From Alameda to FTX to elaborate on the two or three things of SBF and the encryption industry
Original title: “FTX Trilogy Part One: What kind of personality enables SBF to rule a company valued at $18 billion? 》
The CEO of FTX is a rare executive.
FTX will become one of the most influential companies in the next decade. This cryptocurrency exchange gained fame in just over two years, with a valuation of US$18 billion. This is achieved through crazy speed, cautious aggression, product innovation and a unique culture. In the next three briefings, we will unveil its helm, the company itself and its future. This article is the first part.
Sam Bankman-Fried (SBF) is a master of risk.
Like a few others, the CEO of FTX showed an understanding of the degree of danger and was able to succumb to him. Only outstanding investors and founders in the world—such as Warren Buffett and Steve Jobs—can demonstrate this ability in a long-lasting manner. Although SBF has not proven to be able to maintain it for a long time in this regard, his early performance shows that he is a rare genius.
This is just one of the reasons why the founder of the cryptocurrency exchange and his most influential investment company seem to be a perfect fit for his current role. At the same time, SBF combines the judicial wisdom of creative regulators and the intuition of elite traders.
This series has contributed to one of the most impressive entrepreneurial experiences in modern memory. In the first three years of his leadership of FTX, SBF successfully balanced the risks while advancing at an extraordinary speed, like driving a Harley car through a high-speed rail.
Of course, the company has not crossed the chasm. Few other industries have the same regulatory risks as the encryption industry, let alone changes. But here at SBF, the company has an ideal leader: a CEO who is wise to risk but dares to step on the accelerator. His understanding of risk is almost commendable. This may be an added benefit, in his endless and idiosyncratic nature, he is a suitable incarnation of the crypto market he operates.
Today, in Part 1 of the FTX trilogy, we will outline his origins before delving into his thoughts.
Life at SBF
Sam Bankman-Fried (SBF) was born on March 6, 1992 in Santa Clara County, California. SBF is the son of Barbara Fried and Joseph Bankman, two law professors at Stanford University, and grew up in a high-quality environment. This had a significant impact on his later thinking, which we will continue to discuss.
In 2010, SBF entered the Massachusetts Institute of Technology to study physics. As he said, he is “a bit like a math nerd.” In his first few years, he considered a career in academia and wanted to become a professor of mathematics. After realizing that he had no interest in formal research, he broadened his horizons. Specifically, he looks for something that suits his skills and is worth his effort:
One thing I do know is that I want to know how to make the most positive impact on the world. I have been in utilitarianism for a long time, and I have recently begun to enter effective altruism, which is basically this movement…you are trying to figure out how to influence the world, try to quantify things, try to find out what is the most effective way…
I am trying many possible occupations, which are almost everywhere. [I] had some conversations with people and basically, they said, “You can go to work for one of these charities or organizations that you think is good, or you can donate to them. Frankly speaking, considering your strengths and The downside, maybe you donated things for them more than you can contribute directly to them.” So anyway, I thought of this, it sounds like a very reasonable argument.
SBF believes that earning a considerable salary that can be used for charity is the best way for him to gain influence, so he interned at Jane Street Capital in the summer of his junior year. A few friends had done internships there before, and they all said “not bad”.
Founded in 1999, Jane Street has developed into one of the largest and most respected quantitative trading companies in the world. It has maintained this reputation and scale: in 2020, the company traded $17 trillion in securities.
After SBF graduated in 2014, a pleasant summer job prompted him to get a full-time job. Facts have proved that this is very appropriate. SBF is fascinated by being surrounded by a group of “nerds” who intend to emerge and implement keen trade ideas. He focuses on international ETFs, and this slightly exotic style heralds some of his later more compelling work in the Asian crypto market.
Although he described Jane Street as a great employer, after three and a half years, the young financier thought it was time to build his own. He remembered the reason at the time:
[I’m thinking] There are many things in my life that I want to try. I don’t know what will become the right thing in the end. But at least one of them may go very smoothly.
No matter how optimistic he is, even SBF must be surprised at the scale and speed of his success. After leaving Jane Street in 2017, he spent time thinking about potential opportunities. Attracted by the cryptocurrency boom that swept the market at the end of that year, he turned his attention to the emerging ecosystem.
When he started to study the market, SBF’s trading intuition began to run at speed:
It has many characteristics, it may be a very inefficient system, and there is a great demand for liquidity. This is basically: sudden huge demand, very rapid growth, a large number, a large number of retail users, and there is not much time to establish an organization. There is not much time to establish liquidity…
It feels like something that is likely to have a very large quantity and price difference.
When SBF recognized the arbitrage opportunities between the US and Asian crypto markets, this interest became an obsession. Due to the difference in demand, the transaction price of Bitcoin and other currencies in South Korea is much higher. This so-called “kimchi premium” sometimes reaches 50%, which seems to be a once-in-a-lifetime opportunity. In theory, at least, investors can buy bitcoins in the US at a price of US$5,000, and then immediately change hands at a price of US$7,500 in South Korea.
When others discovered this inefficiency and tried to take advantage of it, SBF quickly realized its limitations. Since the Korean won is a restricted currency, the size of the opportunity is limited. Of course you can make money, but repeated deployments of hundreds of millions of dollars are not feasible. He looks for something bigger.
Although not so compelling, SBF realized that the Japanese market has similar characteristics to the Korean market. The net purchase of Bitcoin is very high, leading to a 10-15% premium on domestic exchanges. Crucially, the yen is not a restricted currency, so it can be operated with real money. This does not mean that it is easy-it requires a complex network of intermediaries that “looks like money laundering.”
Based on SBF Odd lot interview
Seeing the opportunity to earn “10% profit per working day” by buying bitcoins in the United States and selling them in Japan, SBF quickly took action. SBF, together with former Google engineer and MIT alumnus Gary Wang, and Nishad Singh, who just graduated from the University of Berkeley in computer science and met high school, raised funds to found Alameda Research, a quantitative trading company. Essentially, this is the cryptocurrency version of Jane Street.
The benefits of Japanese arbitrage are the same as SBF imagined. With $200 million in funding, Alameda deploys and redeploys the funds to the Bitcoin market, earning 10% or $20 million every day.
But SBF is not satisfied with calculating his bonus and washing his hands. About a year after founding Alameda, he and his team began to consider a more important opportunity: the establishment of a cryptocurrency exchange.
SBF believes that the current level of technology is very poor. In the process of running Alameda, he began to realize how much room for improvement in the underdeveloped crypto world. In fact, although Coinbase and other companies may be marketing at the time, there is still a long way to go for real institutional-level transactions, especially for those interested in more complex securities. For example, BitMEX provides access to derivatives, but like many other products, it is prone to interruptions and other performance issues. With their practical experience, SBF believes that the Alameda team can create an exchange for professional investors like them.
At the end of 2018, SBF, Wang and Singh started working on FTX, an exchange “created by traders and exists for traders”.
However, there is a problem: the United States is a hostile environment for establishing crypto derivatives exchanges. U.S. domestic regulators are skeptical of emerging asset classes, especially for more speculative investments. For example, the U.S. Securities and Exchange Commission (SEC) (reasonably) suppressed the ICO boom in early 2018 and warned that it will pay close attention to exchanges during the year.
When the team worked out the attack plan, SBF made a decision: FTX will be established in Antigua and Barbuda, with its headquarters in Hong Kong, which is relatively friendly to cryptocurrencies. This is a major move, requiring Wang, Singh and other important participants to move.
However, this does not seem to slow down development. In May 2019, FTX officially opened for trading. In the following two years, it has grown into a $18 billion company and is one of the most popular exchanges in the world.
Although this largely depends on the product itself and the company’s strategy, the role of SBF should not be underestimated. To understand what FTX is and what it might become, we must not only understand the biography of its founder, but also try to understand the factors that really resonate with him.
Understand this man
It is almost unreasonable to make a personal profile. Not only does it require the author to observe the subject with a slave-like obsession—to scribble out every exciting phrase breathlessly, and to listen carefully to every previous interview—it also raises a possibility that sometimes intersects with deep understanding. Gossip. How much can we learn from short conversations? How curious is it reasonable to attend the first meeting? What insights can we gain from the sediments of life? Are old tweets, flexible CNBC sections, long podcasts, and surprise poems valuable?
The purpose only partially proved the rationality of the means.
After all, most of the time, the subject itself is also observing. Even if you are not talking to them directly, you may still be talking to them. After all, people like you. Aware of this concern, modern executives can’t help but direct the discussion to the talking point, the familiar stereotypes in the established narrative. If the observer’s job is to draw a portrait, then the subject’s job is to guide their hands.
When researching Sam Bankman-Fried, I was particularly worried about this. This is no small matter for him. He is a very approachable and friendly executive-after a few minutes of chatting on Twitter, we arranged a call. He is generous with time and information. Rather, it is an admission that previous reports have outlined his story and set the narrative. Every article discussing this person goes through the same three steps: He is young and very rich! He slept on the beanbag in the office! He cares about the world!
These are true or seem to be. Unsurprisingly, we will also talk about them. But under (and beyond) these descriptions of SBF is the feeling of a vast hinterland. A person with a profound intellectual and emotional life is difficult to find even for those close to him.
I have tried my best to act as a “voyeur”. But I don’t have a clear explanation for you, and there is no magic key that can unlock the soul of SBF. Just trying to understand him, no matter how flawed the task. In particular, I want to investigate the four characteristics that I think influence his character:
- Chaotic but good moral alliance
- Fast processing speed
- Doubts about conventional wisdom
- The rare ability to switch perspectives
I will focus on evaluating the trade-offs of these features and their strengths.
Chaotic but good moral alliance
Given his interest in fantasy games such as League of Legends, I have reason to believe that at some point in his life, SBF played Dungeons and Dragons. For those who have not spent an afternoon, an evening, and an evening in a role-playing game, the basic gameplay of this game is to create your own character and then perform tasks with your other members.
When designing a character, the player needs to choose race (such as humans or elves), profession (thief or wizard), and camp. This final decision requires participants to determine their moral and ethical values along two axes: legal to chaos, evil to good. The options are as follows:
People like Captain America are typical examples of the role of a legitimate and kind alliance. He obeys the rules and is motivated by charitable wishes. In contrast, a person like the clown is an example of chaos and evil. He just wanted to watch the world burn.
SBF may be the most chaotic good founder on the planet. Obviously, at least in some ways, he was driven by altruism. But the way he operates FTX shows that he is willing to act quickly within the boundaries.
Let’s start with a good start and unravel his positioning on the two axes.
As mentioned earlier, SBF has shown a genuine interest in altruism that predates his wealth. Before founding Alameda, he served as the director of the Center for Effective Altruism for several months. Today, FTX has pledged to donate 1% of its net expenses to charity, and so far, this amount has exceeded 10 million U.S. dollars.
The foundation of SBF’s moral philosophy can be traced back to his parents. The work of both scholars shows a strong interest in ethics, although it is particularly prominent in the work of Barbara Fried. In her most famous essay “What does it matter? In …”, she analyzes the limitation of one of the moral philosophical memes: the tram problem. Although completely unraveling Fried’s argument would represent too many detours, this work is consistent with our discussion of probability in moral decision-making. There is a symmetry here: Just as her son has proven good at explaining the invisible world of financial risk, Barbara Fried has demonstrated expertise in solving moral ambiguities.
In our discussion, SBF pointed out that he was very interested in the work of Peter Singer and early utilitarian Jeremy Bentham. SBF’s decision to become a vegetarian echoes the utilitarian approach to morality:
“This is a chicken that has been tortured for six to eight weeks, and then we can eat it for half an hour. It makes no sense.”
The spirit of SBF is not only abstract or out of touch with the world in which he operates. He has also shown a sense of responsibility for the crypto ecosystem, which best reflects his willingness to assume an interim leadership position at SushiSwap. When the creator of the decentralized exchange “Chef Nomi” fled the project with tokens, SBF entered a power vacuum and stabilized the ship. When I asked him this question, he called it “something that takes time.” He added:
The community is going through a difficult period of Nomi’s separation. I just helped put it in the right place. Let it stand on its own. I am very excited about what the team has done.
In the face of his kind behavior, it is easy to over-determine SBF’s motives. Many media have described his story as an exploration of a quasi-savior within the framework of capitalism. But this is detrimental to the reality of company construction. Although having a higher mission will help, if it is not driven by genuine interest, long hours of work and constant pressure are difficult to maintain. Although SBF has an admirable sense of ethics, we don’t need to burden his company with the decorations that nonsense vendors like the founders of WeWork or Goop like more sacred than you. FTX is a business, run by businessmen.
The second part of SBF’s “Chaotic Goodness” alliance is of course the preference for chaos. This is reflected at the individual and organizational levels.
SBF seems to thrive in disorder. On the day I talked to him, he mentioned that I was his 16th meeting that day. He introduced them to me:
- media interview
- media interview
- Discussions related to potential venture capital
- Discuss with potential FTX Pay partners
- Contact an investment bank
- Internal meeting on licensing issues
- Internal meetings on regulatory issues
- Internal meeting on potential NFT products
- Interview with potential new risk partners
- Discuss regulatory issues in another jurisdiction with a lawyer
- Internal reporting on regulatory issues
- Discuss a company that is considering an acquisition
- Internal Legal and Compliance Meeting
- Discuss potential venture capital to support FTX Pay
- Discuss FTX endorsements with sports franchisees
- Interview with The Generalist
In summary, this includes four legal discussions, three interviews, two investment evaluations, a potential acquisition, and some other matters.
As SBF told me, he likes this level of activity. “It was deliberate,” he said. “There are a lot of things happening all the time.” Because of his talent and worrying work schedule, he manages this chaos. Part of the SBF biography is that he only sleeps for two hours a night, curled up in a beanbag chair around the office. In the corner of our Zoom call, a blanket was scattered on one of the beds. As one of his investors told me, “He answers my text messages 24 hours a day.”
Regardless of the persistence of this lifestyle, SBF’s preference for chaos feels particularly suitable for the market he operates in. As he explained when he executed Japanese cryptocurrency arbitrage with Alameda, he is at his best when things are unstable. As the rest of the world seeks to restore balance and struggles in the process, SBF sees clearly. He has the ability to evaluate melee, choose a path and move quickly.
Just as SBF is content to live his own personal life on the edge, he has also shown a willingness to run his company in the same way. As he pointed out in our conversation, “Most of life is living on the edge.” Presumably, SBF believes in the coexistence of business opportunities.
From the day FTX was founded, he was willing to take controversial actions to achieve his goals.
In preparing this article, I spoke with people familiar with Alameda and the early days of FTX. They emphasized the obvious conflict of interest created by the relationship between the two organizations. Wouldn’t FTX’s exchange benefit the market maker founded by its CEO? How can other traders be sure that they have received a fair shock?
The fact is that they may not. The person I spoke with explained Alameda’s initial importance to FTX, providing liquidity to new markets. It may not be clear whether Alameda has paid off.
The source pointed out that FTX attracted strong traffic, partly because it cited such a tight market. For this person, it is actually impossible for the market maker to make money from such spreads, which shows that one of two things is happening: either, Alameda and others are competing on a level playing field and losing money (mainly subsidizing FTX) ), or the company has gained some advantage. For example, this may be the first snooping into the trading volume of an exchange.
None of this is illegal, but this is a tricky area. So far, it has proven to be worth the risk. SBF has pushed these two organizations to new heights. Over time, Alameda and FTX seem to become more and more independent, which may reduce potential conflicts of interest. But the willingness to operate within acceptable limits tells us something about SBF’s direction and his desire for victory, no matter how turbulent.
As this might imply, of course, good alignment of chaos comes with weakness.
The effort of SBF may be necessary for the time being, but it does not seem to be sustainable. Only genetic abnormalities can continue to function in the absence of sleep. Is SBF one of them? Old friends and family know best. Given that reports of this issue seem to come entirely from FTX, I don’t think he is one of the few people who suffer from insomnia.
Although overly masculine investors often insist that founders must overcome this pesky physical limitation, our biological needs often catch up with us. The pressure to build an intergenerational business will only increase the likelihood of burnout.
Perhaps the greater risk is that SBF has moved FTX too close to the sun. What is worrying is that in his desire to succeed, SBF will guide the company to cross some real or perceived boundaries. For example, when I asked a cryptocurrency investor about the regulatory risks of FTX, they replied: “Will they face penalties at some point? Probably they will.” They continued to say that, according to their estimates, this would have a major impact on the company’s development. The trajectory has almost no effect.
Although every executive can make mistakes, it is clear that SBF is aware of the risks of its business. This makes it hard to imagine a truly catastrophic mistake.
Fast processing power
Part of the reason SBF is able to manage this level of input is that it seems to have elite processing capabilities. I feel that he is very happy to hold 16 meetings in a day, partly because his brain almost… needs this? Although the rest of us may be happy that there are several projects that can attract our attention, compared with us, SBF seems to be eager to have a dozen or more projects.
Currently, he is the head of three organizations: Alameda, FTX and Serum. Serum is a decentralized exchange spin-off from FTX. Although he pointed out that he has not been very active in Alameda recently, the amount of information he has to manage is incredible. Of course, this does not include his work experience at SushiSwap.
SBF talked about his ability in this area and also explained its trade-offs. In a tweet in February this year, he shared some of his ways of thinking:
“According to this foolish understanding, there are two types of computer memory: RAM and hard disk.
RAM access is fast, expensive, and small in size.
Hard disk drives are slow, inexpensive, and large in capacity.
The computer I’m using now has 64GB of RAM and 500GB of disk space.
Also, every time you restart your computer, the RAM will be emptied; your hard drive is still there and can save state.
Anyway, I found this to be a useful way to think about *how* I* remember things .
And, in general, I think I have a lot of RAM and a relatively small hard drive.
According to his estimation, this trade-off is not that SBF has a “relatively small hard drive.” In fact, this point becomes clear in subsequent posts. In explaining why he often plays League of Legends, SBF pointed out:
I play more games than you would expect from someone who often weighs between sleep and work.
Well, there is an answer, it is obvious. The most common thing about League of Legends (LoL) is that everyone who plays it says that they wish they didn’t play it…
maybe this is the answer. Maybe not, but…
[When] I’m really really tired, why do I instinctively open League of Legends sometimes?
Sometimes my body is very tired and I want to sleep.
But sometimes my fatigue is spiritual. My mind will spin and my RAM is full of everything that is important to me.
Because I don’t have much disk space and don’t trust it too much. My life is in my RAM.
Even if I want to empty it, I can’t do it.
For better or worse, thoughts that are sufficiently valuable for my active memory will not leave it.
For most people, short-term memory is reserved for things you will forget soon.
But my mind is full of things to remember, do and think, and these thoughts will last for a while.
Because once they transitioned from RAM to hard drives, they basically disappeared. As long as I remember them, these worlds will live.
So, no matter what, sometimes my mind is too full, or full of demanding and tiring things. I want to calm it down.
I will try to lie on the beanbag, but it won’t help. My mind is still turning.
Obsessed with its circular thoughts.
I lay awake and lost sleep again…
so I will open League of Legends.
Moreover, I will enter the game without hesitation, choose a hero, and then start…
there is no room to think about anything else.
So my mind shifted to a new and very different cycle of thought, obsessed with the final game blow instead of responsibility.
The old thought cycle—the exhausting cycle—is forced to leave my active consciousness and spin alone. kill time.
It will come back. In a few minutes, the superhero will surpass our connection, my mind will abandon its alliance ideas, and welcome the old ones back.
But I have reassured myself for 30 minutes and gave myself time to do what usually happens during sleep: it
‘s time to rest my heart and catch my breath.
It’s time to deal with my ideas, consolidate them, and get along with them in peace. At least one point.
Then it started working again. “
When read in another context away from the dopamine bait of social media, this post by SBF is a beautiful text. Barbara Fried is a versatile poet and professor who will find music in her son’s arrangement. But it is clear that although SBF has supernatural capabilities in terms of processing speed, it can cause exhaustion. Similarly, the priority here is for investors and leadership to ensure that sufficient resources are allocated to relieve the pressure on the FTX founder.
Doubts about conventional wisdom
One of my favorite quotes comes from Machiavelli’s “Prince”:
“An unwise prince cannot get wise advice…good advice depends on whether the prince seeking advice is shrewd.”
SBF exemplifies this approach. You will feel that every point of view is constructed from scratch, rather than borrowed from previous teachers.
For example, at one point in our conversation, he mentioned how he was persuaded by this mantra, “It’s better to be safe than sorry.”
Is that right?
As the SBF asked rhetorically, “Did you add value to the world through this philosophy and advice?”
This is a small anecdote, but it reflects the way SBF thinks and solves problems. He showed a healthy skepticism towards traditional wisdom and proceeded from the first principle. This is a feature highlighted by Kyle Samani from Multicoin Capital, an investor in FTX. Samani has repeatedly reiterated that SBF is exceptional in this regard, showing an obsession with “first-order correctness”. Regarding this issue, Samani remembered a conversation that SBF considered building Serum on Solana instead of Ethereum.
During a short 30-minute conversation with Samani and Solana founder Anatoly Yakovenko (with this fast processing capability in mind), SBF carefully considered the requirements of the new system and analyzed factors such as optimal throughput and acceptable latency. In the end, he made his own decision: Serum will use Solana.
Almost all great entrepreneurs show some preference for thinking from first principles—innovation usually requires focusing on a set of problems that is considered static and remixing different elements. If this approach usually has a trade-off, it is usually speed-it takes time to rebuild the problem from scratch. Obviously, this does not seem to be a problem for SBF.
The ability to switch perspectives
Perhaps the highlight of my conversation with SBF was that he disappeared into a rabbit hole about perspective. We have been talking about thinkers he likes, and this question is not entirely comfortable:
[Not just one person. ] I tried to piece together bits and pieces from different people. In many cases, people will gain very important insights that I missed. Then they will have a lot of very stupid ideas.
With a pleasant sense of frustration, he said that people usually make suggestions when they are unable to provide them. They may think that they have a good grasp of the situation and its various intricacies, but they actually lack useful context. He pointed out that this is one of the obstacles to running a united team: sometimes employees will focus on issues that they think have been overlooked but have actually been considered.
SBF finds this annoying, and it tells us something about him. Whenever he listened to someone’s opinion, SBF seemed to shift between their opinions and those of dozens of others.
Again, Samani called this ability a special gift. Like anyone he has never seen before, SBF can jump between details and then jump to a macro perspective. He understands the details of every possible transaction on the FTX platform and can also play against competitors. He also seems to be able to play freely between the functional perspectives of team members.
As with previous characteristics, this talent may cause other people to make slow decisions, but not in SBF. Perhaps a more reasonable risk is that SBF expects other members of his team to see a similar panorama, but if not, he will be frustrated. It is difficult for anyone else in the organization to have his insight, especially between different entities. Will this cause unrest? It seems unlikely that there will be an issue that will have an impact.
After studying Sam Bankman-Fried, it’s hard not to be impressed. In my interviews with investors, crypto experts, and himself, I was shocked that this is a special executive and an unusual person. A source said very seriously, “SBF is the most capable person I have ever met. This should be explained as widely as possible.”
At the same time open and mysterious, practical and intellectual, ethical principles and flexible in operation, SBF displays a set of rare personality traits, which is very suitable for the department in which he works. Like others, he seems to be able to walk freely in chaos, able to calculate and calibrate the changing pattern of risk.
In FTX, he found his cathedral. The fastest growing exchange in the crypto industry is very creative and very bold. This is not to say that it has not caused controversy. In the second part, we will explore the company’s victories and its weaknesses. But now, what we can be sure of is that it has a suitable ruler.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/from-alameda-to-ftx-to-elaborate-on-the-two-or-three-things-of-sbf-and-the-encryption-industry/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.