Crypto and Digital Money

On 2 November 2022 the crypto news site CoinDesk published a leaked balance sheet of Alameda Research, the trading firm owned by Sam Bankman-Fried, showing that much of its roughly $14.6 billion of assets consisted of FTT, a token issued by Bankman-Fried's exchange, FTX, and other FTX-linked tokens. Four days later Changpeng Zhao said Binance would sell the FTT it had received when it exited its stake in FTX. Customers withdrew about $6 billion from FTX in 72 hours (reported). FTX could not pay them. Binance agreed to rescue it and then withdrew, and on 11 November FTX, Alameda and about 130 affiliates filed for Chapter 11 in Delaware.

FTX had raised about $2 billion from blue-chip investors at a peak valuation of about $32 billion in January 2022 and had spent heavily on stadium names, a Super Bowl advertisement and political donations to become the "responsible" face of crypto in Washington. At Bankman-Fried's trial his colleagues testified to how the business really worked. Alameda had an "allow negative" flag that let it withdraw more than it held, an exemption from the automatic liquidation that applied to every other customer, and a line of credit that grew to $65 billion in the code. Customers' dollar deposits sent to Alameda's bank accounts were recorded in an internal account as a liability that reached about $8 billion. Bankman-Fried was convicted on all seven counts on 2 November 2023 and sentenced to 25 years; the Second Circuit upheld the conviction on 12 June 2026. This chapter explains the businesses of digital money, why crypto's failures look like the oldest failures in banking, and what the first federal stablecoin law changes.