What happened
The second largest exchange in crypto was lending customer deposits to the trading firm next door, and the trading firm had lost them.
| When | November 2022 |
| What kind of failure | Exchange collapse |
| What it cost | About $8 billion of customer money missing |
The version the public saw
FTX presented itself as the adult in the room. It ran Super Bowl ads, put its name on a sports arena, testified in front of Congress and published a set of customer protection principles. Its founder was the public face of responsible crypto and was photographed with former prime ministers and pop stars. Deposits were described as customer property.
Underneath the same period
Customer deposits were being sent to Alameda Research, a trading firm owned by the same person. Alameda used them as its own capital, posted FTT, a token FTX had created out of nothing, as collateral against them, and lost a great deal of it. The exchange had a back door in its accounting software exempting Alameda from the automatic liquidation that applied to every other account.
The sequence
A balance sheet leaks
On 2 November 2022 a news outlet published what appeared to be Alameda's balance sheet. Most of its assets were FTT, the token its sister exchange issued. The firm was, in effect, collateralized by its own affiliate's homework.
A competitor announces a sale
Days later the CEO of Binance said publicly that his firm would sell its FTT holdings. The price fell, which lowered the value of the collateral behind Alameda's borrowing, which forced more selling.
Withdrawals stop
On 8 November FTX halted withdrawals. The reason given was congestion. The actual reason was that the coins were not there.
Bankruptcy in eleven days
FTX filed for Chapter 11 on 11 November. The restructuring officer appointed to run it, who had previously handled Enron, wrote that he had never seen "such a complete failure of corporate controls".
The signals, before anybody knew the ending
None of these needed hindsight. Each one was public, or checkable, while the money was still there.
- A trading firm and an exchange with the same owner, which is a conflict no amount of stated policy resolves
- A large share of one company's assets being a token issued by its affiliate
- No audited financials that a normal counterparty would accept
- An offshore entity, so no segregation rules and no deposit protection
- Yields and rebates that had to be funded from somewhere nobody could name
The aftermath
Sam Bankman-Fried was convicted on seven counts in November 2023 and sentenced to 25 years in March 2024. He lost his appeal in June 2026, so the sentence stands and he is eligible for release in 2044. The estate has recovered far more than anyone expected: by mid 2026 roughly $10 billion had been distributed and creditors are receiving around 105 percent of their claims.
The part that changes what you do
Read that recovery figure carefully, because it is the part people get wrong. Claims were valued in dollars at the November 2022 petition date. Somebody who had one bitcoin on FTX, worth about sixteen thousand dollars that week, is being repaid roughly that many dollars, not one bitcoin. Being made whole in dollars after a crash is not the same as still owning the asset, and no bankruptcy process will ever give you back the four years.
Common questions
Did FTX customers get their money back?
Could this happen at a regulated exchange?
What would have protected somebody?
Where to go next
Other cases like this one
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