Post FTX collapse reflections on Crypto

on Tuesday, November 15, 2022

In this episode of our Making Sense of Crypto & Web3 series, we explore the recent dramatic events that have shaken the crypto industry - namely the collapse of Terra Luna, Celsius and Voyager, Three Arrows Capital and FTX. What happened, what went wrong, and what we can learn?


On November 11th 2022, crypto giant FTX collapsed into bankruptcy. In this episode, Stephen Diehl and Rufus Pollock dig into what happened and why. They look back on the past 6 months in the crypto industry, examining other prominent crashes and their contagion effects.

Stephen and Rufus look at what remains of the crypto industry. What learnings can we take from the past 6 months? What’s next to fall?

Full notes


  • We are continuing our in depth exploration of crypto and web3.
  • Web3 has become a massive phenomenon with very bold claims made about its potential impact; claims that go far beyond classic technology boosterism (better, faster) to claims for radical transformation (and improvement) of our economic and social systems.
  • At the same time, there is an exceptional lack of agreement about these claims, even on basic points and definitions. Overall this is an exceptionally controversial and polarizing topic with strong pro & anti camps. For example within tech it is one of the most controversial topics we have ever seen. Significantly, disagreement cuts across classic ideological lines.
  • This series is about helping make sense of what is going on and to evaluate key claims.

May - November 2022 in the crypto industry

  • The last six months in the crypto industry has validated why common sense regulation exists. What we’ve been seeing in the crypto markers is effectively a reversion to exactly the same catastrophes that occurred in the 19th century.
  • Our letter to Congress seems remarkably prescient.

Terra-Luna collapse and its contagion effects

  • Unsustainability of financial perpetual motion machines.
  • Terra was predicated on economic absurdities and a cult of personality around its leader.
  • The founder is being hunted by INTERPOL.

Celsius and Voyager

  • Platforms promised retail investors unbelievably high yields and were acting as quasi-bank like institutions and trading deposits against highly volatile assets that collapsed.
  • Companies filed for bankruptcy. CEOs resigned.

Three Arrows Capital

  • Hedge funds leveraged to the hilt, and built on unsustainable strategies predicated purely on “number go up” forever.
  • When numbers went down it was all a house of cards.
  • Founders fled Singapore because of an extradition treaty with the United States, headed to Dubai to escape prosecution.


  • An “exchange” with an in-house prop trading firm, it is a blatant conflict of interest.
  • There was no segregation of customer funds. The founders were effectively embezzling customer money to their own personal hedge fund. This is extremely illegal in regulated markets.
  • The company had an absurd amount of red flags 🚩
  • The founders are being probed by the SEC and DOJ. They will probably face extradition back to the United States to stand trial.
  • The company was literally run by 20 somethings custodying some alleged $719 billion in transactions, while skimming off through rigged market making and insider trading.
  • So many red flags, and yet the financial press and largest VC funds in the world treated this as just another financial institution.

What now?

What’s next to fall?

  • BlockFi
  • Binance
  • Coinbase

What can we learn from this?

  • Are we doomed to repeat the same mistakes over and over?
  • What is it about crypto that causes otherwise rational people to abandon common sense and rational thought?


  1. Cox, Theo, and Eilidh Ross. ‘Crypto: Can These Financial Perpetual Motion Machines Work?’ Accessed 15 November 2022.
  2. ‘Crypto Policy Symposium’. Accessed 15 November 2022.
  3. Financial Times. ‘FTX Balance Sheet, Revealed’, 12 November 2022.
  4. Jung-a, Song. ‘South Korean Prosecutors Ask Interpol to Issue Red Notice for Do Kwon’. Financial Times, 19 September 2022.
  5. ‘Letter in Support of Responsible Fintech Policy’. Accessed 15 November 2022.
  6. Levine, Matt. ‘FTX’s Balance Sheet Was Bad’. Bloomberg.Com, 14 November 2022.
  7. ‘Market Fundamentalism’. Accessed 15 November 2022.
  8. Ostroff, Dave Michaels, Elaine Yu and Caitlin. ‘WSJ News Exclusive | Alameda, FTX Executives Are Said to Have Known FTX Was Using Customer Funds’. Wall Street Journal, 12 November 2022, sec. Markets.
  9. SBF [@SBF_FTX]. ‘1) Hi All: Today, I Filed FTX, FTX US, and Alameda for Voluntary Chapter 11 Proceedings in the US.’ Tweet. Twitter, 11 November 2022.


Coming soon