What happened at FTX is straight-forward. FTX lent US$10bn of client funds to their trading arm Alameda, which used it for leveraged crypto speculation. Alameda blew up in crypto meltdown & can’t repay. Ppl got whiff of this & tried to pull US$5bn from FTX. FTX didn’t have it.
The founder Sequoia just “loved”, and was often lauded for his vision & generosity, misappropriated client funds to gamble them on crypto market, where he would keep all the gains for himself, but stick clients with the losses. This is about as greedy and unethical as one can be.
Like many in the crypto world, where delusions ran wild (ensnaring a surprising number of supposedly smart people in SV), SBF drank the crypto cool-aid and probably didn’t believe there was much risk to what he was doing, because, ya know, crypto was obviously going to go up…
In financial markets, there is a long history of market downturns exposing fraud, ponzi schemes, and other malfeasance. As Buffett has long said, you only get to see who has been swimming naked when the tide goes out. FTX is just another example.
The scale and brazen nature of this fraud/misappropriation of client funds, however, reflects (1) the total lack of regulatory oversight; and (2) the extreme amount of delusion, greed & investor naivety that infected the whole crypto space.