The crypto whale who wants to give billions away – Cointelegraph Magazine

Like many people in crypto, Sam Bankman-Fried is in it for the money. As the founder of quant trading firm Alameda Research, exchange FTX and DeFi protocol Serum, the curly haired 28-year-old has amassed a $10 billion fortune in just three years in the industry.

Unlike most people in crypto though, he’s building up a fortune in order to give half of it away. An ‘effective altruist’ he’s essentially robbing from the rich, via his preternatural crypto trading strategies, in order to give to the poor. 

“Maybe without the robbing part,” he says. “In the end my goal is to have as much impact as I can, however that is. And right now, I think that’s flowing through donations, so figuring out how I can be able to make as much as I can and donate as much as I can.”

SBF, as he’s sometimes referred to, has been walking the walk for some time now. He spent a couple of months as the director of development at the Centre for Effective Altruism in 2017 and before that, gave away half of his income during his stint on Wall Street. He plans on giving away around 50% of his crypto billions too — but only after he’s finished reinvesting in his ever-expanding empire.

He does donate to causes as they come up however. He was the second largest donor to President Joe Biden’s campaign, after former New York mayor Michael Bloomberg, tipping in $5.2 million.

“I was excited about the impact it might have. I basically thought that it mattered what happened in the election.”

Also, the FTX Foundation launched recently. It’ll give away 1% of the platform’s fees and match user donations dollar for dollar up to $10,000 a day. In its first couple of weeks the Foundation has raised more than $2M, mostly in user contributions, with users able to vote on the recipient charities from a carefully curated list.

The old bean bag

SBF’s growing public profile was given a shot in the arm when he was named on Forbes 30 Under 30 finance list for this year. “I’m honored,” he says. “I tend to be fairly forward looking instead of backward look and so it was cool for a bit but it sort of wore off pretty quickly.”He also came in at number three in the recent Cointelegraph Top 100.

 

 

Famous for sleeping on his bean bag at his Hong Kong office so he never misses a trade, and it seems a key reason SBF makes more money than anyone else is that he’s barely ever off the clock. 

“I’m at the office, well usually 24 hours a day. I’ll sometimes just nap on a beanbag here and obviously shoot the shit with coworkers and sometimes with people online, but mostly its work.”

He doesn’t have a girlfriend or even see many people outside of work, though he makes time to speak with his family back in the U.S. “a few times a week on the phone.” It’s safe to say SBF isn’t the type of person desperate to strike the perfect work/life balance or who even accepts that productivity decreases after the first 11 hours or so at work.

“I think that sort of narrative is substantially oversold and the brutal or inspiring truth, depending on how you think about it, is that the more you put in, the more you get out,” he says. “It’s motivating for me and it’s fulfilling, but you know, another piece of it is that, it’s how I think I can have the most impact.”

How did I get here?

The child of two Stanford Law professors, SBF discovered the Effective Altruism movement during his Physics degree at the Massachusetts Institute of Technology.

Popularized by philosophers and ethicists including Toby Ord and Peter Singer the movement is focused on pragmatic ways to help others using science and reason to ensure the benefits are maximized, rather than the good intentions and poor outcomes that characterize some charitable organizations. This practical approach also extends to a hard headed examination of the best way an individual can help.

“Imagine the amount of good that you could do working directly for some cause, versus the amount that you could do working on Wall Street and donating to it. In a lot of cases you could probably actually help them out more with the donations. And so basically I checked out Wall Street.”

Friends who’d interned at quant trading firm Jane Street Capital gave him the pathway to Wall Street, and he began working there straight after college in 2014. Why did they hire a physics major with very little financial experience straight out of school you ask? 

It turns out quant trading strategies are “super valuable” trade secrets which means no one teaches the successful ones in Uni degrees. Instead, firms recruit people with raw talent: maths whizzes or people with strong backgrounds in physics or computer science.

“What you need to know about markets, they’ll teach,” he says. He traded a variety of ETFs, futures, currencies and equities and designed an automated OTC trading system. While there he became interested in the insanely profitable arbitrage opportunities in the inefficient crypto markets and set up crypto quant trading firm Alameda Research to profit from it in late 2017.

The whale to rule all whales

Alameda Research has now grown to become one of the biggest companies in crypto with around $2.5 billion in assets under management, although as with his own fortune, SBF qualifies this with some provisos around liquid and illiquid assets.

Alameda is the Moby Dick of crypto whales, responsible for up to 10% of the cryptocurrency moving around the markets at any one time. “I think at particular times it can get up to about that fraction of the volume,” he says. “I think it averages a bit lower. It’s solidly in the group of the five to ten larger trading firms in the space.”

That means any trade Alameda takes has the potential to move markets and cause liquidations. In October last year, Alameda was widely blamed for crashing the price of YFI by shorting, though SBF has downplayed any impact. He believes that with great power comes great responsibility.

“It’s absolutely a responsibility,” he says, adding that he tries to follow the approach of TradFi quant firms. “Their role is to find profitable trades, but it’s also to provide liquidity and promote healthy markets,” he says. “The biggest duty is the duty to do no harm. And to make sure that what you do is, on the whole, promoting liquidity in healthy markets and efficient trading, as opposed to intervening in it.”

He adds that arbitrage trades, for example, can have positive impacts as it makes markets more efficient and brings down prices where there are premiums. Identifying and working out how to profit from arbitrage trades was the whole reason Alameda was founded. “One of the first big ones that we actually made some money on was Litecoin,” he recalls.

“There was a week in late 2017 when Litecoin was trading at a consistent 20% premium on Coinbase GDAX [now Coinbase Pro]. There’s sort of this idea like ‘Oh that’s cool, you just make 10% every half hour I guess you make infinity dollars?’ And of course, that’s not the answer.”

It turns out that trying to exploit the opportunity was hideously complicated and required getting around trade size limits, and withdrawal limits of a million a day. “Especially a few years ago in crypto an enormous piece of the problem was figuring out the logistical steps,” he says.

Another arbitrage trade saw SBF and friends move up to $25M a day through a series of intermediaries and rural banks in Japan to take advantage of the famous Kimchee premium, which saw Bitcoin trading for up to a third more in South Korea’s hard to access financial system than the U.S.

But it was dealing with the legacy financial system that threw up the biggest challenges. “The single hardest part of the arbitrage, the piece that was slowest and hardest and most expensive and most frustrating was the fiat,” he says, noting difficulties getting accounts, which could then be shut at any moment, the archaic procedures and bureaucracy and insanely slow wire transfers.

“We spent five man hours per day in physical bank branches for a good solid five months, because that’s what it took to send the wire transfers,” he says, adding:

“Like got there at 10am and stayed till 1pm with multiple people there, to have all the meetings we had to have every single f–king day of the week, in order to send the same wire transfer we sent yesterday.”

This is one reason SBF is so passionate about DeFi – his vision is for it to one day replace the lumbering existing financial system. “The current payment rails are not efficient at all,” he says. There’s trillions of dollars of companies, which are just built around trying to abstract that away and you end up with this incredibly complex web of shit to make it usable for most people. They’re running on systems that are old and not designed even with the internet in mind.”

Crypto influencer

For many people SBF sprang fully formed as a major crypto and DeFi personality during the mid-2020 DeFi boom, as he began to make an impact on Crypto Twitter. This was a deliberate move: he’d been happy to fly under the radar in 2018 because Alameda’s quant trading focus had: “Very little need for publicity, it’s sort of mostly downside.” But when he launched the innovative crypto exchange FTX in 2019 he needed to build a community around it and he stepped up to become its public face on social media.

 

 

“With FTX as a retail facing business the more customers the better. You can build the best  product in the world but if no one knows about it it’s not worth anything,” he says.

“One of the hardest and most interesting pieces has been figuring out how to get users, and increasing awareness was a big part of that.”

He seems to have figured it out as FTX became the fifth largest derivatives exchange by volume, with a $3.5 billion valuation. It’s launched a range of innovative markets, including tokenized fractional stock offerings of companies like Tesla, Apple and Amazon, as well as pre-IPO trading in Coinbase.

He’s also using his wealth and influence to try and overcome what he sees as the biggest blocker preventing the wide scale adoption of DeFi. He believes that Ethereum, including Eth2 can’t scale enough to allow crypto and DeFi to replace the existing financial system. DeFi can currently handle about 10 transactions per second, with second layer solutions enabling a few thousand TPS.

“This is an absolute hard, immoveable barrier, in terms of growth,” he says. “DeFi just literally cannot grow as an ecosystem until that is addressed. And so no long-term plan that doesn’t address it is viable. […] That is just fatal.” Even Eth2’s goal of 100,000 TPS isn’t enough for what SBF has in mind.

“If your goal is to scale to 100 million or a billion users, […] if you want to have the upside of an application that might grow to the scale of the largest applications in the world, it needs to be able to scale up to about a million transactions a second. And so you can just sort of cross off the list permanently with no recourse and not even needing to consider any other factor, any scaling solution that doesn’t get there, if that’s your goal.”

That’s what led him to become one of the most vocal proponents for Solana, a blockchain that can currently process 65,000 TPS and whose team claim it can eventually scale up to astonishing levels: 710,000 TPS on a 1 gigabit link or 28.4 million TPS on a 40 gigabit link.

 

 

He founded the Serum DEX on Solana and launched the SRM cryptocurrency in August 2020. Bankman-Fried say you can see Solana’s benefits in Serum’s on chain order book matching engine and fees of “100th of a penny to send an order and trades happen in seconds.”

“So you get a lot of juice out of having the higher throughput. And that’s really helped scale up that product base quite a bit. To the point where I think that, you know, our best guess is that, probably Serum DEX in six months of operation has, has consumed more transactions than all of the Ethereum blockchain in history.”

Ethereum’s network effects mean he faces an uphill battle getting DeFi projects and users to migrate to Solana. Even after he was handed control of SushiSwap by Chef Nomi, he was unable to convince the community to port over. “It ended up being way harder than we thought to get the existing projects to port over and way easier to just have new projects built,” he explains, adding:

“We would still be super excited for them to have an outpost on Solana. I think they still may at some point. But I also think that Serums’ gonna march on either way. In the end, like, I sort of want to have the best products and users, you know, however it gets there.”

(Following our interview, a new proposal emerged to build a version of SushiSwap on Solana and Serum, potentially called Bonsai.)

Although SBF says the network effects of having so many interconnected applications built on Ethereum are substantial, he points out that eventually each project will have to “migrate and break composability and tooling with the existing options” in order to switch to layer-two, Eth2, or some other scaling solution. In terms of user numbers he says ETH’s network effects are overstated.

“The other part is that while the current DeFi user base is super devoted, super important and powerful, it’s not that large. Daily active users, I think it’s in the tens of thousands. I think FTX probably has more daily active users than all of DeFi combined.”

SBF’s plan appears to be to embed the Solana blockchain as infrastructure in apps where it’s invisible to most users, in order to onboard millions into DeFi. At the start of 2021, Alameda led a $50 million funding round to embed DeFi style tools in Maps.me, a European offline mapping application with 140 million users. It’ll have a multi-currency wallet with staking and swapping facilities built on Solana. FTX’s purchase of Blockfolio may follow a somewhat similar strategy.

“I think it’s gonna be a really cool product and powerful product suite for the app,” he says of Maps.me. “I’m super excited about it. I think it might really kickstart adoption.