Updated Nov 12, 2022: Sam Bankman-Fried has officially resigned as CEO of FTX, FTX and Alameda Research have filed for bankruptcy.
Who is Sam Bankman-Fried?
Sam Bankman-Fried, also known as SBF by crypto users on Twitter, was born on March 6th, 1992, in Santa Clara County, California. He is the son of two Stanford Law professors, Barbara Fried and Joseph Bankman.
Building the Crypto Empire
In middle school, SBF once cried and said to his mother, "I'm so bored I'm gonna die." He has never liked school. In 2010, he decided between MIT and CalTech by flipping a coin. Then he went to MIT and lived at a coed group house known as Epsilon Theta (ET). They had a close-knit fraternity and some of them later became SBF’s collaborators in crypto.
Becoming Mother Teresa or the Wolf of Wall Street?
When SBF was 14 years old, he had been intensively reading about utilitarianism, whose idea is to maximize the total well-being of people in the world (and for some, animals as well). This philosophy has become the main focus of SBF’s work ever since. In the summer of 2013, SBF began working as an intern at Jane Street Capital, a proprietary trading firm trading international ETFs. After graduating, he returned there and became a full-time employee.
Though intrigued by the idea of working directly for an efficient altruism center to aid people, SBF chose the pathway called “earning to give”. As for him, depending on one's skills, becoming rich on Wall Street and generously donating money to Mother Teresa might be more efficient than trying to be Mother Teresa. And staying true to his philosophy, SBF donated half of his earnings during his time at Jane Street.
From Arbitrage to the Birth of Alameda Research
In 2017, though knew little about crypto, SBF realized the field had a huge potential upside. In November 2017, he founded Alameda Research on a simple idea: buy bitcoins cheap in the US, sell at high prices in Japan, wire the proceeds back to the US, and repeat.
But that was not so simple. SBF soon discovered that most major US banks did not deal with cryptocurrency exchanges. For example, Coinbase had daily withdrawal limits, which curbed the potential profit of an arbitrageur. Also, you needed to be a resident of Japan to conduct certain transactions with Japanese banks or crypto exchanges.
But Alameda Research dealt with these obstacles successfully and made around $20 million before bitcoin prices were the same in both the US and Japan in early 2018.
FTX - the One-Way Flight
Alameda Research did well for the next two years, but SBF and other traders became frustrated with some of the offshore exchanges they were trading on. In late 2018, he went to a conference in Macau, Hong Kong. At that time, Bitcoin Cash was undergoing a technology fork and split into two different successor coins – creating a challenge for exchanges in figuring out how to handle the existing futures contracts on the original coin.
Under this situation, SBF decided to stay in Hong Kong and established FTX in April 2019. “I just canceled my return flight, rented out a WeWork, and basically never left,” he said.
The launch of the new exchange caused controversy within Alameda. The company was profitable but extremely understaffed. Yet at the time, their best trader (SBF) and best engineer ( Gary Wang) came to Hong Kong to start a risky new project, with only a 20% chance of success. For the first year or so, however, Alameda played an important role at FTX. It is the main liquidity provider, accounting for half of the volume on the exchange.
The daily trading volume on FTX is currently in the $13 billion range. Meanwhile, Alameda, with about 20 employees, was making up to $1 million a day for most of the past year, based on just one of its trading strategies — Yield Farming.
Note: On November 10th, 2022, FTX Exchange announced it was unable to process user withdrawals and advised users against depositing into FTX exchange.
What Makes SBF Succeed?
Multitasking and the ability to make quick decisions
According to people who know SBF, multitasking ability is one of the factors helping him succeed.
"You'll often see SBF watching football on one screen, YouTube videos like Rihanna on another screen, replying to messages on a third screen, trading on a fourth screen, making phone calls on a fifth screen, all almost simultaneously," said Caroline Ellison, co-CEO of Alameda Research.
SBF gets bored easily. Normally, he would have to play video games while chatting with other people, even at the risk of disrespecting the other person, but he needs it to keep his mind busy.
Ellison, who also worked at Jane Street, said SBF enjoys intellectual challenges and soon mastered the art of making quick decisions under high pressure. Both Ellison and Trabucco (co-CEO Alameda) said he has the uncanny ability to identify opportunities and move faster than most traders.
Crazy working schedule
It wasn't until 2019 that SBF launched FTX, but its derivatives platform has risen from nowhere to sixth in spot trading and second in derivatives trading - right behind Binance - in just two years, according to CoinGecko.
Professional traders choose FTX for its many advantages, such as low transaction fees, supported lending products, trading tokenized stocks and futures, and trading across multiple sub-accounts with different levels of risk.
To build a competitive platform like this in such a short time, SBF had a crazy working schedule. He is famous for sleeping four hours a night on a beanbag at his desk and taking calls from clients and investors at 3 am.
Salame, who works at FTX, recalled an incident when SBF had been working for 30 hours straight and was just getting ready for bed when a client called. Looking at the man just lying down, Salame didn't have the heart to wake him up and rescheduled with the customer - much to the chagrin of SBF, who said: "You'll have to wake me up next time, there's no doubt about that."
High expectations of employees
The company is everything to SBF, but not all employees could keep up with him. Three former employees say they resigned because of exhaustion.
Noah Dummett, a former trader at FTX and Alameda said, "While working with SBF was incredibly inspiring, it was also exhausting. Everyone was expected to work towards a common goal, so everyone needed to manage their time and direction well and work towards that goal consistently. So if you choose to work at Alameda and FTX, it means you have little time for yourself and burnout is normal."
"It's the same thing every day: you go in, you read, you eat breakfast, you write code, you order while you work, you eat while you work, you go home," says a former software engineer who had worked at both FTX and Alameda. "Seven days a week."
FTX has very few employees compared to its competitors. For the first six months, FTX had only two software developers on its staff. Its trading platform and all its subsidiaries totaled between 10 and 25 staff members. Meanwhile, Binance currently has about 180 unfilled engineering positions. Coinbase also has about 120 unfilled engineering positions.
SBF believes that having a smaller team allows him to make quick decisions and push for new releases.
“Earning to give”
However, SBF has a higher burnout threshold than most people.
"When I feel exhausted, it usually means that I need to rest for a night or 10 hours to recover. But when I don't work for four days, I will start to feel irritable, always thinking about what happened to the work progress, eager to come back," said SBF.
SBF works very hard because he is truly motivated to give away his fortune and make a positive impact on the world. His mother, Barbara Fried, believes that his high risk-taking ability comes from the idea of the effective altruism he is pursuing.
"If you’re earning money for personal consumption, there is a very steep, declining marginal utility of income. After your fifth Porsche, do you really need a sixth?. . But if you’re earning money to give it away to charity, there’s no diminishing marginal utility to money," said his mother.
According to people close to SBF, aside from taking the occasional business-class flight, he has no interest in a luxurious life. In Hong Kong, he still shares a room with other people.
What does the future hold for SBF and FTX?
Currently, regulation is the biggest potential risk to investing in crypto. Over the past year, the U.S. Securities and Exchange Commission has prevented Coinbase from launching loan products, while financial regulators in the U.S., the European Union, and Asia have stepped up their crackdown on Binance.
FTX was the only trading platform that did not have negative regulatory news because of the many licenses FTX holds in various markets, as well as its communication and regulatory approach. But some in the industry say SBF's companies and the crypto ecosystem they operate are expanding far ahead of regulators.
In early December 2021, SBF was present at the congressional hearing about the future of digital assets and finances, although most of the hearing policymakers said that they would make perfect laws and regulations for the encryption industry, some people think that the rapid growth of the digital assets will pose a threat to financial stability, and expressed his concerns, such as using digital currencies to fund criminal activities.
"The crypto industry has the potential to improve people's lives," SBF countered at the hearing.
Sam Bankman-Fried vs. Mark Zuckerberg
Looking to FTX's future, several industry insiders drew comparisons between SBF and the Facebook founder, who built his empire in the era of Web 2.0. Mark Zuckerberg also faced tough questions about regulation from data privacy issues and the failure to tighten controls over misinformation posted on the platform.
Now, an era of encryption, decentralization, and virtualization seems to be on the way. We call it Web 3.0, and in this era, companies like FTX are at the forefront. The crypto space will face the same double-edged sword: increased regulation and widespread use will mean slower growth for companies operating in the crypto ecosystem.
"It will take some time for regulators and cryptocurrencies to learn to work together. And that will slow down the pace of progress compared to the crazy pace you're taking right now. But I think it's a necessary condition for it to be both conventional and to do things that ultimately make the world better and the economy more efficient," said Anthony Lee Zhang, an assistant professor of finance at the Booth School of Business at the University of Chicago.
But SBF is different from Zuckerberg. He is entering politics as one of President Biden's biggest donors in the 2020 campaign.
"In 10 years, I hope SBF will be one of the richest people in the world, addressing some of humanity's most critical issues. A career in politics wouldn't surprise me either; he’s well placed, with the right motivation behind him to make it happen," said Noah Dummett, a former trader at FTX.
"As long as he gets enough sleep and doesn't drop dead, I think he will remain very strong as an entrepreneur in the long run," concluded Edith Yeung, general partner at Race Capital.