Part 7 - Chapter 3: The Rise and Fall of FTX & Sam Bankman-Fried
This is the part where the crypto world went from chaotic to full-blown Netflix docuseries energy.
And if you didn’t already feel the drama in your bones — after this chapter, you will.
👑 Who Was Sam Bankman-Fried (SBF)?
Let’s paint the picture:
- Big curly hair 🌀
- Cargo shorts
- MIT graduate
- CEO of FTX, one of the largest crypto exchanges in the world
- Public image? Genius. Philanthropist. Vegan. Billionaire. Hacker hero.
He was once worth $26 billion on paper.
The media dubbed him the “JP Morgan of crypto.”
He did interviews with Bill Clinton and Tony Blair.
Even appeared in ads with Tom Brady and Gisele Bündchen 💅
But behind the scenes?
He was orchestrating one of the darkest rug pulls in crypto history.
🏦 What Was FTX?
FTX was:
- A crypto exchange (like Binance or Coinbase)
- Users deposited and traded crypto
- Known for its slick interface and “high trust” image
But FTX wasn’t acting alone.
It had a sister company:
Alameda Research — a trading firm also founded by SBF
That’s where things started getting messy.
🔥 The Dirty Secret: Customer Funds Were Misused
On the surface:
- FTX held customer deposits
- Alameda was supposed to be separate
In reality:
- FTX secretly funneled user funds to Alameda
- Alameda used the funds for high-risk trades
- When those trades failed, they kept spending
Imagine this:
You deposit $10,000 of ETH into FTX.
But behind the scenes, it’s sent to Alameda to gamble with.
They lose it.
Yet your account still says “$10,000.”
That’s not a bug.
That’s fraud.
🧊 What Caused the Collapse?
The crash began in November 2022.
A leaked report revealed:
- Alameda’s balance sheet was mostly FTX’s own token (FTT)
- Meaning they had almost no real assets
This triggered panic.
Investors rushed to withdraw from FTX — like a digital bank run.
FTX didn’t have the money.
- Withdrawals were frozen
- FTX filed for bankruptcy
- Over $8 billion in customer funds vanished
The polished facade cracked.
Behind it? One of the worst financial collapses in crypto history. —
💣 What Happened to Sam Bankman-Fried (SBF)?
- 🔍 Arrested in the Bahamas
- 🛫 Extradited to the U.S.
- ⚖️ Charged with fraud, money laundering, and conspiracy
- 💼 His inner circle cooperated with prosecutors
- 👨⚖️ Trial concluded in 2023: GUILTY on all counts
- ⛓️ Sentenced to 25 years in prison (March 2024)
Once hailed as the “Future of Finance” — now a convicted fraudster behind bars.
🧠 Quick Recap Table
| 🧠 Thing | 💣 What Really Happened |
|---|---|
| FTX | High-trust crypto exchange facade |
| Alameda | Secretly using FTX customer funds for gambling |
| SBF | Misused billions of user dollars |
| Collapse Trigger | Leaked balance sheet exposed fake assets |
| Aftermath | $8B gone, company collapsed, founder jailed |
🔥 Q&A Breakdown: What Really Went Down?
💥 Q1: What Were Alameda’s “High-Risk Trades”?
Alameda didn’t just trade mainstream crypto. They gambled hard:
⚠️ 1. Leverage Trading
- Borrowed large sums to make oversized bets
- High risk: even small drops in price could trigger liquidations
🎲 2. Speculative, Illiquid Tokens
- Bought obscure tokens early
- Marked them at full value on their books
- In reality: those coins couldn’t be sold without crashing the price
Owning 1M MysteryCoins doesn’t make you rich if no one wants them.
🔂 3. Used Customer Funds as Margin
- Bet using FTX users’ deposits
- Promised safety on one screen while gambling behind the curtain
🫣 Q2: What Did It Mean That Alameda’s Balance Sheet Was “Made of FTT”?
FTT = FTX’s own token, created and controlled by them.
- Alameda held billions in FTT
- Used it as collateral to borrow funds
- Told investors: “We’re solvent. Look at all this FTT!”
Problem?
- FTT was thinly traded and mostly locked up
- They couldn’t sell it for real value
- Their “wealth” was based on a self-made token with no external demand
Like claiming wealth in Monopoly money.
💣 Q3: Why Did Everyone Suddenly Withdraw?
It all unraveled fast:
- Alameda’s balance sheet leaked (via CoinDesk)
- Binance CEO (CZ) tweeted:
“We’re selling all our FTT. Risk management.”
- Investors panicked
- Massive withdrawals from FTX
- FTX froze withdrawals — and admitted it was insolvent
A cascade of fear triggered a complete collapse within days.
🔍 Q4: How Did the Leak Happen?
The leak came from CoinDesk. They published:
Alameda’s liabilities were massive, and its assets were mostly FTT.
Suspected source:
- Internal whistleblower
- Or an insider with access to private financials
The article shattered public trust and triggered the bank run.
🧠 TL;DR Table
| 🔥 Event | 💥 Why It Mattered |
|---|---|
| Alameda used customer funds | Violated ethical and legal boundaries |
| They traded high-risk assets | Exposed to massive losses |
| Held billions in self-issued token | Illusory wealth, no liquidity |
| Binance’s tweet + CoinDesk article | Triggered panic and withdrawals |
| FTX froze accounts | Proved insolvency and broke public trust |
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