What happened to FTX? How a crypto giant collapsed

What happened to FTX is that one of the world's largest cryptocurrency exchanges went from apparent health to bankruptcy in nine days in November 2022. A leaked balance sheet set off a run on deposits, and the run exposed a hole of about $8 billion: customer money that had been passed to Alameda Research, a trading firm owned by FTX's founder, Sam Bankman-Fried, and spent. A jury later convicted him of fraud.

In short

• FTX told customers their deposits were safe and untouched; in fact billions had been moved to its sister trading firm, Alameda Research.
• A news story on 2 November 2022 about Alameda's finances led to a run, and FTX filed for bankruptcy on 11 November.
• Bankman-Fried was convicted on seven counts in November 2023 and sentenced to 25 years; customers were later paid back in dollars at November 2022 values.

What was FTX?

FTX was a crypto exchange, a business where customers deposit dollars or cryptocurrency and trade with each other, with the exchange holding everyone's funds. Bankman-Fried founded it in 2019, two years after he started Alameda Research, a crypto trading firm. FTX grew fast, raised more than $1.8 billion from investors, according to the US Securities and Exchange Commission, and spent heavily on marketing, from a Miami arena's naming rights to a Super Bowl advertisement.

It also issued its own token, FTT, which gave holders discounts on trading fees. FTX could create FTT at almost no cost, and its price depended largely on confidence in FTX itself. That detail mattered later.

How did the collapse unfold?

The sequence below follows the SEC's complaint, filed in December 2022, and later court records.

Date	What happened
2 November 2022	CoinDesk reports on a leaked Alameda balance sheet: of $14.6 billion in assets, about $5.8 billion was FTT, a token FTX itself created
6 November	The head of Binance, a rival exchange, says Binance will sell its FTT, then worth more than $500 million; FTX customers begin pulling funds out
7 November	Bankman-Fried posts that "FTX is fine. Assets are fine"; the SEC later called the post false and misleading
8 November	FTX pauses customer withdrawals. FTT falls about 80%. Binance signs a non-binding letter of intent to buy FTX
9 November	Binance walks away after reviewing FTX's books. Bankman-Fried seeks about $8 billion in emergency funding
11 November	Bankman-Fried resigns. FTX, Alameda and about 130 affiliated companies file for Chapter 11 bankruptcy; John J. Ray III takes over as chief executive
12 December	Bankman-Fried is arrested in the Bahamas at the request of US prosecutors

The CoinDesk report was the spark because it showed that Alameda's strength rested on a token whose value depended on FTX. If FTT fell, Alameda's collateral would shrink, and anyone who knew how closely the two firms were tied had reason to worry about FTX too.

Where did the customers' money go?

This is the heart of it. According to the SEC's complaint, and as the jury found at trial, FTX let Alameda borrow from the exchange with a virtually unlimited line of credit funded by customers, exempted it from the risk controls that would have forced other traders to repay, and let it carry a negative balance. Customer dollars deposited into bank accounts controlled by Alameda were tracked in an internal account labeled "fiat@ftx.com", and Alameda's share of that liability grew to more than $8 billion.

The money was used for Alameda's trading and to repay its lenders, for venture investments, real estate in the Bahamas and political donations, the SEC said. Meanwhile FTX's terms of service told customers that their assets belonged to them and were not FTX's to use. An exchange that lends out its customers' deposits without telling them works like a bank with no reserve rules and no deposit insurance, and it fails the same way: by a run.

It was not a Ponzi scheme in the strict sense, since FTX did run a real trading business with real fees. The fraud was the misuse of money customers had been told was untouched.

What happened in court?

In December 2022, federal prosecutors in New York charged Bankman-Fried with fraud and conspiracy, and the SEC and the Commodity Futures Trading Commission sued him. Three of his closest colleagues, including Caroline Ellison, Alameda's chief executive, pleaded guilty and testified against him. In November 2023, a jury convicted him on all seven counts of fraud and conspiracy.

On 28 March 2024, Judge Lewis Kaplan sentenced him to 25 years in prison and ordered him to forfeit about $11 billion, according to the US Department of Justice. He appealed, and in June 2026 the US Court of Appeals for the Second Circuit upheld both the conviction and the sentence, as Molly White reported.

Did FTX customers get their money back?

Mostly, in dollar terms, which is not the same as getting their coins back. The new management recovered and sold assets around the world. On 7 October 2024, the bankruptcy court in Delaware confirmed a plan under which 98% of creditors by number would receive about 119% of their allowed claims, from an estimated $14.7 billion to $16.5 billion in total, according to the FTX estate.

The catch is how claims were valued. Under bankruptcy rules, each claim was fixed in dollars as of the filing date in November 2022, near a low point for crypto prices. A customer who had 1 bitcoin on FTX was owed its value that month, about $17,000, not the bitcoin itself. With bitcoin trading far higher by the time the first payments went out, on 18 February 2025 (The Block), 119% of the 2022 dollar value bought back much less than the coins they had lost.

What are the lessons for anyone holding crypto on an exchange?

• A balance on an exchange is a promise, not coins. The exchange holds the keys; you hold a claim on the exchange, which is why the phrase "not your keys, not your coins" spread after FTX. A self-custody wallet removes that middleman, and adds the risk of losing your own keys.
• A token issued by the exchange is not independent collateral. FTT was worth something only while FTX was trusted, so it vanished just when it was needed.
• Assurances are not audits. Several exchanges began publishing "proof of reserves" reports after FTX fell; they show some assets but don't always show all liabilities.
• Runs move fast. FTX went from "FTX is fine" to frozen withdrawals in one day.

The collapse also came months after the failure of the stablecoin TerraUSD in May 2022 had already brought down several crypto lenders. This note explains the record; it isn't financial advice.

Check yourself

• Without looking back, explain why the CoinDesk report about Alameda's balance sheet threatened FTX itself.
• What did FTX do with customer deposits that its terms said it would not?
• Why did getting 119% of a claim still leave many customers with less than they had?

Sources

• Divisions in Sam Bankman-Fried's crypto empire blur on his trading titan Alameda's balance sheet — CoinDesk, 2022
• Complaint, SEC v. Samuel Bankman-Fried — U.S. Securities and Exchange Commission, 2022
• Samuel Bankman-Fried sentenced to 25 years for his orchestration of multiple fraudulent schemes — U.S. Department of Justice, 2024
• FTX receives US Bankruptcy Court confirmation of its plan of reorganization — FTX Trading Ltd., via PR Newswire, 2024
• FTX begins initial fund distributions to customers as its bankruptcy recovery forges on — The Block, 2025
• Second Circuit rejects Sam Bankman-Fried's appeal — Molly White, Citation Needed, 2026