Decoding the FTX Collapse: What Network Analysis Reveals About Crypto Vulnerabilities

Beau Callahan in Business & Economy December 2025 • 4 min read.

"Dive into how network analysis uncovers hidden vulnerabilities in the cryptocurrency market following the FTX bankruptcy, and what it means for the future of DeFi."

The cryptocurrency market, once hailed as a revolutionary force in finance, has faced increasing scrutiny following high-profile collapses. Among these, the FTX bankruptcy stands out as a pivotal event, exposing vulnerabilities within the digital asset ecosystem. Understanding the dynamics that led to this collapse is crucial for investors, regulators, and anyone involved in decentralized finance (DeFi).

Traditional financial analysis often falls short when examining the interconnectedness of cryptocurrencies. A more effective approach is network analysis, which maps the relationships between various digital assets to reveal hidden vulnerabilities and systemic risks. This method allows us to see how information flows and how the failure of one entity can trigger a cascade of repercussions.

This article explores a recent study that applied network analysis to the FTX collapse, shedding light on the structural dynamics of the cryptocurrency market. By examining vertex centrality measures, the research identifies key players and vulnerabilities, offering valuable insights for risk assessment and crisis management in the DeFi space.

Unveiling the FTX Network: How Centrality Measures Trace the Crisis

Collapsing Bitcoin skyscraper symbolizing the FTX collapse and cryptocurrency vulnerabilities.

The study, titled "Information Flow in the FTX Bankruptcy: A Network Approach," employs network analysis to dissect the cryptocurrency network surrounding the FTX exchange during the collapse of its native token, FTT. Researchers Riccardo De Blasis, Luca Galati, Rosanna Grassi, and Giorgio Rizzini used proprietary data on transactional relationships to construct a filtered correlation matrix. This matrix highlights the most significant connections in the FTX and Binance markets.

Vertex centrality measures—closeness and information centrality—are used to assess network stability during FTX's bankruptcy. These measures help identify the most influential nodes in the network and how they facilitate or impede information flow. By tracking changes in centrality values before and during the crisis, the study provides a dynamic view of the cryptocurrency market's structural shifts.

Centrality Measures: Trace network structure dynamics during the FTX crisis.
Network Metrics: Reveal cryptocurrencies' vulnerabilities to systemic shocks.
Altcoins: Highlight the rising centrality of more sophisticated altcoins over popular cryptocurrencies.
Network Analysis: Emphasizes the importance of network analysis for risk assessment and crisis management in DeFi.

The study leverages a dataset of 195 cryptocurrencies traded on FTX and 324 on Binance, focusing on minute-by-minute logarithmic returns. This high-frequency data enables a detailed analysis of price dynamics and volatility. The researchers constructed two networks: one preceding the FTT collapse and one during the collapse period, allowing for a comparative analysis of the market's structural changes.

Lessons Learned: Building a More Resilient Crypto Ecosystem

The FTX collapse serves as a stark reminder of the vulnerabilities inherent in the cryptocurrency market. The study by De Blasis et al. underscores the importance of network analysis in understanding these vulnerabilities and building a more resilient DeFi ecosystem. By identifying key players, assessing information flow, and monitoring structural changes, investors and regulators can better navigate the complexities of the crypto world.

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This article is based on research published under:

DOI-LINK: https://doi.org/10.48550/arXiv.2407.12683,

Title: Information Flow In The Ftx Bankruptcy: A Network Approach

Subject: q-fin.tr econ.gn q-fin.ec

Authors: Riccardo De Blasis, Luca Galati, Rosanna Grassi, Giorgio Rizzini

Published: 17-07-2024

Everything You Need To Know

What is the main benefit of using network analysis when examining the FTX collapse?

Network analysis offers a more effective approach than traditional financial analysis by mapping the relationships between digital assets. It reveals hidden vulnerabilities and systemic risks within the cryptocurrency market. By using this method, analysts can see how information flows and how the failure of one entity, such as FTX, can trigger a cascade of repercussions throughout the system. This is crucial for understanding the full impact of events like the FTX bankruptcy and its effects on decentralized finance (DeFi).

How did the study by De Blasis et al. use vertex centrality measures to analyze the FTX collapse?

The study utilized vertex centrality measures, specifically closeness and information centrality, to assess network stability during the FTX bankruptcy. These measures helped identify the most influential nodes within the cryptocurrency network and how they influenced information flow. By tracking changes in these centrality values before and during the crisis, the researchers could gain a dynamic view of the market's structural shifts. This approach allowed them to pinpoint key players and vulnerabilities related to the collapse of the native token, FTT.

What role did altcoins play in the network analysis of the FTX collapse, and what did the analysis reveal?

The network analysis highlighted the rising centrality of more sophisticated altcoins over popular cryptocurrencies. This finding suggests a shift in the cryptocurrency market's dynamics, where certain altcoins might have played a more significant role in the events surrounding the FTX collapse. The study's observations indicate that these altcoins could have influenced the flow of information and potentially amplified the effects of the crisis within the DeFi space.

What data did the researchers use to construct the networks for their analysis of the FTX collapse?

The researchers used a dataset of 195 cryptocurrencies traded on FTX and 324 on Binance. They focused on minute-by-minute logarithmic returns to perform a detailed analysis of price dynamics and volatility. The data allowed them to construct two separate networks: one preceding the FTT collapse and one during the collapse period. This approach enabled a comparative analysis, revealing the market's structural changes and identifying vulnerabilities.

How can the insights from the FTX network analysis contribute to building a more resilient crypto ecosystem?

The FTX collapse underscores the vulnerabilities inherent in the cryptocurrency market. The study by De Blasis et al. emphasizes the importance of network analysis in understanding these vulnerabilities. By identifying key players, assessing information flow, and monitoring structural changes, investors and regulators can better navigate the complexities of the crypto world. This approach supports risk assessment and crisis management in the DeFi space, leading to a more resilient and robust crypto ecosystem. It allows for proactive measures to mitigate risks and prevent future collapses.