FTX was once one of the biggest names in cryptocurrency trading. At its peak, it handled $15 billion in daily trades, sponsored major sports teams, and had a valuation of $18 billion. But by November 2022, it was gone - not just down, but completely collapsed. Customer funds vanished. Executives were arrested. And millions of users lost everything. This isn’t just a story about a failed business. It’s a warning about what happens when trust is replaced by secrecy, and innovation is used to hide fraud.

How FTX Grew So Fast

FTX launched in May 2019 by Sam Bankman-Fried, a former quantitative trader from MIT. It didn’t start with flashy ads or celebrity endorsements. Instead, it focused on one thing: giving advanced traders tools they couldn’t find elsewhere. It offered futures contracts settled in stablecoins, not Bitcoin or Ethereum. That meant less volatility when trading. It had leveraged tokens - products that let you bet on price moves with built-in leverage up to 50x. It even had prediction markets and tokenized stocks, letting people trade shares of Apple or Tesla using crypto.

Its native token, FTT, made it even more attractive. Holders got discounts on trading fees, early access to new token launches, and voting rights on platform changes. For traders who were already active, FTT felt like a reward system. The more you traded, the more you saved. And because FTX made trading feel easy and profitable, users kept coming back.

By early 2022, FTX had over 1 million customers. It had offices in the Bahamas, Singapore, and the U.S. Its U.S. arm, FTX US, was separate - or so it claimed. The exchange looked professional. It had clean apps, detailed guides, and responsive support - at least on the surface.

The Hidden Flaw: FTT and Alameda Research

Behind the scenes, something dangerous was happening. FTX didn’t keep customer money separate from its own. That’s not just bad practice - it’s illegal in most financial systems. But in crypto, regulation was still weak. And FTX exploited that.

Sam Bankman-Fried also owned Alameda Research, a crypto trading firm. Alameda was heavily invested in FTT, the token FTX created. At one point, Alameda held over $5 billion worth of FTT. That’s a massive amount for a single token, especially one issued by the exchange itself. If FTT’s price dropped, Alameda would be in trouble. But instead of selling, Alameda used FTT as collateral to borrow more money - money that came from FTX’s customer deposits.

This is the core of the fraud. Customer funds weren’t stored safely in cold wallets. They were moved to Alameda’s accounts. FTX’s balance sheet didn’t show this. It looked like everything was fine. But in reality, FTX was using customer money to fund Alameda’s risky bets. When the market turned, Alameda couldn’t repay its loans. And FTX had no way to return customer funds.

The Collapse: What Triggered It

On November 2, 2022, CoinDesk published a leaked balance sheet from Alameda Research. The numbers were terrifying: $9 billion in liabilities, only $900 million in assets, and $5 billion tied up in FTT - a token no one else wanted to buy. The market panicked. People started asking: Is FTX even solvent?

Withdrawal requests exploded. Customers tried to pull their money out. But FTX blocked withdrawals. The option disappeared from the website. No explanation. No warning. Just silence.

On November 8, Binance - the world’s largest exchange - announced it would buy FTX to save it. For a brief moment, people hoped it would recover. But within 24 hours, Binance pulled out. Why? Because their team looked at FTX’s books and realized the numbers didn’t add up. There was no way to verify customer balances. The platform was a house of cards.

By November 11, FTX filed for bankruptcy. The same day, hackers drained over $600 million from FTX wallets. FTX posted a message on Telegram: “FTX has been hacked. FTX apps are malware. Delete them.” That wasn’t a hack in the traditional sense. It was the final act of a company that had already run out of money.

What Happened to Customer Money?

About 1 million people lost money. The average account held $15,000. That’s $15 billion in total. But only $8 billion was officially missing - the rest was either gone before the collapse or tied up in assets that couldn’t be sold quickly.

The bankruptcy trustee later recovered around $16 billion from various sources - including crypto holdings, real estate, and even FTX’s stake in Serum, a decentralized exchange. But most of that money wasn’t customer funds. It was assets from FTX’s corporate side. And even with those recovered, customers won’t get back everything.

As of early 2024, the best estimate is that most users will get back between 20% and 40% of what they lost. For someone who had $50,000 saved on FTX, that means $10,000 to $20,000 back - if they’re lucky. Many lost life savings. One Reddit user wrote: “I had $47,832.15 in my FTX account. That was my life savings after seven years of trading.”

Why FTX Failed When Others Survived

Other exchanges didn’t collapse in 2022. Coinbase stayed open. Kraken kept trading. Binance handled massive withdrawal spikes without breaking. Why?

Because they kept customer money separate. They didn’t use deposits to fund their own trading arms. They published proof-of-reserves - public reports showing they had enough assets to cover all customer balances. They didn’t rely on a single token to prop up their balance sheet.

FTX didn’t do any of that. It was built on opacity. It promised innovation, but delivered recklessness. Its advanced features - leveraged tokens, index futures, Move contracts - were impressive. But they were just distractions. Real security wasn’t in the trading tools. It was in the accounting.

And FTX had none.

The Aftermath: Regulations, Convictions, and Lessons

Sam Bankman-Fried was arrested in December 2022. He was convicted of fraud, money laundering, and conspiracy in November 2023. In March 2024, he was sentenced to 25 years in prison. Caroline Ellison, former CEO of Alameda Research, pleaded guilty and is cooperating with prosecutors.

The fallout reshaped the entire industry. The U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) started cracking down hard. The European Union passed MiCA, a new crypto regulation requiring exchanges to prove they hold customer funds. In the U.S., Congress is considering the Digital Commodities Consumer Protection Act - a law that would force exchanges to keep customer money in separate, audited accounts.

FTX’s collapse didn’t just hurt users. It hurt the whole crypto ecosystem. Bitcoin dropped to a two-year low. BlockFi, another crypto lender, went bankrupt days later. Trust in centralized exchanges took a major hit.

What You Should Learn From FTX

FTX isn’t just a cautionary tale. It’s a checklist of what to avoid.

• Never use an exchange that doesn’t publish proof-of-reserves. If they won’t show you proof they have your money, don’t trust them.
• Avoid exchanges that rely on their own token to drive value. FTT was the glue holding FTX together. When it broke, everything fell apart.
• Don’t assume a big name means safe. FTX had sponsors, offices, and a polished app. But none of that mattered when the books were cooked.
• Keep your funds in cold storage if you’re not actively trading. If you’re holding long-term, use a hardware wallet. Don’t leave money on an exchange longer than you need to.
• Watch for excessive KYC demands. Before the collapse, users reported FTX asked for selfies for every deposit and withdrawal. That’s not security - it’s control.

Is FTX Still Operational?

No. On January 31, 2024, FTX officially announced it would not restart. All assets are being liquidated. The exchange is dead. The apps were removed from the App Store and Google Play. The website now redirects to a bankruptcy notice.

There is no way to log in. There is no customer support. There is no recovery portal. The only thing left is the legal process - and even that will take years.

What Should You Do Now?

If you lost money on FTX: file a claim with the bankruptcy trustee. It’s your only shot at partial recovery. You can find the official portal through the FTX bankruptcy website.

If you’re still using any crypto exchange: audit it. Check if they publish proof-of-reserves. Look for third-party audits. Ask yourself: if this exchange vanished tomorrow, would I get my money back?

And if you’re new to crypto: start small. Use exchanges with a long track record - Coinbase, Kraken, or Bitstamp. Avoid platforms that promise high returns, exotic trading tools, or native tokens that seem too good to be true. Because they usually are.

FTX didn’t fail because of a hack. It didn’t fail because the market crashed. It failed because the people running it stole from their own customers. And that’s the most dangerous risk of all.