FTX Collapses Overnight: $32 Billion Exchange Had $8 Billion Customer Fund Shortfall
What happened
FTX, one of the world's largest cryptocurrency exchanges, collapsed within 72 hours in November 2022 after CoinDesk reported that sister trading firm Alameda Research held most of its balance sheet in FTX's own FTT token. A bank run revealed an $8 billion shortfall in customer funds that had allegedly been used by Alameda for trading. Founder Sam Bankman-Fried was convicted of fraud.[1]
What went wrong
Customer funds deposited on FTX were allegedly transferred to Alameda Research and used for speculative trading and investments — a fundamental breach of customer trust and likely fraud. FTX had no functioning risk management, audit committee, or financial controls commensurate with its scale.[1]
Lesson learned
Customer funds in financial intermediaries must be segregated and cannot be used for proprietary trading. In the absence of regulation, crypto exchanges were operating with none of the controls that protect customers in traditional finance. Rapid growth does not substitute for financial governance.