From $26.5 Billion to $1: How Sam Bankman-Fried Conquered the Crypto World and Lost Everything
He has been called a technological genius, a crypto prodigy, and a billionaire altruist. We tell why the story of one of the brightest representatives of the crypto industry turned into a failure and how he was able to lose his entire fortune in just a few days
The billionaire, the “golden boy” of the crypto industry, the owner of the successful FTX exchange - all this until recently referred to Sam Bankman-Fried, famous enough to get by with the initials SBF.
But in November, his position changed dramatically : he left the post of CEO of FTX and began bankruptcy proceedings (along with Alameda Research and 130 other partner companies), and his fortune was destroyed after the fall in the value of FTX’s business to $1. Only his initials became even more recognizable.
Before the FTX crash wiped out much of Bankman-Fried’s fortune, he was one of the richest men in the digital asset industry. Forbes estimates that his net worth peaked at $26.5 billion amid an institutional wave of cryptocurrency adoption.
We tell how the life of Sam Bankman-Freed turned from a role model to a cautionary tale.
Bankman-Fried’s superpowers for multitasking: he could hold a presentation and play League of Legends at the same time
As a child, Sam favored intellectual games like bridge and chess, which required concentration and planning. His brother Gabriel recalls: “In games, he adhered to this principle: if it is interesting, then you need to play two games at once at the same time, using a timer.”
“If I think that I have nothing to think about, for example, in cases where time is not running out, and other people take too long to move, I switch to another game,” Sam himself explained, adding that he starts playing on the phone, computer or do other things when the opponent slows down.
Sam did not lose his propensity for multitasking many years later, but switched to more complex “games”. Ramnik Avrora, head of FTX’s product department, once witnessed such a “parallel game”. He describes the moment when Sam first met with partners from Sequoia, a large investment venture capital fund, to discuss cooperation. The meeting took place on Zoom.
Bankman-Fried appeared relaxed as he answered questions and rambled on topics of extreme complexity. SBF spoke not only about the crypto industry, his plans were related to the transformation of the concept of money in general. According to Arora, Sequoia representatives were delighted with the young entrepreneur’s non-trivial views - at some point, messages in the Zoom chat appeared in the spirit of “How I like him” and “That’s 10 out of 10.”
“I was sitting ten feet away from him and walked up to him thinking, ‘Damn, that was really good,’” Arora recalls. “But it turned out that this bastard played the whole meeting in League of Legends.”
League of Legends is an online multiplayer game in which reaction speed and concentration are of great importance. After four minutes of tactical maneuvering, players should move on to active actions - ganking or team attacking enemy objects. “The fight was in full swing,” says Arora, who was watching the chief over his shoulder as he answered Sequoia’s last question, “and then I realize that this guy is fucking in the gank!”
“Damn useless classes” of a careless student
Sam grew up in a family of professors at Stanford University. Went to high school in San Francisco. He did not like studying at school, and the lessons seemed too boring.
At the age of 18, he entered the Massachusetts Institute of Technology (MIT), but even at the most prestigious technical university he was not impressed: according to Sam, the lectures were “useless as hell” and did not give him anything that he could apply in real life. At the same time, he described himself as a very careless student. Nevertheless, the university aroused more sympathy in him than the school: here, unlike in San Francisco, classes could be skipped.
Lithub cites a Bankman-Fried conversation with writer Adam Fisher, claiming that it originally appeared on the Sequoia Capital website and was later deleted.
Fisher: “I developed a passion for reading, which explains how I became a writer.”
Bankman-Fried: Yes? I would never read books. I am very skeptical about books. I don’t want to say that no book is worth reading, but I actually believe in something like this. I think if you wrote a book, then you’re screwed, it would be better if you fit into a six-paragraph blog post.
Bankman-Fried gave half of his salary to charity
SBF has never been known for its love of luxury - for example, at least in 2021, he lived in a five-room apartment with ten neighbors. Also, as a student, Sam was fascinated by the idea of "effective altruism."
“Effective altruism” is a philosophical concept and social movement whose supporters strive not only to make the world a better place, but to ensure that the resources they have are used as productively as possible.
Sam, a bachelor in physics with a major in mathematics, thought at university that he would pursue a career in teaching. However, the income of a university professor, obviously, could not allow him to act for the benefit of society with maximum efficiency, and therefore he decided to change the vector of career development and went to an internship at the trading company Jane Street Capital. There he took up ETF arbitrage trading and finally felt in his place.
Sam did not retreat from the ideas of effective altruism many years later: in the summer of 2022, at the height of the crisis in the cryptocurrency market, he earned a reputation as a crypto rescuer by actively supporting companies that found themselves in a difficult financial situation due to market volatility.
After graduating in 2014, he became a Jane Street staffer and gave away half of his salary to charity, as befits an effective altruist.
Three years later, Sam began to think about what he wants to do in the future. The reflections came at a time when bitcoin was experiencing its first mainstream bull run and almost reached the $20,000 mark. Sam had never been interested in cryptocurrencies before, but he seemed interested in a new area for him.
Getting started in the world of cryptocurrencies
Sam switched to full-fledged cryptocurrency trading in 2017, leaving his job in a New York company and founding Alameda Research, which initially employed only 15 people.
“When we joined the company, his goal was to make $1 billion,” an early Alameda employee told Forbes. “The Alameda traders were really attached to what the SBF was doing: he was the head trader, and they were the foot soldiers.” Another employee called his management a dictatorship in a good way.
Alameda Research
The founding of Alameda Research was a major breakthrough for the industry, showing Sam’s potential as an innovator to revolutionize the emerging cryptocurrency market. The platform acquired the status of one of the strongest: it allowed full-fledged trading around the world and provided access to all major exchanges and markets. Users could trade both major cryptocurrencies and altcoins and their derivatives.
The company profited from arbitrage trading: buying at a lower price in the US market and selling at a higher price in Japan. A year later, the site’s turnover was already $25 million per day. Crypto traders were selling so much that they couldn’t convert Japanese yen fast enough.
Alameda, according to Sam’s idea, became not only an advanced cryptocurrency platform, but also a tool for scaling the ideas of effective altruism: the company’s employees, following the example of their leader, had to send at least 50% of their salary to charitable organizations. Later, however, this practice had to be abandoned in order to facilitate the attraction of new talented employees.
For two years, things were going very well: Alameda brought in up to $1 million daily. However, over time, Sam became more and more disappointed with the crypto exchanges that were used. The platforms were designed for the average American, who could buy half a bitcoin once a year, and not for professional traders.
FTX
Bankman-Fried, driven by a desire to never have to deal with “shitty marketplaces” again, teamed up with Gary Wang, a former Google software engineer and MIT graduate, to launch his own crypto exchange, FTX.
It offered trading in cryptocurrency tokens and derivatives, and boasted a robust risk management system. The exchange was designed for large traders and offered dozens of different digital coins for betting.
When everything came crashing down
FTX has raised several rounds of venture capital funding and has earned the trust of investors. During the last investment round, $40 million was raised. As a result, FTX was valued at $1.2 billion and received the status of a “unicorn”. It is remarkable that this business has grown so strongly in less than two years after its initial launch - a very short time by venture standards. Revenues for the last year were about $100 million, profits were $30 million, while most young startups do not make a profit for the first few years.
FTX fully matched the trading needs of Alameda and looked like a more solid project to venture capitalists. Experienced investors, however, failed to spot the cracks in its foundation in time. Representatives of large investment firms like Temasek and Tiger Global did not sit on the board of directors. Forbes quoted an investor as telling the publication that as part of their due diligence, they only had access to FTX’s balance sheets, which “looked normal.” According to him, he did not have access to the operations of Alameda, but he did not notice any alarms, because he saw the constant movement of large amounts of tokens.
As a CoinDesk study later showed, the crypto exchange was insolvent, and the price of its tokens was artificially supported by Alameda, which used them as collateral for its own trading operations. It is common knowledge how dangerous debt capital can be, but Bankman-Fried, unfortunately for himself, was its staunch supporter.
At least $1 billion of client funds went missing in the collapsed FTX crypto exchange. According to Reuters sources, Bankman-Fried secretly transferred $10 billion of client funds to his company Alameda Research, after which some of the money disappeared. SBF denied this.
The problems of FTX were not evident to anyone for a long time. Large investors, ordinary users, celebrities, regulators and leading journalists were deceived.
Perhaps they didn’t want to see the swindler behind who Bankman-Freed claimed to be, a young entrepreneur with a mind of his own and ambitions to revolutionize the whole concept of money, a philanthropist, a child prodigy, and just a nice person to get around.
Bankman-Fried has amazing charisma and definitely knows how to charm. National Football League quarterback Tom Brady and supermodel Gisele Bundchen acquired shares in FTX last year, while NBA star Steph Curry became the venue’s ambassador.
In February, Katy Perry, after talking to Bankman-Freed the day before, wrote on her social media profile: “I’m quitting music and becoming an FTX trainee.”
The entrepreneur did not disregard the political sphere: he donated more than $5.2 billion to the presidential campaign of Joe Biden. Bankman-Fried was the second-largest contributor to Democratic initiatives during 2021-2022, after George Soros, according to Fortune. At the same time, he called for increased regulation of the crypto industry. In addition, he stated that he did not deny the possibility of entering politics in the future.
Now, in the ex-billionaire, everyone is massively disappointed. “I don’t know which is stronger: my rage at Sam for hurting so many people, or my sadness and self-hatred for falling for his deception,” William MacAskill, co-founder of the Center for Effective Altruism, said on Twitter.
The collapse of the FTX exchange has already been compared to the “Lehman moment” of 2008 and called “one of the darkest pages in the history of cryptocurrency.” The tragedy is likely to have serious repercussions for the fledgling industry. Cryptocurrency prices will stay close to low levels, and investors are likely to be wary of digital assets for some time.
Bankman-Fried’s main mistake was probably that he “combined clients’ money with his own and then lost everything.” True to the habit of “playing several games in a row,” the entrepreneur failed to stop when the “games” (politics, business, philanthropy, and publicity) became too difficult and the cost of losing too high.