Definition: FTX exchange

(FuTures EXchange) A now-defunct cryptocurrency exchange headquartered in The Bahamas. FTX was global, and FTX.US served the American market. Founded in 2019 by Sam Bankman-Fried (widely known as "SBF") and Gary Wang, FTX gained prominence when it acquired the Miami Heat's basketball stadium in 2021, renaming it FTX Arena. Valued at more than $30 billion, both FTX and FTX.US were in the top 10 crypto exchanges in 2021, but things changed abruptly a year later. See major crypto exchanges.

Biggest Crypto Meltdown Ever
In November 2022, an article revealed that FTX was co-mingling customer funds with Alameda Research, a crypto hedge fund also run by SBF. Binance, the largest crypto exchange, began liquidating its FTT tokens, which represent FTX's equity, and the token's value dropped more than 90% in one week. After hearing the news, a liquidity crisis developed when FTX customers began withdrawing assets.

FTX had liquid assets of $900 million and liabilities of nearly $9 billion. To make matters worse, the site was hacked and some $400 million was stolen. Binance expressed interest in acquiring FTX but withdrew the offer very quickly. As many as a million people may have lost money.

As a result, FTX and Alameda filed for bankruptcy, and SBF resigned as CEO while claiming he was unaware of mishandling funds. By the end of the year, he was arrested in the Bahamas and extradited to the U.S. Co-founder Gary Wang, Alameda CEO Caroline Ellison and engineering head Nishad Singh pleaded guilty and testified against Bankman-Fried, who was given a 25-year prison sentence in March 2024. See Alameda Research and Voyager.

FTX Is Paying Its Creditors
As of 2024, FTX is in the midst of recovering as many of its assets as possible and claims creditors may be repaid in part or in full. The company has asked the bankruptcy court to approve a process that determines the debts owed, and customers are expected to be repaid in full. Stay tuned!

A Promo for Decentralization
Although a lot of reaction to this debacle was "I told you all crypto was a fraud," FTX is actually the classic case for using cryptocurrency in the first place, but only in its true "decentralized" architecture. Although blockchains are by nature decentralized, a centralized exchange (CeX) such as FTX has complete custody of the funds. The exchange has to be trusted without government regulation. Right after the FTX calamity, billions were withdrawn from other centralized exchanges such as Binance and Coinbase within days.

In contrast, when people use a decentralized exchange (DeX), they maintain access to their assets from their wallets (see crypto wallet). However, because people must take the step of backing up and securing their secret keys, plus the fact that crypto wallets often have a complicated user interface, many crypto investors prefer a centralized exchange (CeX). See crypto exchange, decentralized exchange and DeFi.

One of Many Books

The tale of FTX and Sam Bankman-Fried has been chronicled in several books. Worth 20 billion dollars one day and nothing the next, the FTX story is worthy of a thriller.