FTX

Sam Bankman-Fried — SBF to the crypto world — was a 27-year-old MIT physics grad working at Jane Street Capital when he noticed that Bitcoin traded at a 30% premium on Japanese exchanges compared to US ones. He quit his job, started Alameda Research as a crypto trading firm in 2017, and made hundreds of millions exploiting these arbitrage gaps.

In 2019, he launched FTX as a crypto exchange built for professional traders. The pitch: better derivatives products, lower fees, and a cleaner interface than Binance.

He moved operations to Hong Kong, then to the Bahamas for friendlier regulation. FTX grew explosively — partly because Alameda Research (which SBF still controlled) was its largest market maker, creating liquidity that attracted other traders.

The timing was perfect. Crypto was entering its 2020-2021 bull run.

Retail traders flooded in. FTX became the exchange of choice for anyone who wanted more than just buying Bitcoin.

FTX made money three ways: trading fees (a cut of every transaction on the exchange), spread from its own market-making operations through Alameda Research, and the FTT token — a proprietary cryptocurrency that gave holders fee discounts and was used as collateral within the FTX ecosystem.

The FTT token was the ticking bomb. FTX created billions of dollars worth of FTT tokens, then Alameda Research held a massive portion as a balance sheet "asset." Alameda also borrowed heavily against FTT.

As long as FTT's price stayed up, the balance sheet looked healthy. If FTT crashed, the whole structure collapsed — which is exactly what happened.

Behind the scenes, Alameda was using FTX customer deposits to fund its own trades, venture investments, political donations, and luxury real estate purchases. There was no real separation between the exchange and the hedge fund.

Customer money was being gambled.

FTX Exchange — the core trading platform offering spot trading, futures, options, and leveraged tokens for over 300 cryptocurrencies. FTX US — a separate, regulated exchange for American customers with fewer features.

FTT Token — FTX's proprietary cryptocurrency used for fee discounts and staking, which became the instrument of its own destruction. FTX NFTs — a marketplace for trading NFTs, launched during the NFT boom of 2021.

FTX grew through aggressive marketing and strategic partnerships that made crypto feel mainstream. They paid $135 million to name the Miami Heat's arena "FTX Arena." Tom Brady and Gisele Bundchen starred in commercials.

SBF became the public face of crypto on Capitol Hill, testifying before Congress and donating over $40 million to political campaigns.

The Super Bowl ad blitz in 2022 — featuring Larry David — was peak FTX. They were everywhere.

The message was: crypto is safe, FTX is the adult in the room, and Sam is the responsible billionaire who wears cargo shorts and sleeps on a beanbag.

Internally, growth was fueled by Alameda's market-making creating the illusion of deep liquidity. FTX also aggressively acquired competitors and struggling crypto companies during the 2022 downturn, positioning SBF as the industry's savior — while secretly insolvent.

On November 2, 2022, CoinDesk published an article revealing that Alameda Research's balance sheet was primarily composed of FTT tokens — the cryptocurrency FTX had created itself. Binance CEO Changpeng Zhao announced he would liquidate his $500 million in FTT holdings.

FTT's price collapsed.

Customers panicked and tried to withdraw. FTX couldn't process the withdrawals because the money wasn't there — Alameda had been using customer deposits for its own trading.

In 72 hours, FTX went from a $32 billion company to filing for bankruptcy. $8 billion in customer funds were missing.

The Bahamas headquarters was a mess. No accounting systems.

No board meetings. Expenses approved via emoji on group chats.

FTX's new CEO, John Ray III — who had overseen Enron's bankruptcy — said he had never seen "such a complete failure of corporate controls."

FTX raised from the who's who of venture capital. Sequoia Capital invested $214 million and wrote a now-deleted fawning profile of SBF on their website.

SoftBank Vision Fund put in $100 million. BlackRock, Tiger Global, the Ontario Teachers' Pension Plan, and Temasek (Singapore's sovereign wealth fund) all invested at the $32 billion valuation round.

Every single one of them wrote their investment down to zero.