How The History Of Bank Runs Helps Us Understand The FTX Fiasco And Other 2022 Crypto Exchange Failures

Like many people who work in financial services, I’ve been fielding lots of questions from friends and family about the seemingly overnight implosion of crypto exchange FTX. To those who do not work in the financial services industry, it is hard to fathom how a crypto exchange that at one point was worth $32 billion could go bankrupt in approximately five business days.

To wrap your head around last year’s wave of crypto exchange failures, it’s useful to reflect on the history of banking crises and bank runs. The history shows both how this FTX calamity happened and how decentralized finance (known as DeFi for short) differs from the current FTX situation.