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Alameda’s main way of making money was pretty straightforward: she bought Bitcoin and other cryptocurrencies in one part of the world and sold them in another, pocketing the difference. She used “leverage” – or borrowed money – to fuel her trades and generate greater returns.

Eventually, as more savvy investors like hedge funds piled in, such deals became less lucrative for Alameda. However, with the price of bitcoin and other cryptocurrencies on the rise — and expected to continue to do so — Alameda has had no problem paying back its dollar or cryptocurrency loans.

But Mr. Bankman-Fred came up with an idea: why not build a cryptocurrency exchange that could generate revenue to help fund Alameda’s activities?

FTX was born. I moved from Hong Kong to the Bahamas, where Mr. Bankman-Fred built his base of operations, and started the stock exchange. In financial presentations to investors, the company claimed in 2021 that it was generating $1 billion in annual revenue by charging customers who wanted to trade cryptocurrencies on its platform.

The relationship between FTX and Alameda centered on a token created by FTX — called FTT — that clients of the exchange could use to trade their crypto assets. Alameda served as the primary market maker for the token, buying and selling the majority of FTT. FTT was popular with stock exchange investors, who were enticed by the business discounts it offered, and Alameda began using its holdings as collateral for more loans to facilitate its business activities.

The problems compounded this spring when the cryptocurrency market started to take a swing. The slump in cryptocurrency prices drove down the value of FTT, and Alameda struggled to pay its lenders.

Now the relationship between Alameda and FTX – and how they supported each other – is under scrutiny as prosecutors and regulators investigate the exchange’s collapse.