The FTX Collapse (2022)

In November 2022, one of the world's largest and most trusted crypto exchanges collapsed in about ten days. FTX, valued at roughly $32 billion months earlier and fronted by a founder the media had crowned crypto's most responsible adult, turned out to be a hollow shell. Customer money had been quietly funneled to a sister trading firm. When the truth leaked, a bank run finished the job — and the fallout reached every corner of the industry.

What FTX was

Founded in 2019 by Sam Bankman-Fried (widely known as SBF), FTX grew into a top-tier crypto exchange, complete with a Super Bowl ad, stadium naming rights, and celebrity endorsements. SBF cultivated an image of sober, philanthropic seriousness — testifying to Congress, courting regulators, and preaching "effective altruism." Alongside FTX he ran Alameda Research, a crypto trading firm he had founded earlier. The two were supposed to be separate. They were not.

FTX also issued its own token, FTT, which conferred trading perks. Alameda held a massive amount of FTT — a detail that would prove fatal.

What happened

On November 2, 2022, the news site CoinDesk published a leaked look at Alameda's balance sheet. The revelation: a huge share of Alameda's supposed assets was FTT — a token FTX had created out of thin air, not independent, liquid wealth. In other words, FTX's trading arm was propped up by FTX's own homemade coin.

Rival exchange Binance, an early FTX investor holding a large FTT position, announced it would sell its FTT. That lit the fuse. FTT's price fell, and customers rushed to pull their money off FTX. By November 8, FTX had halted withdrawals — it did not have the funds to honor them. Binance floated a rescue acquisition, then backed out on November 9 after a look at the books. On November 11, 2022, FTX filed for bankruptcy, SBF resigned, and veteran restructuring lawyer John J. Ray III — who had overseen the Enron cleanup — took over, later stating he had never seen "such a complete failure of corporate controls."

Why it happened

This was not a hack or a market accident. FTX had taken customer deposits — money users believed was sitting safely in their accounts — and secretly lent much of it to Alameda, which used it for risky bets, venture investments, real estate, and political donations. When those bets soured and depositors wanted their money back at the same time, the money simply was not there. The shortfall to customers ran to roughly $8 billion. Basic safeguards — segregated customer funds, real accounting, an independent board — were essentially absent.

The fallout

The collapse rippled outward as firms exposed to FTX faced their own crises, deepening the downturn that had begun with Terra earlier that year. Trust in centralized exchanges cratered, and "proof of reserves" became an industry demand overnight.

SBF was arrested, extradited, and in November 2023 convicted on seven counts of fraud and conspiracy. In March 2024 he was sentenced to 25 years in prison. Several lieutenants pleaded guilty and cooperated. Notably, because many of FTX's own venture investments recovered in value, the bankruptcy estate was later able to repay creditors a large share of their claims — though measured in the dollars owed at bankruptcy, not in what the crypto would be worth had it never been taken.

Why it still matters

FTX is the modern benchmark for exchange failure and financial fraud in crypto. It accelerated the 2022 crypto winter, hardened regulators against the industry, and pushed many users toward self-custody in a wallet they control — often cold storage — rather than leaving large balances on any single platform. The blockchain may be trustless, but the businesses built on it still have to earn — and prove — their trust.