One of the most renowned crypto personalities today is that of Sam Bankman-Fried, better known as SBF. Sam became one of the richest and most influential people in the crypto community, not only because of his youth but also because of his entrepreneurial spirit, forged thanks to his two great successes: AlamedaResearch and the exchange FTX, all this without turning 30 years old.
However, overnight FTX, its biggest business development, Collapsed, and with him his fortune valued at 18 billion dollars evaporated, all in a period of no more than a week. A week in which a series of secrets and bad habits that led his entire empire to disaster. Below we will tell you who Sam Bankman-Fried is and everything you need to know about this popular character in the crypto industry.
The early years of Bankman-Fried
Sam Bankman-Fried was born on March 6, 1992, in the city of California, United States, in the middle of a family made up of two law professors from Stanford University Law School. His parents raised him in the midst of a strong philosophy of utilitarianism, which led Bankman-Fried to have a strong sense that his actions should be useful and beneficial to others.
His first years are a total unknown, but he himself revealed that school was not his favorite space since he considered it "boring." What is publicly known is that Bankman-Fried attended High School in Crystal Springs Uplands School in Hillsborough, California, considered one of the top 50 schools in the United States. During his training, he participated in a summer academic program for gifted high school students in mathematics, which evidenced his fondness for mathematics and his intelligence. In fact, he actually attended the Canada/USA Mathcamp, which provided him with the intellectual challenge he needed.
Once graduated, he set himself the goal of entering the Massachusetts Institute of Technology (MIT), which he graduated in 2014, obtaining a BA in Physics and a minor in Mathematics. Throughout this educational journey, Sam Bankman-Fried is known for one thing: openly disregard formal education, since he considers that it does not prepare people for work in real life, something he openly mentioned in an interview with Yahoo Finance, in August 2021.
However, his time at MIT was crucial to Bankman-Fried's life, since in this place he met several people who would later form part of his closest entourage in building his empire. For the year 2014 Bankman-Fried and his best friend, Zixiao "Gary" Wang (who would become CTO and co-founder of FTX and Alameda Research), would take a keen interest in the crypto world.
Although Bankman-Fried had experience handling trading and markets, Thanks to his internship at Jane Street Capital, the world of crypto was something completely new to him. For his part, Wang did have some experience, and even Wang would have made a few thousand dollars in a single semester thanks to a bitcoin arbitrage bot that he designed himself. With that knowledge, they both began to study the ecosystem and saw the potential of technology to transform the world.
His first steps in crypto and the launch of Alameda Research
After graduating in 2014, Sam Bankman-Fried began to take a greater interest in the crypto world. At that time, he was still working for Jane Street Capital, but in 2017 he decided it was time to look for new horizons and he resigned. Upon leaving it, he briefly worked as director of development at the Center for Effective Altruism in Berkeley, CA, while he explored the idea of starting his own cryptocurrency trading company.
With this in mind, to 2017 late, Bankman-Fried, Tara MacAulay and Zixiao «Gary» Wang took the definitive step into the crypto world and founded: Alameda Research. This company is focused on signals quantitative and specialized in the cryptocurrency market. His strategies include arbitrage, market making, yield farming, and volatility trading. Alameda's success was not immediate, but the good steps taken by Bankman-Fried quickly led it to grow.
For example, in January 2018, Bankman-Fried organized an arbitrage operation, moving up to $25 million a day, to take advantage of the higher price of bitcoin in Japan compared to the price in America. In a single day, Alameda had won 20 million with just that arbitrage opportunity. Then, with the advent of DeFi and the opening of more arbitrage opportunities, Alameda's growth was explosive, even in the midst of the bear market of that time.
The creation and evolution of FTX
Alameda's success quickly led to Bankman-Fried and Wang's decision to diversify the business by creating FTX. Thus, in May 2019 they founded this exchange that initially worked within the structure of Alameda Research. While initially things weren't going so well, one investment would change everything: Changpeng Zhao, better known as CZ, CEO and founder of Binance, bought a share of 20% on FTX for approximately $100 million, just six months after Bankman-Fried and Wang started the firm.
With this small injection of liquidity, Bankman-Fried and Wang improved the infrastructure of FTX and began to build a decent trading platform for their users. FTX's first big success in that regard was the acquisition of block Folio in August 2020. Blockfolio's technology and products quickly transformed the FTX user experience and it became a high-end trading platform.
The greatest success would come in June 2021, when FTX raised 900 million dollars, thus reaching a valuation of more than 18.000 million dollars, all thanks to the entry of more than 60 investors, including Softbank, Sequoia Capital and other companies. At this point, Bankman-Fried makes a unique move: buy out CZ's stake for approximately 2.000 billion dollars. No doubt investing CZ early made for a great investment play, but Bankman-Fried had other things on his mind: taking on Binance and coming out victorious, something he couldn't do with CZ keeping his power at 20% of the share. company and with the risk of buying more participation.
That same year, in September 2021, FTX moved its headquarters from Hong Kong (in the Alameda barracks) to the Bahamas, looking for a space with fewer regulations for their operations. Bankman-Fried and Wang now had greater freedom to operate the exchange as they wished, but another new point also began: Bankman-Fried's life of extravagance.
Bankman-Fried: simplicity and luxury in one person
Sam Bankman-Fried is not only known as a utilitarian of the first order, focused on believing that his actions promote the happiness or pleasure of those around him, but rather seeks to leave a high positive impact in society at large. He is also a well-known character understood for his disdain for personal hygiene, for the fact of sleeping in the Alameda and FTX offices, even in full view of visitors, or receiving them with a simple T-shirt, shorts and sandals, all of this in addition to be openly vegan.
Put like that, it seems that Sam Bankman-Fried didn't care one bit about luxuries. However, this is not entirely true, as with FTX's move from Hong Kong to the Bahamas, Bankman-Fried and his inner circle, all old friends from MIT and Jane Stree, including Nishad Singh, Gary Wang and Caroline Ellison, lived with him and 5 other people in a "penthouse" in the Bahamas.
Calling it an "attic" as Bankman-Fried himself called it is giving a different meaning to what that place really was: a luxurious penthouse of 12.000 square meters, located in Albany Resort, a luxury tourist complex located on the island of New Providence, in the Bahamas, and which is valued at 40 million dollars.
This was the space in which Bankman-Fried and his closest circle lived and it makes it clear that, despite all the simplicity transmitted in his day-to-day life in front of the company and the media, the truth is that his private life was filled with luxuries and a lifestyle very different from the one he publicly professed.
The beginning of the end of Alameda and FTX
However, this lifestyle was actually nothing more than a facade. Sam Bankman-Fried's enormous wealth came primarily from a dangerous game: using FTX and Alameda to achieve prestige and liquidity from its users and investors, In order to carry out high-risk operations, in which many times, the FTX FTT token was the protagonist.
FTX used this strategy where, being a big holder of FTT, it could use them to get low cost credits paid with FTT directly from Alameda, or do the opposite (from FTX to Alameda) if necessary. A vicious circle that ended up exploding in May 2022 with the Terra/Moon Fall, an event that shook the foundations of the DeFi world, a space where Alameda had large investments, loans, and enormous risk exposure.
This situation caused Alameda to suffer enormous monetary losses, which at the same time resulted in the inability to meet payment commitments with FTX (who would have lent him money before this event).
Given the situation, Sam Bankman-Fried tried to save Alameda with the craziest decision he could make: take money from FTX users and inject it into Alameda in order to be able to keep Alameda's payment commitments up to date. Basically, what he did was make up the FTX accounts to show money that was not actually in his possession, but had been transferred to Alameda, including loans assigned to him (close to a billion dollars). ).
Bankman-Fried's irresponsible decision only ended up setting FTX on fire and, in another attempt to salvage the situation, they abused their privileged position to take advantage of FTX Ventures and FTX Launchpad and amass tokens from other projects that would be launched or supported by FTX, and that they would remain in the hands of Alameda.
In this way, in the event that these tokens appreciated, Alameda would obtain liquidity that it could use to return the borrowed funds to FTX. Nevertheless, the bear market increased the pressure in the ecosystem, slowing down the launch of new projects, weakening the existing ones in the market and, with it, making the strategy of FTX and Alameda useless.
The accumulated pressure led to the resignation of his position in August 2022, Sam Trabucco and Caroline Ellison thus became the only CEO of the company. At this point, the situation deteriorates rapidly and on the 8th of November the alarms went off: FTX had a liquidity crisis, prompting Bankman-Fried to search for a life preserver. The only one with that ability was the CEO of Binance, Changpeng Zhao who at first agreed, making the non-binding agreement between the two public on Twitter.
With the announcement, the lack of confidence in Alameda skyrocketed, the company began to fall and FTX was also affected. The value of FTT, the FTX token, began to fall even more, and with this, all economic strength in Alameda was erased, the problem fed back and the situation fell into a insurmountable spiral.
The next day, Nov. 9, Sam Bankman-Fried learned of Binance's withdrawal of its buy intent, citing FTX's mishandling of client funds and pending FTX investigations as the reasons for the decision. that the company would not go ahead with the deal. The alarms go off, Alameda collapses and its website is taken offline, the action is completed with a closing of withdrawals from FTX.
In the midst of despair FTX and TRON from Justin Sun come to an agreement: TRON would provide, to the extent possible, sufficient liquidity for FTX operations to maintain their course and thus “help people on the exchange save their money”. For this, only tokens from the TRON network could be used, with special emphasis on the USDD token, TRON's algorithmic stablecoin.
Although the operations began, it did not take long to see the negative effect of it. TRON tokens on FTX were selling at a premium of up to 500% on their first day alone and USDD began to suffer from stability issues from which it has not yet fully recovered (at least as of November 20, 2022, the situation of USDD maintains the depeg with the dollar). Complaints, overpricing, and the overall dire situation led Bankman-Fried to accept the inevitable: Alameda and FTX were gone forever. Thus, on November 11, 2022, Sam Bankman-Fried announces on Twitter that he has voluntarily declared the bankruptcy of Alameda and FTX.
Other Interesting and Controversial Points from Sam Bankman-Fried
While Sam Bankman-Fried clearly made serious mistakes running Alameda and FTX, the reality is that he has also made altruistic actions remarkable. For example, he is known to have donated more than $100 million to various organizations that support causes related to animals, global poverty, climate change, biosecurity, and pandemic preparedness. Even, in June 2022, Bankman-Fried signed the Giving Pledge, a public commitment by the world's richest people to put the majority of their wealth into philanthropy.
However, a controversial point of it is the family and personal closeness to the American Democratic Party. In fact, Bankman-Fried himself was one of the largest donors to the campaign that brought Joe Biden to the presidency. Donations in this regard amount to more than 50 million dollars, at least those publicly known.
In any case, Sam Bankman-Fried is a unique person, on the one hand he became the symbol for many within the community, but at the same time, he did everything possible to self-immolate with his bad decisions, managing to make two large crypto companies disappear. and crash the broader market in just three days.
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