When you build an empire on funny money, it’s very easy for it to vanish overnight. That’s the simplest way to understand the implosion of former cryptocurrency giant FTX, which declared bankruptcy Friday. When November began, FTX controlled one of the world’s most valuable cryptocurrency exchanges, and its founder Sam Bankman-Fried’s stake in the company was supposedly worth around $16 billion. Today, Bankman-Fried is no longer CEO, his stake is worth roughly zero, and lots of FTX’s customers are wondering if they’re ever going to get their money back.

So what happened? On the most basic level, FTX fell prey to the equivalent of a bank run—its customers lost confidence in it, and got worried about the security of their assets, and raced to withdraw them. This was obviously very bad for FTX’s business, since the value of the company depends on people using its platform to trade. But FTX is an exchange, not a bank. So you might have thought it would have its customers’ assets on hand, and would have been able to give people back their money, and once it did that, it would be able to weather the storm.

You would have thought wrong, though. FTX, it turns out, had lent lots of money—including at least $4 billion in customer funds, according to Reuters—to a crypto trading firm called Alameda Research, which Bankman-Fried also owned. And Alameda, which has taken big losses as crypto prices have cratered in recent months, could not pay those loans back, at least not quickly. So when customers went to withdraw their assets, FTX didn’t have them. Thus, bankruptcy.

These were all bad, and possibly illegal, things, and in that sense, you could see FTX’s demise as just a classic financial scam, with the CEO of one company using customer funds to try to plug holes at another one he owned. But what makes the FTX story distinctive, and important, is that so much of the “money” involved here was money FTX basically invented, in the form of its own crypto token, FTT. A big chunk of FTX’s own capital consisted of FTT. And the loans it made to Alameda were largely collateralized by billions in FTT.

In other words, FTX was making billions in loans to Alameda, secured by its imaginary currency, so that Alameda could make speculative bets on other imaginary currencies. The value of the business, in that sense, was the product of what you might call a consensual hallucination. Everyone agreed to pretend that FTT was really worth a lot, and as long as they did, FTX could keep the balls in the air.

The problem was that once people stopped pretending, FTX’s empire was bound to collapse. And that happened last week, when, after a report in the press detailing the relationship between FTX and Alameda, Binance—one of FTX’s biggest competitors—announced that it would be dumping its entire stake of FTT, which sent the value of FTT plummeting more than 80% in two days.

That shrank the value of FTX, and since a big chunk of Alameda’s assets were in FTT, it also shrank the value of Alameda’s collateral and its ability to pay FTX back, which meant FTX’s finances got shakier, which made customers want to pull their money out of FTX and made them more leery of holding FTT, which made Alameda’s balance sheet worse, and so on. It was a quintessential financial death spiral, essentially started by Binance saying the emperor had no clothes. And it was accelerated by the fact that FTX (and Binance, for that matter) doesn’t publish audited financial reports, so FTX customers had no real idea what the firm’s balance sheet looked like.

To be sure, the health of all financial institutions depends on their reputation. But if your entire business can collapse in a matter of days because one of your competitors sells off its stake in your token, that obviously makes you wonder how solid your business was in the first place. FTX as an exchange was a real business (and will presumably emerge from bankruptcy intact). But the absurd valuations that were attached to it, which made Bankman-Fried a multi-billionaire, were largely built on fantasies about the worth of crypto assets.

Obviously, at this point crypto traders already know—or at least should know—that the value of their holdings depends on little more than the collective whims of the crypto crowd. What’s striking about FTX’s collapse is that it suggests that the same may be largely true of businesses that serve the crypto market: Most of their value depends on people acting as if a dream is real. Which works great, until everyone decides to wake up.