Sam Bankman-Fried (also known as SBF), born in March 1992, is the founder of Alameda and FTX And former CEO. Alameda was once one of the largest hedge funds in the crypto space, with total assets once reaching $14.6 billion; while FTX was once the second largest centralized cryptocurrency exchange, with daily trading volume of $14 billion.

Since founding Alameda in 2017, it took only five years for Sam to reach the top 60 of Forbes’ list of the world’s richest people, with a net worth of up to US$26.5 billion. However, SBF went from peak to rock bottom in less than a week. In November 2022, SBF filed for bankruptcy protection for Alameda Research, FTX, and more than 130 other affiliated entities. On the same day, his name was removed from the Bloomberg Billionaires Index, with his net worth falling from $15.6 billion to $1 billion.

This article describes SBF’s early years, accumulation of wealth & collapse, and the reasons for the collapse.

SBF and effective altruism in the early years

Sam was born into a high-achieving family, his parents are both professors at Stanford Law School. Sam himself graduated from MIT with a major in physics and a minor in mathematics. Sam showed a talent for mathematics from an early age. When he was in middle school, he cried to his mother that school was too boring, and he was sent to math camp every summer.

During college, Sam often hung out in a "nerd society" in school called Epsilon Theta, playing games with his friends, especially LoL. Gary Wang, Sam’s college friend and co-founder of FTX, said: Sam especially likes games that require quick thinking and have time limits.

Sam lives in a utilitarian family and has been a pragmatist since he was a child. But in his sophomore year, Sam learned about "Effective Altruism" from the Internet and became a devout practitioner of Effective Altruism. Sam considers this a turning point in his life.

Effective altruism advocates "Earning to giving" and encourages people to do charity in the most effective way. For example, instead of working for a charitable organization, effective altruism believes that it is more efficient to find a high-paying job, earn more money, and then donate it.

Effective altruism does influence many of Sam’s life decisions. For example, when he was a junior, he struggled with whether to work at the Center for Effective Altruism or to make money on Wall Street. However, he chose the latter and entered a Wall Street quantitative agency (Jane Street) as an intern and worked there for three years. Meanwhile, Sam donates more than half of his Jane Street earnings to charity.

However, after the bankruptcy of SBF, many celebrities/media (including the founder of Facebook and Buterin) have publicly criticized effective altruism. They believe that this idea places too much emphasis on results and may lead SBF to Going astray (that is, thinking only about making more money to donate, but regardless of whether the way to make money is correct).

29-year-old billionaire

Sam loves mathematics. Whenever he encounters a problem, he will use Excel to draw up a table. He once calculated the wealth he would need to live out his life, giving up his job at Jane Street (a six-figure salary) to do so. Because this job cannot meet his needs.

While browsing cmc’s website, Sam found that the price difference of the same crypto asset in different markets could reach 60%, which aroused his great interest. Although he didn’t understand the market at all, he believed it was full of potential. So he found his college classmate Gary Wang (Gary had made a lot of money using the Bitcoin arbitrage trading robot he wrote during college), and founded Alameda Research in 2017.

Sam and Gary used the price difference of Bitcoin in different national markets to arbitrage and made a net profit of US$20 million in three weeks. According to Alameda’s description in a white paper disclosed in 2019, within a year of its founding it became the largest liquidity provider and market maker in the cryptocurrency market, with daily trading volumes of $600 million to $1 billion.

“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

Sam encountered many obstacles during the Alameda transaction. The regulatory systems of various countries, the rules of exchanges, and the attitudes of various banks towards cryptocurrencies all limit the trading experience of traders. Therefore, Sam decided to set up his own exchange. In April 2019, FTX (abbreviation for Futures Exchange) was incorporated. FTX was originally a derivatives exchange, providing cryptocurrency-related options, futures, perpetual trading, etc.

Since its inception, FTX has been prosperous. According to CFTC disclosures, FTX held approximately US$15 billion in assets in 2021, with daily trading volume of US$16 billion, and its total trading volume accounted for 10% of global crypto asset trading. At its peak, FTX’s trading volume could exceed $20 billion a day.

At the same time, FTX’s valuation has also risen. In July 2021, FTX completed a US$900 million Series B financing (creating the largest financing in the crypto market at the time), with a valuation of US$18 billion (15 times the valuation a year ago). In October of the same year, FTX raised another round of financing at a valuation of $25 billion. In 2022, FTX raised $400 million in Series C funding, raising its valuation to $32 billion. At this time, FTX has become the second largest cryptocurrency exchange.

As the main shareholder of FTX and Alameda, SBF’s assets reached approximately US$26.5 billion in August 2022, of which FTX’s equity accounted for approximately 16 billion (60%) and FTX US’s equity accounted for approximately 4.2 billion. (15.9%), FTT accounts for about 4.5 billion (17.3%), and the rest are SOL and SRM. Over the same period, Alameda managed approximately $37.6 billion in funds, with SBF's share accounting for $8.6 billion (22.9%) of that.

After becoming famous, Sam began to establish his influence in all walks of life. The SBF was at one time actively involved in American politics. He donated $5.2 million to two pro-Biden committees during the 2020 U.S. election and is one of Biden's biggest supporters. In 2022, Sam became the second-largest donor to the Democratic Party, giving $39.8 million. In May 2022, SBF threatened to spend at least $100 million (and up to a billion) on the 2024 US elections, but he walked back this pledge in October of the same year.

In terms of public welfare, the FTX Foundation was established in February 2021, and the Future Fund was established in February of the following year. The former is a non-profit organization funded by FTX, while the latter is a charitable foundation of the FTX Foundation. As of November 2022, the FTX Foundation has contributed a total of approximately US$19 million. In June 2022, SBF signed the Giving Pledge, committing to donate at least 50% of its wealth. Signatories of the plan also include billionaires such as Buffett and Bill Gates.

In addition, SBF is passionate about sports. FTX spent US$135 million in 2021 to acquire the naming rights of the NBA's Miami HEAT stadium, changing the name of the stadium to FTX Arena. Later, FTX also sponsored many events and sports stars, including MLB, football players Tom Brady, Steph Curry, Naomi Osaka, etc.

Before the collapse of FTX, the media (or SBF itself) used to portray SBF as A pragmatic industry disruptor, a no-nonsense billionaire, and a genius with a big heart. He wears an afro, dresses plainly, wears messy shoelaces, only sleeps 4 hours a day, doesn't like spending money, and so on.

Sam not only created industry giants such as Alameda and FTX in a short period of time, he was still generous even during the bear market and was called "Crypto Savior". SBF has lent a helping hand to failing companies such as BlockFi and Voyager Digital during the bear market, and also launched a $2 billion venture capital fund (FTX Ventures). When people asked how SBF maintains high liquidity in a bear market, he said: store large amounts of cash, keep administrative expenses low, avoid borrowing...

However, who would have thought that this beautiful dream would be shattered with just a poke.

SBF Empire Collapse

On November 2, 2022, CoinDesk reported that it had obtained a financial document from Alameda. Documents show that approximately 40% of Alameda’s assets are in FTT (FTX’s exchange token). Its total assets are $14.6 billion, of which $3.66 billion is "unlocked FTT", $2.16 billion is FTT collateral, and there is another $3.37 billion in other cryptocurrencies (including a large amount of SOL). And $7.4 billion of Alameda's $8 billion in liabilities is also FTT. In other words, Alameda is a bubble piled up by FTT (FTX zero-cost issuance token) (Source: CoinDesk).

On November 6, 2022, Binance founder, CZ tweeted that he decided to liquidate all FTT on the account (approximately $530 million). As soon as this news came out, FTT plummeted and a large amount of money was withdrawn from FTX. On the same day, Caroline Ellison (CEO of Alameda) responded that CoinDesk’s financial report is only a part of Alameda. They actually have more than $10 billion in assets that are not reflected in it, and they are willing to buy back CZ’s FTT at $22. On November 7, SBF issued a document stating "FTX is fine. Assets are fine."

But the next day, CZ said that at the request of SBF, it had signed a letter of intent to acquire FTX. However, it reversed its decision two days later and suggested that FTX was suspected of misappropriating customer funds.

On November 11, 2022, Sam Bankman-Fried filed for bankruptcy protection for Alameda Research, FTX, and more than 130 of their affiliated entities.

Savior? Or a fraudster?

The collapse of SBF took everyone by surprise. Why? Because SBF has stated on multiple public occasions that FTX and Alameda are profitable. For example, in an interview with Forbes, he said Alameda's profit in 2020 was US$1 billion; and in a CNBC report, FTX said its net profit in 2021 was US$1 billion. Revenue was 388 million.

However, what is the actual situation? According to the CFTC investigation, Alameda lost $3.7 billion from its founding in 2017 to 2021. (ps: The market conditions are great in 2021, Bitcoin has risen by 60%, and the entire industry is making money. Maybe no one can imagine that SBF will still lose money.) The day before FTX submitted its bankruptcy application, there were only 9 With liquid assets of US$9 billion, liabilities are as high as US$9 billion.

As the largest market maker and second largest cryptocurrency exchange at one time, how did they get to where they are today?

Too close symbiotic relationship

In fact, FTX and Alameda have maintained a close symbiotic relationship since the establishment of FTX. When FTX first launched, Alameda was the exchange’s main market maker, providing liquidity to the new exchange. Even after FTX grew later, Alameda has always been the largest market maker on FTX.

In addition, Alameda has some unknown perks at FTX.

First of all, VIP users on FTX can conduct fast transactions through a dedicated API, and Alameda’s fast channel can even be faster than VIP users (for market makers, this is a great advantage) . Secondly, Alameda’s account will not be liquidated, and negative equity transactions can also be conducted on FTX, which means that even if Alameda does not own an asset, it can still trade the asset. At the same time, Alameda was able to misappropriate FTX’s customer funds for Alameda’s leveraged/speculative trading without the customer’s knowledge.

According to the CFTC’s investigation results, FTX did not have a bank account to manage customer funds at the beginning, and all customer funds deposited in cash would be deposited under a company account named “North Dimension”. And "North Dimension" is a wholly owned subsidiary of Alameda.

What's more, FTX's system allows Alameda to carry out almost unlimited unsecured borrowing in FTX, which means that Alameda can use FTX's customer funds at will.

Although, on the face of it, Sam had already handed over the Alameda CEO position back in October 2021. But this is just a cover to make the two institutions appear relatively independent. At all times, Sam has had sole and final control over FTX, Alameda, and their various subsidiaries.

Alleged manipulation of market prices

As mentioned above, Alameda has a large number of FTTs among its assets. But the investigation revealed that Alameda had not paid for the FTT it held. Even in July 2019, two days before FTT went live, about 5 million FTT were transferred to Alameda’s address (accounting for 25% of the circulating supply at the time) and transferred back a week later. Of the FTT raised by FTX for seed rounds and private placements, 46% (27 million FTT) was allocated to Alameda. Additionally, all FTT held by the company, as well as some unsold FTT, are held in a wallet address with a three-year lock-up period, with Alameda being the sole beneficiary.

According to Nansen's on-chain statistics, Alameda and FTX controls more than 90% of FTT, and FTX controls more than 80% of FTT’s circulation. That said, Alameda and FTX could easily drive up FTT’s market value. In the 2021 bull market, the price of FTT increased approximately 800 times, from $0.1 (seed round price) to $84. But since most of the assets of these two institutions are FTT, they cannot easily sell FTT for cash, so they chose another way-borrowing.

Complex lending relationships and excessive leverage

Remember the SBF telling everyone to keep a lot of cash and avoid borrowing? This eldest brother has borrowed a lot. SBF itself loaned $1 billion from Alameda, according to FTX's bankruptcy filing. This is not all, Alameda borrows money from FTX, borrows money from centralized companies, and several core members such as SBF and its subsidiaries (including FTX.US) borrow money from Alameda. This complex lending relationship became the final straw for Alameda and FTX.

According to documents, Alameda owed FTX $9.3 billion on its books when it filed for bankruptcy; FTX had $8.7 billion in customer funds missing from its books. But in reality, Alameda may have borrowed far more than that from FTX.

According to the CFTC’s investigation, Alameda lent $8 billion from FTX through a special account “fiat@ftx.” And because the registered account number of this account has no obvious connection with Alameda, this debt was not recorded in Alameda’s account. Throughout the entire existence period, Alameda and FTX have had close and complex transactions/loans, and Alameda has been using FTX’s customer funds for its own transactions, operations, and investments...

According to the CFTC investigation, SBF himself, his parents and other company management loaned a large amount of funds from Alameda for private purposes, including personal consumption, real estate purchases, political donations, etc. In addition to the $1 billion lent by SBF himself, other FTX employees such as head of engineering Nishad Singh lent $2.3 billion and FTX head of digital markets Ryan Salame lent $55 million.

At the same time, Alameda used the FTT in his hand to conduct a large number of mortgage loans at third-party centralized lending companies at market value. Likewise, these borrowings have been used heavily by Alameda for its own operations, lending, venture capital, etc. Alameda’s major lenders (such as Voyager and BlockFi) all went bankrupt after Alameda went bankrupt.

After Terra, Three Arrows Capital, Celsius, etc. suffered successive thunderstorms in 2022, the entire market fell into chaos. As currency prices plummeted, centralized lending platforms have asked borrowers to add margins or return loans. Alameda is a borrower on multiple platforms and has been receiving bills one after another. With insufficient liquidity to repay the loan, the SBF ordered Alameda to use FTX's client funds to cover the shortfall as much as possible. According to Nansen's statistics, Alameda received a large number of FTTs from multiple institutions in early June 2022. Genesis remitted a total of approximately 1.4 billion worth of FTTs to Alameda in June, further supporting the fact that Alameda's debts were recalled in large numbers.

But even if there is a liquidity problem, during this bear market, SBF has always conveyed to the outside world the signal that Alameda and FTX are all fine. And it uses client funds liberally for investments, naming rights, political donations, personal expenses, etc.

Splurge lifestyle

Although SBF's external image is always wearing cultural shirts, having afros, driving Toyotas, and huddled in shared dormitories with roommates, they are very simple. But in fact, his life can be said to be very luxurious.

SBF once scorned yachts in a Bloomberg interview, but he owns a million-dollar luxury yacht. Not only that, SBF spent $30 million to buy a mansion in the Bahamas for him and other management to live.

Not only that, SBF also I didn’t “treat” those around me badly. According to Fox Business, SBF often ate at a tavern in the Bahamas, where a meal would cost thousands of dollars. FTX also provides employee meals, and the cost of each meal is not small. In addition, FTX, FTX’s management, SBF’s parents and others purchased 19 properties in Bajamai within two years, spending $120 million. Not to mention the money SBF spends to improve its social influence, too much has been mentioned in the previous article.

Fragile management systems and financial records

After FTX went bankrupt, renowned liquidation expert John J. Ray III took over the company. As a veteran expert who has participated in the Enron restructuring (the largest financial fraud case in the United States), John's evaluation of FTX is: "I have never seen such failed corporate management and uncredible financial information in my life." He said The FTX team is described as "a small group of people with no experience."

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. From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented. ——John J. Ray III

The management systems and organizational structure of FTX and Alameda are failures. A few members have absolute say, especially the SBF. And when employees put forward suggestions for improvement of company management, they may be reduced in salary or fired. FTX and Alameda, two supposedly independent companies, not only share office space, resources and talent, but managers from both parties also have access to each other's systems and accounts.

FTX, as a company with hundreds of people, has no finance and no internal audit. The company's financial records are piled up by non-professionals using non-professional software, such as Quickbook, Google doc, Excel, etc.

The information records in all aspects of the company are very confusing, including but not limited to important financial reports, key documents, bank or trading accounts, etc. Thousands of the company's deposit checks were being stored like garbage, liquidators revealed. Expenses within the company, involving tens of millions of dollars being transferred, are submitted via Slack and approved by emoji. Some fund transfers are not even recorded, and employees can borrow money directly from the company (without issuing an IOU).

Of course, there are also the aforementioned misuse of customer assets, granting special privileges to Alameda, etc.

An ending

The first half of SBF's life can be described as wonderful. In just a few years, he went from a genius sought after by everyone to a fraudster despised by everyone. His rise is due to his talent and his "touching" story, and his downfall is his arrogance and disdain for risks.

The worst thing is the ordinary users who put their life savings into FTX, and the employees who think they are working for the company with the company's equity. Is what SBF is really doing to make more money and then give it away? We need to put a big question mark. Because in the past few years, compared to his income, he has actually not donated much money. Even if he had made many promises, now we have no way to verify them.

On December 12, 2022, Bankman-Fried was arrested in The Bahamas on charges including wire fraud, securities fraud, money laundering and related conspiracy charges. The crypto genius and youngest billionaire died.