FTX

What did it do?

FTX, founded in 2019, was an exchange for trading cryptocurrencies and derivatives. The company was registered in Antigua and Barbuda and headquartered in the Bahamas, and it ran a separate platform, FTX.US, for customers in the United States. It had very close ties to Alameda Research, the trading firm its founder Sam Bankman-Fried had set up earlier.

Why did it shut down?

In November 2022 CoinDesk reported that much of Alameda Research's assets consisted of FTT, FTX's own token. Binance's announcement that it would sell its FTT holdings triggered an estimated $6 billion of withdrawals in three days, and FTX could not meet them. Binance withdrew its plan to buy the company within a day, and on 11 November 2022 FTX filed for Chapter 11 bankruptcy in the US. John Ray III, the CEO who took over the bankruptcy, said corporate controls had failed completely and that there was no trustworthy financial information. Co-founder Gary Wang and Alameda's CEO Caroline Ellison pleaded guilty in December 2022; in November 2023 a jury found Bankman-Fried guilty on all seven counts, and an appeals court upheld the conviction in June 2026.

The story

In the first week of November 2022, the most talked-about exchange in crypto became unable to pay its customers in the space of a few days. FTX had been founded three and a half years earlier, in May 2019, by Sam Bankman-Fried and Gary Wang. Its roots lay in Alameda Research, the trading firm Bankman-Fried had set up in Berkeley in 2017 with former Jane Street employees.

The rise was dizzying. Six months after launch, Binance founder Changpeng Zhao bought 20 per cent of the company for about $100 million. In July 2021 FTX raised $900 million at an $18 billion valuation from more than 60 investors, including SoftBank and Sequoia Capital; by January 2022 the valuation had climbed to $32 billion. The company moved its headquarters from Hong Kong to the Bahamas, bought Blockfolio for $150 million and stepped in as a rescuer for the struggling BlockFi and Voyager.

The break came when CoinDesk reported that much of Alameda's balance sheet consisted of FTT, the token FTX itself had issued. Zhao announced that Binance would sell its FTT holdings, and in the three days of panic that followed an estimated $6 billion was withdrawn. Binance first signed a letter of intent to buy FTX, then pulled out the next day, citing reports that customer funds had been mishandled. On 11 November more than 100 companies, including FTX, FTX.US and Alameda, filed for bankruptcy in Delaware. John Ray III, who had also overseen the liquidation of Enron, said he had never in his career seen such a complete failure of corporate controls.

Bankman-Fried was arrested in the Bahamas in December 2022 at the request of the United States and pleaded not guilty to all charges in January 2023. Co-founder Gary Wang and Alameda's CEO Caroline Ellison pleaded guilty in December 2022 and cooperated with prosecutors. In November 2023 a jury found Bankman-Fried guilty on all seven counts, including fraud and conspiracy; in March 2024 the court sentenced him to 25 years in prison. Bankman-Fried appealed, but in June 2026 the US Court of Appeals for the Second Circuit upheld both the conviction and the sentence. Ellison received a two-year prison sentence in September 2024.

The FTX story shows how easily rapid growth can outrun internal controls. Once the line between the exchange and its founder's trading firm blurred, customer money and company risk became entangled, and trust built over years evaporated in a week.

Lessons for founders

• Keep customer money separate from the company's own accounts and have an independent auditor verify this regularly; trust only works when it can be checked.
• Do not build your balance sheet on a token you issued yourself or on any single asset; when its price falls, the whole company is shaken at once.
• Make every transaction with another company owned by the founder subject to board approval and a written record; related-party dealings are the risk that grows most quietly.

Sources

1. FTX (Wikipedia)
2. Embattled Crypto Exchange FTX Files for Bankruptcy (The New York Times, 2022-11-11)
3. Binance backs out of FTX rescue, leaving the crypto exchange on the brink of collapse (CNBC, 2022-11-09)
4. Caroline Ellison sentenced to two years in FTX crypto fraud (BBC News, 2024-09-24)
5. Sam Bankman-Fried (Wikipedia)

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