In 2019, Sam Bankman-Fried (SBF) — a 27-year-old MIT graduate and former Jane Street trader — launched FTX, a cryptocurrency exchange designed for high-speed derivatives trading. In just a few months, it grew into one of the most sophisticated and fastest platforms for institutional crypto traders.
But it wasn’t just the technology. It was Sam.
SBF wore T-shirts, slept on beanbags, played League of Legends during meetings, and talked about effective altruism — the idea of earning to give. He lived with his employees in a penthouse in the Bahamas. He promised to donate his billions. He gave off the aura of a different kind of billionaire: brilliant, awkward, idealistic — and somehow trustworthy.
Investors rushed in. So did celebrities.
- Sequoia Capital, SoftBank, Paradigm, and Temasek invested over $1.8 billion across multiple rounds.
- FTX bought the naming rights to the Miami Heat arena for $135 million.
- Tom Brady, Gisele Bündchen, Stephen Curry, and Larry David signed endorsement deals.
- SBF became the second-largest donor to the Democratic Party in 2022, after George Soros.
By early 2022, FTX was valued at $32 billion and was considered the safest, most compliant exchange in crypto.
Sam Bankman-Fried was being hailed as the JP Morgan of crypto — stepping in to bail out failing firms like BlockFi and Voyager. The media, investors, and regulators all bought into the myth.
The Empire Beneath
But behind the polished façade was a tangled web of conflicts, deception, and financial sleight of hand.
FTX was closely tied to another firm: Alameda Research, a crypto hedge fund also founded and controlled by SBF. While publicly separate, they were deeply intertwined. In reality:
- Customer deposits on FTX were secretly funneled to Alameda.
- Alameda used those funds for high-risk trades, political donations, real estate, and venture investments.
- FTX created its own token — FTT — and used it as collateral to inflate Alameda’s balance sheet.
This structure worked — until it didn’t.
The Collapse
In November 2022, crypto publication CoinDesk leaked a report revealing that Alameda’s balance sheet was heavily composed of FTT tokens, raising alarm over its solvency.
Then came the trigger:
- Binance CEO Changpeng “CZ” Zhao, a former FTX investor and rival, tweeted that Binance would liquidate its FTT holdings.
- That tweet sparked a digital bank run — over $6 billion in withdrawals in 72 hours.
FTX couldn’t meet the demand. It paused withdrawals. Panic spread.
Within 10 days:
- FTX filed for Chapter 11 bankruptcy
- SBF resigned
- Over 130 affiliated companies were included in the collapse
- An estimated $8 billion in customer funds were missing
The Fallout
The FTX collapse was one of the fastest and most catastrophic in financial history:
- $32 billion wiped out in days
- Over 1 million customers affected
- Tens of thousands of crypto traders lost life savings
- Genesis, BlockFi, and other crypto lenders halted withdrawals or filed for bankruptcy due to exposure
New CEO John J. Ray III, who previously led Enron’s liquidation, described FTX as “the worst case of corporate controls failure” he’d ever seen — including Enron.
Among the findings:
- No board meetings were held
- Funds were tracked in Google Sheets
- Employees used Signal with auto-delete for financial communication
- Executives used customer funds to buy $300M in Bahamian real estate
- There were no internal accounting or risk systems
The Trial
In December 2022, Sam Bankman-Fried was arrested in the Bahamas and extradited to the U.S. He was charged with:
- Wire fraud
- Securities fraud
- Money laundering
- Conspiracy to commit fraud against customers, investors, and the Federal Election Commission
He pleaded not guilty. But key insiders — Caroline Ellison (Alameda CEO and SBF’s ex-girlfriend) and Gary Wang(FTX CTO) — turned state’s witnesses.
In October 2023, after a five-week trial, SBF was convicted on seven counts of fraud and conspiracy. In March 2024, he was sentenced to 25 years in federal prison.
Strategic Failures
1️⃣ Fake Separation
FTX and Alameda were supposed to be separate. But SBF used one to manipulate the other. There were no Chinese walls — just friendly handoffs of billions in customer funds.
2️⃣ Cult of Personality
Investors skipped due diligence. Sequoia admitted it made a $150 million investment after a Zoom call with SBF — while he was playing a video game. The FOMO outweighed the fundamentals.
3️⃣ Self-Made Liquidity
FTX used its own token, FTT, as collateral to borrow real money. This worked until confidence cracked — and the token crashed.
4️⃣ No Governance
There was no board, no CFO, no auditors. FTX was a $32 billion company with controls that wouldn’t pass a college group project.
The Numbers Behind the Fall
| Year | Metric | Value |
|---|---|---|
| 2019 | FTX founded | SBF age 27 |
| 2021 | Peak valuation | $32 billion |
| 2022 | Revenue (est.) | $1 billion |
| Nov 2022 | Bank run | $6B in 72 hours |
| Nov 11, 2022 | Bankruptcy filed | $8B in customer funds missing |
| 2024 | Sentence | 25 years for SBF |
The Lessons Learned
- Charisma is not compliance. Even the smartest-sounding founder needs controls.
- Crypto is not immune to old-school fraud. FTX collapsed like a 1920s bank — not a DeFi protocol.
- Tokenomics are not economics. Collateral based on self-issued coins is financial fiction.
- VC due diligence broke down. Prestige firms ignored red flags in favor of speed and narrative.
- Regulators woke up. FTX triggered global crackdowns, from the SEC to the EU to Singapore.
FTX didn’t just implode — it vaporized trust in crypto overnight.
And in its ashes lies a warning: in an industry promising decentralization, too many bet everything on one man at the center.
