Lessons from 2023: the FTX trial and crisis management for crypto projects

Few events have stirred as much attention as the Sam Bankman-Fried trial. As allegations of fraud and money laundering surface within FTX’s affiliated Alameda Research, the crypto community is reminded of the need for robust crisis management. Crypto projects operate in a perfect storm of volatility, regulation, hacks, and technical complexity. Any misstep can snowball into an existential crisis in an instant. 

Crises in crypto aren’t limited to legal battles. The threats are multifaceted, from unauthorized data access and technical code vulnerabilities to malicious hacks. Add to that the ever-changing regulatory environment, and projects find themselves navigating a maze of potential pitfalls​.

And the proof is the data. In 2023, $1.89 billion was lost due to 297 crypto hack attacks. This translates to a loss of $289K every hour. Last year, hackers stole crypto worth $3.8 billion, making it the worst year on record per Chainalysis.

This guide outlines the five critical steps your crypto project must take to crisis-proof itself—from assembling your response team to analyzing threats and managing communications. With the right plan, your next crisis doesn’t have to become a death spiral.

When a crisis hits, you need the right people in place to respond quickly and effectively. Start by designating a crisis lead based on the situation. For legal issues, your general counsel may take points. Empower your CTO or head of engineering to take charge of technical crises.

Next, alert your communications team. Their role will be drafting statements, liaising with the media, and managing public perception. Identify a company spokesperson—ideally, your CEO or another senior leader.

Finally, inform key advocates and loyal community members. Their organic support on social media will be invaluable if the crisis goes public. Having trusted voices to counter FUD is vital for reputation management.

With your response team in place, rapidly analyze the situation at hand. Gauge the severity—how bad is it now, and could it worsen? Legal threats may worsen over time, while technical glitches cause immediate damage.

Determine if the crisis is publicly known. If so, you’ll need to respond swiftly with an official statement. If not, assess the likelihood of leaks or revelations. Scenario planning will help containment.

Understand how and why the crisis occurred. Was it internal, like a code bug? Or external, like a lawsuit? Either way, learn from any missteps to avoid repeat disasters.

If the crisis is public, draft a simple holding statement to share across owned channels. Reassure your community that:

1. You are aware of the situation.
2. You are addressing it actively.
3. You will provide timely updates.

In January 2022, when Crypto.com was hacked for $34 million in Bitcoin and Ethereum, their tweet response was:

Inform your advocates and give them guidance on responding. Their organic voices will shape the public narrative.

Once your statement is prepared, distribute it across social media, Medium, Discord, or wherever your community resides.

Engage advocates to voice support and confidence in your response. A chorus of validators increases trust and calms concerns.

Consider outreach to a friendly, trusted reporter who can share news of the crisis in a balanced way. Don’t stay silent and cede control of the narrative.

After extinguishing the immediate fire, examine how the crisis response was handled. What worked, and what can be improved? Compile lessons learned.

Consider a public breakdown of events via a Medium post-mortem. Transparency into missteps shows sincerity and accountability.

Analyze the root cause so a repeat can be prevented. Update policies, procedures, and communication plans accordingly.

To understand effective crisis management in action, let’s examine two recent crypto cases—the MakerDAO protocol failure and the BlockFi data breach.

In March 2020, a flaw in MakerDAO’s system led to a protocol failure, resulting in $8 million in lost funds for investors. Maker acknowledged awareness of pending legal action but did not comment publicly. However, they did post a transparent breakdown of events on their blog. They also directed affected users to their forum for discussion and support.

This quick acknowledgment and redirection to their owned channels allowed Maker to control the narrative. While the system failure caused massive damage, their response limited reputational loss.

By contrast, when BlockFi suffered a data breach in March 2022 exposing client information, they failed to communicate proactively. Despite the hack making news quickly, BlockFi remained silent on social media. They did not engage advocates or friendly press. Four days after the event, BlockFi finally published a generic blog on cybersecurity.