11, 2022, FTX filed for bankruptcy. SBF resigned as CEO.

What Actually Happened

Subsequent investigations and court proceedings revealed that FTX had been routinely lending customer deposits to Alameda Research, which used them to fund risky bets, buy illiquid assets, and make political donations. When Alameda’s positions deteriorated in the 2022 bear market, the hole widened. When withdrawals spiked, there was no customer money left.

The funds were not lost through market volatility — they had been used without customer consent. SBF was arrested in the Bahamas in December 2022 and extradited to the United States.

Trial and Conviction

SBF’s trial began in October 2023. Multiple FTX and Alameda executives — including Caroline Ellison (Alameda CEO) and Gary Wang (FTX co-founder) — pleaded guilty and cooperated with prosecutors. SBF was convicted on all seven counts of fraud and conspiracy in November 2023 and sentenced to 25 years in federal prison in March 2024.

The collapse affected retail investors, institutional players, and other crypto firms that had exposure to FTX or FTT. BlockFi, Voyager Digital, and Genesis all filed for bankruptcy in its wake.

Legacy

FTX became the defining case for why “not your keys, not your coins” matters. It triggered a wave of calls for proof-of-reserves requirements for exchanges, accelerated regulatory pressure on the crypto industry globally, and ended the era of lavish exchange marketing campaigns. The reputational damage extended to effective altruism through SBF’s association with the movement.

A new entity called FTX 2.0 launched a restructured claims and repayment process in 2024, with creditors receiving distributions from recovered assets — many ultimately receiving more than their original USD claim value due to rising crypto prices during bankruptcy proceedings.

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