FTX was a centralized cryptocurrency exchange founded in 2019 that filed for Chapter 11 bankruptcy in November 2022 after customer funds were misused through its affiliated trading firm, Alameda Research. Former CEO Sam Bankman-Fried was convicted on seven federal counts and sentenced to 25 years in prison; the later creditor-payment process is a bankruptcy recovery plan, not a reopening of the exchange.
How the collapse unfolded
FTX offered cryptocurrency trading, including derivatives. Alameda Research was a separate but closely connected trading firm founded by Bankman-Fried. On November 2, 2022, CoinDesk reported that Alameda’s balance sheet held a large amount of FTT, FTX’s exchange token. The report raised questions about how much Alameda depended on a token issued by its affiliate.
After Binance said on November 6 that it planned to sell its FTT holdings, customers rushed to withdraw funds. FTX halted most withdrawals and, on November 11, FTX Trading and affiliated companies filed for Chapter 11 protection in the United States. The public events exposed a deeper liquidity and control failure; the market downturn alone does not explain the misuse of customer deposits established at trial.
What the criminal case established
A federal jury convicted Bankman-Fried on November 2, 2023, of seven fraud and conspiracy offenses. The trial evidence showed that billions of dollars in FTX customer money were misappropriated, including to repay Alameda loans and fund other uses. On March 28, 2024, he was sentenced to 25 years in prison. The verdict concerned Bankman-Fried’s criminal conduct; it should not be used to imply that every FTX employee or every affiliated entity had the same role.
What creditor recovery means
The confirmed Chapter 11 plan established the FTX Recovery Trust to administer assets and distributions. This is a bankruptcy process, separate from operating an exchange. For digital-asset claims, the court-approved conversion table supplies dollar values used to estimate claims. A distribution measured as a percentage of an allowed claim is therefore not a return of the same number of coins or a payment calculated at today’s market price.
In a July 17, 2026 announcement, FTX scheduled a fifth distribution to begin July 31 for eligible holders of allowed claims who met the plan’s requirements. The notice listed planned cumulative distributions of 105% for allowed Class 5A and 5B customer claims, 103% for Classes 6A and 6B, and 120% for Class 7 Convenience Claims. These are class-specific percentages against allowed claim values; they do not establish that every former customer received payment or that every claim was allowed. Claim status, class, required tax and identity checks, service-provider onboarding, and other plan conditions matter.
Why FTX is still discussed
The collapse is a case study in the risks of leaving assets with a custodian: an exchange account balance is a claim against a company, not the same thing as controlling coins in a personal wallet. Proof-of-reserves disclosures can offer a view of stated assets, but by themselves they do not establish complete liabilities, customer-asset segregation, or access to cash when withdrawals surge.
History
- 2019 — FTX is founded as a cryptocurrency exchange.
- November 2, 2022 — CoinDesk reports on Alameda’s FTT-heavy balance sheet.
- November 6–11, 2022 — Withdrawal pressure intensifies; FTX halts withdrawals and files for Chapter 11.
- November 2, 2023 — A jury convicts Bankman-Fried on seven federal counts.
- March 28, 2024 — Bankman-Fried is sentenced to 25 years in prison.
- October 8, 2024 — The bankruptcy court confirms the reorganization plan; the plan later takes effect and the Recovery Trust administers distributions.
- July 17, 2026 — FTX announces the terms and schedule for a fifth creditor distribution.
Common Misconceptions
- “The bear market caused FTX to fail.” — Falling prices and withdrawal pressure exposed the problem, but the trial established that customer funds had been misappropriated. These are different causes.
- “Creditors are getting their original crypto back.” — The Chapter 11 process generally calculates digital-asset claims in dollars using a court-approved conversion table. A percentage of an allowed claim is not an in-kind return of the original tokens.
- “A recovery above 100% means everyone is fully repaid.” — The announced percentages apply to particular allowed claim classes and claim values. They do not show that every claimant was eligible, received a payment, or recovered the present market value of the assets once held.
- “FTX’s recovery process means the exchange relaunched.” — Creditor distributions are administered through the bankruptcy plan and Recovery Trust; that process is distinct from an operating trading platform.
Social Media Sentiment
A July 2026 discussion in r/ftx about the scheduled fifth distribution included questions about who qualified and whether people paid in an earlier round could receive another distribution. One commenter reported receiving nearly the value of their allowed claim, while others raised questions about claim classes and restricted jurisdictions. This is a small, self-selected creditor thread; it documents individual questions and experiences, not the views of all FTX customers or creditors.
Last updated: 2026-10
Related Terms
See Also
- What the Celsius Collapse Actually Tells Us About Crypto Lending Risk — a related case about counterparty risk and losses at a centralized crypto lender.
- The Drift Protocol Hack Wasn’t a Hack. It Was a Six-Month Con. — examines how deception and access controls can cause losses in a crypto business.
- Why Calling It a “Wallet” May Have Been Crypto’s Biggest Mistake — explains the difference between custodial account balances and control of wallet keys.
- Exchange crypto with ChangeNOW — a separate service for users comparing exchange options.
Sources
- CoinDesk — Alameda’s balance sheet report (November 2, 2022) — contemporaneous reporting on Alameda’s FTT concentration and the questions it raised.
- U.S. Department of Justice — FTX fraud case summary — summarizes the jury’s November 2023 verdict and the trial evidence.
- U.S. Department of Justice — Bankman-Fried’s sentence (March 28, 2024) — gives the sentence, conviction counts, and the government’s account of the misuse of customer funds.
- FTX Support — Digital Asset Estimates — explains the court-approved conversion table used to estimate digital-asset claims for plan purposes.
- FTX Recovery Trust — fifth distribution announcement (July 17, 2026) — lists the scheduled payment date, eligible claim classes, and announced cumulative distribution percentages.
- FTX Support — Distributions Dashboard FAQs — describes claim eligibility and required pre-distribution steps.