You have probably heard of FTX’s collapse and how billions of dollars of customers’ funds have been lost. But how did such a catastrophe even occur in the first place, and what did Sam Bankman-Fried have to do with it? 

Established by Sam Bankman-Fried in 2019, FTX was one of the world’s largest cryptocurrency exchange platforms dealing with cryptocurrency transactions between wallets. FTX was a widely reputable platform, with celebrities such as Tom Brady and Stephen Curry endorsing the site; the Miami Heat Stadium was even named after the company as “FTX Arena.” Everything was going well for FTX and Bankman-Fried: at its peak, FTX was valued at 32 billion dollars, and Bankman-Fried had a net worth of over 26 billion dollars. 

However, all turned south when CoinDesk—a cryptocurrency media platform—drew attention to suspicious behavior between FTX and a trading firm known as Alameda Research. Alameda Research was a quantitative trading firm, also co-founded by Bankman-Fried, that, according to CoinDesk, was leveraging FTT (FTX’s native token) as its main asset. CoinDesk claimed that the FTT token was being abused with customers’ funds on the Alameda Research platform, and this accusation was quite alarming. Consequently, Binance, the world’s largest cryptocurrency exchange, sold its $530 million FTT assets. This move by Binance caused a lot of panic in the crypto world. People asked themselves if Binance—the world’s biggest crypto platform—sold their FTT holdings, why shouldn’t I? This caused a domino effect, with thousands of people selling their own holdings. Ultimately, FTX reached a liquidity issue: they did not have the money to provide customers’ money back. In short, FTX and Bankman-Fried were forced to file for bankruptcy.

In analyzing the nucleus of the issue, it relates back to Bankman-Fried. As a result of the fraudulent relationship he established with his two companies, FTX and Almeda Research, FTX collapsed, losing billions of dollars of customers’ funds. This crypto catastrophe ought to serve as a warning that government’s need to do a better job of managing and regulating crypto platforms. We also as customers need to do our due diligence before investing crypto tokens. New crypto technologies bring about many benefits, but they also introduce unintended consequences.