The massive fraud perpetrated by Sam Bankman-Fried and his posse of insiders has cost the crypto industry an incalculable loss. There’s a numerical figure to attach here — $8 billion worth of customer funds was spent greasing the political wheel and on trifles like luxury real estate and Tom Brady’s endorsement. While the industry may very well move on from the embarrassment of SBF’s “old-fashioned” embezzlement scheme someday, there is a certain, unalterable harm done from learning the supposed smart money in crypto was incredibly dumb.
Billions were misappropriated to prop up SBF’s money-losing hedge fund, Alameda Research. This went towards venture capital bets, which catalyzed the liquidity mismatch that ultimately brought SBF down, as well as plugging holes in Alameda’s finances. If at one time befuddled outsiders thought SBF must be making money hand-over-fist, all the evidence now shows Alameda Research was a money sink. Founded as a “market neutral” market maker, Alameda eventually developed into a pump-and-dump firm that inexplicably lost money during the largest bull market to date.
This is a roundup of some of the worst gambles we know Sam Bankman-Fried took during his five years as a crypto-trading behemoth, gleaned from the fallout of FTX, his ex-girlfriend Caroline Ellison’s courtroom testimony and on-chain sleuths. For a man obsessed with calculating the “expected value” of his actions, SBF was remarkably bad at gauging reality — in hindsight that may be expected, considering he thought taking the stand at his own criminal trial and likely perjuring himself was a risk worth taking.
Creation and misuse of FTT
On May 8, 2019, shortly after the founding of FTX, Sam Bankman-Fried launched his own exchange token called FTT. The idea was to give the young platform an “equity cushion,” apparently at a time when getting loans was difficult for the upstart traders. From the outset, the Department of Justice’s cooperating witness Caroline Ellison said SBF had directed Alameda to protect the…