"FTX: The Rise and Fall of a Crypto Empire"

 

Hello everyone!

    Even though a rainbow is radiant, what happens when that same brilliance disappears into the mist?

A dazzling prosperity turning feeble over time that was the journey of FTX.

    Today, I pose a question to you: How did a crypto exchange which reached a $32 billion valuation in no time -suddenly collapse into bankruptcy?

    FTX was like a towering structure - bright and tall, yet built on shaky foundations like seeds scattered in the wind.

    Come, let us embark on this journey- where we will uncover the mystery behind the rise and fall of brilliance and dust alike!

Success to Failure - Doodhwala/ स्टार्टअप अयशस्वी स्टोरी- दूधवाला

The Beginning – A New Hope in the Crypto Era

    In 2019, Sam Bankman-Fried (SBF) and Gary Wang launched a crypto exchange called FTX.
Their goal was to make crypto trading faster, safer, and more convenient for large investors.
Before founding FTX, Sam worked as a trader at Jane Street Capital.
In 2017, he had also started a crypto trading hedge fund named Alameda Research.

Right from the beginning, FTX offered professional traders features like futures, leverage, and innovative products.

Growth and Popularity (2019–2021)

1. In 2020–21, the crypto boom arrived, and FTX’s valuation soared to $32 billion.
2. Celebrity branding, sports sponsorships (including renaming the Miami Heat Arena to "FTX Arena"), and global expansion followed.
3. With millions of users and billions of dollars in daily trading volume, FTX began to be seen as a “trusted” exchange.
4. It rapidly launched new trading products like futures, options, and tokenized stocks.
5. Major investors included: Sequoia Capital, SoftBank, Temasek, Tiger Global, and others.

Marketing Stunts:

1. Renaming the Miami Heat stadium to "FTX Arena"

2. High-profile Super Bowl commercials

3. Celebrity brand ambassadors like Tom Brady and Gisele Bündchen.

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Signs of Trouble Begin (Early 2022)

• There was a lack of transparency in the financial dealings between Alameda Research and FTX.
• Though FTX and Alameda were claimed to be two separate businesses, in reality, their funds were being mixed.
• Billions of dollars deposited by users on FTX were allegedly being used by Alameda for risky crypto investments.
• Rumors began to circulate that customer deposits were being used to cover Alameda's trading losses.

Scandal Uncovered (November 2022)

• CoinDesk published a report revealing that a large portion of Alameda’s assets were heavily dependent on FTT tokens  the native token issued by FTX itself.
  
• Following this, Binance CEO Changpeng Zhao (CZ) tweeted that Binance would be selling off its FTT holdings.
• This triggered a sharp drop in FTT’s price, leading to a wave of panic.
• People rushed to withdraw their funds from FTX, causing massive panic selling in the market.

Bankruptcy and Collapse (November 2022)

• Within just a few days, FTX didn’t have enough funds to return customer deposits.
• On November 11, 2022, FTX, Alameda Research, and over 130 related companies filed for bankruptcy.
• Nearly $8 billion in customer funds went missing.

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Investigations and Arrest

1. U.S. SEC, CFTC, and FBI began investigations.

2. Sam Bankman-Fried (SBF) was arrested in the Bahamas in December 2022.

3. He was charged with fraud, money laundering, and other financial crimes.

4. In 2023, a U.S. court found Sam guilty of fraud, and in 2024, he was sentenced to 25 years in prison.

Global Impact

• Massive blow to the crypto market; prices of many tokens crashed.
• Investor trust in crypto exchanges shook worldwide.
• Governments and regulators began tightening crypto regulations.

🔍 Key Reasons for FTX's Collapse

1. Misuse of Customer Funds – To Rescue Alameda

FTX was a crypto exchange where people stored and traded their crypto/money.
But investigations revealed that SBF secretly transferred user funds to Alameda Research (his trading firm).

Alameda used these funds for high-risk investments.
When the market crashed, the investments failed and FTX had no money left to return to users.

2. Poor Risk Management – No Hedging or Reserves

Usually, large exchanges keep a portion of customer deposits in reserve for emergencies.
FTX failed to do this.

They didn’t hedge their risks (i.e., they didn’t plan for market crashes or losses).
So when the market fell, they had no safeguards or backup funds to cover the damage

3. Lack of Transparency – Hiding the Real Financial Picture

FTX told the outside world (investors, users, regulators) that its finances were strong.
In reality, there was a massive financial hole inside the company.

The secret transfers to Alameda were hidden.
When these truths surfaced, trust from investors and customers collapsed instantly.

4. Overreliance on One Man – SBF Controlled Everything

Sam Bankman-Fried made almost all key decisions alone.
There was no proper board, no clear roles, and no checks and balances.

Such centralized control increased the risk of bad decisions going unchallenged.

PADMAN AJINKYA DHARIYA -PADCARE LABS

📚 Lessons Learned

✅ Customer Funds = Trust

Never use customer deposits to bail out another company.
Funds should be kept safely and separately, both legally and ethically.

✅ Risk Management is Crucial

Hedging, reserves, and contingency plans are non-negotiable in volatile markets.

✅ Overconfidence Can Be Dangerous

Thinking “everything is fine” can blind leadership to real threats.

✅ Transparency Builds Trust

Always communicate real numbers, risks, and challenges to stakeholders.
Hiding the truth breaks trust  and it’s hard to regain.

✅ Diverse and Accountable Leadership

Don’t concentrate power in one person.
A diverse, experienced board can offer better decisions and oversight.

✅ Prioritize Ethics Over Shortcuts

Short-term gains through fraud or manipulation may work briefly but eventually, they lead to collapse.

कार्यक्रम व्यवस्थापन व्यवसाय /Event Management Business