Crypto Gloss

FTX

FTX was a centralized cryptocurrency exchange founded in 2019 by Sam Bankman-Fried (SBF) that grew to a $32 billion valuation and became one of the largest exchanges in the world before collapsing in November 2022 after revelations that customer funds had been secretly and systematically transferred to its affiliated trading firm, Alameda Research — resulting in an $8 billion shortfall, Chapter 11 bankruptcy, and SBF’s conviction on seven counts of fraud and conspiracy and a 25-year federal prison sentence.

The Rise

FTX launched in 2019 with a focus on derivatives trading and quickly distinguished itself through:

  • Aggressive sponsorship deals and celebrity endorsements (Tom Brady, Steph Curry, Shaquille O’Neal)
  • Naming rights for the Miami Heat arena (“FTX Arena”)
  • SBF’s cultivation of relationships with US regulators and politicians
  • Heavy political donations to both parties
  • Frequent Congressional testimony positioning SBF as the responsible crypto advocate

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

The Collapse

On November 2, 2022, CoinDesk published a report showing that Alameda Research — FTX’s sister trading firm — 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 liquidate Binance’s FTT holdings. Within 72 hours, a bank run began. FTX processed withdrawal requests briefly, then froze all withdrawals. 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

Court proceedings and bankruptcy filings revealed:

  • FTX had been routinely lending customer deposits to Alameda Research without customer consent
  • Alameda used those funds for risky bets, illiquid asset purchases, and political donations
  • When Alameda’s positions deteriorated in the 2022 bear market, the shortfall widened
  • When withdrawals spiked, there was no customer money remaining

The funds were not lost through market volatility — they had been deliberately misappropriated.

Trial and Conviction

SBF was arrested in the Bahamas in December 2022 and extradited to the United States. His trial began October 2023. Multiple FTX and Alameda executives cooperated with prosecutors and pleaded guilty:

  • Caroline Ellison (Alameda CEO) — pleaded guilty, key prosecution witness
  • Gary Wang (FTX co-founder) — pleaded guilty, key prosecution witness
  • Ryan Salame and Nishad Singh — also pleaded guilty

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.

Contagion

FTX’s collapse triggered the most significant contagion event in crypto history. Entities with FTX exposure:

  • BlockFi — $400M credit line from FTX.US became worthless; filed Chapter 11 November 28, 2022
  • Genesis Capital — significant FTX exposure; filed Chapter 11 January 2023
  • Voyager Digital — already in bankruptcy; FTX had been slated as acquirer; deal collapsed
  • Dozens of VC firms — Sequoia Capital, Softbank, Temasek, and others wrote FTX investments to zero

Legacy and Recovery

FTX became the defining case for why “not your keys, not your coins” matters. It triggered:

  • Global calls for proof-of-reserves requirements for exchanges
  • Accelerated regulatory pressure across the US, EU, and Asia
  • The end of lavish exchange marketing campaigns and celebrity endorsements
  • Congressional investigation into crypto political donations

FTX 2.0 (2024): A restructured FTX launched a creditor repayment process. Many creditors ultimately received full or above-value USD recoveries due to rising crypto prices during bankruptcy proceedings.

History

  • 2019 — FTX founded by Sam Bankman-Fried and Gary Wang; launches with derivatives focus
  • 2021 — $32 billion valuation; Miami Heat arena renamed “FTX Arena”; celebrity endorsements
  • June 2022 — Crypto bear market; Alameda’s positions deteriorate; hole in books widens
  • November 2, 2022 — CoinDesk publishes Alameda balance sheet revealing FTT concentration
  • November 6, 2022 — CZ announces Binance will sell FTT; bank run begins
  • November 11, 2022 — FTX files Chapter 11; SBF resigns; $8B shortfall disclosed
  • December 2022 — SBF arrested in the Bahamas; extradited to the US
  • October–November 2023 — SBF trial; convicted on all 7 counts
  • March 2024 — SBF sentenced to 25 years in federal prison
  • 2024 — FTX 2.0 creditor repayment process; many creditors recover full USD value

Common Misconceptions

  • “FTX collapsed because of the crypto bear market.” — FTX’s insolvency was not caused by market volatility. Customer funds had been transferred to Alameda Research and used without authorization long before the collapse. The bank run simply exposed an existing $8 billion hole.
  • “SBF was a well-intentioned person who made bad business decisions.” — SBF’s defense at trial was that he made well-intentioned mistakes. Prosecutors and the jury determined he had committed deliberate fraud. He was convicted on all seven counts.

Social Media Sentiment

  • r/CryptoCurrency: FTX is the single most discussed exchange collapse in the subreddit’s history; referenced constantly in threads about exchange risk, “not your keys,” and proof of reserves.
  • X/Twitter: SBF was extremely active on Twitter before the collapse; his post-collapse tweets and media appearances generated enormous coverage; his conviction and sentencing were major trending topics.
  • Discord: FTX creditor communities organized on Discord for bankruptcy claim tracking; many FTX-adjacent project communities collapsed alongside the exchange.

Last updated: 2026-04

Related Terms

See Also

  • Sam Bankman-Fried — the founder convicted of fraud; his story is inseparable from FTX’s history
  • Celsius Collapse — the contemporaneous CeFi collapse that preceded FTX’s by five months in the same 2022 contagion
  • Mt. Gox — the earlier landmark exchange collapse; FTX is frequently compared to it in terms of scale and impact

Sources