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WTF Happened to FTX? Crypto’s Biggest Trainwreck Explained

In case you didn’t notice, November 2022 was a dumpster fire of a month for crypto. Some people are calling the collapse of FTX, once the world’s third-largest crypto exchange, a “Lehman Brothers” moment.  

Plenty of others are still trying to figure out precisely what the hell happened. How did FTX founder Sam Bankman-Fried (SBF) go from rocking a $16B net worth to relatively bankrupt overnight? 

As it turns out, not everyone was completely surprised by crypto’s latest catastrophe. Insider Jason Choi recently wrote a tell-all blog post that explains what happened in incredible detail.  

The downside to detail is that unless you’re incredibly well-versed in blockchain finance jargon, you may have a hard time following it. If you’d prefer to have the FTX collapse explained simply, then read on.  

We’re going to the bottom line of how SBF went from one of the biggest names in crypto to public enemy number 1.  

The Beginning of Alameda and FTX

As recently as 2017, few had ever heard of Sam Bankman-Fried. At the time, he was a kid with a few innovative trading ideas in search of investors. Back then, SBF’s focus was on a start-up called Alameda Research.  

The company’s LinkedIn page describes it as a “leading principal trading firm.” It specifies that Alameda was designed to use “our team’s deep crypto expertise to trade thousands of digital asset products, including all major coins and altcoins, as well as their derivatives.” 


So, basically, Alameda was designed to allow SBF and his college pals to try their supposedly genius crypto-trading strategies. But as SBF went around looking for seed money, he mostly gave potential investors a preview of the disaster to come.  

Alex Pack of Hack VC recently told CNBC that he first saw SBF’s red flags in 2018 when considering investing in Alameda. “After spending months with him, we realized his risk-taking was catastrophic,” Pack explained.  

Nonetheless, SBF managed to get Alameda up and running before establishing FTX in 2019. As a crypto exchange, FTX shot up through the ranks by offering insane rates of return with “no risk.”  

FTX also launched its own token, FTT, which traders could use on the platform to enjoy perks like lower trading fees. Oh, and SBF was still running Alameda with his buddies.

But don’t worry, they insisted the two were separate ventures. Promise.

FTX’s Rise to Crypto Stardom 

Unrealistic promises weren’t the only thing FTX had going for it.  

The exchange also got hella lucky, as it was launched just in time to ride Bitcoin’s rise to its $64k peak in 2021. For a time, it seemed that crypto’s glory days had arrived as more new investors flocked to exchanges than ever before.  

Even when BTC’s tide dramatically turned for the worst, FTX didn’t seem to take that big of a hit. It even bought out a few struggling competitors.  

Additionally, FTX was not at all shy when it came to marketing. For example, a multi-million-dollar deal was inked to turn the Miami Heat’s stadium into FTX arena, which has resulted in its own controversy.  

Before its epic downfall, FTX also managed to secure several high-profile celebrity endorsers, like Tom Brady, Larry David, and Stephen Curry. The three are currently busy kicking their asses while fending off a shitstorm of legal investigation. Oops. 

But how did things go from great to bad to way f’ing worse?  

Meanwhile, at Alameda 

While FTX was busy flexing its blockchain muscles to the world, Alameda’s saga was unfolding behind the scenes. The company cashed in on the DeFi summer of 2019, creating a decentralized Solana exchange called Serum.  

It also invested in other projects such as MAPS, BonFida, and Oxygen Protocol, all of which released their own coins. But in 2019, SBF made one of the many blunders that would eventually lead to his downfall.  

After befriending Binance CEO Changpeng “CZ” Zhao, who was also an initial investor in FTX. But then in September 2019, Alameda allegedly tried to manipulate the Binance futures platform.  

While Binance successfully nipped the attempt in the bud, it was the beginning of an epic rivalry between SBF and CZ –  two of the biggest names (or initials) in crypto. The rivalry intensified over the years as SBF lobbied for crypto regulation while CZ took the opposite stance.  

Nonetheless, it seemed that both Alameda and FTX were still doing fine. After that, however, questions about how interlinked the two companies were started to gain traction. Then in late 2022, CoinDesk decided to take a closer look.  

That’s when shit really hit the fan.  

CoinDesk Reveals the Terrible Truth About FTX And Alameda

On November 2, 2022, CoinDesk published the results of their investigation into SBF’s two “totally separate companies.” 

As it turned out, billions of Alameda’s holdings were not in actual cash, but in FTT. Yep, the token created by FTX.  

In summary, they created their own coin, lent it to themselves, and claimed it as an asset in $US.

But this is obviously a big no-no.

And as the two companies were far more connected than they’d let on, concern about insolvency went from a relatively small spark to a raging inferno. 

In essence, it became clear that both were in deep shit if the price of FTT should ever drop significantly.

While SBF tried to assure the world that things were fine, his old rival CZ decided to strike. 

Binance vs. FTX 

Days after the news broke, CZ announced Binance’s plans to liquidate all its FTT holdings, which held a collective value of about $529M.  

As the token’s value began to spiral, the exact scenario that CoinDesk had warned about quickly played out. A selling frenzy ensued, and it quickly became apparent that SBF’s companies were in no position to handle it.  

Suddenly, it looked like Binance might swoop in and acquire its biggest rival. But after taking a good look at FTX’s books, CZ and his team quickly realized just how big a hole the exchange had dug for itself.  

They quickly pulled out of the deal and FTX filed for bankruptcy on November 11, 2022. 

Oh, and if things were bad enough, within hours of the filing, “hackers” managed to steal over $500M from the exchange.  

And there are some serious accusations that, due to the. nature of the hack, it was probably SBF himself. 

What’s Going To Happen To SBF?

The first of what’s likely to be a very long stream of lawsuits have already been filed. Meanwhile, FTX fired SBF and appointed John Ray III as CEO to help clean up the mess.  

The new CEO said he’d never come across “such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.” Ouch. That’s big because John Ray III also handled the implosion of Enron.  

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Ben Dawkins
Ben Dawkins

Ben Dawkins blends financial acumen and writing prowess to demystify DeFi and blockchain for his readers. Recognized for making complex topics accessible, Ben is a lifelong learner studying blockchain technology. With his words and a fresh cup of coffee, he transforms the intricate world of DeFi, while enjoying every step of the journey.

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