Sam Bankman-Fried did financial system a favor
reuters.com
reuters.com
Now in crypto (and finance in general) users tend to leave their assets with the exchange and trade between different assets over time.
The temptation for the centralized exchange becomes - well our users aren't gonna come claim their assets all at once, so let's make their trading notional and put the customer asset to work for our own interest. If someone wants a withdrawal we'll figure out how to make it happen.
Now this is how a bank can offer a savings account but also underwrite mortgage, business and auto loans using the savers capital. Thru numerous failures the traditional financial system has been regulated to a point where banks usually don't blow up too badly (they totally still do though.)
FTX ramped up putting users money to work to insane levels. At some point user funds were used to bail out a margin call that Alameda Research (Sam bankman fried's other company - a hedge fund) faced. At this point both companies became zombies and once a balance sheet leaked to the press, the crypto community realized their money was long gone.
At least in the normal exchanges that I'm familiar with, traders post collateral with brokers who then present it to the exchange. The assets themselves are held with depositories and trades are settled by clearing houses. Crypto exchanges subsume the roles of what should be independent entities. When temptation strikes, this makes misappropriation much easier.
Specifically through laws that say entities that hold customers money in certain ways can't arbitrarily then use that money to speculate on risky investments. Namely because they can cause huge losses (especially via bubbles that burst) leaving the customers SOL.
Who exactly is regulating that assumption?