FTX Insolvency and Centralized Exchange Risk

Code: NT-118
Tags: #exchanges #risk #ftx
Language: en

Situation Report

Alameda balance sheet leaks triggered mass withdrawals from FTX, which paused redemptions and filed for bankruptcy within days. Client assets were commingled, and on-chain traces showed frantic attempts to plug holes.

Architecture Notes

FTX’s hot wallet structure routed through a small number of multisig addresses, making the outflows easy to monitor. After the collapse, “proof of reserves” Merkle tree designs gained traction across competing exchanges.

Anatomy of the FTX run

Balance sheet leaks Alameda exposure revealed

Mass withdrawals Clients race for the exit

Redemptions paused

Bankruptcy filed Within days

Proof-of-reserves push Merkle tree designs gain traction

Sequence as described in the field notes above

Operational Impact

Market makers pulled liquidity, pushing spreads wider across all centralized venues. DeFi protocols tightened counterparty lists, and OTC desks increased collateral haircuts for exchange-linked borrowers.

Forward Watch

We tracked adoption of real-time attestations, segregation of client assets, and regulatory pushes for exchange registration or qualified custodian requirements.

Full Note

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