SBF/Alameda’s initial strategy was arbitraging price differences between US and Korea/Japan. The different crypto exchanges in different countries would have different prices for the same coin.
In theory this was possible but in practice it was basically impossible. They lost money in Korea due to capital controls, they made some money in Japan but still lost money overall due to the enormous amounts they had to borrow and the high interest rates they were paying.
The arbitrage strategy wasn’t working so they switched to shilling shitcoins. Basically they would create a new token backed by say $5m seed money, put like 1% of the total number of tokens created on the market, then use their own money to pump up the token price by 100x.
Since they owned and controlled 99% of the total amount of tokens, this was easy to do. Now their initial $5m is worth $500m, but only on paper because liquidity on these tokens is tiny and if they actually tried to sell it would immediately crash.
Alameda did this in order to get loans using the tokens that they created and pumped as collateral. Then they took the borrowed money to make large directional bets on crypto prices. However it turned out they were bad at trading crypto and took billions in losses and the margin calls started coming in for their loans.
At this point Alameda was stuck, the collateral backing these loans were all shitcoins and if they started selling them the price would crash causing the entire company to go under.
Since SBF couldn’t meet the margin calls by liquidating the underlying collateral, he and the other founders decided to steal money from customer accounts at FTX to meet the margin calls.
Basically they would give Alameda their own FTX token(FTT) and then have FTX loan customer funds to Alameda using the tokens they just gave them as “collateral”.
It was essentially the same scam as the one they pulled on lenders, only now they’re doing it to customers while promising they would never touch customer funds.
Alameda kept losing money and eventually the scheme was discovered and it ended up being they stole something like 2/3 of the customer funds at FTX.
Current estimates are at about $10 billion they lost gambling on crypto with customer money. It was a classic case of a gambler kept doubling down and borrowing and stealing until it came crashing down.
This isn’t a Ponzi scheme though, they weren’t paying old customers with funds from new customers. This is just plain old theft, fraud, gambling, and being really bad at trading crypto.