Here's what it's like to be a billionaire in the US

Here's what it's like to be a billionaire in the US

I hope to never be as wrong as I was in that conversation, says Adam Yedidia. He is reflecting on a chat he had with Sam Bankman-FriedBankman-Fried, his close friend and former MIT classmate, in fall 2017 at the MIT Alumni Centre.

Bankman-Fried was then inviting Yedidia to join him in launching a trading firm in Berkeley, Calif. that would specialize in buying and selling cryptocurrencies — digital assets like bitcoin ether and litecoin — including the Euratoms. Yedidia declines and even tried to talk Bankman-Fried out of the whole idea.

It was sort of like, Yedidia is pretty scammy with this crypto thing. I was sure it was a bubble.

Bankman-Fried, now 29, went forward anyway. According to a recent Forbes estimate, he is a billionaire 16 times over, four years later. Though such estimates are fuzzy — many of the Bankman-Fried's digital assets are illiquid, limited in value and simply weird — his sudden prosperity appears to constitute one of the most difficult accumulations of self-made wealth in history.

His riches come from both the trading firm Alameda Research and Yedidia took a pass on, and from a Hong Kong-based cryptocurrency futures exchange FTX, which Bankman-Fried started up in mid January 2019.

Last month, FTX — of which Bankman-Fried is owned nearly 60% — completed an industry-record $900 million fundraising at an 18 billion valuation. That valuation was 18 times higher than it had been 17 months earlier at the first round of fundraising of the FTX in February 2020.

Bankman-Fried still owns 90% of Alameda Research, he says. Alameda's digital wallet at FTX contained on July 2017 over $10 billion worth of digital coins, according to a screengrab he sent me.

Over the past three months, FTX has unveiled high-profile marketing contracts with Major League Baseball, the celebrity couple Gisele B ndchen and the NBA's Miami Heat, who is renaming their home venue as FTX Arena. Michael Bloomberg contributed about $5.2 million more to President Joe Biden's campaign than anyone except Bankman-Fried: $2.33 million per 12 months according to federal election commission records.

Still, the book isn't closed on whether Yedidia's original instincts were trump or not. Despite Bankman-Fried's increasing personal acceptance and considerable broad reach — he's also appeared daily on several cable business shows and has become a frequent guest on Yahoo Finance — what he's doing is dicey.

Is there real work on crypto exchanges? One category of operation — companies like Coinbase Global, which went public in April, and Gemini, founded in 2014 by Cameron and Tyler Winklevoss — have set up U.S. based operations that attempt to comply with US regulatory frameworks, even though those are cumbersome and ill-suited for the nascent asset class. As a result, these companies offer a relatively limited set of offerings — mainly spot market sales of a select list of cryptocurrencies.

However, a set of much more riskier companies — like BitMEX, Binance, Bitfinex and FTX's international exchange - have taken a much more lucrative approach. They have set up offshore and have offered a wide array of innovative products, including crypto futures, swaps, unique derivatives and 'tokenized stocks'. The volatile exchanges have also let traders — including unsophisticated retail traders — buy many of these offshore instruments on margin. Until last month, for example, several exchanges, including FTX, spotted their customers margin ratios as high as 100: 1; that is, you could buy a position on a crypto derivative with just $500 deposit. One big price swing — hardly unusual in crypto markets – can result in automated margin calls that wipe out a trader's position.

In order to evade U.S. regulators, the offshore exchanges, including FTX, say they refuse orders from offshore customers. Such 'geofencing' is unfortunately hard to do in a world with virtual networks and other workarounds, and there's evidence that at least some exchanges haven't always tried very hard. In Manhattan federal prosecutors, the founders of BitMEX last October sued for violations of the U.S. anti-money laundering laws, while the U.S. Commodities Futures Trade CommissionU.S. Commodities Futures Trade Commission indicted the founders for failing to register under the U.S. Commodities Exchange Act. Binance, the largest cryptocurrency exchange and one that no longer tells where it is based — is reportedly under scrutiny by the U.S. Department of Justice, Internal Revenue Service, and the Commodities Futures Trading Commission It's also under investigation by regulators in Japan, the U.K. Germany, Italy, and others, and Thailand's Securities and Exchange Commission brought criminal charges against it last month.

'There's inherent risk associated with this business model, says Lee Reiners, managing director of the Duke University School of Law Global Financial Markets Center. He continues. 'Major regulatory risk, major governance risk, he continues.

'There have been a few like FTX over the years, says one player in the offshore crypto community who is bullish on bitcoin and yet takes a dim view of US Crypto Exchanges. regulators caught every one of them, says this person, who requested anonymity. The FTX is relatively new and the wheels of justice grind slowly.

I wish we were perfect, but no one is'.

Is Bankman-Fried more frugal than his competitors? Or have the regulators just nagged him?

'We've put a lot of attention and care into regulation and interfacing with regulators, Bankman-Fried responds.

He wishes we were perfect, but no one is, he continues. 'If there's something we're doing that a regulator doesn't want, you don't have to sue us. He also stresses that FTX has KYC since the first date, i.e. Know Your Customer rules, designed to stop money laundering or terrorist financing. He thinks these addresses the regulator's most urgent concerns.

'Standing their goal isn't to go to war with industry, by and large, he says of regulators worldwide. 'They have things that they want to enforce or prevent, and they also want to help industry grow. They want to find a way to balance these and I think the big thing is finding a way to meet them there.

This article aims to shed light on whether Bankman-Fried can achieve his audacious goal: convincing the world regulators to fashion new rules for his fait accompli exchange. It is the most in-depth profile so far of Bankman-Fried, among the most innovative young entrepreneurs of our time. It draws chiefly on interviews with eight people, including more than five hours of conversations with four who know him very well, plus more than four and a half hours of Zoom interviews with Bankman-Fried himself.

Bankman-Fried is marked by striking contradictions. On one hand, he is a classically driven businessman who sleeps four-hour nights, famously catnapping in a beanbag chair at the office so subordinates can wake him at any hour for guidance.

Yet Bankman-Fried is also disarmingly honest, candid and almost disarmingly reflective in his apparent efforts to give dispassionate answers.

He is also an autodidact moral philosopher — a self-described 'Benthamite, 'effective altruist, and vegan'who is, however, devoting his career to a sector that many associate with crime, ransomware and environmental irresponsibility.

Also — strikingly unusual for someone who is known no-boosterish about crypto world — he is also non-normal about it.

A key Bankman-Fried character trait is that, while he's not a daredevil, neither is he risk averse. Maybe this originates from the fact that he's super-quantitative, as FTX's lead engineer, Nishad Singh puts it. Whenever we've had scary decisions to make or have been in big trouble takes Sam to his spreadsheets.

However, if the emotional upside is high enough, he appears willing to accept heavier downside-risk in ways that more mathematical types would not. Aside from the potential exposure he faces from U.S. regulators, Bankman-Fried also has to worry about whether mainland China will eventually subject Hong Kong to its own anti-crypto policies. China recently banned Bitcoin mining in China — the energy-draining computational process by which new bitcoin are minted — and'maintained' that it has outlawed cryptocurrency exchanges on its soil.

Has anybody ever considered a mainland Chinese crypto crackdown in Hong Kong? He deflects the question, offering only: 'We're doing what we can to be respectful of local regulations.

But he does stress that FTX — which has now about 100 employees — is mobile and can pick up its bags if needed.

'Given the emerging nature of the industry, he says, 'it is not yet clear where the best places to be will be. Right now, we are talking with a lot of jurisdictions about building out regulatory frameworks. We are opening up a bunch of offices right now and we may have a new, very substantial one in the next year or so.

For his part, Sam trusts Yedidia's instincts. 'He's been right about not only personal things, but about financial things in my life, he says — alluding to relationships and stuff.

Yedidia continues: I don't know exactly what the right word is, but part of me wants to use the word wisdom.

That's a big word to apply to a 29 - year old who makes a living here from offshore doing things that are illegal at home, would be willing and able to do. FTX could yet prove to be the Napster of commodity futures trading. For the moment, however, shrewd is certainly a plausible word for someone who appears to have threaded a needle no other American could thread... with amassing a net worth of $16 billion.

Sam Bankman-FriedBankman-Fried was born on March 6, 1992 on the Stanford University Campus. Both his parents were — and are — professors of law there. Joseph Bankman writes about the intersection of law, economics and philosophy, while Barbara Fried mainly teaches tax policy.

Bankman-Fried, a friend of Barbara Fried's younger brother who knew his family well when both were growing up, describes Singh as a 'consequentialist" That's an 'umbrella' term, Singh says, for a set of philosophies in which 'utilitarianism is one specific instantiation.

It's an odd way to describe a high-school friend's mother, but the fact that Singh does so gives a sense for how these branches of moral philosophy permeated Bankman - Frried's home growing up.

In an interview, Barbara Fried says that while she herself has long been 'inching toward' utilitarianism during her career, her husband and both of her sons have long been utilitarians.

'The total goal of utilitarians, explained in a followup email, 'is to maximize the ethical well-being of the world's people's people's people's inhabitants -- humans and animals.’ That goal leads utilitarians to concentrate their efforts on helping people in the poorest straits. and on policy interventions that will reduce the risk of existential threats to present and future generations.

When Bankman-Fried was about 14 his mother says, she noticed that — completely on his own – he had been reading up in this area intensively.

'He emerged from his bedroom one night and said to me : 'Mom, what kind of person labels an argument he disagrees with 'the repugnant conclusion? Derek Parfit had found the writings of the philosopher Bankman-Fried, who had stumbled upon this phrase in criticizing a certain strain of utilitarian thought.

'Sam was mad at Parfit for being wrong, recounts Barbara Fried, but more mad about Parfit for the cheapness of his argument. If you need to take this on, you damned well need to grapple with the argument's and not simply label it'repugnant.

Despite his intellectual gifts, Bankman-Fried hated schools.

'It was super-structured, he recounts in an interview, I have a lot of pedagogical disagreements about how a school is run. On the social side, I think I have always felt more comfortable around older people.

Though Bankman-Fried wasn't a complainer, his mother says, she noticed a severe problem when he was in seventh or eighth grade. One day, she recalls, she came across him crying. 'And he said to me, 'Mom, I'm so bored I'm gonna die, I'm gonna die,'' she said.

She and her husband then arranged to get their son some advanced math classes and later sent him to the Canada USA Mathcamp over summers. There he was introduced to 'puzzle hunts'— versions of Scavenger Hunts that require solving a series of logical riddles, which are steps for solving a larger meta-riddle. When he returned to high school after the summer, he wrote and organized a puzzle hunt in which teams from local schools could compete.

I saw a different side of him than I had seen, Barbara Fried recounts. He had 'exuberant management skills' and could 'could muster visible, infectious enthusiasm for it'.

That said, High School remained a bad period for Bankman-Fried. I was in wait mode for the next chapter to begin, is how he recalls it. 'High school and middle school are not the things I am really made for.

In 2010, he went to MIT - he 'basically flipped a coin between it and Cal Tech, he says — where he chose to live in a coed group house known as Epsilon Theta or ET.

'Think of a fraternity, says Yedidia, who met Bankman-Fried at Epsilon Theta, but replace all the alcohol with the nerdiest stuff you can imagine. They would party late into the night, Yedidia continues, but that would involve playing elaborate board games or chess or 'Starcraft' or League of Legends' video games.

Bankman-Fried liked games that involved time pressure, according to Sam, who arrived at Epsilon Theta in Sam's sophomore year. Sam is really into thinking fast, says Wang. He first met Sam at the Summer Math Camp in high school. 'In other games he would insist on playing with a timer.

When Jedidia says, Yedidia wasn't counting Bankman-Fried as the smartest person in Epsilon Theta. People were drawn to bankman - Fried Yedidia says, says He became 'charismatic' in a nontraditional way and eventually became the commander' of Epsilon Theta. Bankman-Fried thinks it had to do with the fact that when Yedidia spoke, it was evident that 'he really meant what he said.

Bankman Friried majored in math while enrolled at the College of Chicago with a minor in physics. But he is even in MIT witheringly dismissive of formal education. 'Nothing I learn at college ended up being useful, says he, "other than, like, social development." On the useless side, it's all academic. The school is not very helpful for most jobs. He began writing in his sophomore year after the summer of his sophomore year. He also wrote essays about utilitarianism or statistically-based jeremiads about baseball or politics.

In one of his first entries, he identified himself as a total, act, hedonistic one level classical utilitarian, while furnishing explanatory hyperlinks for the words 'total, 'act, 'hedonistic' and 'classical'.

For the lay reader, his baseball essays are the most accessible. There he railed against the convention of grooming pitchers as 'openers,'relievers, and'starters'. Instead, he argued that managers should remove every pitcher after no more than two or three innings. This would, among other things, prevent batters from adjusting to a pitcher's stuff. He offered empirical corroboration for some of his arguments, which he got from a Python script he wrote that simulate baseball games based on the statistics of players in lineups.

Many of his essays were contrarian. In one entitled The Fetishization of the Old, he decried the excessive praise heaped upon Shakespeare, Stradivarius violins, 'Citizen Kane, aged wines and the U.S. Constitution as a guide to public policy.

'Romeo and Juliet are incredibly absurd characters, wrote he,'s. The plot is flimsy. T he number of lines between when Romeo is first aware of her existence and when he recites his first love sonnet about her is 32, and none of those involve any action on Juliet's part, let alone interaction between them.

In his sophomore year, Bankman-Fried was exposed online to effective altruism, which he regards as a turning point in his life. The movement, founded by two Oxford philosophy professors, urges people to use their time and resources to bring about the greatest good to the greatest number they can. 'EAs, as effective altruists call each other, use empirical analysis to determine which charities are most effective in terms of alleviating suffering in the world and then try to advance those causes through either direct action or donation.

Around that time, he attended a talk by Will MacAskill, one of the founders of EA. The reaction of Bankman-Fried, as his mother recalls it, was along the lines of: 'Yes, that's right. All of that is right. This is what I've been thinking about — and there's a name for it!

MacAskill had lunch with Bankman-Fried later that year. That was the point, says Sam, 'at which I started to think in a more principled way about what I should do with my life. Until then he had assumed he would probably become an academic. But now he began to think that, among other drawbacks of that plan — like hateing academic research — it would be hard, as an academic, 'to have real positive impact on the world on a mass scale. A more compelling pathway could be 'earning to give' - an EA term for making a lot of money in some highly efficient, underfunded occupation and then giving generously to a conventional, morally neutral cause like malaria relief. The idea was that, depending on one's skill set, it may be more better to become rich on Wall Street and donate $1 million to a Mother Teresa than to try to become a mother Teresa.

Around that time, Yedidia and his friend Bankman-Fried — who became an EA also — became vegetarians. That's not an uncommon choice for those EAs which include animal suffering in utilitarian calculus.

'You spend half an hour in a poultry, Bankman-Fried explains, 'and the chicken has to put through a pretty miserable experience on a factory farm for a month in order to generate that, and it seemed like you had to make some pretty damnable assumptions about chickens for that to make sense.

Bankman and Franc deputise then devoted a number of blogposts to effective altruism themes. In late 2012, for example, he performed an analysis of which charities were most effective. For instance, giving to the Berkeley Repertory TheaterBerkeley Repertory Theater was hard to defend when the same dollars could be given to the Against Malaria Foundation. 'For the cost of saving a life in a developing country, he wrote, 'you could subsidize about 30 tickets to a play.

By his junior year, Bankman-Fried was in trouble between working for the Center for Effective Altruism himself or going to Wall Street to pursue earning-to-give pathway. In my conversations with MacAskill and Ben Todd — the founder of '80,000 Hours, an EA group that provides career counseling — he recalls sensing a gentle nudge towards the latter path.

That summer, he interned at Jane Street Capital, a Wall Street quant firm.

I really liked it there, he says. It is the first time that Bankman-Fried makes unalloyed happiness in tell his life story to me. After graduating he returned to Jane Street.

'It is really difficult to answer that question is actually one of the defining properties of it, he says. 'You just try to do the right trades, whatever tool gets you there, he says. 'It straddled the lines of human and computer trading. There's a lot of automation, but there is a lot of manual oversight and intuition involved as well.

Why does it appeal to him? Singh, now lead engineer at FTX, thinks that Bankman-Fried had found an activity where he wasn't bored in trading. 'Trading will soak up Sam's full attention, he says. 'There's sort of an unbounded number of things you can be thinking about while trading, especially at a busy moment.

Often when Bankman-Fried continues having conversations, Singh will play a video game in the background — even at risk of disrespecting the other person's mind — because his mind just isn't fully consumed.

Jane Street's casual atmosphere appealed to him, too. Barbara Fried is a 'proprietary firm', Jane Street explains, meaning they trade on their own account rather than for clients. 'Which means the quotient of bullshit is really, really low. He would go to work all year round in shorts and sandals and nobody cared.

Bankman-Fried had also lived there for three years happily. True to the earning-to-give strategy, he gave more than half his earnings to charity during that period, he says.

In 2017 he took his first vacation in years, going back to the Bay Area. I forced myself to sit down and run some numbers about what I should do with my life, he says. It dawned on me that it was a man; b. there were just a bunch of things that seemed like maybe very high upside. While Jane Street was competitive with all of them, I felt like it was unlikely to be competitive with whichever of them turned out to be the best.

One idea that still appealed to him was to work directly at the Center for Effective Altruism. We are still in the Ethereum space, yet another was setting up his own crypto trading company.

He knew remarkably little about crypto at the time. He had never trade it at the MIT College of Engineering, nor paid attention to it at Jane Street.

At Bankman-Fried's close friends, only his Epsilon Theta buddy Gary Wang knew anything about crypto. Wang had actually built an arbitrage bot at MIT in 2014 and wrote himself a bitcoin arbitrage trading platform in 2009. He made a couple thousand dollars one semester - which is good for a college kid, Wang says — but dropped it when he started interning at Google that summer.

Despite knowing little about crypto, as a trader Bankman-Fried recognized it had an enormous upside.

"There was huge demand, huge volatility, huge inflows, huge appreciation of price, huge attention and interest — and the infrastructure wasn't there, he recalls. For an arbitrageur, the most modest opportunities were the so-called "Kimchi premium" in Japan and a more obvious premium in Korea. Relative to the prices of bitcoin in the U.S. economy, Bitcoin was traded about 30% higher in Tokyo and about 10% higher in Korea. Demand for the coins was enormous in those countries and barriers to international crypto trading — laws, regulations, fear — were hindering foreign-held bitcoin from being traded there.

'Theoretically, he continues, If you could get the right setup, you could make 10% doing that in a day or something — immediately. He had no idea if the apparent opportunities were realized in practice.

He began reaching out to friends urging them to move to Berkeley and help him launch a crypto exchange there. Bankman informed Fried that the chances of success were only 20% to 25%, but the potential upside was huge. Even if they failed, Wang recalls him saying there were a lot of effective altruists in Berkeley and maybe they could do something with that?

Wang started designing a prototype trading system for them. 'At first, says Bankman-Fried, that meant building out a manually operated platform for us to be able to trade on every exchange instead of having to go directly to each website. automated trading systems and tools.

In September 2017, Bankman-Fried quit Jane Street and Wang moved to Berkeley. Both quit Google and were moved to Berkeley.

In October, however, Bankman-Fried also took a position as director of development at the Center for Effective Altruism in Berkeley. Recognizing that his crypto idea might not pan out, he pursued both paths.

He wasn't candid with the center he admits. He said how nervous I was about telling colleagues that I was unsure if I was going to be there for a long time, he says. It just creates a weird dynamic.

The arrangement was untenable. 'It is absurd of me to try to do both at once, he admits. I had to make a decision, with crypto trading just seeming like, every week, higher expected value than it did the week before.

He quit the center in November. That month Alameda Research registered, which had already been trading for a month, as a Delaware LLC headquartered in Berkeley.

Because of currency restrictions on offshoring the Japanese Won, Alameda Research concentrated on trying to profit from the Korean Cryptocurrency Prime. The idea was simple in theory. Buy bitcoin cheap in Japan. Sell dear in the U.S. Wire the proceeds back to the U.S. Rinse and repeat.

It was not simple. At the time, he soon discovered that most large U.S. banks wouldn't deal with crypto exchanges. In any case, U.S. Crypto exchanges, like Coinbase, had daily withdrawal limits, curbing arbitrageur's potential profits. In addition, you had to be a Japanese resident to do certain transactions with Japanese crypto exchanges or banks. Many Japanese bank tellers had never heard of arbitrage and balked at facilitating repetitive transfers of US Dollar to Japanese Yen from crypto exchanges that raised every red flag in the book.

'At first it seemed Sisyphean, Bankman-Fried continues. But the hurdles proved finite in number, and one by one they were overcome. They made about $20 million, he estimates, before the spreads suddenly dried up in early 2018.

Alameda Research did well over the next two years in the field. However Bankman-Fried and the other traders became frustrated with the offshore exchanges they were trading on. To understand the issues, it's useful to think about — for contrast — how a U.S. commodity exchange works. Like the Chicago Mercantile ExchangeChicago Mercantile Exchange or the Chicago Board of Options Exchange, for instance, there are many layers of safeguards in place. If a trader defaults on a contractual commitment, an exchange'member' — the registered 'futures commission merchant' through whom the trade was made - must make good on it, for instance.

No comparable security nets existed on the offshore crypto exchanges. If a customer's account became net negative, many exchanges would, in effect, recover the exchange's losses from other customers — even though these other customers were fully collateralized and their positions were in black. Alameda Research wrote white papers on how exchanges could improve their practices to prevent these outcomes but in vain.

In late 2018, Bankman-Fried went to a conference in Macau. While there, something happened he calls the'most corrupted event in crypto exchange history. A digital asset called 'bitcoin cash' was split into two different digital coins and had undergoing a fork. This created a legitimate challenge for the exchanges in figuring out how to handle future contracts on the original coin. However, the solutions some exchanges hit upon were, collectively, in Bankman-Fried's view innocent customers lost about $25 million.

'We had obviously been frustrated about how exchanges functioned for a while, says he, but this event made Bankman-Fried think that he and his team could do better.

While attending a series of previously scheduled meetings in Hong Kong, he got encouragement for his idea from a number of Asian crypto players. He summoned Wang, who flew Hong Kong the next day to Hong Kong. As for bankman Fredere, he says, he just cancelled my return flight, rented out a WeWork and basically never left.

Wang and he began building an exchange platform with a variety of improvements, particularly with respect to the risk engine and margin rules.

Back at Alameda, launching the new exchange was controversial, recalls Singh. Alameda was booming, but 'hugely understaffed, he says. Now its best trader and best engineer, Bankman-Fried and Wang, left Hong Kong for the trip to immerse themselves in a risky new project.

'Our estimate was that it was only 20% likely to work out, says he. 'So in 80% of cases, we would have lost momentum and value in Alameda without any other concrete gains.

It was a phenomenal decision, says Singh. 'But it was contentious at the time and seemed very risky.

Both Singh and Barbara Fried are convinced that Bankman-Fried's boundless altruism stems from his effective humility.

Barbara Fried puts it this way. If you can earn money for consumption, there is a very marginal and steep income. What is the best alternative after six months of Porsche ownership? If you're earning money to give it away to charity, there is no diminishing marginal utility of money. Bankman-Fried opened FTX as an Antigua and Barbuda company in April 2019 and registered operations from Hong Kong offices the following month.

FTX stood for Futurties eXchange', explains he, shrugging. 'I'm not great at naming things. I just have issues.

From the outset, FTX's close relationship with Alameda Research was a selling point. Traders still proclaims its Twitter accounts: 'Built (For Traders. )

For the first year or so, Alameda has played a crucial role on FTX. It was the main liquidity-maker, accounting for 'half the volume on the exchange, Bankman-Fried acknowledges.

The dependence on Alameda was 'not a healthy long-term setup', but it helped the fledgling exchange bootstrap, he says. That is, 'it helped solve the problem of how'd you get users with volume, or volumes without users. Since then, we've succeeded in onboarding a number of other liquidity providers and now have a number of the world's largest, multi-asset trading firms on it. Alameda is no longer the biggest, he says.

However, Alameda's role on FTX invites at least two followup questions. How in Berkeley is Alameda handling FTX? BankmanFried replies: 'Yeah, it was an interesting question, actually." 'The answer is that Alameda Research is at this point not a U.S. entity. It's operations are not generally in the U.S.

Does it has a presence in Berkeley?

'So part of the answer is that it is a bit distributed. Especially during COVID, it's been the case that people will get stuck in various places for months to a year. But since the last few years, it's been predominantly Asian-based.

Indeed, around the time Alameda Research LTD launched in 2019, a British Virgin Islands entity was formed (e.g. FTX). But the Delaware entity, Alameda Research LLC is still in "good standing" according to Delaware authorities. So comes a newly formed entity called Alameda Research Holdings Inc., which was just incorporated in Delaware two months ago. In response to an email seeking clarification, he writes, without further elaboration: 'BVI is a subsidiary of the LLC.

What are the smaller, independent asset managers who also provide liquidity to FTX? Who and where is their habitation located?

'So obviously I don't want to give away specific client information, He says in an interview, but in general when you look at the largest trading firms in the world : most of them have non-U.S. teams. This is something most of them have been building out for the last twenty-seven years. A security precaution for cryptographic currencies.

The other likely follow-up question about FTX related to the Alameda is related to obvious conflicts of interest. Theoretically, a very transparent connection between trading firms and the exchange — in this case albeit a very close one could create opportunities for abuses, like front running.

that sort of relationship between a trading firm and an exchange, says Reiners, of Duke's Global Financial Markets Center, 'and to my knowledge, it doesn't happen' on any U.S. exchange now.

'Alameda has the same market access as any other entity trading on FTX, Bankman-Fried responds when asked about potential conflicts. It doesn't have special access to data and goes through the API like others do.

FTX and Alameda Research have each been managing to survive. Daily trading volume at FTX is now in the $ 13 billion range. Bankman-Fried, which has about 20 employees, has made a tremendous amount of money a day for much of the past year, Alameda Research says, on just one trading strategy — a weird thing called 'yield farming' relating to decentralized finance protocols.

Since 2000, Bankman-Fried is giving to effective charities an estimated $3 million. In February FTX also formed a foundation that earmarked more than $11 million to charities like Oxygen for India, Lighthouse Foundation and GiveDirectly, a poverty relief program. FTX employees, many of whom are EAs, have given roughly $10 million more, Bankman-Fried estimates estimate.

What is hard to tell is whether Bankman-Fried's growing wealth and stature will give him greater credibility and bargaining power with regulators or just paint a more vivid target on his back.

As the Wall Street Journal reported last month, a recent study by a data group called Inca Digital — combing through Twitter posts backed up by screengrabs — found at least 372 instances in which Americans appeared to be trading on offshore crypto exchanges. In 240 of these cases, they appeared to be trading on FTX. Bankman-Fried told the Journal that some of those numbers appeared to be mistakes on Inca's part, but that in any case, the entire number would account only for 0.01% of FTX's trading volume. The paper immediately contracted with Inca to help FTX wipe out American traders in the future, the article reported.

Still, the incident underscores the treacherous terrain on which Bankman-Fried is building his platform. Some regulators are obviously interested in offshore exchanges, while influential voices decry the entire sector. The SEC chair Paul Krugman and the top regulator, the Financial Conduct Authority, have both recently rattled the regulatory sabers vis - - vis offshore exchanges, while Nobel Prize winning economist Gary Gensler wrote a mitering New York Times column in May called 'Technobabble, Libertarian Derp, and Bitcoin. There he noted that 12 years after their invention — an eon in information technology time cryptocurrencies still play little role in 'legal activity' and 'almost the only time we hear about them being used as a means of payment — as opposed to normal trading — is in association with speculative activity.

Bankman-Fried, however, believes that both crypto in particular and his exchange in general are at least morally defensible propositions.

'Try different things about crypto depending on the country in which you live, says he. "You go to half the countries in the world and you would not feel good having their official legal currency in a bank account there" — referring to fiat currencies. I don't mean seizing it because of money-laundering concerns, but seizing it because they'd prefer to have that money than for you to have it.

"Krugman is right to say that most of the legitimate payments don't use crypto. What would be best if they did? There's a self-fulfilling prophecy about saying nothing legitimate uses crypto and using that as a way to discourage legit services from using crypto? The existing financial infrastructure is just not built to be natively digital. I do think there is potential to leap forward in the future.

trying to combat, he says. But so-called 'privacy coins' — real assets like Zcash or Monero, whose blockchains are completely anonymous — are the real problems, he thinks. 'There would possibly be serious regulation around some of those, acknowledges he. But 'other digital coins are in many ways easier to trace than other forms of extortion, he asserts, because 'the public ledger helps He uses, as an example, the FBI's successful recovery of much of the Colonial Pipeline bitcoin ransom as corroboration of his point.

'Right now, only bitcoin and ether have vast storage on energy resources. As ether switches to a blockchain upgraded Ethereum adds. many cryptocurrencies will not have huge energy or climate impacts.

Do very volatile traders get burned trading in volatile crypto market markets? Why or why not? I don't believe it has been historically true, says he, but he warns that 'this is not a forward-looking statement' and 'I'm not giving investment advice.

'Quaere how much of this is luck versus other things, he continues, trying to be fair to his critics. But people who have exposed to crypto? tend to be pretty happy with their experiences there, he says. I think it's a little bit different than when you look at people who have been exposed to casinos.

A lot of quote unquote trading strategies, he continues, 'are basically like, I think cryptocurrency has a lot to offer the world so I'm gonna buy some cryptocurrencies. And I think one could make an effective argument that they were literally making money for the right reasons and were proud because of that.

'The last thing to note, he adds, 'is that for any asset to mature, there have to be efficient markets for it. There needs to be a pathway to liquidity, price discovery, stability, maturity and maturity for the asset class, all of which FTX is providing.

Will regulators and legislators really be persuaded by such arguments? Bankman-Fried is betting his livelihood — maybe his freedom — on that known unknown.

He is a billionaire, at least in part because he has more risk tolerance than most of us and has not been cowed by powerful and highly credentialed criticisms of the sector.

What's fully in character! In her son: 'His position has always been: I will go where the premises of utilitarianism take me. I'm not going to name the outcomes repugnant. I'm going to think about them, and my judgment is going to be rational.

Unlike Bankman Fried, I'm not a betting man. If I were, though, I'd bet that some of Bankman-Fried's rational judgments will eventually come into conflict with those of regulators. At the same time, I'd bet that in the long run U.S. law — which avoids strangling new technologies and new business models in the cradle — will do more accommodating to Bankman-Fried than vice versa.

In addition, success has a way of legitimizing itself in our country. How many Congressmen will ever run afoul of Major League Baseball, NBA, Gisele B ndchen and Tom Brady?

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