What Leaders Can Learn From the FTX Crypto Exchange Disaster

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Failure can bring great learning experiences, depending on how you manage it. When a business collapses, it might be due to several factors. Understanding those factors and learning how to avoid them in the future is an excellent way of propelling a business forward. Lessons learned from failure can significantly impact a person’s leadership skills.

The recent FTX crypto exchange disaster has brought several lessons that many leaders can use to avoid future failures. FTX, once a $32 billion company, collapsed, leaving many investors devastated and disappointed. However, despite the many leadership lessons that its collapse has brought, leaders can also understand what made FTX rise.

Read on and learn what FTX leaders did well, what they failed to do that brought the disaster and what investors and clients should look at before making an investment decision.

What FTX leaders did well

FXT was established in 2019 by professional traders, including CEO Sam Bankman-Fried. Over a few years, the crypto exchange had become a worldwide behemoth providing various crypto services. Its success can be credited to the company’s leaders, who used their expertise to propel the exchange. Here is what the leaders did well:

Managed a disruptive platform for a new market:

FTX leaders were able to build solutions that enable anyone to move, store and manage their assets and wealth peer to peer. Before its collapse, FTX was one of the largest crypto exchanges in the world. Through the company’s management, FTX offered competitive trading fees and a fantastic selection of NFTs and stocks.

Though crypto is a new market that has faced many controversies, FTX leaders were able to attract the average investor onto their platform. FTX CEO Sam Bankman-Fried backstopped other crypto companies that were about to collapse and invested in several traditional stock markets. The company was known for its highly leveraged products, innovative derivatives contracts and token listings.

Convinced investors they were experts:

One of the most remarkable skills leaders have is persuading and encouraging others to take a specific action. Persuasion requires leadership credibility, which comes from relationships built and expertise. For a leader to establish expertise, they need to be informed about the ins and outs of what they are persuading others about.

FTX leaders convinced the investors and traders that they were experts and pioneers in the industry. They understood their audience and built a disruptive platform that suited their needs. The FTX CEO supported the crypto industry by bailing out struggling cryptocurrency companies and became known for his donations, which helped the company build its relationships.

Had charismatic leaders with compelling marketing messages:

Charismatic leaders are known for their persuasiveness, interpersonal connection, charm and ability to motivate others. They are more focused on building relationships and connecting with others at a deeper level, especially high-end organizations and other value investors.

FTX had charismatic leaders who used their creativity to develop compelling marketing messages. Their marketing strategies skyrocketed the company to billions in just three years. Their marketing messages were persuasive enough to convince ordinary traders to consider FTX as their crypto exchange. Its marketing campaign included:

What the leaders of FTX did NOT do well

In just three years after launching, FTX became one of the largest crypto exchanges after the leader’s aggressive marketing, purchasing naming rights, Super Bowl campaigns, political donations and lobbying. When other crypto companies struggled with declining token prices, FTX leaders facilitated bail-out deals amounting to over a billion dollars.

However, when the company started experiencing a liquidity crisis and plunging value, the leaders tried to reassure the investors of its stability, but its collapse happened within ten days.

The leadership of the crypto company would have averted the disaster by moderating fundamental business principles and building on the existing research and market outlook.

After the crisis, FTX leaders panicked and made poor decisions due to a combination of several factors that include:

Overconfidence:

In the face of a looming disaster, leaders must stay alert and consider how the prevailing unfavorable elements may go against their core objectives. Confidence makes you a strong leader and provides the critical perspective for a more extraordinary outlook.

However, when leaders become overconfident, it is a risky bias in the face of disaster. Many crypto leaders are often labeled overconfident, mainly due to the sudden rise in prices and market capitalization of the instruments. FTX leaders’ overconfidence caused them to reassure the investors of recovery without analyzing their risk appetite and exposure to failure.

Lack of experience:

An essential business leadership requirement is experience. The FTX leaders needed to implement the necessary systems to manage a business and investments of such magnitude. The leadership comprised inexperienced individuals with no previous business or management skills. Their inexperience with the management protocols of investor funds brought out leaders who needed more financial controls and oversight.

Failure to use effective technological systems:

In a world of rapid technological advancement, businesses must adopt the latest software development systems and products, like cloud services, to run core operations and hold client data.

FTX leaders should have incorporated technological systems that help run and safeguard investors’ data and funds. For instance, it was unfortunate that the leaders depended on QuickBooks to manage a multi-billion-dollar company.

What clients and investors should look at

Learning in every entrepreneurial setup is vital. Analyzing key lessons from failure is particularly essential in enhancing experience. When investing, clients, investors and other stakeholders should focus on understanding the management and risk exposure, including:

The CEO:

In every investment company, the CEO is a critical and core player in business advancement. While the FTX disaster may be traced back to leadership inexperience, a risk manager should possess the ability to bounce back and be resilient. It ensures they learn quickly from failure, put the pieces together and develop a recovery plan.

Corporate governance:

Years of extensive research and learning from failure build experienced leaders with shrewd business acumen. It helps corporate governance and shows leaders have learned from setbacks and understand the principles of building a recovery plan in a crisis.

The skills learned over the years help such leaders develop the necessary oversight to protect investors and customers.

Experience:

Top academic achievements may add to the essential skills needed in operating a business, but experience makes a leader stand out and excel even in a crisis. Clients and investors should focus more on the business managers’ expertise to better gauge their return on investments (ROI).

Focusing on this helps stakeholders understand what good and bad business challenges the leaders have worked through before entrusting them with their investments.

In the rapidly advancing business world, it is still being determined what the future holds for investors. As technology advances, it brings new ventures like blockchain and cryptocurrency. All stakeholders need to have a constantly renewed awareness of the benefits, risks, governance and recovery framework established in such setups. It should also include resilience, oversight, core management principles like experience and adoption of the latest financial technology, especially in software development, and an eagerness to learn and grow under expert guidance.

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