It’s a collapse that some have called crypto’s “Lehman moment.”
The bankruptcy of the crypto giant FTX and the resignation of its founder, Sam Bankman-Fried, has left customers in limbo and investors writing off what once looked like the next big thing in tech.
And it happened in a matter of days. But in the complex world of crypto, such a collapse can be hard to parse. Here’s the basics of what went down:
What is FTX?
FTX is a digital currency exchange, a platform where people could buy and sell digital assets like bitcoin, dogecoin and ether. Such platforms rose in popularity in recent years as more people looked to invest in cryptocurrencies without the hassle of dealing with the technical side of such transactions, such as setting up a crypto wallet.
How did it become so big?
The company, founded in 2019, quickly rose to international prominence through a series of high-profile acquisitions, aggressive marketing strategies and low trading fees. Competitor platforms include Kraken, Coinbase and Gemini.
Even those unfamiliar with the technology were lured to FTX with promises that they could park their money in accounts and earn much higher yields than at traditional banks.
Major venture capital groups also bought in, investing almost $2 billion in the company.
Sam Bankman-Fried, FTX’s 30-year-old founder, became the face of the company and, to some, crypto at large. Celebrity endorsements and major sports sponsorships made FTX hard to miss.
The first red flags
Not long after Bankman-Fried started FTX, crypto began to boom. The price of bitcoin, which had traded at around $10,000, shot up in 2021, peaking at more than $64,000. Venture capital money flooded into all things blockchain and crypto, and crypto platforms moved to attract customers beyond the technologists and blockchain evangelists that once fueled its rise.
The price of bitcoin, generally seen as an indicator of the broader crypto market, declined dramatically from its late 2021 heights. It now trades at around $16,000. Other crypto and token values followed suit.
The broader crypto industry decline had already forced many major platforms to shut down, but FTX seemed immune, even buying up some of its struggling competitors.
But things began to change earlier this month, when the balance sheet of a crypto investing firm that was also owned by Bankman-Fried, Alameda Research, was published by CoinDesk, a crypto-focused digital media website.
It showed that Alameda held a large amount of a digital currency created by FTX called FTT. And though that FTT held a certain market value, if the price were to drop, Alameda would be at risk of insolvency.
What is FTT?
FTT is a digital token created by FTX that is similar to cryptocurrencies like bitcoin. Many crypto platforms now create their own tokens as a way to encourage people to use their services by offering perks associated with their tokens. As such, tokens can act like stock in the platform.
These digital tokens use blockchain technology, in which computers contribute to a shared ledger that can be used to track digital assets. The first blockchain project, bitcoin, relies on many computers competing against one another to create a distributed system that no one computer can control.
But not all blockchains, cryptocurrencies or tokens work the same way, and many are no longer distributed as bitcoin. Tokens on a blockchain can be created by a single entity, as was the case with FTT, which was minted by FTX and given out as rewards to users. FTT was also less transparent than other tokens, making it hard to track just how many tokens had been created. People could buy and sell FTT, but trading was relatively limited. Other platforms also held the token.
A virtual bank run
After Alameda’s balance sheet was leaked, Changpeng “CZ’’ Zhao, CEO of the crypto platform Binance, a rival of FTX, announced on Nov. 6 that his company would sell off all its FTT tokens. The price of FTT dropped sharply.
As the price dropped, many FTX customers moved to withdraw their assets from the platform. Though the extent of the connections between Alameda and FTX were not yet public, a series of recent crypto platform collapses had already put the crypto community on edge.
Those withdrawals would end up resembling a classic bank run, in which people worried about a bank’s solvency rush to get their money out before it runs out of cash. Billions of dollars poured out of the platform.
On Nov. 8, FTX stopped allowing customers to take money out of the platform.
An unbalanced balance sheet
What was not yet public was the extent of the connections between Alameda and FTX, or just how bad things had gotten for Bankman-Fried’s companies.
Those connections began to become clearer in the days following FTX’s move to stop withdrawals, as would its financial challenges. Media organizations including Bloomberg, the Financial Times, The Wall Street Journal and others cited anonymous sources saying that FTX needed $8 billion to cover the gap between what it owed and what it could pay out. NBC News has not verified those reports, and Bankman-Fried said in an interview Monday with a Vox journalist over Twitter DM that he needed to raise $8 billion in the next two weeks to make things right with account holders.
TIMELINE
MAY 2019
Bankman-Fried and former Google employee Gary Wang found FTX as a new platform to trade crypto tokens and derivatives.
OCTOBER 2021
FTX raises $420 million in venture funding, valuing the company at $25 billion. Bankman-Fried debuts
, opens new tab on the Forbes billionaires list, which estimates his net worth at $22.5 billion. The magazine’s assessment of his wealth would rise to $26 billion by the end of the year.
FEBRUARY 2022
The NFL Super Bowl’s broadcast is heavy on cryptocurrency advertisements, signifying the height of the craze for the booming asset class. FTX’s “Don’t Miss Out” spot features actor Larry David, whose skepticism about the platform is portrayed as akin to an early human doubting the importance of the wheel.
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JUNE-JULY 2022
Bankman-Fried emerges as the cryptocurrency sector’s so-called “white knight” amid a collapse in the prices of Bitcoin and other digital assets. Alameda gives crypto lender Voyager Digital a $200 million credit facility, and FTX gives lender BlockFi a $250 million loan.
NOV. 2, 2022
Crypto news website CoinDesk publishes a leaked Alameda Research balance sheet showing that much of its $14.6 billion in assets is held in FTX’s own token, called FTT. The token subsequently sheds around $400 million of its market cap, and rival exchange Binance says it will sell its FTT holdings.
NOV. 8, 2022
After FTX sees $6 billion in customer withdrawals in three days, Binance boss Changpeng Zhao says the company has signed a nonbinding agreement to buy FTX’s non-U.S. unit. Binance scraps the deal the next day.
NOV. 11, 2022
FTX files for U.S. bankruptcy protection, and Bankman-Fried resigns as its chief executive officer.
NOV. 16, 2022
David and other FTX celebrity promoters, including NFL quarterback Tom Brady, are sued over claims they engaged in deceptive practices. The celebrities have said the suit should be dismissed, arguing they did not cause FTX investors’ losses.
DEC. 12, 2022
Bankman-Fried is arrested in the Bahamas, where he lives and where FTX is based. The U.S. Attorney’s office in Manhattan later confirms that a federal grand jury has indicted him for fraud and conspiracy charges.
DEC. 21, 2022
Bankman-Fried leaves the Bahamas after agreeing to be extradited to the United States. While he is in the air, prosecutors reveal that Wang and Alameda chief executive Caroline Ellison have pleaded guilty and agreed to cooperate with prosecutors.
DEC. 22, 2022
Bankman-Fried makes an initial appearance in Manhattan federal court and is released to home detention at his parents’ home in Palo Alto, California, on $250 million bond.
JAN. 3-12, 2023
Bankman-Fried pleads not guilty and U.S. District Judge Lewis Kaplan schedules his trial for October. In a post-arrest blog post, Bankman-Fried denies stealing funds and blames FTX’s collapse on a broader downturn in crypto markets.
FEB. 28, 2023
Nishad Singh, the former director of engineering at FTX, adds to the pressure on Bankman-Fried by becoming the third former member of his inner circle to plead guilty to fraud charges and agreeing to cooperate with prosecutors.
AUG. 11, 2023
Kaplan revokes Bankman-Fried’s bail after finding probable cause to believe he tampered with witnesses at least twice, including by sharing Ellison’s private writings with a New York Times reporter. Bankman-Fried is remanded to Brooklyn’s Metropolitan Detention Center pending trial.
OCT. 3, 2023
Trial begins in Manhattan federal court.
OCT. 28, 2023
Bankman-Fried testifies in his own defense, saying a “lot of people got hurt” when FTX collapsed but insisting he did not defraud anyone or steal billions of dollars from customers.
NOV. 2, 2023
Bankman-Fried is convicted of all seven charges he faced.