# FTX Cryptocurrency exchange founded in 2019 by [[Sam Bankman-Fried]] (SBF) and Gary Wang, incorporated in Antigua and Barbuda with headquarters in the Bahamas. At its January 2022 peak, FTX was valued at **$32 billion** by investors including Sequoia Capital, SoftBank, and Tiger Global. The company collapsed in November 2022 when a CoinDesk report revealed that Alameda Research -- FTX's affiliated trading firm, co-run by SBF and Caroline Ellison -- held a balance sheet dominated by FTT, FTX's own illiquid exchange token. The ensuing bank run destroyed the company in four days: FTX halted customer withdrawals on November 8 and filed for bankruptcy on November 11. Investigations revealed that **$8-10 billion in customer funds** had been diverted to Alameda Research for speculative trading, venture investments, Bahamas real estate, political donations, and personal expenses. FTX matters to the knowledge base on three axes. First, as the **canonical [[ZIRP]]-era blowup** -- a speculative edifice funded by free-money capital that could not survive when interest rates rose and the speculative tide went out. Second, as the clearest modern example of the [[Crypto-Political Machine]] -- SBF's approximately $40 million in 2022 midterm political donations (making him the second-largest individual donor in America) bought regulatory access and bipartisan political cover while the fraud was ongoing. Third, as a case study in how [[Effective Altruism]]'s utilitarian moral framework was weaponized to justify criminal conduct: SBF publicly argued that earning-to-give at scale justified risk-taking that turned out to mean stealing customer deposits. ## Founding and Rise (2019-2022) SBF and Gary Wang launched FTX in May 2019. Both had backgrounds in quantitative finance -- SBF had worked at Jane Street Capital, Wang at Google -- and had previously co-founded Alameda Research in 2017 as a cryptocurrency quantitative trading firm. The critical structural fact about FTX from inception was that Alameda Research and FTX were intertwined: Alameda was both a market maker on FTX and a privileged counterparty with back-door access to FTX systems, including -- as would later be revealed -- a secret exemption from FTX's auto-liquidation protocols. FTX's growth trajectory was a characteristic [[ZIRP]]-era hyperbolic curve: - **2019**: Launch with approximately $100 million in daily trading volume - **July 2021**: Series B at $18 billion valuation; Sequoia, SoftBank, and other blue-chip VCs invested - **January 2022**: Series C at $32 billion valuation; investors included Sequoia, SoftBank, Tiger Global, the Ontario Teachers' Pension Plan, and Paradigm - **2022 peak**: FTX claimed over one million users and advertised relentlessly -- Super Bowl ads featuring Larry David, naming rights on the Miami Heat's arena (FTX Arena), and sponsorship deals with Tom Brady, Steph Curry, and Naomi Osaka The investor list was itself a case study in [[ZIRP]]-era due-diligence failure. Sequoia -- one of the most prestigious venture capital firms in [[Silicon Valley]] -- published a worshipful profile of SBF in September 2022, two months before the collapse, and subsequently deleted it. The Ontario Teachers' Pension Plan wrote down its entire $95 million investment to zero. ## The FTT Token and Circular Economics At the center of FTX's financial architecture sat **FTT** -- FTX's proprietary exchange token. FTT's role was fundamentally circular: - FTX issued FTT tokens and retained large holdings - FTT's market value was sustained by FTX's own buy-and-burn program (using exchange revenue to repurchase and destroy tokens) and by Alameda Research's market-making activity - Both FTX and Alameda counted FTT holdings as assets on their balance sheets at market prices - This created a **reflexive loop**: FTT's value depended on FTX's solvency, and FTX's stated solvency depended on FTT's value When confidence broke, this loop reversed catastrophically. The CoinDesk report that triggered the collapse revealed that Alameda's $14.6 billion balance sheet was dominated by FTT and other illiquid FTX-affiliated tokens -- meaning Alameda's apparent net worth would evaporate the moment anyone tried to sell. ## The Collapse (November 2022) The collapse unfolded with extraordinary speed: - **November 2, 2022**: CoinDesk published a report based on a leaked Alameda Research balance sheet showing that the firm's largest asset was FTT -- the token issued by its sister company FTX - **November 6**: Binance CEO Changpeng Zhao (CZ) announced on Twitter that Binance would liquidate its approximately $500 million FTT position "due to recent revelations" - **November 7-8**: FTX experienced a classic bank run; approximately $6 billion in withdrawal requests in 72 hours; FTX halted withdrawals on November 8 - **November 8**: Binance signed a non-binding letter of intent to acquire FTX, then withdrew within 24 hours after reviewing FTX's books - **November 10**: SBF reportedly attempted to raise $8 billion in emergency funding; failed - **November 11**: FTX, FTX US, Alameda Research, and approximately 130 affiliated entities filed for Chapter 11 bankruptcy; SBF resigned as CEO; John J. Ray III (who had overseen Enron's liquidation) was appointed to manage the estate Ray's initial filing to the bankruptcy court described FTX in terms rarely seen in corporate filings: "Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information." He described a situation in which a small group of inexperienced individuals used company funds to purchase personal real estate, made undisclosed payments to insiders, and failed to maintain even basic accounting records. ## The Fraud The core fraud was straightforward in structure, even as its scale was staggering. FTX had a hidden software backdoor -- coded into the platform from early in its history -- that allowed Alameda Research to borrow from FTX's customer deposits without triggering the exchange's risk-management systems. Over time, Alameda drew down approximately **$8-10 billion** in customer funds and deployed them across: - **Speculative trading**: Alameda made large, often losing bets on cryptocurrency markets using customer money - **Venture investments**: Approximately $5 billion in venture investments, including stakes in companies across the crypto ecosystem and beyond - **Real estate**: Over $250 million in Bahamas luxury real estate purchased for company executives - **Political donations**: Tens of millions directed to political campaigns (see below) - **Personal expenses**: Private flights, luxury accommodations, and personal spending by the inner circle The fraud was enabled by the near-total absence of corporate governance. FTX had no board of directors in any meaningful sense, no independent auditors with real oversight, and no separation between customer funds and company operations. The company's financial records were maintained partly through QuickBooks -- software designed for small businesses, not a $32 billion financial institution. ## Political Donations and the Crypto-Political Machine SBF's political operation was central to both FTX's business strategy and its fraud, and it represents one of the most aggressive examples of the [[Crypto-Political Machine]] in action. In the 2022 midterm election cycle, SBF donated approximately **$40 million to Democratic candidates and PACs**, making him the second-largest individual donor in the United States (behind only George Soros). His donations targeted candidates on key committees overseeing financial regulation, particularly those involved in drafting cryptocurrency legislation. SBF positioned himself as a champion of "responsible" crypto regulation -- a framing that, in practice, meant regulatory frameworks permissive enough to allow FTX's offshore structure to continue operating with minimal oversight. The donations were not exclusively Democratic. Ryan Salame, FTX's co-CEO, donated approximately **$24 million to Republican candidates** -- a division of labor that gave FTX bipartisan cover and access. This two-track strategy was a deliberate part of FTX's [[Lobbying]] and [[Regulatory Capture]] operation: SBF publicly courted Democrats while Salame quietly funded [[Republican Party]] candidates, ensuring that FTX had allies regardless of which party controlled Congress. The political spending was funded, in part, by stolen customer money -- a fact that produced one of the more remarkable coda to the FTX saga. After SBF's conviction, the bankruptcy estate sought to claw back political donations from recipients. Several members of Congress who had received FTX-linked donations returned the funds; others did not. ## Effective Altruism as Cover Story SBF's public persona was built substantially on [[Effective Altruism]] (EA) -- the utilitarian philosophical movement that advocates using evidence and reason to maximize positive impact. SBF presented himself as the movement's most prominent practitioner of "earning to give": making as much money as possible in order to donate it to high-impact causes, particularly pandemic prevention and AI safety. The EA framing served multiple functions: - **Reputational capital**: It distinguished SBF from the crypto-bro culture and made him palatable to mainstream media, which produced extensive admiring coverage - **Moral justification**: SBF reportedly told associates that the expected-value calculations of EA justified taking extreme risks -- including, implicitly, the risk of fraud -- if the potential upside for charitable giving was large enough - **Institutional access**: EA connections facilitated relationships with policymakers, academics, and tech-industry leaders who might otherwise have been skeptical of a crypto exchange operator After the collapse, the EA community engaged in substantial self-examination about whether its philosophical framework had provided intellectual cover for criminal conduct. SBF's trial testimony did little to resolve the question: he alternately claimed he had genuinely intended to use profits for charitable purposes and that he had simply made bad business decisions. ## Trial, Sentencing, and Aftermath SBF was arrested in the Bahamas in December 2022 and extradited to the United States. His trial in the Southern District of New York ran from **October to November 2023**: - **Key cooperating witnesses**: Caroline Ellison (Alameda CEO and SBF's former romantic partner), Gary Wang (FTX co-founder and CTO), and Nishad Singh (FTX's head of engineering) all pleaded guilty and testified against SBF - **Conviction**: Found guilty on all **seven counts** of wire fraud, securities fraud, commodities fraud, money laundering, and conspiracy - **Sentencing**: On **March 28, 2024**, SBF was sentenced to **25 years in federal prison**, ordered to forfeit **$11 billion**, and given three years of supervised release - **Appeal**: SBF appealed his conviction; the appeal was denied in 2025 The cooperating defendants received substantially lighter treatment: - **Caroline Ellison**: Two years in prison (sentenced September 2024) - **Gary Wang**: No prison time; time served and supervised release - **Nishad Singh**: No prison time; time served and supervised release - **Ryan Salame**: Seven and a half years for campaign finance violations and operating an unlicensed money-transmitting business -- notably, Salame was the only defendant who did not cooperate with prosecutors ## Bankruptcy Recovery In one of the more unexpected developments, the FTX bankruptcy estate -- under the management of John J. Ray III -- recovered substantially more than expected. The estate ultimately recovered an estimated **$14.7-16.5 billion**, driven by several factors: - **Crypto market recovery**: The crypto market rebounded significantly after the filing, increasing the value of recovered digital assets - **Venture portfolio**: FTX's extensive venture investments -- including, notably, an early stake in [[Anthropic]] -- appreciated substantially - **Real estate and other assets**: Bahamas properties and other tangible assets were liquidated - **Clawbacks**: The estate pursued recovery of political donations, insider payments, and other fraudulent transfers Creditors were expected to receive approximately **119% of their claim values** as measured at petition-date prices (November 2022). This figure, while seemingly generous, was calculated against the depressed crypto prices at the time of bankruptcy filing -- not against peak portfolio values. Customers who had held assets at higher peak values suffered substantial real losses relative to what their holdings would have been worth had the fraud not occurred. ## Structural Significance FTX's collapse crystallized several dynamics central to the knowledge base: **[[ZIRP]] and speculative excess**: FTX was funded by the same free-money capital flows that produced the broader [[ZIRP]]-era bubble in crypto, SPACs, and growth-at-all-costs startups. Its investors -- Sequoia, SoftBank, Tiger Global -- were the same firms whose ZIRP-era investment strategies produced massive write-downs across their portfolios when rates rose. The Ontario Teachers' Pension Plan's involvement illustrated how [[Financialization]] had channeled ordinary people's retirement savings into speculative crypto ventures through institutional intermediaries. **[[Regulatory Capture]] and political access**: SBF's $40 million in political donations bought real policy influence. He testified before Congress, met with SEC and CFTC officials, and shaped draft cryptocurrency legislation -- all while running a fraud. The episode demonstrated how the [[Crypto-Political Machine]] used campaign finance to neutralize regulatory oversight and how [[Dark Money]] networks (with bipartisan donation streams through SBF and Salame) insulated the operation from scrutiny. **[[Casino Capitalism]] at scale**: FTX was a casino in the most literal sense -- a platform where retail customers made leveraged bets on volatile assets while the house secretly gambled with their deposits. Its collapse, like the failures of MF Global and Enron before it, demonstrated that the line between financial innovation and financial fraud is often drawn only in retrospect. **Collapse of the EA alibi**: The FTX saga permanently damaged [[Effective Altruism]]'s public credibility as a framework for evaluating the ethics of wealth accumulation. Whether or not EA philosophy *caused* SBF's fraud, it provided the moral vocabulary he used to justify it -- and that association proved difficult for the movement to shed. ## See Also - [[Sam Bankman-Fried]] - [[ZIRP]] - [[Casino Capitalism]] - [[Crypto-Political Machine]] - [[Effective Altruism]] - [[Dark Money]] - [[Regulatory Capture]] - [[Corruption]] - [[Financialization]] - [[Anthropic]] - [[Cryptocurrency]] - [[Silicon Valley]]