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- The Billion-Dollar Trap 90% People Don't Know After The FTX Collapse
The Billion-Dollar Trap 90% People Don't Know After The FTX Collapse
Inside the legal machinery that turned the FTX collapse into a billion-dollar fee extraction.
Eugene Le
January 09, 2026
TL;DR BOX
The FTX collapse was not just a trading failure, but a rapid confidence shock followed by a bankruptcy process that permanently erased user upside. In less than ten days, revelations about self-issued collateral triggered a bank run, forced a bankruptcy filing, and ended any chance of an organic recovery. Once FTX bankruptcy was filed, control, timing, and outcomes were no longer determined by markets or users, but by courts and restructuring professionals.
Sam Bankman-Fried argues FTX was illiquid, not insolvent, with assets exceeding liabilities but trapped in long-term investments. Bankruptcy froze those assets at market lows through the USD snapshot rule, converting temporary drawdowns into permanent losses. Crypto claims became dollar claims, major holdings like Solana were sold near the bottom, and future upside flowed to institutional buyers and legal stakeholders instead of customers.
Key points
Fact: Bitcoin claims were locked near $17,000 at the bankruptcy snapshot.
Mistake: Assuming bankruptcy protects investors from poor timing.
Action: Liquidity crises become permanent losses once legal snapshots apply.
Critical insight
In real markets, bankruptcy doesnāt just resolve failure. It decides who owns time, and time is where most value lives.
Table of Contents
š§Ø The 10-Day Brought Down the FTX Empire
On November 2, 2022, CoinDesk revealed that Alameda Research was holding a huge portion of its balance sheet in self-issued FTT tokens. That instantly raised one question: How real is collateral if you printed it yourself?
Once that information was public, confidence cracked fast and trust disappeared, the structure above it started to shake.
Changpeng Zhao then announced that Binance would liquidate its entire FTT position, roughly $580 million. Within just 72 hours, users requested more than $6 billion in withdrawals from FTX. Liquidity dried up almost instantly.
Behind the scenes, FTX tried to buy time. A non-binding letter of intent suggested Binance might step in as a buyer. For a brief moment, the market believed a rescue was possible.
That hope lasted less than 24 hours.
After a short due diligence process, Binance walked away. What they found was not just a liquidity problem, but deep financial gaps and serious legal risks. Taking over FTX meant inheriting a mess that could not be contained.
On November 11, 2022, the collapse became official. FTX filed for bankruptcy, and Sam Bankman-Fried resigned.
What followed wasnāt just a market collapse, but the beginning of one of the most complex and controversial FTX bankruptcy cases in financial history.
ā ļø Enter āThe Body Collectorā - John J. Ray III Takes Control
Once Sam Bankman-Fried (SBF) stepped aside, the narrative around FTX shifted instantly. It was no longer treated as a failed exchange, but as a corporate crime scene that needed to be locked down and dismantled.
Thatās when John J. Ray III took over. Known for cleaning up irrecoverable disasters like Enron, Rayās role was clear from the start. This was not about saving FTX.
In his first filings, Ray called FTX the worst governance failure of his 40-year career. Missing records, no accounting, and commingled funds across entities framed the collapse as chaos, not mismanagement.
By declaring FTX irredeemable, Ray justified sweeping authority over assets and decisions, centralizing power under new management.
Sam Bankman strongly disagreed, and he argued the language was strategic, designed to eliminate alternatives to bankruptcy and strip all remaining influence from founders, employees, and customers.
Whether Ray revealed the truth or cemented power depends on perspective. Whatās clear is that once he arrived, FTX stopped being about recovery. It became a liquidation, and that decision reshaped who benefited from the collapse.
š£ļø Sam Bankman-Friedās Defense: āI Was Never Bankruptā
From the moment Sam Bankman-Fried stepped down, he rejected one the accusation. He admitted mistakes and chaos, but denied that FTX was insolvent.
His argument was straightforward that FTX wasnāt broke, it was illiquid. The company had more assets than liabilities, but those assets couldnāt be sold fast enough to survive a sudden bank run.
At the time, SBF claimed combined assets across FTX and Alameda were around $25 billion, while liabilities were closer to $13 billion. It was a surplus, not a deficit.
However, the issue was timing.
Much of the value sat in illiquid positions like Anthropic $ANTHROPIC ( 0.0% ) , large Solana $SOL ( ā¼ 2.49% ) holdings, and equity tied to Robinhood $HOOD ( ā¼ 0.1% ) . Selling them quickly meant accepting extreme discounts.
SBF argued bankruptcy locked in the worst possible valuation. Instead of waiting for recovery, assets were frozen at cycle lows, turning a liquidity crunch into permanent losses.
Had FTX avoided bankruptcy, he believes those assets could have reached $136 billion by 2025, enough to repay customers in full with upside remaining.
Whether thatās realism or fantasy is still debated. Whatās clear is that once bankruptcy was filed, that future stopped mattering. The snapshot became final, and every upside scenario disappeared.
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šø The Dollarization Trap
One of the most overlooked mechanics of the FTX bankruptcy was the USD snapshot rule, which froze all assets and valuations at the worst possible moment.
Bitcoin $BTC ( ā¼ 0.71% ) claims were locked around $17,000, converted into USD instead of paid in-kind. When prices later recovered into 2025, clients captured none of that upside. It disappeared the moment the snapshot was taken.
This is what critics call the dollarization trap. Crypto assets were treated as distressed inventory, not long-term positions. Time and recovery potential were legally removed from the equation.
The clearest example was Solana $SOL ( ā¼ 2.49% ) . Large SOL holdings from the FTX estate were sold near $64, when sentiment was at its worst. Not long after, SOL traded above $200, reigniting debate over forced timing.
To critics, these assets werenāt worthless, just illiquid. Rushed sales turned temporary drawdowns into permanent losses, while transferring upside to buyers like Galaxy Digital.
Sam Bankman-Fried claims this impatience erased over $100 billion in potential client value. The exact number is debatable. What isnāt is that once assets were liquidated, the recovery no longer belonged to users.
š§ The āLegal Coupā Theory
After the collapse, the FTX bankruptcy marked the real transfer of power, shifting control from founders and users to lawyers and court-appointed managers.
His main target is Sullivan & Cromwell.
The firm had advised FTX before the collapse and is accused of pushing SBF to sign bankruptcy papers during peak panic. According to SBF, that decision permanently stripped him of control while alternatives still existed.
After the filing, Sullivan & Cromwell became lead bankruptcy counsel. From that role, the firm reportedly collected close to $1 billion in legal fees, paid from the remaining assets of FTX customers. To critics, this looked like a conflict of interest baked into the process.
The core question is: Was FTX destroyed solely by SBFās recklessness or did bankruptcy turn a wounded company into a legal feeding ground where value flowed to professionals instead of users.
That question remains unresolved, and the FTX bankruptcy continues to divide opinion over who truly benefited from the collapse.
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ā” Key Takeaways
The collapse happened fast because confidence vanished, not because the numbers changed. Once trust broke, withdrawals exploded, and the system couldnāt survive the pressure.
When John J. Ray III took over, FTX stopped being treated as a company in trouble. It became a crime scene to be dismantled, not a business to be repaired.
Sam Bankman-Fried insisted FTX wasnāt insolvent, only stuck with assets it couldnāt sell quickly. His view was that bankruptcy froze everything at the bottom and erased future recovery.
The dollarization rule locked crypto at its worst prices. Clients lost all upside as assets were sold cheaply while the market later bounced.
Legal teams gained massive control once bankruptcy started. That shift created a debate about whether the process protected users or enriched lawyers instead.
The FTX story is still unfinished. The final judgment on who caused the most damage depends on whose version of the truth you believe.
ā This newsletter is for informational purposes only and should not be considered investment advice. Traders should conduct thorough research, understand the risks, and carefully evaluate their decisions before investing in cryptocurrency.
If youāre interested in other topics and want to stay ahead of how Crypto is reshaping the markets, from whale strategies to the next major altcoin narrative, you can explore more of our deep-dive articles here:
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