The collapse of $32 billion cryptocurrency exchange FTX, like other scandal-ridden corporate bankruptcies, has thrust a once-famous executive into the harsh light of public scrutiny .
Sam Bankman-Fried, the 30-year-old founder of FTX, has quickly risen to the top of the cryptocurrency industry, garnering goodwill in recent years as a philanthropist and leading supporter of cryptocurrency regulation. industry. The August cover of Fortune magazine asked readers if Bankman-Fried, known to some as “SBF,” was “the next Warren Buffett.”
Lately, however, he has faced withering questions about the mismanagement of billions in client funds. Meanwhile, his net worth plummeted from $16 billion to $0 in less than a week, according to an estimate by Bloomberg.
Concerns over the financial instability of FTX – a leading platform where users buy and sell crypto – sparked a wave of customer withdrawals totaling billions of dollars. But FTX lacked sufficient funds to pay the sellers, instead imposing a complete halt to withdrawals. Some crypto traders, who have deposited their savings on the platform, fear that they will never get their money back.
A few days later, the company declared bankruptcy and Bankman-Fried resigned as CEO. FTX and Bankman-Fried did not immediately respond to a request for comment.
Here’s what you need to know about Bankman-Fried:
Board games and the philanthropic movement
Bankman-Fried grew up in Palo Alto, California, near Stanford University, where both of her parents were law professors.
He attended an elite prep school, where he excelled academically, spending his free time playing video games like League of Legends and the card game Magic: The Gathering, according to a profile posted by the company. venture capitalist Sequoia Capital, which invested in FTX.
In 2010, he began attending Massachusetts Institute of Technology where he lived in a mixed group home called Epsilon Theta, which bills itself as an alcohol-free place for activities like playing board games, square dancing and debating about logic issues, according to its website.
At MIT, Bankman-Fried met William MacAskill, an early proponent of effective altruism, an approach to philanthropy that believes in a purposefully rational assessment of how to maximize the positive effects of one’s actions.
Some EA supporters encourage aspiring benefactors to achieve wealth through high-paying careers in business or finance, and in turn donate their earnings with the goal of improving the world as much as possible.
With that in mind, Bankman-Fried, a physics major, interned over the summer after his freshman year at data-driven trading firm Jane Street, where he continued to work after graduation. . After trading at the firm for three years and donating some of his money, Bankman-Fried sought a new challenge, Sequoia Capital said.
A splash in cryptocurrency
In 2018, Bankman-Fried, then 25, moved from quantitative trading on Wall Street to the relatively new world of cryptocurrency investing.
Almost immediately, he spotted an arbitrage that could generate massive returns: Bitcoin was trading 10% higher in Japan than in the US. If Bankman-Fried could buy large quantities of the popular token in the United States and sell them in Japan, he stood tall. make a good profit.
Working with friends at Alameda Capital, a hedge fund he founded, Bankman-Fried moved up to $25 million in bitcoin every day. “You can do the math,” he told New York Magazine. “It was the craziest trade I have ever seen.”
Over the next few months, drawing in part on the money he had accumulated from this trade, Bankman-Fried moved to Hong Kong and founded FTX.
The rise of FTX and Bankman-Fried
FTX, an exchange that allows users to buy and sell cryptocurrency, generated revenue by charging clients trading fees and selling a crypto token created by FTX that allowed users to buy and sell on the platform at a discount.
Customers have flocked to the exchange for the low trading fees, the variety of coins offered, and the complex futures and options trading available. In its early years, which coincided with a crypto boom as pandemic-related stimulus pumped money into the industry, FTX added hundreds of thousands of users and some major investors.
In 2021, the company moved to the Bahamas, seeking a favorable regulatory environment.
In July of that year, a $900 million funding round put the company’s value at $18 billion. A few months later, the valuation jumped to $25 billion. Finally, in January, the company saw its value climb to a peak of $32 billion.
The success caused Bankman-Fried’s wealth and notoriety to skyrocket.
Last October, Forbes hailed Bankman-Fried as the world’s richest person under 30, estimating his net worth at more than $20 billion.
Wearing a signature t-shirt and flowing hair, Bankman-Fried attended conferences, spoke on television and testified before Congress. As a prominent ambassador for the goofy world of cryptocurrency, he has become a frequent public defender and private lobbyist for US rules governing the industry. It has even helped bail out other struggling crypto companies.
True to his earlier commitment to effective altruism, he also established himself as a prolific philanthropist and political donor. Among a slew of donations made primarily to Democrats, Bankman-Fried gave $5.2 million to support Joe Biden’s 2020 presidential bid, making him the second-largest campaign donor after the former New York mayor, Michael Bloomberg.
At a cryptocurrency rally in the Bahamas in April, Bankman-Fried demonstrated his status in the industry by hosting a panel featuring former President Bill Clinton and former British Prime Minister Tony Blair.
The Decline of FTX and Growing Surveillance
FTX’s collapse is partly related to the close relationship between the cryptocurrency exchange and Alameda Research, the crypto hedge fund also founded by Bankman-Fried.
The main concerns about FTX began when media outlet CoinDesk published an article which revealed that a significant portion of Alameda Research’s assets consisted of FTT, a token created by FTX that allows users of the exchange to access reduced trading fees.
Because FTT cannot be easily exchanged for cash, the report fueled fears about the capital reserves of Alameda Research and therefore FTX.
Within days, Changpeng Zhao, the CEO of rival crypto exchange Binance, said he would sell all of the company’s holdings in FTT, which amount to $580 million of the token.
The major exit of a crypto heavyweight has triggered a broader, bank run-like sell-off, putting immense pressure on FTX to meet the sudden demand for customer withdrawals, forcing the firm to halt withdrawals and putting billions of client funds at risk.
“I’m sorry”, Bankman-Fried said the day after the sale, adding that he “should have done better”.
Meanwhile, the Wall Street Journal reported that FTX lent deposits from customers to Alameda Research to help it deal with its debts, and senior executives at Alameda Research were aware of this, which heightened the review of the relationship between Alameda Research and FTX.
When FTX finally declared bankruptcy last Friday, Bankman-Fried resigned.
FTX’s collapse is being investigated by the Securities and Exchange Commission and the Department of Justice, The Wall Street Journal reported. Federal prosecutors are also investigating the fall, a source told ABC News.
On Wednesday, Vox published an interview in which Bankman-Fried swears at regulators, admits that his previous calls for tougher crypto regulation were driven by public relations concerns, and says that he regrets that the company declared bankruptcy.
In the interview, he described his public commitment to ethics as “a stupid game we woke up westerners to.”
John Ray, the new CEO who has been appointed to guide the company through the bankruptcy proceedings, said in a court filing that he had never seen such a “complete failure” of controls. the company in his career, including during his work leading the bankruptcy of Enron.
“From the compromised integrity of systems and faulty regulatory oversight overseas, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals,” Ray said.
“This situation is unprecedented,” he added.
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