Crypto Dictionary

Sam Bankman-Fried

Learn about the life of Sam Bankman-Fried (SBF), from his background in mathematics to his success as a trader, his entrance into the Crypto world, and his eventual downfall.

Sam Bankman-Fried, who is quite often referred to as SBF, was one of the notable personalities in the cryptocurrency space. If you haven't heard his name previously, you must have definitely come across it in recent times, as he has been making headlines, and not all for positive reasons.
 
Let us dive deeper into the life of SBF, his cryptocurrency journey, and his current status.

Key Takeaways

  • Sam Bankman-Fried is a well-known figure in the cryptocurrency space.
  • Before founding FTX, he specialized in arbitrage trading.
  • He founded FTX and Alameda Research but their success was short-lived due to mismanagement of customer funds and faulty regulatory oversight.
  • Fall of FTX was the major event of 2022 in crypto industryand caused the bankruptcy of many other companies.
  • SBF was arrested and extradited back to the US, but was eventually released on bail with the agreement of mental health therapy and assessment. 

Early Life

Samuel Benjamin Bankman-Fried, aka SBF, was born on March 6, 1992, in Stanford, California. He was born into a wealthy and educated family and is the son of two Stanford Law School professors.
 
He concluded his high school education at Hillsborough, California's Crystal Springs Uplands School. He also took part in a summer academic program for mathematically talented high school students.
 
Bankman-Friend earned a physics degree and a minor in mathematics from the Massachusetts Institute of Technology (MIT) in 2014.

Arbitrage Trading

SBF began his internships in 2013 by trading ETFs at a quant firm after graduating. In 2014, Bankman-Fried began his trading career at Jane Street Capital.
 
He specialized at Jane Street in arbitrage trading strategies centered on exchange-traded funds (ETFs). An arbitrage trade occurs when a trader buys an asset in one market and immediately sells it for a higher price in another, resulting in a risk-free profit.
 
He spent three years at Jane Street before being exposed to cryptocurrency in late 2017. By the end of November 2017, Bitcoin (BTC) was trading at about $10,000 and was beginning to gain significant traction in traditional finance.
 
The industry was still in its infancy, and the infrastructure for crypto trading was thin. Although there were many buyers entering the market, there were few companies offering platforms for buying and selling cryptocurrencies.
 
Due to the extremely volatile prices and the highly inefficient nature of the market, Bankman-Fried immediately recognized the enormous potential for arbitrage in cryptocurrencies.
 
He started out by concentrating on a Japanese arbitrage trade that involved purchasing Bitcoin in the United States and selling it in Japan, pocketing up to 10% due to price differences.

Career and the Inception of FTX

He pivoted to the cryptocurrency realm by co-founding Alameda Research in 2017 and later launching the FTX exchange in April 2019.
 
Alameda was utilized by Bankman-Fried to start up liquidity for FTX. In comparison to rivals, he maintained a low employee count and initially established his business in Hong Kong for legal reasons before relocating to the Bahamas.
 
SBF split off from FTX.US in 2020, adopting a more cautious approach to dealing with the strict regulatory environment of the United States. 
 
FTX reached a valuation of about $32 billion at its height. Before its collapse in November, it was hailed as the third-largest cryptocurrency exchange in the world by volume.
 
When the Terra empire collapsed in May, SBF was acting as the last resort for many troubled financial firms. It had also won the bid to acquire bankrupt Voyager Digital's assets.

"Giving What We Can" Purpose

Bankman-Fried claimed that he was pursuing earning to give as a career and that he openly supported effective altruism. He claimed that he intended to give the vast majority of his wealth to fruitful charities over the course of his life and is a member of "Giving What We Can."
 
For this reason, he established the FTX Future Fund, which also featured William MacAskill, one of the pioneers of the effective altruism movement. All members of the team left after FTX's collapse.

The fall of FTX: Billion-Dollar Empire

SBF was one of the prominent players in the cryptocurrency realm. Even though FTX was founded in 2019, he built himself an empire that seemed robust to the outside world. In a little more than three years, FTX and SBF had become important voices in the cryptocurrency realm. But what happened to the SBF's billion-dollar empire?
 
Little did everyone know that FTX was built on a house of cards. It all began with a CoinDesk article that raised questions regarding the solvency of FTX using its FTT token. The revelation that the majority of its balance sheet comprised of FTT, triggered a market reaction, causing a sell-off.
 
Binance, another key player in the industry, also stated that they intend to sell their FTT holdings. The slew of activities became evident in FTX's downfall. However, Binance offered to buy out FTX but backed off from the deal as the due diligence revealed shocking things about FTX's financial stability.

Mishandling of Customer Funds at FTX

Bankman-Fried left his position as CEO of FTX on November 11, just before the business filed for Chapter 11 bankruptcy. Days later, it also came to light that there had been a misappropriation of customer funds at FTX and Alameda Research.
 
John J. Ray III onboarded FTX as the new CEO. Ray stated that FTX was a complete failure in terms of corporate controls and had faulty regulatory oversight.
 
The Royal Bahamas Police Force detained Bankman-Fried in his Bahamas apartment complex on December 12, 2022, with the intention of extraditing him to the United States so he could stand trial there.
 
After Bankman-Fried was arrested in the Bahamas, he was offered no bail initially. However, U.S. Magistrate Judge Gabriel Gorenstein eventually approved the bail due to the belief that Bankman-Fried would not be a danger to the public and it would be impossible for him to hide.

In addition, the agreement includes mental health therapy and assessment due to Bankman-Frieds well-documented struggle with depression and prescription drugs.

Early before Christmas of 2022, SBF has been released on $250 million bail, secured by his parent’s home, ahead of his trial on eight criminal charges. This comes after he was extradited back to the US from the Bahamas.

Conclusion

Sam Bankman-Fried is a well-known figure in the cryptocurrency space. He has achieved a lot of success in the field, from his career at Jane Street Capital to his founding of FTX and Alameda Research. However, his success in the cryptocurrency realm was short-lived as FTX and Alameda Research collapsed due to mismanagement of customer funds and faulty regulatory oversight.

Bankman-Fried was arrested and extradited back to the US, but was eventually released on bail with the agreement of mental health therapy and assessment.

While the future of SBF and his business remains uncertain, his story provides a valuable lesson in the importance of regulation and financial accountability in the cryptocurrency space.

FAQs

When did FTX file for bankruptcy?

FTX filed for bankruptcy on November 11, 2022.

When was FTX founded?

SBF founded FTX in April 2019.

What are the charges against SBF?

SBF is being convicted on eight counts, including charges for offenses, commodities fraud, wire fraud, securities fraud, money laundering, and campaign finance law violations.

How much was FTX worth?

FTX was valued at $32 billion at the peak of its business before the downward spiral.

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