Sam Bankman-Fried and the conscience of a crypto billionaire
It’s an admission few billionaires will make publicly: Sam Bankman-Fried is in it for the money.
But the pursuit, he insists, isn’t to enrich himself. The 29-year-old founder and CEO of cryptocurrency derivatives exchange FTX, who’s based in Hong Kong, is famously low-maintenance. On a Tuesday in July, he fiddles with a pen and roll of cellophane tape as he talks. A headful of overgrown curls hides the nub of a man-bun. He’s dressed in the same gray FTX T-shirt he’s been wearing all over the Internet, and his drink of choice, at least for 1 p.m. on a weekday, is a Pure La Croix. He shares an apartment with friends, but gets a lot of his sleep on a beanbag chair next to his office desk. His back, he admits, is not in great shape.
No, Bankman-Fried’s net worth is a tool for what he says is his larger mission: to do the most good for the world.
The California native is a disciple of effective altruism, a philosophical principle that encourages people to maximize the positive social impact they have. He converted to it in his early college years, inspired, in part, by an aversion to factory farming. He’s been a vegan for a decade.
Some effective altruists dedicate their careers to fundraising for nonprofits or conducting important research, but in college the then MIT physics student decided that his earning potential could help humanity more than any charity work ever could.
His technical background qualified him for some high-paying jobs. Plus, “I know how good I am at passing out leaflets, and the answer is mediocre,” he says. “So I ended up going to Wall Street after I graduated with the goal to donate what I made.”
So just how much has he made? He says a reasonable estimate is $15 billion—a total that’s grown sevenfold in the past year.
The majority of Bankman-Fried’s wealth comes from FTX, an Antigua-based exchange known for offering sophisticated derivative products—futures, options, and leveraged tokens—that let users rack up outsize gains, and losses, from cryptocurrency price swings. Those products include short derivatives that let traders profit even in a market rout. It also offers tokenized stocks, or digital coins that track the value of real shares of companies like Tesla and BioNTech, and even quirkier products like pre-IPO contracts that let users bet on the valuation of companies in the listing pipeline and prediction markets that track the outcome of, say, the U.S. presidential election.
FTX offerings like crypto derivatives and tokenized stocks fall into a legal gray zone in the U.S. FTX skirts that murkiness by being based overseas, and by blocking investors in the U.S. from trading those products. FTX does run a U.S.-based platform that focuses on the buying and selling of actual cryptocurrency.
So far, Bankman-Fried has given away $35 million—only a fraction of his net worth, but still a hefty sum. It has gone to a variety of causes, including OpenAI, a research organization that works to ensure artificial intelligence benefits humanity, and animal welfare groups. That sum also includes a contribution to Joe Biden’s presidential campaign: Bankman-Fried’s $5.2 million donation to a Biden-supporting super PAC made him the President’s second-largest CEO donor behind Michael Bloomberg.
Roughly 10 years after Bankman-Fried committed to the give-what-you-earn style of effective altruism, the earning part is going better than he ever expected. But an emerging wrinkle is the ugly side of cryptocurrency, the industry that’s minted his fortune. The boom-bust nature of the digital assets, the potentially disastrous impact of leveraged bets on those assets, and their much-scrutinized carbon footprint are earning more scrutiny from regulators and raising the question of whether the sector’s faults counteract the good Bankman-Fried is trying to squeeze from it.
It’s a question that Bankman-Fried admits he’s now beginning to grapple with. “It’s really, really hard to do good in one realm, if you’re seen as doing a lot of harm in another realm,” he says.
From MIT to Hong Kong
Bankman-Fried’s first job out of MIT was as a trader at Jane Street Capital, the quantitative trading house, where colleagues’ reaction to his effective altruism was “somewhere between bemused and supportive.” Bankman-Fried says he loved his work there, but he left in 2017 and soon spotted an even bigger earning opportunity: cryptocurrency.
He founded Alameda Research, a crypto trading firm that he still runs. Early on, Bankman-Fried discovered arbitrage opportunities in South Korea and Japan. In those countries, Bitcoin was trading at multiples of what it was worth in the U.S., meaning traders could buy Bitcoin at the lower price in the States and sell it for a profit in the other markets.
Those opportunities were among the prizes that persuaded FTX’s head of engineering, Nishad Singh, to leave Facebook and join Alameda four years ago. Singh and Bankman-Fried attended the same Bay Area high school and ran in the same effective-altruism circles. Taking full advantage of the arbitrages in South Korea and Japan, it turns out, “was quite hard,” Singh says, but they signaled the inefficiencies in crypto and the likelihood that “there would be many low-hanging fruit.”
The early days at Alameda also revealed the clunkiness of the crypto world’s existing exchanges, so Bankman-Fried decided to build one of those too. (Running FTX and Alameda, a firm that trades on FTX, at the same time would not be allowed in the U.S.; moving to Hong Kong in 2018 gave Bankman-Fried that freedom.)
Despite being a relative latecomer, FTX has become one of the world’s top crypto derivative exchanges. On Wednesday, it ranked in the top 15 for spot trades, behind the likes of Binance, Huobi Global, and Coinbase, with $1.8 billion in volume in a 24-hour period, according to data from Coingecko. For derivatives, it was sixth with $8.7 billion.
One trait that convinced Matt Huang, cofounder and managing partner of venture capital firm Paradigm, to invest in FTX is how quickly Bankman-Fried and his team respond to the demands of users. “Someone will complain about something on Twitter or request a feature. And it’s not uncommon that Sam will see that, and it will be added to the platform in the day,” Huang says.
Bankman-Fried argues that FTX “presents a vision of what an integrated financial experience can look like”—one where users don’t have to use “different platforms to trade your crypto and to trade your stocks.” Products like tokenized stocks, he says, are innovative in that they allow for trading 24/7, in contrast to traditional stock exchanges that operate on what he sees as an outdated 9:30 a.m. to 4 p.m. weekday schedule.
But critics are quick to point out the risks.
“Casinos are open 24 hours a day,” says Lee Reiners, executive director of the Global Financial Markets Center at Duke Law School. What traditional stock investors lose in convenience they “get in infrastructure that’s designed to make sure the system functions; that it doesn’t have any type of catastrophic incident.
“With broker-dealers in the U.S., they’re subject to the Securities Investor Protection Corporation; there’s a public backstop,” Reiners continues. “That same backstop does not exist in the world of tokenized stocks.”
Binance, the world’s biggest cryptocurrency exchange, started offering tokenized stocks in April, but in July announced that it was “winding down support” for the products, the same day Hong Kong’s Securities and Futures Commission said it considers the tokens securities and that Binance has no license or registration to conduct “regulated activity” in Hong Kong.
Bankman-Fried says that the development has no direct implications for FTX’s offerings. “We’re excited about the product,” he says. “Obviously, we want to work with regulators on these.” He also notes that his company’s tokenized stocks are licensed.
Bankman-Fried recently responded, at least in part, to another criticism of FTX; that the high leverage the exchange has offered—as much as 101 times—was contributing to the wild swings in cryptocurrency prices. He said on Sunday on Twitter that FTX would cap leverage at 20 times, significantly shrinking the size of bets investors can make. “While we think that many of the arguments are high leverage miss the mark,” he wrote, “we also don’t think it’s an important part of the crypto ecosystem, and in some cases it’s not a healthy part of it.”
Skepticism about FTX hasn’t turned off customers or financial backers. In fact, the company says it has over 1 million users and is averaging over $10 billion in total daily trading. Its latest round of funding—a $900 million Series B that drew more than 60 investors—closed on July 20 and valued the company at $18 billion. Revenue has increased over 10-fold in 2021 and 75-fold since mid-2020, FTX says.
Crypto under scrutiny
Cryptocurrencies’ march into the mainstream has invited more scrutiny of digital assets. Price fluctuations this year have underscored their speculative nature. Regulatory crackdowns on cryptocurrency mining, especially in China, have highlighted their enormous carbon footprint. And ransomware attacks on corporate giants have stressed how criminals rely on cryptocurrencies to execute their schemes.
Bankman-Fried admits that, until recently, these faults didn’t bother him too much. They didn’t have any bearing on his two-step objective: First, make the money. Second, give it away. “Improving the reputation of cryptocurrency is a no-man’s-land, from that perspective.” But he says, “I’ve increasingly come to [realize that’s] not quite the right way to think of it.”
He attributes his epiphany to FTX’s growth. “Eight months ago, I was never speaking on behalf of the crypto industry. But we’ve done well enough over the last year that the things I say and do impact how people see the industry and how the industry actually is.”
To address cryptocurrencies’ environmental cost, Bankman-Fried says FTX is going to buy carbon offsets and plow money into the research and development of greener cryptocurrency mining. “The right thing is just to acknowledge that there is an issue, but also that it’s not that hard to solve and that we should solve it,” he says.
And regulation, he says, “is a big piece of” improving the reputation of the cryptocurrency industry. The company can “try to get licensed when we can, be compliant, and be super responsive to what regulators say and imply,” he says.
There’s also the reality that any effort to improve and tame the crypto trading sphere could restrict how much money Bankman-Fried makes from it. But that’s a balance he says he’s now willing to strike. “The plan of ‘be a bad actor and make a lot of money’ is not actually a good plan, even if you’re then gonna use that money to try and do good for the world,” he says. “I think more and more that that strategy just fails in the end, and that you have to work within the confines of being a good actor.”