Sam Loses the Trillion Dollar Game

It’s been nearly a month since the FTX implosion. Much has been written in the weeks following the insolvency, especially since the event exposed many unhealthy co-dependencies in centralized crypto. The fraud and resultant chaos will give birth to waves of regulation, along with lasting fear within the crypto sector. 

FTX’s founder, Sam Bankman-Fried (SBF), has cemented his reputation as the top fraudster of the millennium. His empire of investment funds (Alameda Research) and exchanges (FTX) had been insolvent for months,perhaps over a year, with a $10B dollar hole in the ledger. SBF stole FTX user exchange deposits to make leveraged Alameda bets. The inevitable collapse wiped out $11B in assets belonging to corporations, pension funds, investors, and normal humans. 

SBF described himself as a “gamer” and as a “consequentialist.” He also used dopamine ripping drugs that may have affected his attitudes toward risk. When the numbers were going up, SBF was a “wunderkind,” and when the numbers crashed down we saw his clear degeneracy. 

What was FTX? Who is SBF?

Months ago I was sharing an Uber with a fellow Bitcoin miner, a brilliant dude. As we rode past  Miami’s FTX Area, I remarked “FTX is going to own everything pretty soon.” 

My fellow miner said “What’s FTX?”

FTX was (past-tense) the most user-friendly crypto exchange ever built. FTX had advantages over its main competitors: 1) FTX’s slick interface was orders of magnitude easier to use than other exchanges; and 2) Headquartered outside of the US, FTX didn’t suffer the continual regulatory migraines that plague Coinbase and Kraken. Compared to other exchanges, the site looked fantastic, was packed with features, and was easy to use.

Most normies may know FTX from the hilarious-in-hindsight Larry David superbowl commercial. The FTX logo popped up everywhere in 2022, especially in the world of sports. FTX worked so hard to legitimize the brand that its collapse was a surprise even to most of the people who worked there.  

SBF launched FTX after building Alameda Research, a venture fund that invested in crypto platforms, protocols, and tokens. SBF became the face of crypto; he was smart, well-spoken, funny, self-effacing, non-threatening. His bushy head and comfortable clothes were a rejection of tradfi’s pressed shirts and hair gel. He was an outspoken altruist, at one point vowing to give all of his billions to charity. Sam’s face was on billboards and the cover of Forbes. He spoke to congress about crypto legislation. He was friends with President Clinton and Mr. and Mrs. Tom Brady.

After being exposed as a thief, all of SBF’s fun quirks only enhanced his villain profile. He was an avowed philanthropist (yet lived in a magnificent Caribbean penthouse). He was a “brilliant trader” (yet gambled with customer money). He was born on second base, both parents are famous law professors at Stanford . He may have been lobbying congress to shut down competitors. He was an outspoken vegan. 

In March 2022 Sam sat for a podcast interview with author/economist Tyler Cowen. Sam called himself a “gamer,” and a “utilitarian/consequentialist.” You can listen to the interview here:

https://conversationswithtyler.com/episodes/sam-bankman-fried/

Sam Runs Out of Quarters

SBF characterized himself as a gamer first. He grew up playing Magic: the Gathering, and was famous for rounds of League of Legends during business meetings. Insiders tell of FTX employees playing board games throughout the day. In the podcast interview Cowen asks SBF how gaming influences his decisions. Sam replies:

...a nice property of games is you’re just put in front of a messy situation, and in the end, your directions are “Do the best you can.” The directions are “Here’s how it works. Now just start playing it. You can do whatever thinking you want, whatever you think is helpful to get you to make the right moves, but in the end, what matters is making the best moves that you can...

Magic and League share a core design: opponents square off in a system with just a few basic rules, unlike chess, where players are limited by a rigid set of options. Wins go to the side who best uses creative rulebreakers. Magic is a game of finding exceptions to the rules. Both Magic and League are also brutal, direct-conflict fights with the goal of eliminating opponents rather than out-scoring them.  

Sam’s game-honed tactical skills doubtless helped him amass his billions, but his inner gamer also helped him lose his fortune. As things fell apart, Sam shifted FTX customer deposits into Alameda, desperate to close gaps in the balance sheet. Using customer deposits to buy back into the game was the action of a desperate gambler, looking for one strong hand to win it all back. 

Sam’s inner gamer may have also created the opening for the FTX deathblow. In 2022 he challenged the King of Centralized Crypto, Changpeng Zhao (CZ). CZ is the overlord of Binace, the world’s largest crypto exchange. Sam needled CZ on Twitter with gamer-style trashtalk. CZ then alleged that SBF was lobbying US politicians against Binance. (During his time at FTX Sam made at least $40M in campaign contributions). 

Sam's political activities may have led him to believe that he’d put together a combo that would cripple the opposition, but CZ had a better hand. CZ announced that Binance would dump FTX’s native tokens (FTT), essentially dumping $500M of FTX stock. With a single tweet CZ broke SBF. 

As FTX teetered on the knife edge of financial legitimacy, CZ offered a bailout, which he then almost immediately rescinded. That was the end of FTX. For those of you who remember playing Mortal Kombat, the screen flashed FINISH HIM, and CZ calmly pressed back, back, down, back, right.

Sam’s Corrupted Ethical Firmware

A little later in the Cowen podcast, Sam speaks about his utilitarianism and consequentialism. 

...there’s something very quantitative about how you view the world if you’re thinking about things from a utilitarian perspective, from a consequentialist perspective. There’s this really big notion of, in the end, you turn things into numbers, and you decide which number is the biggest.

Utilitarianism is the doctrine that an action is right if it benefits the most people. Consequentialism is the doctrine that the morality of an action should be judged only by the consequences. Every human is at times a utilitarian and at times a consequentialist. Democracy is utilitarianism applied to governance; ideally decisions are made by the majority (while protecting the minority). Consequentialist heroes and antiheroes are our favorite literary characters; the rules don’t apply to James Bond, Maverick, or Tony Stark as they break stuff while saving the world. Their ends always justify their means. 

Sam’s utilitarian/consequentialism was ostensibly expressed through this commitment to Effective Altruism. He trumpeted plans to give away all of his billions, either during his lifetime or after his death. His charitable arm, the FTX Foundation, pledged $100M to a wide variety of causes.

During the podcast interview, Cowen asks SBF where he’d donate his fortune today, and SBF doesn’t have a great answer. Rather than climate, cancer, alzheimer’s, or human trafficking, Sam gives a half-baked riff on pandemic preparedness. Political donations were his largest public contributions, at one point he promised $1B in campaign contributions. His $40M in political contributions made him one of the largest donors in the US. 

In the interview Sam says: It might be really messy to get there, but that thought of trying to take a messy system and do the best things you can when ultimately you care about some quantitative property, even if you can never be sure that you’re calculating it right, you do the best you can…

Sam certainly took a messy system and made it messier. Perhaps the consequentialist voice in Sam’s head told him that pulling customer exchange deposits out of FTX to make leveraged Alameda bets was “trying to take a messy system and do the best things.” He may have felt that his actions were justified in supporting his goal of amassing a huge fortune to eventually give away. His inner consequentialist told him it would all be justified, eventually. 

Sam’s Prescription Rocket Fuel

Bill Gates has his Diet Coke, Buffet his Cherry Coke, and it looks like SBF had his prescriptions. FTX kept a therapist in the building to prescribe ADHD medication. The doctor characterized the volume of stimulants prescribed as “in line with most tech companies.” Pictures of SBF at work at his six-screen mega-trader financial cockpit show medication strewn across the desk within easy reach. The prescriptions include a drug intended to treat Parkinson’s disease with dopamine-enhancing side effects, as well as a bottle of good old financial-bro stimmies.

Take a consequentialist gamer and put him on drugs that may diminish an aversion to risk-taking. Plug him into an arcade game that doesn’t run on quarters, but rather quarter-billions. Install firmware in his brain that believes if he gets the high score he’ll do more good for the world than any human ever, and then give him billions of dollars to play with. Maybe SBF thought he’d be able to keep the game running until better inflation numbers brought the return of quantitative easing and a crypto pump. One more bull run could have made our gamer/consequentialist a trillionaire, the kind of money that might well have cured cancer. 

There’s a word for a consequentialist that doesn’t deliver “the best things:” sociopath. When things go sideways, ends justifying means is a twisted moral compass. It’s entirely possible that Sam was a horrible person all along. When the billions disappeared, SBF became a walking checklist of things we commoners hate about elites. Ivy league law professors, check. Outspoken philanthropist living a lavish lifestyle, check. Casual abuse of prescription drugs, check. Rubbing elbows with politicians, check. Vegan, check. Artistically unkempt, check. Behaving as if the rules don’t apply, check. 

The fallout from Sam’s overstimulated gamer/consequentialism will be brutal for the world of crypto. The FTX user-friendly sheen inspired confidence in the platform. Many people parked their assets there, and those funds may be gone forever. Alameda was an investor across the ecosystem. More companies, services, and protocols have collapsed. Asset prices will likely fall further as well. Users have lost faith. Regulators have found new ammunition. 

Toward the end of the podcast interview Cowen offers Sam a tee-ball question that should have been fun for a vegan, “Where in the world do you find the best french fries?”  Again, Sam doesn’t have a good answer. Hopefully he’ll get to try the french fries in a prison cafeteria soon.

Andy Howell

Community & Policy Lead | Print Crypto, Inc