Fall of Bankman-Fried

Born to law professors in Stanford, California, Sam Bankman-Fried was sullen and analytical in his youth, quietly excelling in his classes. He attended MIT, and became aware of a New-Wave ideology called “Effective Altruism”, justifying the vast fortunes available within modern Silicon Valley technospace by maintaining a pledge to distribute most or all wealth to charity at some point in the future, following the example set by classic billionaires such as Bill Gates or Warren Buffett. This ideology lit a fire of ambition within Sam, who took a job as a day trader at an investment firm called Jane Street in NYC, and donated a sizable portion of his salary towards malaria prevention. He lived a rote workaholic lifestyle, sleeping four hours a day on a beanbag at his desk. His journey to the top truly began when he quit that job and opened up a crypto trading firm called Alameda Research. He noticed an opportunity for arbitrage: Bitcoin was 10% more expensive in Japan than in the US. He spent the next three weeks putting all resources towards moving dollars to bitcoin to Japan to yen, over that time gaining around $20,000,000 and a deep understanding of the inefficiencies in the existent crypto trading infrastructure, spending most days physically inside of banks sending wire transfers. He and his crew began work, feverishly, on an online platform capable of crypto maneuvering. This platform, once it was done, was called FTX, or, “Futures Exchange.”

Sam looked the part of an eccentric tech genius. He had a big fuzzy mop of curly hair, and always wore shorts and a t-shirt, regardless of context. He had intense ADHD, and was known to play League of Legends on business calls, or interviews if he wasn’t feeling stimulated enough. Throughout the years that FTX was real and rising, Sam lived with his on-again-off-again girlfriend Caroline Ellison (who was the CEO of Alameda), college best friend and business partner Gary Wang, his whole family, and several other people, including an in-house psychiatrist bearing a pharmacopeia of stimulant drugs, in a sprawling mansion in the Bahamas, where they maintained the exchange. Below is a quote from a blog post called “The Fetishization of The Old” that Sam wrote critical of deference toward age in any context, dismissing as overrated such far-reaching examples as Shakespeare, Citizen Kane, the Constitution, and aged wine.

“In about eighty years I will be dead, and in another eighty everyone who ever really knew me
 will be too. I will be at risk of being forgotten; everyone alive now will be, but most importantly
 for me, I will be. I would like to think that I will be remembered. We all would. And if we as a
 society spend so much time looking backward, so much time romanticizing those who died two
 hundred years ago, so much time replicating traditions born hundreds of years ago, then the
 future doesn't look quite so divorced from the present.”
 
     - Sam Bankman-Fried, King Zoomer.

Sam was confident that he personified a genuinely new way of being. He bought ad time at the Super Bowl, and rechristened the Miami Heat’s stomping grounds the “FTX Arena”. Sam wasn’t coding much: it was never really his forte. He spent most days in Washington DC, acting as an effective crypto lobbyist, arguing for ever-laxer regulation. He was popular among both Republicans and Democrats, ultimately the second-largest contributor to the Biden campaign after only Michael Bloomberg. His net worth peaked at 26 billion.

FTX allowed for the borrowing of money (something the US limits to heavily regulated banks) while also allowing for margin accounts (which is limited to brokerages). Up to 95% of the balance of FTT Tokens in your wallet could be borrowed, with FTX’s dazzlingly sophisticated risk-management systems selling collateral automatically if necessary. FTX posited FTT as a genuinely reasonable investment by asserting that they would put profits from Alameda into buying then destroying FTT, raising its price. Thus, the better Alameda was doing, the better FTT holders were doing, and vice versa.

Crypto, as a market, is exceedingly volatile by design. 2022 in particular harbored ample coal-mine canaries, in the form of huge drops in value for many once “stablecoins”. Alameda Research, which owned a lot of cryptocurrency, was destitute, negative ten billion dollars broke. Sam Bankman-Fried, ultimately, concocted a scheme. He bailed out the company with customer funds, then secretly withdrew oodles of FTT from FTX’s system, creating a backdoor. He used the FTT as collateral to borrow further assets, paying off Alameda’s debts. At this point FTX had many customers, little money, and everything riding on crypto, desperate to keep up appearances.

Changpeng Zhao, the CEO of Binance, the largest cryptocurrency exchange in the world, at one point invested heavily in FTX, but decided to part ways with the company, and let Sam buy out his share. On November 6, 2022, Zhao tweeted that he had learned that a suspiciously significant portion of Alameda’s balance sheet was composed of FTT, and that he had sold all of the FTT that Sam had paid for his shares in FTX with. This made everyone immediately try to remove their money from FTX, which was money that they no longer had to give out. FTX declared bankruptcy a few days later, having frozen most customers out of their assets entirely. Federal regulators easily flipped Ellison, Wang, and many other members of Sam’s inner circle, extraditing many involved parties, including Sam. He now sits under house arrest, living in California with his parents in the house he grew up in, on a 250 million dollar bond. He’s pleading not guilty.