Exchange and Institutional Failures Following FTX
The collapse of FTX in November 2022 triggered a significant "ripple effect" across the cryptocurrency industry, leading to several subsequent failures and liquidity crises among centralized exchanges and lending platforms
1.
Following the FTX bankruptcy, several prominent entities faced immediate insolvency or operational halts due to their exposure to the FTX Group:
- BlockFi: The lending platform faced renewed financial distress shortly after the FTX crash due to its significant exposure to Alameda Research and a previously established line of credit from FTX US 1.
- Genesis Global Trading: The lending arm of this crypto investment bank temporarily suspended redemptions and new loan originations in the wake of the collapse 2.
- Gemini: Following the suspension at Genesis, Gemini was forced to pause withdrawals for its interest-bearing Earn accounts, as Genesis served as the primary lending partner for that program 2.
Market Contagion and Liquidity Crises
The failure of FTX, which was the third-largest exchange by perpetuals trading volume at the time, created a massive liquidity vacuum
34. This led to several broader market impacts:
- Bank Runs: The period following the collapse saw record-setting asset withdrawals from top crypto exchanges as investors feared further contagion 5.
- Institutional Insolvencies: The downfall of the FTX Group (which included Alameda Research) affected numerous projects with funding relationships and institutions with lending relationships, contributing to cascading insolvencies throughout 2022 1.
- Asset Devaluation: Tokens closely associated with the FTX ecosystem, such as FTT and SRM, saw their values drop precipitously, which further weakened the balance sheets of other firms holding these assets as collateral 61.
Shift in Market Dynamics
While some entities failed, the collapse led to a redistribution of market share and a change in user behavior:
- Binance emerged as a primary beneficiary, capturing approximately 9.6% more market share in perpetual trading—nearly the entire share previously held by FTX 3.
- OKX also saw a modest increase in market share, rising by 2.4% 3.
- Self-Custody and DeFi: There was a massive migration of assets away from centralized exchanges toward self-custody solutions and decentralized finance (DeFi) protocols like Uniswap, as trust in centralized entities deteriorated 32.