The FTX Saga: How One of The World’s Largest Crypto Exchange collapsed?

Nagaya Technologies
7 min readJan 2, 2023

Whether you have been a Crypto Enthusiast that has hung around since the inception of Bitcoin or just a newbie willing to know about the decentralized world, chances are you might have heard of FTX. FTX, which at its peak was the third–largest exchange in the world with over a million users, now finds itself struggling to meet its obligations and on the brink of bankruptcy. So how did one of the world’s biggest exchanges collapse? And what are its impacts heading into 2023?

The FTX Saga: How it Happened?

The Collapse season is back on for Crypto Firms that didn’t have proper risk management in place and this time it struck one of the biggest firms in the space. FTX, a company that a few months ago deemed “too big to fail” and was bailing out other companies such as BlockFI and Voyager Digital, now found itself in the same fate as those firms. So how did the poster boy of the crypto space create another “Lehman Brothers” event?


FTX’s origins and downfall was tied closely to its sister company Alameda Research which was founded by Sam Bankman Fried in 2017. Sam who previously worked with Jane Street Capital saw an opportunity in trading Bitcoins which are cheaper in the USA than selling them in Japan for a higher price. He will then use the profits from these trades to set up Alameda Research. Alameda Research in its early days operated as a hedge fund doing arbitrage trading for Bitcoin which gathered significant profits during the Crypto Boom.

Sam owned 90% of Alameda Research but Caroline Ellison was elected CEO of the company, with the rest of the team composed of Sam’s old college mate at MIT. Sam then Co–founded FTX as the World’s first Crypto Derivative exchange in 2019 alongside Gary Wang to provide a more sophisticated investment instrument to traders. FTX is incorporated in Antigua and Barbuda in September 2020 it moved all of its operations to the Bahamas. FTX will also then set up a separate entity called FTX.US that caters specifically to US Customers.

6 Months into FTX’s journey, Changpeng Zhao the CEO of Binance would be the first to invest in Sam’s vision as he bought a 20% stake at $100 Million and this was the beginning cascade of investments that would come to FTX. It raised a further $900 Million from Major Investors such as Softbank, Sequoia Capital, and Tiger Global and was worth close to $32 Billion as of January 2022. Sam would repay CZ’s favor by buying the stock of Finance worth $2 Billion partially paid in its native token FTT.

FTX was growing at a massive rate throughout its 3-year journey with a daily trading volume reaching more than $10 Billion and generating revenue of over $1 Billion. It also began to associate with high-profile sports teams sponsoring the likes of Mercedes — AMG F1 Petronas Team and the multi-million dollar naming rights of the Miami Heat basketball stadium, the FTX Arena. It is also heavily sponsored by athletes like Tom Brady, Naomi Osaka, and Larry David just to name a few it also became a sponsor of the World Economic Forum so clearly, FTX was the name in everyone’s mind.

Sam Bankman Fried or ‘SBF’ for short also became the youngest Crypto Billionaire at the age of 30 while also referred to as the “Next Warren Buffett” by Forbes. With all this rise, Sam also began to position his company Alameda Research as the white knight in the crypto space in 2022 acquiring Voyager Digital and BlockFI which was on the verge of Bankruptcy. Unfortunately, some of these acquisitions come at huge losses which is a bad move when considering the sentiments, the crypto space is in and while everything seems great on the surface for FTX, it is about to get worse as the bear market continues.

The links between FTX and Alameda Research start to prop up as more severe than what the people expected and this is where the true problem lies. In the early days of Alameda Research, users were offered 15% returns on their investments without any downside and if we have learned what happened to Terra Luna, this is a huge problem. These funds were then used for its trading and acquisition activities to which most of which resulted in losses. This was further compounded as in the early days of FTX, deposits of wire transfers were made through Alameda Research and were then credited digitally to the FTX accounts but the money was kept by Alameda. Analysts estimated the losses at a figure of $8 Billion and this was alarming for a company that is still growing.

These losses were partially due to the market conditions but more towards the team in Alameda Research which lacks the experience and risk management to do risky bets with Customer Funds. Due to the huge losses, FTX had to loan Alameda a bailout of $4.1 Billion that was in the form of the FTT Tokens. It was also reported that FTX lent over half of its customer funds of $10 Billion to prop up Alameda without the consent of its customers. FTX would also obtain loans from other parties to fund its projects and acquisitions with its FTT Token as collateral.

Now offering loans with a risky asset such as cryptocurrency as collateral would be a great move in 2021 when the value of cryptocurrency is flying, but that soon becomes a bad idea as 2022 comes along. We have seen so far in 2022 that investors are wary of risky assets as the interest rates are climbing and this affects many crypto firms that have most of their equity tied up in cryptocurrencies.

With faltering prices of cryptocurrencies and negative memories from the Luna and Celcius collapse still fresh in people’s minds, any small concerns could create a cascade of panic selling in the market. This is exactly what happened when Coindesk released its article on November 2nd that details how the majority of FTX and Alameda liquidity are tied up on its native token FTT while the same token was used as collateral for risky assets. This then becomes a perfect response for Binance to step in and possibly eliminate its competition with its $2 Billion FTT holdings.

Binance is currently the biggest Crypto Exchange and a tweet from Changpeng Zhao on November 6th was enough to trigger a massive exit from FTX. Binance in its series of tweets announced that it was willing to liquidate all of its holdings in FTX which then stimulated other FTX users to do the same as withdrawals amounted to $6 Billion within 72 Hours. While a tweet from Sam clarifying that all assets are fine in FTX was still not enough to stop the FTT Token from losing 80% of its value.

FTX initially turned to Binance for solutions but its due diligence process led Binance to pull out of the deal of acquiring FTX and on November 11th, SBF announced his resignation from FTX and Alameda. Both companies also froze withdrawals as the company struggled to meet their $9 Billion obligations and filed for Chapter 11 Bankruptcy. A couple of days later, BlockFI also faced the same fate as it also froze withdrawals and filed for Bankruptcy.

FTX backers Softbank Group, Tiger Global Management, Sequoia Capital, and Ontario Teacher Pension Plan Fund had to also write off their massive losses as their investments seem irrecoverable at this point while John J Ray has been drafted to handle the proceedings for liquidation of the company. As of the current moment, Sam Bankman Fried the former CEO of FTX has been extradited to the USA and awaiting trial for the charges pressed against him.

So What’s Next for Crypto Space?

The Crash of FTX reminds us of the 2008 financial crash when the economy was booming and institutions started to take riskier decisions on the assumption that the world would continue to roll that way. The cryptocurrency was at the peak of its potential in 2021 as everybody seems to set up new crypto firms with various financial instruments that hedge on the bet that Bitcoin will reach $50k or $100k. These crypto firms are ready to reap the rewards but never prepare themselves for the worst.

Terra Luna, Celsius, and now FTX are on the long list of Crypto Firms that have failed to prepare themselves for the worst and therefore caused more than $100 Billion in damages that seem to be irrecoverable. In the end, this will now eradicate the little bit of trust that people still have left in this space, and will take a while before this will be recovered.

Tighter regulations should also be enforced on the crypto firms’ equity and whether they have enough liquidity at all times to meet their obligations should things turn sour. Liquidity in terms of real assets should be the main priority for any Crypto Firm as the volatile nature of cryptocurrency will not hold up, especially in a bear market.


All in all Benjamin Graham put it best when he said “In the Short Run, the Market is a Voting Machine but In the Long Run, a Market is a Weighing Machine.” What does this mean? The bear market we are currently experiencing could be a blessing in disguise as it weeds out the weak and propels the strong companies that have great risk management structures that will lead the Crypto Space for years to come.

We from Nagaya Technologies Pte. Ltd is quite shocked by what happened to the crypto space and hopes there is a lesson that could be learned by all of us from this incident. We understand in the development of Nagaya the importance of the risk factor which is why we decided to back up each coin with gold to maintain the stability of its value while still allowing it to grow over the long run. This hybrid concept of cryptocurrency is the first of its kind in the space and I hope that it could deliver massive sustainable value to all of you. For more information regarding the latest updates on Nagaya and our whitepaper, you can visit us at

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NAGAYA (NGY) is a Gold-Backed Cryptocurrency with Subsidiary Projects. We aim to build Trust and Value through LEGALITY and TRANSPARENCY.