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Few names in the world of cryptocurrency are more recognizable than Sam Bankman-Fried.
With a net worth of nearly $17 billion, Bankman-Fried is on the list of the 100 wealthiest people at only 30 years old.
So how did this young MIT grad gain so much influence in crypto in just a few short years? Bankman-Fried’s moves in crypto and beyond set him apart as an unusual billionaire.
SBF, as he is often called in the industry, perfected crypto arbitrage strategies before going on to found several high-profile projects.
To understand Bankman-Fried’s influence in the crypto world, let’s take a closer look at his early career and role in founding the leading crypto exchange FTX.
Bankman-Fried Started as a Crypto Trader
Bankman-Fried began his professional career as a trader at Jane Street Capital after graduating with a degree in physics from the Massachusetts Institute of Technology in 2014.
At Jane Street, he specialized in arbitrage trading strategies focused on exchange-traded funds (ETFs). An arbitrage trade is where a trader purchases an asset in one market and instantly sells it for a higher price elsewhere, locking in a risk-free profit.
He worked at Jane Street for three years before stumbling across cryptocurrency in late 2017. At this point, Bitcoin (BTC) was gaining substantial traction in mainstream finance, trading at around a high of $10,000 in November 2017.
The industry was still nascent, and crypto trading infrastructure was minimal. Despite the flood of buyers flowing into the market, few firms provided platforms for buying and selling crypto.
Bankman-Fried immediately saw that the scope for arbitrage in crypto was enormous—prices were very erratic, and the market was highly inefficient.
He began by focusing on a Japanese arbitrage trade, which involved buying Bitcoin in the U.S. and selling it in Japan, pocketing up to a 10% difference in prices.
The opportunity that SBF benefited from was related to the “kimchi premium.” When crypto prices were higher in Korean won compared with other currencies, that was known as the kimchi premium. Similar arbitrage opportunities arose in Japan, although the Japanese premium was not as high.
With money beginning to flow into his operation, Bankman-Fried founded the quantitative trading firm Alameda Research in November 2017.
Today the firm reportedly earns $3 million to $4 million per day via fees on $5 billion daily trading in the digital asset space.
It wasn’t long before SBF turned its attention to building what would become one of the most influential crypto exchanges worldwide with FTX.
If exchanges aren’t good enough… Why not just build one?
Bankman-Fried Founded FTX
Bankman-Fried finished building FTX in May 2019. When it launched, the exchange was marketed as “built by traders, for traders.”
The name stems from “futures exchange.” Originally, Bankman-Fried launched it to specialize in crypto futures trading. But today, FTX has grown to deal in every corner of crypto trading.
FTX is now the third largest crypto exchange in the world by trading volume, after Binance and Coinbase (COIN), according to the most recent data from CoinMarketCap. The exchange even briefly surpassed Coinbase in June, trading at more than $2 billion in volume per day.
A big problem in the early days of exchanges, and one reason why they take so long to gain prominence, is the issue of attracting liquidity.
An exchange without liquidity is useless, but customers won’t come unless there is liquidity. How does one get the ball rolling? Bankman-Fried’s answer was Alameda Research.
Bankman-Fried used Alameda to kickstart liquidity for FTX. Keeping the employee count low relative to competitors and setting up shop in Hong Kong for regulatory reasons before moving to the Bahamas, FTX has grown at an unheard rate.
Alameda is a liquidity provider on FTX but their account is just like everyone else’s. Alameda’s incentive is just for FTX to do as well as possible; by far the dominant factor is helping to make the trading experience as good as possible.
— SBF (@SBF_FTX) July 31, 2019
SBF also branched off FTX.US in 2020, taking a more conservative angle in handling the strict regulatory environment of the U.S. Nevertheless, the exchange is still under scrutiny in the U.S. for its crypto yield services.
Together with parent company FTX, partnerships have been forged with Major League Baseball, supermodel Gisele Bundchen, quarterback Tom Brady and more. The Miami Heat basketball stadium has even been renamed the FTX Arena in a $135 million deal set to run until 2040.
Bankman-Fried Joins the Billionaires’ Club
Bankman-Fried’s successes made him a particularly young member of the global billionaire’s club.
But SBF is no ordinary billionaire. He has long been interested in “effective altruism,” a movement that advocates “using evidence and reason to figure out how to benefit others as much as possible, and taking action on that basis.”
The FTX founder considered working toward this goal by doing direct work for an organization working to improve animal welfare. But he ultimately decided that “earning to give” was the better route, which is the practice of pursuing a lucrative career to donate as much as possible to companies working to make a difference.
This led him to take a trading job on Wall Street after his studies at MIT, working for over three years while donating about half his annual salary. The crypto mogul vows to keep only 1% of his net worth.
“You pretty quickly run out of really effective ways to make yourself happier by spending money,” Bankman-Fried told Bloomberg. “I don’t want a yacht.”
He doesn’t have a yacht—far from it—his vehicle of choice is his trusty Toyota Corolla.
When he came across crypto, he realized that he had an angle to make large sums of money quickly, and ultimately this was the avenue that would allow him to give away as much as possible.
When asked last year whether he would quit crypto if he could make more money doing something else, he didn’t hesitate: “I would, yeah.”
Bailing Out the Crypto Industry
Intriguingly, Bankman-Fried’s altruism also extends to the cryptocurrency industry.
In early 2022, a wave of contagion spiraled across the crypto market after the $60 billion collapse of the stablecoin TerraUSD (UST). The contagion from TerraUSD and sister token Luna’s implosion caused firms such as Three Arrows Capital, Voyager Digital, Celsius and more to go bankrupt.
Bankman-Fried stepped in as a lender of last resort for the industry. Akin to governments bailing out banks during the 2008 global financial crisis, Bankman-Fried’s companies began extending offers of emergency liquidity to firms caught up in the carnage.
“It was important that the industry gets through this in one piece,” Bankman-Fried told CNBC in September. “It’s not going to be good for anyone long term if we have real pain and real blowouts—it’s not fair to customers, and it’s not going to be good for regulation.”
Through Alameda, he provided $485 million in credit to crypto broker Voyager Digital in June. FTX is seeking to purchase Voyager and its assets for $1.4 billion but may experience roadblocks as Texas regulators may block the deal based on Voyager’s filings in the state’s bankruptcy courts.
SBF also bailed out the lender BlockFi for $250 million through FTX, as they, too, got caught up in the liquidity squeeze.
The Future of FTX
As for FTX, there were no such liquidity concerns. The exchange avoided the 2022 liquidity crunch and had the resources to keep the entire industry afloat.
FTX has remained incredibly lean, with a team of only about 300 employees. This contrasts with many other players, like Coinbase, which expanded by adding more than a thousand jobs, only to lay off 18% of its workforce amid the crypto winter, per the company’s June announcement.
The plans for FTX remain ambitious, with a focus on meteoric expansion. For example, the exchange is seeking approval from the U.S. Commodity Futures Commission to offer Bitcoin futures.
The proposal would cut out brokers from the margin process, with FTX instead monitoring the market 24/7 and debiting client balances automatically, and would represent a significant shake-up of the traditional futures market, perhaps extending beyond crypto.
With Bankman-Fried at the helm, FTX has emerged from nonexistent to one of the world’s biggest crypto exchanges in under three years. And he’s not planning to rest on his laurels.
Instead, SBF intends to grow FTX as big as possible and earn as much money from this cash cow before giving most of it away.