How did Sam Bankman-Fried get away with peddling FTX?

Former FTX Chief Executive Sam Bankman-Fried, who faces fraud charges over the collapse of the bankrupt cryptocurrency exchange, leaves the Manhattan federal court in New York City, U.S. March 30, 2023.
Former FTX Chief Executive Sam Bankman-Fried, who faces fraud charges over the collapse of the bankrupt cryptocurrency exchange, leaves the Manhattan federal court in New York City, U.S. March 30, 2023.

As FTX founder Sam Bankman-Fried prepares to go on trial for several of the 13 charges against him, the crypto world is getting pressured by regulators around the globe to make sure they’re not liable for another fraudulent scheme.

With regulators mulling new rules and the industry thinking about its own self-regulation, Axios reporter Brady Dale (formerly of CoinDesk) offers a timely, compelling look at the elements behind Bankman-Fried’s rise and FTX’s dramatic fall in a new book, SBF: How the FTX Bankruptcy Unwound Crypto’s Very Bad Good Guy.

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Full disclosure: I worked with Dale for two years at CoinDesk. He’s one of the most experienced crypto and DeFi reporters around. What follows is a transcript of our recent conversation, lightly edited for length and clarity.

Quartz: A lot of people were surprised when FTX, of all firms, imploded. How surprised were you?

Brady Dale: It’s funny; Felix Salmon, who works for Axios, was kind of the first to be sounding the alarm. I was in the office that day, and it was Election Day. I was [thinking] we should probably write about the candidates the crypto industry endorsed. That’s what I thought my day was going to look like.

It was The Block that had the first story reporting that people were having trouble getting withdrawals out of FTX. I mean, that can happen. It happens to Coinbase all the time.

I think Felix saw on Twitter someone was saying you can look at their wallets and see nothing been moving for a while. He was like, “In what scenario is this not bad news?” I didn’t think Sam was some prince or anything, but I did believe he ran things pretty responsibly.

I was in denial a little bit because I just know that sometimes people overreact to crypto news. They don’t really understand things. Like, if a blockchain gets clogged—they only have so much throughput—this kind of stuff happens. It doesn’t mean the world is ending.

But then at a certain point, I was like, no, it’s worse than I thought. That’s when Sam essentially said, “Oh, Binance is going to come save us,” and that’s when we were all just like, “What?”

Up until that point, what made Sam Bankman-Fried and FTX’s PR strategy effective?

Something I experienced myself as a reporter was that Sam’s openness was really refreshing and inspired a lot of confidence. It wasn’t hard to get to him. He’d get back to me super fast, and it didn’t feel like he was having six people review his comments before he sent them back to me. He said what he thought.

I think the other thing about Sam that charmed mainstream reporters and made a lot of people in crypto skeptical about him is that he didn’t really buy into crypto himself. He was never speaking about crypto in a missionary way that a lot of other people in crypto do, which I think turns off mainstream reporters.

I think—and this is a big part of my book—Sam was a kind of character in the crypto world in that he was a missionary, he just wasn’t a missionary for crypto, and people liked that.

It was still a self-serving thing. Some people want gold-plated toilets. What Sam wanted was to be was to be thought of as the greatest philanthropist of all time. It was about his ego. It’s just that he didn’t need a penthouse overlooking Central Park. He needed to cure malaria, and he thought he was smart enough to do it.

My feelings about that have always been complicated because I used to be a nonprofit guy, and so I kind of liked it, but I also believed he believed it.

What do you think Sam Bankman-Fried was trying to get from lobbying Congress and making political donations?

He wanted access to the crypto market for FTX, and he also wanted FTX to be number one.

I always felt, and I think most people felt, that FTX was fine with any crypto law that would get passed just as long as something passed, and they didn’t really care how complicated it made things. I really think he was taking a page from Mark Zuckerberg’s playbook which is, “We’re big enough, we can afford a ton of lawyers, we can abide by almost any law you want to write for us and upstarts won’t be able to.”

On some level, restrictions are good because they create a moat. I mean this a very old playbook from procurement companies, you know.

Can you talk about how DeFi made Sam Bankman-Fried a big name in crypto?

Basically, Uniswap existed [as a decentralized crypto exchange running on the ethereum blockchain], and then in August 2020 [rival exchange] SushiSwap comes along and says we’re going to make a fork of Uniswap, create a token with it, and the token will reward the users of Uniswap, and the people that own the token will control the DAO (decentralized autonomous organization) that runs it. If you committed before SushiSwap launched, transferring your liquidity position from Uniswap to SushiSwap, you would get like 10 times more tokens in that period than you could once it went live.

There was a big anti-VC mood in crypto and especially DeFi at that time, and Uniswap was VC-funded. Uniswap blew up like crazy as it was being built because people were plowing money into Uniswap so they could log them as LP commitments to SushiSwap when it launched. So Uniswap went from a few $100 million to billions of dollars, and it was entirely driven by people who wanted to move their money over to SushiSwap. Uniswap people got very scared that they were going to be completely railroaded by this thing.

Sam stepped in, and FTX ran the migration, and it went really well. That was his debut as a leader in the space.

On the flip side, he was making piles of money off of yield farming [in which depositors are rewarded for keeping their crypto on decentralized apps, usually to create liquidity]. Alameda was doing that so hard. The idea of liquidity mining is you’re trying to get users into your products. And Alameda did not care about that at all. They would just dump a bunch of money in, get as many tokens as they could, sell them, and run right out. But it was really frustrating people that they were doing that.

Then Sam got really into Solana [another blockchain hosting decentralized apps] because he thought DeFi could be much, much bigger if they had a way faster [mechanism to process transactions]. He was just really convinced that crypto was much too committed to these decentralized values and what really mattered was speed.

That was the moment that was telling to me. Like, this guy doesn’t understand this space very well. I still think if you don’t have genuine censorship resistance and you don’t have reliable decentralization, then you might as well use a database—because blockchains are like crappy databases, except for the one thing they’re good at, which is being truly censorship resistant.

SBF: How The FTX Bankruptcy Unwound Crypto’s Very Bad Good Guy was published by Wiley on May 9, 2023.

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