An exchange has a wonderfully boring obligation: when a customer asks for their money, the money should be there. FTX surrounded that obligation with futures, options, leveraged tokens and a vocabulary of technical sophistication. Yet the detail that explains its collapse is almost embarrassingly simple. One trading firm was allowed to do things other customers could not.
- FTX made complex crypto trading accessible through one platform.
- Alameda’s hidden privileges undermined the safeguards customers depended on.
- Today, FTX handles claims and repayments. Its exchange is closed.
That firm was Alameda Research, whose founder, Sam Bankman-Fried, also co-founded FTX. Imagine a marketplace where the operator’s other business can reach behind the counter and borrow the contents of the till. The storefront might be excellent. The till remains a problem.
01 / THE APPEALA trader’s toolbox, priced by the trade
Bankman-Fried and Gary Wang founded FTX in 2019. Its pitch addressed a real inconvenience: crypto traders wanted more ways to express a view, hedge exposure and move between markets. FTX brought a range of those activities together. Spot trading exchanged assets directly. Derivatives let users take positions tied to prices. An over-the-counter desk served negotiated transactions.
The expertise was in market design and trading infrastructure. Options, volatility products and leveraged tokens gave active traders more choices than a basic buy-and-hold app. For institutions, APIs made the exchange accessible to software. For individuals, the appeal was the convenience of having sophisticated instruments close at hand.
These products solved different problems for different customers. A trader could use a derivative to hedge a position elsewhere; another could use the same instrument to speculate. That flexibility helped explain FTX’s appeal. It also meant a product that felt convenient could carry leverage and liquidation risks a casual buyer had never encountered.
The economics looked familiar. FTX charged fees when customers traded, with discounts tied to volume and its FTT token. A June 2022 exchange review recorded base fees of 0.02% for makers and 0.07% for takers. On a hypothetical $10,000 taker trade, that meant $7. The fee was easy to calculate. The exposure to the company holding the deposit was harder to see.
Illustrative trading fee. Excludes spreads, funding and other costs.
02 / THE BELIEFRecognition did some of the selling
FTX competed for professional traders with Binance and other derivatives venues, while reaching toward the wider audience served by spot exchanges such as Coinbase. Its international platform excluded U.S. residents; FTX US was a separate affiliate. In July 2021, FTX reported more than one million users, spanning retail investors, family offices and institutions.
Then came the names people recognized. Its July funding announcement listed Sequoia, Paradigm and SoftBank among investors in a $900 million round. By January 2022, another $400 million round valued FTX at $32 billion. The valuation described what investors would pay for equity. It said little about the safety of a customer’s balance.
Funding marks, not audited measures of customer asset protection.
Sports made the brand familiar beyond trading screens. FTX signed an MLB partnership and a 19-year, $135 million arena naming-rights agreement in Miami. That figure was a contractual commitment, not a tally of money actually spent. The practical effect was visibility: the exchange appeared in places already associated with established institutions. A logo on an umpire’s uniform could feel reassuring without answering a single custody question.
03 / THE EXCEPTIONThe safeguards failed before the queue
For ordinary leveraged traders, collateral requirements and liquidation rules are supposed to limit losses. Alameda received special treatment. The SEC’s account described a virtually unlimited credit line funded by customers and exemptions from key risk controls. The exchange’s apparent discipline had an exception at its center.
That is the first failure to understand. The withdrawal rush exposed the damage; the diversion of customer assets had already created it. Federal prosecutors later established that customer money financed investments, debt repayments and other spending. A system designed to match trades had become a way to fund an affiliated business.
“Never in my career have I seen such a complete failure of corporate controls”John J. Ray III / bankruptcy declaration, November 17, 2022
On November 2, 2022, CoinDesk reported that Alameda’s balance sheet depended heavily on FTT, a token issued by FTX itself. Confidence weakened, and customers sought withdrawals. Binance briefly considered a rescue, then withdrew after due diligence, citing reports of mishandled funds and investigations. A prospective buyer’s inspection changed the rescue story within a day.
FTX filed for Chapter 11 on November 11. Bankman-Fried resigned, and restructuring specialist John J. Ray III took over. The subsequent criminal case removed any ambiguity about whether this was merely an unfortunate trading loss: Bankman-Fried was convicted of fraud and conspiracy and sentenced to 25 years in March 2024. Prosecutors described more than $8 billion stolen from customers.
04 / THE AFTERLIFEA different kind of percentage
FTX’s present activity is recovery. Its court-approved plan became effective in January 2025. The Recovery Trust’s July 2026 announcement scheduled approximately $900 million for a fifth distribution, with stated cumulative distributions of 105% for eligible allowed U.S. and international customer entitlement claims in Classes 5A and 5B.
The denominator matters. Those percentages refer to allowed bankruptcy claims, rather than the number of coins customers originally held. Cash measured against a bankruptcy claim and restoration of a crypto portfolio are different outcomes. Rising asset prices, years without access and individual eligibility complicate any cheerful claim that everyone has been made whole.
For former customers, the useful interface is now the claims portal. The distribution process requires identity verification, tax information and onboarding with a named payment provider. BitGo, Kraken and Payoneer appeared in the July announcement. The familiar trading account has become an administrative relationship, governed by claim status and distribution requirements.
05 / THE TAKEAWAYThe question worth copying
There is a useful product lesson here: understand demanding users and remove friction from work they already want to do. That lesson stops working when convenience depends on opaque custody, privileged insiders or safeguards management can waive. Before copying the growth, inspect who can override the rules. FTX’s most revealing feature was the permission ordinary customers never knew existed.