How one of crypto’s most trusted exchanges collapsed overnight, took billions with it, and landed its founder in prison.
Summary: FTX was a major cryptocurrency exchange that collapsed in November 2022 after revelations that customer funds had been secretly moved to a sister trading firm, Alameda Research. Founder Sam Bankman-Fried was convicted of fraud in 2023 and sentenced to 25 years in prison. Millions of customers lost access to their funds overnight.
I remember exactly where I was when FTX collapsed. I was scrolling through Twitter at around 11pm on a Tuesday, watching crypto Twitter collectively lose its mind in real time. Within 48 hours, an exchange valued at $32 billion had essentially ceased to exist. People were locked out of accounts holding their life savings. And the guy who built it was giving rambling interviews from his Bahamas penthouse like nothing serious had happened.
It was one of the strangest financial collapses I’d ever watched unfold. And the more details emerged, the worse it got.
Here’s the full story, as clearly as I can tell it.
What Was FTX?
FTX was a cryptocurrency exchange founded in 2019 by Sam Bankman-Fried, known widely as SBF, and Gary Wang. It grew rapidly to become one of the largest crypto trading platforms in the world, handling billions of dollars in daily trading volume at its peak.
The exchange was headquartered in the Bahamas and offered a wide range of crypto products including spot trading, derivatives, futures contracts, and its own native token called FTT.
At its height, FTX had:
- Over one million registered users globally
- A valuation of approximately $32 billion
- High-profile sponsorship deals including naming rights to the Miami Heat arena
- Celebrity endorsements from Tom Brady, Gisele Bündchen, Stephen Curry, and Larry David
- Backing from major venture capital firms including Sequoia Capital and SoftBank
SBF cultivated a public image as a brilliant, altruistic founder who lived modestly, slept on a beanbag, and planned to donate most of his wealth to charity. He testified before the US Congress on crypto regulation. He was profiled in Forbes, Fortune, and the New York Times as a responsible voice in a volatile industry.
That image turned out to be almost entirely constructed.
What Actually Happened at FTX
The collapse began with a single article.
On November 2, 2022, crypto news outlet CoinDesk published a report revealing that Alameda Research, SBF’s private trading firm, held an unusually large portion of its assets in FTT, FTX’s own native token. This raised an immediate red flag: FTX and Alameda were supposed to be independent entities. The fact that Alameda’s balance sheet depended so heavily on a token that FTX itself issued suggested the two companies were far more entangled than anyone had disclosed.
Changpeng Zhao (CZ), CEO of Binance and one of FTX’s early investors, announced on November 6 that Binance would sell its entire FTT holdings, worth roughly $580 million. The announcement triggered a bank run.
Customers raced to withdraw funds from FTX. Within days, the exchange faced withdrawal requests totaling approximately $6 billion in a single 72-hour window. FTX couldn’t cover them.
On November 11, 2022, FTX filed for Chapter 11 bankruptcy protection. SBF resigned as CEO. John J. Ray III, the restructuring expert who had previously overseen Enron’s bankruptcy, took over. His assessment was blunt: he had never seen such a complete failure of corporate controls in his entire career.
The Core Fraud: What SBF Actually Did
As investigations unfolded, the mechanics of the fraud became clearer.
Customer funds deposited into FTX were secretly transferred to Alameda Research. FTX customers believed their money sat in secure exchange accounts. In reality, billions of those dollars had been moved to a separate company that used them for speculative trading, venture investments, real estate purchases, and political donations.
Alameda Research functioned like FTX’s secret bank account.
Specific allegations and findings included:
- Alameda received approximately $8 billion in customer funds from FTX
- Alameda used those funds for high-risk crypto trades, many of which lost money significantly
- FTX leadership purchased luxury real estate in the Bahamas worth over $300 million
- Political donations totaling tens of millions flowed to both Republican and Democratic campaigns
- A secret “backdoor” in FTX’s accounting software allowed Alameda to borrow from FTX without triggering standard risk alerts
- FTX lacked a proper board of directors, a legitimate accounting department, or basic financial controls
When crypto markets declined sharply in 2022, Alameda’s losses mounted. The firm couldn’t repay what it had borrowed from FTX. When withdrawal requests came flooding in after the CoinDesk report, there was simply no money left to return to customers.
Who Else Was Involved
SBF did not act alone. Several FTX and Alameda executives were charged alongside him.
Caroline Ellison, CEO of Alameda Research and SBF’s former girlfriend, pleaded guilty to fraud charges and cooperated with prosecutors. She admitted to manipulating FTX’s financial statements and directing the misuse of customer funds.
Gary Wang, co-founder of FTX, also pleaded guilty and cooperated with investigators. He confirmed that the backdoor in FTX’s systems was deliberately built to give Alameda special access.
Nishad Singh, FTX’s former head of engineering, pleaded guilty and confirmed multiple aspects of the prosecution’s case.
Ryan Salame, co-CEO of FTX Digital Markets, pleaded guilty to campaign finance violations related to illegal political donations made using customer funds.
The cooperation of multiple insiders significantly strengthened the government’s case against SBF.
The Trial and Sentencing
Sam Bankman-Fried was arrested in the Bahamas in December 2022 and extradited to the United States. He faced seven criminal counts including wire fraud, securities fraud, and money laundering conspiracy.
His trial began in October 2023. Prosecutors painted a picture of deliberate, calculated theft. Defense attorneys argued SBF had made business mistakes but harbored no criminal intent.
The jury did not agree with the defense.
On October 5, 2023, SBF was convicted on all seven counts after the jury deliberated for just four hours.
On March 28, 2024, Judge Lewis Kaplan sentenced Sam Bankman-Fried to 25 years in federal prison. He was also ordered to forfeit over $11 billion.
SBF maintained throughout his trial that he never intended to defraud anyone. Judge Kaplan stated during sentencing that there was a risk SBF would commit fraud again if released, and that his remorse appeared calculated rather than genuine.
What Happened to FTX Customers
When FTX collapsed, approximately one million creditors found themselves unable to access their funds. Estimates placed total customer losses at around $8 billion.
The bankruptcy proceedings stretched across years. In a development that surprised many observers, FTX’s restructuring team, led by John Ray, managed to recover significant assets through asset sales, clawbacks, and legal action against third parties who had received funds from FTX.
In May 2024, the FTX bankruptcy estate announced a recovery plan indicating that creditors could receive between 118% and 142% of their allowed claims, valued at the dollar price of their assets at the time of the bankruptcy filing in November 2022. That last detail matters: crypto prices had risen significantly since the collapse, meaning customers would recover dollar values from 2022, not current market prices. Many customers who had held Bitcoin or Ethereum felt they lost the upside recovery of those assets.
The repayment process continued rolling out through 2024 and 2025.
Why Did So Many People Trust FTX?
This question bothers me more than almost any other part of the story.
FTX wasn’t some obscure offshore exchange that only reckless traders used. It had celebrity endorsements, venture capital backing, regulatory engagement, and a founder who gave speeches about ethics and effective altruism. Sequoia Capital wrote a glowing profile of SBF that they later deleted. Major media outlets treated him as a credible statesman of the crypto world.
Several factors allowed the fraud to persist:
Regulatory gaps. Crypto exchanges operating offshore faced minimal oversight. FTX’s Bahamas registration kept it outside the reach of stricter US financial regulations that would have required audited financial statements and customer fund segregation.
The cult of the founder. SBF’s eccentric image, the beanbag, the vegan diet, the altruism messaging, functioned as a trust signal. People assumed someone that publicly committed to doing good couldn’t simultaneously be stealing billions.
Bull market blindness. When prices rise, scrutiny falls. During the 2020 to 2021 crypto boom, FTX’s rapid growth looked like genius. Nobody looked too hard at the balance sheet.
Complexity as cover. Crypto financial structures are genuinely difficult for most people to understand. That complexity created space for misconduct that simpler financial structures wouldn’t have allowed.
What the FTX Collapse Changed
The FTX scandal accelerated regulatory pressure on cryptocurrency exchanges globally. In the US, the Securities and Exchange Commission and the Commodity Futures Trading Commission both intensified enforcement actions across the crypto sector following the collapse.
Several countries strengthened requirements for crypto exchanges to demonstrate proof of reserves, meaning independently verified evidence that customer funds actually exist and are properly held.
The collapse also damaged public trust in cryptocurrency broadly, contributing to a prolonged market downturn through early 2023 before prices eventually recovered.
For the crypto industry, FTX served as a brutal demonstration that the absence of traditional financial oversight doesn’t produce freedom. It produces fraud.
