FTX Collapse: A Ponzi Story

FTX used to be the third-largest centralized exchange (CEX) in crypto space, managing over $10B in daily trading volume before its downfall. Such a giant, however, failed to avoid the fate of mania, panic, and crash. In this work, we revisit the FTX's crash by telling it as a Ponzi story. In regards to why FTX could not sustain this Ponzi game, we extract and demonstrate the three drivers of the FTX collapse, namely FTT, leverage, and diversion. The unfunctionality in each factor can iteratively magnify the impact of damages when the panic is triggered. Rooted in the unstable ground, FTX eventually suffered insolvency and rapidly crashed in Nov. 2022. The crisis of FTX is not an isolated event; it consequently results in the collapse of a chain of associated companies in the entire market. Recall this painful experience, we discuss possible paths for a way forward for both CeFi and DeFi implementations.