FTX Collapse
The FTX Collapse of November 2022 was the sudden implosion of FTX, once the world's second-largest cryptocurrency exchange, after revelations that customer funds had been commingled with and used by its affiliated trading firm Alameda Research, resulting in bankruptcy and the arrest of its founder Sam Bankman-Fried.
FTX was founded in 2019 by Sam Bankman-Fried (known as SBF), a former Jane Street trader and MIT graduate who had cultivated a public image as an effective altruist — someone who sought to earn as much money as possible in order to donate it to charitable causes. FTX grew rapidly to become one of the most prominent cryptocurrency exchanges in the world, attracting investment from major venture capital firms including Sequoia Capital and Softbank at a peak valuation of $32 billion.
FTX's collapse began on November 2, 2022, when CoinDesk published a leaked balance sheet of Alameda Research, an affiliated trading firm also run by Bankman-Fried and his associates. The balance sheet revealed that a large portion of Alameda's assets consisted of FTT — the native token issued by FTX itself — raising immediate questions about circular valuation and the solidity of both entities' balance sheets. Binance CEO Changpeng Zhao announced that Binance would sell its holdings of FTT, triggering a collapse in the token's price and a wave of customer withdrawals from FTX.
Within 72 hours, FTX faced a bank-run-style crisis as customers attempted to withdraw approximately $6 billion in a single day. The exchange suspended withdrawals on November 8. It subsequently emerged that FTX had been using customer deposits to fund Alameda Research's trading operations and cover its losses — a straightforward misappropriation of customer funds that amounted to fraud. Estimates suggested that at least $8 billion in customer funds were missing.
FTX filed for bankruptcy on November 11, 2022. Sam Bankman-Fried was arrested in the Bahamas in December 2022 at the request of US authorities and extradited to the United States to face multiple counts of fraud and conspiracy. He was convicted in November 2023 and sentenced to 25 years in federal prison in March 2024.
The FTX collapse devastated confidence in the cryptocurrency industry, accelerating a broader crypto winter that had begun earlier in 2022. It renewed calls for comprehensive cryptocurrency regulation and highlighted the risks of investing in opaque, offshore exchanges with limited regulatory oversight and insufficient segregation of customer assets from proprietary trading operations.