Who is SBF - from mansions and yachts to silver bracelets and iron bars in five years
Sam Bankman-Fried, or SBF as commonly known, was born in March 1992. He is the founder and former CEO of Alameda and FTX. With $14.6 billion in assets, Alameda emerged as one of the largest hedge funds in the crypto space. Similarly, FTX, the second-largest centralized crypto exchange (CEX), experienced staggering daily trading volumes, reaching up to $20 billion.
In just five years since establishing Alameda in 2017, Sam climbed to the top 60 of the Forbes Billionaires list. His wealth soared to $26.5 billion in 2022. However, this meteoric rise was swiftly followed by a dramatic fall. In November 2022, SBF's fortunes took a sharp turn as he filed for bankruptcy for Alameda Research, FTX, and more than 130 affiliated entities. That same day, his name vanished from the Bloomberg Billionaires Index, and his net worth plummeted from $15.6 billion to $1 billion.
This article chronicles SBF's early experiences, the accumulation and subsequent collapse of his wealth, and sheds light on the underlying reasons for this unforeseen downfall.
Early Years of SBF and Effective Altruism
Sam's parents are professors at Stanford Law School, and he graduated from MIT with a physics major and a mathematics minor. Even from a young age, Sam demonstrated a natural aptitude for mathematics. He often complained about the uninspiring of his school curriculum. So he was sent to math summer camps each year. During his university years, Sam spent much time among a group called Epsilon Theta, a "nerd club" on campus, where he and his friends bonded over various activities, such as playing League of Legends (LOL). Gary Wang, Sam's college friend and co-founder of FTX, mentioned that Sam particularly enjoyed games that required quick thinking and had time limits.
Growing up in a utilitarian family, Sam embraced the principles of utilitarianism from an early age. However, during his sophomore year, he encountered the concept of "Effective Altruism" online, which Sam deems as a transformative moment in his life. Effective Altruism advocates for "earning to give," encouraging individuals to do charity in the most effective way possible. For instance, rather than working directly for a charity organization, Effective Altruism suggests people find a high-paying job while donating more money to help more people. This ideology heavily influenced Sam's life choices. For example, during his junior year, he faced a dilemma between working at an Effective Altruism center or pursuing a lucrative career on Wall Street. Ultimately, he opted for the latter and interned at Jane Street, a quantitative firm, where he dedicated three years of his life after graduation. Furthermore, Sam generously donated over half of his earnings from Jane Street to charitable organizations.
However, after SBF's bankruptcy, several notable figures and media outlets, including Dustin Moskovitz (Facebook founder) and Vitalik Buterin, criticized Effective Altruism. They voiced concerns that this ideology placed excessive emphasis on outcomes and potentially led individuals (e.g., SBF) astray, focusing solely on generating wealth for donation purposes without considering the ethical implications of their financial pursuits.
The 29-Year-Old Billionaire
Sam's passion for mathematics ran deep. He often turned to Excel to create spreadsheets whenever he encountered a problem. He once calculated to determine the wealth he would need to accumulate over his lifetime. This led him to forego the six-figure salary job at Jane Street because it could not satisfy his ambitious goals.
While browsing the CoinMarketCap website, Sam stumbled upon a fascinating revelation: the price discrepancy for the same cryptocurrency across different markets could reach 60%. This discovery ignited his curiosity, despite his lack of experience in the field. Intrigued, he contacted his friend, Gary Wang, who had made considerable money through his own Bitcoin arbitrage trading bot in college.
"There was a huge demand, huge volatility, huge inflows, huge price appreciation, huge amounts of attention and interest—and the infrastructure wasn't there." - Sam.
In 2017, Sam and Gary founded Alameda Research. They leveraged the price disparities of Bitcoin across various markets for arbitrage purposes, swiftly amassing a net profit of $20 million in just three weeks. According to Alameda's 2019 whitepaper, the company quickly emerged as the leading liquidity provider and market maker in the crypto market within its first year of operation. The daily trading volumes ranged from $600 million to $1 billion.
Throughout his trading journey at Alameda, Sam encountered numerous challenges arising from regulatory systems, exchange rules, and varying attitudes of banks towards cryptocurrencies in different countries. As a result, Sam decided to establish his own exchange. In April 2019, FTX (short for Futures Exchange) was registered and founded. FTX started as a derivatives exchange, offering cryptocurrency-related options, futures, and perpetual trading. These limitations ultimately led him to build a crypto exchange by himself.
Since its inception, FTX has experienced exceptional growth. As per CFTC disclosures, FTX held approximately $15 billion in assets in 2021, with daily trading volumes of $16 billion, representing 10% of the global cryptocurrency trading volume. FTX's daily trading volume surpassed $20 billion during its peak.
FTX's valuation soared to unprecedented heights as well. In July 2021, FTX concluded a Series B funding round, raising $900 million, making it the largest funding round in the crypto market. This elevated FTX's valuation to $18 billion, 15 times higher than its valuation from just a year prior. By October of the same year, FTX secured additional funds with a valuation of $25 billion. In 2022, FTX underwent a Series C funding round, raising $400 million and propelling its valuation to a remarkable $32 billion. At this point, FTX was positioned as the second-largest cryptocurrency exchange in the industry.
As the primary shareholder of both FTX and Alameda, SBF's assets reached approximately $26.5 billion in August 2022. His wealth allocation consisted of FTX equity accounting for around $16 billion (60%), FTX US equity representing approximately $4.2 billion (15.9%), FTT comprising around $4.5 billion (17.3%), and the remaining portion consisting of SOL and SRM. Meanwhile, Alameda's managed funds amounted to approximately $37.6 billion, with SBF's share amounting to $8.6 billion (22.9%).
Having achieved prominence, Sam Bankman-Fried expanded his influence across various domains. He actively engaged in US politics, making notable contributions. In the 2020 US election, he emerged as one of Joe Biden's prominent supporters by donating $5.2 million to two committees supporting his campaign. In 2022, Sam became the second-largest donor to the Democratic Party, generously contributing $39.8 million. Moreover, in May 2022, he pledged to invest at least $100 million (up to one billion) in the 2024 US election. However, he later retracted this commitment in October of the same year.
Sam established the FTX Foundation in February 2021, a non-profit organization funded by FTX, demonstrating his commitment to philanthropy. Additionally, in February of the following year, he created the Future Fund, a charitable fund under the umbrella of the FTX Foundation. As of November 2022, the FTX Foundation had already donated approximately $19 million. Furthermore, in June 2022, SBF joined the ranks of signatories to the Giving Pledge, a commitment to donate at least 50% of his wealth. Other notable signatories include renowned billionaires such as Warren Buffett and Bill Gates.
In addition to his philanthropic endeavors, Sam has shown a keen interest in the world of sports. FTX made an acquisition in 2021 by securing the naming rights for the NBA Miami HEAT's arena for $135 million. The arena was subsequently renamed the FTX Arena. Moreover, FTX has sponsored various sporting events and athletes, including partnerships with MLB and renowned athletes such as Tom Brady, Steph Curry, and Naomi Osaka.
Before the collapse of FTX, SBF was portrayed by the media, or perhaps even by himself, as a pragmatic industry disruptor, an unconventional billionaire, and a genius with a philanthropic heart. He was depicted with his trademark kinky hair, dressed modestly, with untied shoelaces, and slept 4 hours a day, among other quirks. Sam built industry giants like Alameda and FTX within a remarkably short span of time and displayed acts of generosity during bear markets, earning him the moniker of "Crypto Savior." During times of market downturn, SBF extended a helping hand to struggling companies such as BlockFi and Voyager Digital. He even launched FTX Ventures, a $2 billion venture capital fund. When people asked SBF how to maintain high liquidity in a bear market, he said: store a lot of cash, keep management fees low, avoid borrowing ... ...
However, no one could have anticipated that this seemingly perfect dream would come crashing down with a single touch.
The Collapse of the SBF Empire
On November 2, 2022, CoinDesk published a report claiming to have obtained a financial document from Alameda. According to the document, approximately 40% of Alameda's assets were tied up in FTT, FTX's native exchange token. The total value of Alameda's assets was reported to be $14.6 billion. Of this amount, $3.66 billion was listed as "unlocked FTT," $2.16 billion as FTT collateral, and an additional $3.37 billion in other cryptocurrencies, including a significant holding of SOL. However, the report also revealed that out of Alameda's $8 billion liabilities, $7.4 billion comprised FTT. The report indicated that Alameda's financial structure relied heavily on FTT, raising concerns about a potential bubble created by the zero-cost issuance of FTX's native token.
On November 6, 2022, CZ, the founder of Binance, announced on Twitter that he had decided to liquidate all his FTT holdings, amounting to approximately $530 million. This news triggered a sharp decline in the price of FTT, resulting in a significant outflow of capital from FTX. On the same day, Caroline Ellison, the CEO of Alameda, responded by stating that CoinDesk's financial report only represented a portion of Alameda's assets and that they held over $10 billion in assets not reflected in the report. She also expressed willingness to repurchase CZ's FTT at $22.
On November 7, SBF published a post asserting that FTX was in good standing and that their assets were secure ("FTX is fine. Assets are fine." ). However, the following day, CZ announced that, at the request of SBF, they had signed a non-binding LOI for FTX's acquisition. Two days later, CZ rescinded this decision and implied that FTX had misappropriated customer funds. Finally, on November 11, 2022, Sam Bankman-Fried filed for bankruptcy protection for Alameda Research, FTX, and over 130 affiliated entities.
Savior or Fraudster?
Nobody foresees the collapse of SBF and his companies. Why? Because SBF had made numerous public statements asserting the profitability of FTX and Alameda. For instance, in an interview with Forbes, he stated that Alameda's profit in 2020 reached $1 billion, while in a CNBC report, FTX said its 2021 net income was 388 million.
However, the reality turned out to be different. According to an investigation by the CFTC, Alameda incurred a loss of $3.7 billion from its establishment in 2017 until 2021. (PS: This is wildly unexpected considering that 2021 was a successful year for the market, with Bitcoin experiencing a 60% price increase and the industry performing well.) Regarding FTX's bankruptcy filing, it had only $900 million in liquid assets the day before its bankruptcy, while its liabilities amounted to a staggering $9 billion. This financial discrepancy raises questions about how a company that was once the largest market maker and the second-largest cryptocurrency exchange could be in such a dire situation.
Symbiotic Relationship between Alameda and FTX
FTX and Alameda had maintained a closely intertwined symbiotic relationship since the beginning of FTX's existence. When FTX initially launched, Alameda played a weary market maker, supplying much-needed liquidity to the fledgling exchange. Even as FTX expanded and flourished, Alameda continued to hold the title of the largest market maker on the platform.
Moreover, Alameda enjoyed certain undisclosed privileges within the FTX platform. Firstly, while VIP users on FTX had access to a dedicated API for swift trading, Alameda's "fast lane" surpassed even that of the VIP users, granting them a significant advantage as market makers. Secondly, Alameda's accounts were immune to liquidation and were allowed to engage in negative asset trading on FTX. This meant that Alameda could trade an asset even without possessing it. Additionally, without the customers' knowledge, Alameda could divert FTX's customer funds for its leveraged and speculative trading activities. According to the CFTC investigation, FTX initially did not segregate customer funds in a separate bank account; instead, all customer cash deposits were stored in a company's (called North Dimension) account, a wholly-owned subsidiary of Alameda. Furthermore, FTX's system enabled Alameda to borrow funds from the platform without collateral limitations, granting them unrestricted access to FTX's customer funds.
Although it may have seemed on the surface that Sam had stepped down as the CEO of Alameda in October 2021, it was merely a facade aimed at creating the illusion of relative independence between the two entities. Sam retained sole and ultimate control over FTX, Alameda, and their subsidiary entities throughout the period.
Market Manipulation of FTT
As mentioned earlier, a significant portion of Alameda's asset portfolio comprised FTT tokens. However, investigations revealed that Alameda never actually paid for the FTT tokens it held. Just two days before the launch of FTT in July 2019, approximately 5 million FTT tokens were transferred to Alameda's address, constituting 25% of the circulating supply at that time. Curiously enough, these tokens were returned to their source a week later.
To add to the intrigue, it was discovered that out of the FTT tokens designated for FTX's seed round and private placements, a significant portion, namely 46% or 27 million FTT tokens, were allocated to Alameda. Furthermore, all the FTT tokens held by the company and some unsold non-company tokens were stored in a wallet address subject to a three-year lock-up period, with Alameda serving as the sole beneficiary of this arrangement.
According to Nansen's on-chain statistics, Alameda and FTX collectively control over 90% of the total FTT supply, with FTX alone commanding over 80% of FTT's circulation. This level of control implies that Alameda and FTX possess the ability to manipulate the market value of FTT at their discretion. During the bull market of 2021, the price of FTT skyrocketed by approximately 800 times, surging from $0.1 (seed round price) to $84. However, given that most FTTs are held by these two institutions, selling their FTT holdings for cash would prove challenging. Consequently, they resorted to an alternative strategy—borrowing.
Complex Borrowing Relationships and Excessive Leverage
Despite SBF's previous emphasis on maintaining significant cash reserves and avoiding borrowing, it turns out that he didn't shy away from borrowing. According to FTX's bankruptcy filing, SBF borrowed $1 billion from Alameda. But that's not all. Alameda also borrowed money from FTX, from centralized companies. The core members and subsidiaries (including FTX.US) borrowed from Alameda. This intricate web of borrowing relationships ultimately became an overwhelming burden that led to the downfall of Alameda and FTX. According to the documents, when filing for bankruptcy, Alameda owed FTX $9.3 billion, while $8.7 billion in customer funds held by FTX went missing. However, the actual amount borrowed by Alameda from FTX may be even higher. The CFTC investigation revealed that Alameda borrowed $8 billion from FTX through a particular account called "fiat@ftx." As this account's registration was not directly linked to Alameda, this debt was not recorded on Alameda's official accounts. During the operation, Alameda and FTX maintained a close and intricate relationship of trading and borrowing, with Alameda utilizing FTX's customer funds for its trades, operations, investments, and more.
The CFTC investigation further unveiled that SBF, his parents, and other company executives borrowed significant amounts from Alameda for personal use, including personal expenses, real estate purchases, and political donations. In addition to the $1 billion borrowed by SBF, other FTX employees, such as Nishad Singh (Head of Engineering) borrowed $2.3 billion, and Ryan Salame (Head of FTX Digital Markets) borrowed $55 million.
Simultaneously, Alameda used its FTT holdings as collateral for substantial loans from third-party centralized lending platforms. These loans were also extensively utilized by Alameda for its own operations, lending, and venture investments. However, the primary lenders for Alameda, such as Voyager and BlockFi, subsequently faced bankruptcy following Alameda's collapse.
Following the collapses in 2022, including Terra, Three Arrows Capital, and Celsius, the market descended into chaos. As prices plummeted, centralized lending platforms began demanding additional collateral or repayment of loans from borrowers, leaving Alameda indebted to multiple platforms. With insufficient liquidity to repay the loans, SBF instructed Alameda to utilize FTX's customer funds as much as possible to cover the shortfall. Nansen's statistics reveal that in early June 2022, Alameda received a substantial influx of FTT from various institutions. For example, Genesis sent approximately $1.4 billion worth of FTT to Alameda in June, demonstrating the extensive recall of Alameda's debt.
Despite liquidity problems, SBF continued to convey to the outside world that everything was fine with Alameda and FTX during this bear market period. Moreover, he shamelessly used customer funds for investments, sponsorships, political donations, personal expenses, and more.
Extravagant and Lavish Lifestyle
Although SBF's public image of his casual attire, unconventional hairstyle, and humble living arrangements (driving a Toyota and living in a shared apartment with roommates), his lifestyle has nothing to do with simplicity. While SBF downplayed the idea of owning a yacht in an interview with Bloomberg, he owns a luxurious yacht worth millions. But that's just the tip of the iceberg - SBF spent $30 million on a penthouse in the Bahamas, where he and other executives resided.
Not only does SBF indulge in a lavish lifestyle, but he also knows how to treat those around him. As reported by Fox Business, SBF frequents a high-end tavern in the Bahamas, where he spends thousands of dollars on a single meal. FTX even covers the cost of employee meals, which can accumulate significantly. Furthermore, within two years, FTX, its executives, and SBF's parents purchased a staggering 19 properties in the Bahamas, amounting to a jaw-dropping $120 million in expenses. And let's not even delve into the substantial sums SBF has spent to bolster his social influence - we've already touched upon that topic extensively in the preceding paragraphs.
Fragile Company Control and Information Recording
After FTX's bankruptcy, the company was overtaken by renowned expert John J. Ray III, who specialized in recovering funds from failed corporations. As someone who had previously been involved in the restructuring of Enron (the largest financial fraud case in the United States), John described SBF's companies as "Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here." He further characterized the FTX team as "a tiny group of inexperienced, unsophisticated, and potentially compromised individuals."
The management systems and organizational structure of both FTX and Alameda were deemed failures. A select few, particularly SBF, held absolute authority, and employees who proposed improvements to company management could face the risk of salary reductions or even termination. Furthermore, FTX and Alameda intended to operate independently, shared office space and resources, and even allowed their management personnel to access each other's systems and accounts.
FTX, despite its large workforce with hundreds of employees, needed proper financial department and internal auditing. Non-professionals maintained financial records using inadequate software such as QuickBooks, Google Docs, Excel, and similar tools. Information management within the company was chaotic across various aspects, including critical financial reports, essential documents, bank and trading accounts, and more. Disclosures from liquidation personnel revealed that thousands of deposit checks were stored haphazardly, resembling a disorganized mess. Internal expenses involving millions of dollars were submitted through Slack (a chat app) and approved with emojis. Some fund transfers were undocumented, and employees could borrow money from the company without any records.
Additionally, as mentioned earlier, the misuse of client assets and granting privileges to Alameda occurred within the company, further contributing to the deteriorating situation.
The Last Word
SBF's early life undeniably followed a remarkable trajectory, going from being hailed as a prodigious talent to being reviled as a fraudster within a few years. His ascent was fueled by genuine talent and captivating narratives, while his downfall was attributed to his arrogance and disregard for risks. The ones most affected by his actions were the individual users who invested their life savings into FTX and the employees who believed in the company (often holding company shares). The true motivations driving SBF's actions, whether solely focused on personal wealth or driven by philanthropic aspirations, remain uncertain. Notably, despite his substantial income, his charitable contributions have been negligible in recent years. While promises were made, there is no way to confirm their validity.
On December 12, 2022, Bankman-Fried was arrested in the Bahamas on charges that included wire fraud, securities fraud, money laundering, and related conspiracy charges. The once-lauded crypto genius and youngest billionaire fell.
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