• “Before the crisis, FTX was meant to be holding about $15 billion worth of customer deposits." Five billion of that had already been paid out to customers, and so, still inside FTX, there should have been roughly $10 billion. There wasn't. The only remaining assets were whatever was left of the dragon's hoard inside of Alameda: a big pile of FTT, another big pile of Solana tokens, an assortment of crypto tokens that would be even harder to sell, $300 million worth of Bahamas real estate, and a truly massive heap of Sam's venture capital investments” - intro
• Today we’ll talk about the rise and fall of FTX, the darling of the crypto world up until their sudden bankruptcy in late 2022. The story obviously focuses on it’s enigmatic founder, Sam Bankman Fried. Looking back, he was quite the weird guy - always played video games while being interviewed, hung out with celebrities like Shaq and the Kardashians, always wore the same cargo shorts and a ragged shirt - yet at the time, everyone wanted to meet him. As Michael Lewis says, “When you have $22.5 billion, people really, really wanted to be your friend.” I’m excited to dive into their complicated founder and what went wrong at FTX!

An Odd Childhood

• Before we dive into the story of FTX as a company, I want to paint the picture of the founder Sam Bankman Fried and his unique childhood.
• Michael Lewis describes Sam as quite the oddball from the get-go. He grew up in the Bay Area and had a knack for numbers from a young age— even being recommended to skip a few grades in elementary school.
• But it wasn't just his brainpower that made him stand out. It was his upbringing that really made him one of a kind. Sam was living in what you might call a 'hippie paradise.' His parents were academics, and they were all about nurturing independent thinking and creativity. So, while other kids were playing with action figures, Sam was probably debating economic theories with his parents (and parents’ friends) over dinner.
• Sam had really weird descriptions of his childhood, saying he wasn’t like other kids, didn’t know if it influenced him much or what he did with it → his brother said “I would interact with him as another tenant in my house”
• As a teenager the only thing that consumed him were games, offering an escape from real life and an arena to test his risk appetite: “Merely playing a lot and memorizing the best moves only got you so far, as from one game to the next the best moves would change. It makes it so players have to constantly adapt the strategy to things no one could have anticipated," said Garfield. The people who were good at Magic were those who found it easy to adapt their strategies. As the best strategy was not just hard to know but unknowable, the people who were good at Magic were also comfortable making decisions while being certain that they were uncertain.”

Joining Jane Street

• Sam viewed life through a utilitarian lens and wanted to have the biggest impact on the world, at first thinking he’d be a professor like his parents but then seeing all students zone out during lectures - so he set his sights on Jane Street and high frequency trading instead: “He wasn't better than usual when he was on a clock; he just wasn't worse - and most people were. Other people felt emotions; he did not. Most people, facing a complicated problem and a ticking sound, had trouble seeing quickly what mattered and what did not, especially if the problem had no perfect solution. Few of the Jane Street traders' questions had perfectly correct answers. They were testing him for an ability to make messy judgments and act quickly on them — and not to be too bothered about questions to which he did not, and could not, know the answer.” (Odds that my family has a pro baseball player Q or weighted coin flipping…)
• Effective altruism as a banker > being a doctor?
• “The role of the Jane Street trader - one of the biggest sources of profits - was to keep the prices of all of these ETFs in line with the assets inside of them. The price of any pool of assets should always, in theory, be equal to the sum of the assets in the pool. Trading an ETF was like trading a ham and cheese sandwich, as one Jane Street trader put it. If you know the price of a slice of ham, a slice of cheese, and a slice of bread, you know what the price of the sandwich should be: the sum of the ingredients. If the cost of the ingredients exceeded the price of the sandwich, you bought the sandwich and sold the ingredients. If the price of the sandwich exceeded the cost of the ingredients, you bought the ingredients and sold the sandwich.”
• Jane street made its money in the sandwich business but it also made money by finding statistical patterns missed by others in markets.
  • The Jane Street traders needed to clearly articulate why they were making money
  • For example, when Sam found that exactly 12 hours after the price of certain South Korean stocks rose on the Seoul stock exchange, the price of other stocks rose on the Tokyo stock exchange, he had to explain what was going on. He found that these changes were being driven by a single trader at a German bank. The banker would make his purchases on the South Korean exchange before calling it a day and passing the Japan orders off to his colleagues when they woke up in Tokyo.
  • This skill made Sam an asset at Jane street where he would earn a $1million bonus by the age of 25

Alameda Research - A Vessel to Save Some Vast Number of Lives

• At 25 he was making a million dollar bonus at Jane Street but wasn’t happy with his life - this was when crypto caught his eye as a growing speculative financial market… “Jane Street, as Sam put it, was "just a place where people come to work each day to play some games and increase the number in their bank account, because what the fuck else are they going to do with their lives?" Alameda Research, as he was calling the new firm, was going to be different a vessel to save some vast number of lives.”
• One key thing to call out here — sam’s new quant fund was going to do the same thing Jane street was doing for equities, but for cryptocurrency. Answering questions like: how does the price of bitcoin change based on the time of day or in relation to other coins?
  • also their declared purpose was entirely different, they had some grand vision to work with other effective altruists and increase the “expected value” of their lives.
• Out of the gates Alameda Research got a $170m loan to trade crypto and fared well with recruiting by appealing to the brightest effective altruists, **but they soon “misplaced” $4m of Ripple coin, ****which left many employees except Sam upset - he felt like it’d just turn up but everyone else was mad that there is no accountability, so half the company quit
  • very key indicator of how an SBF company would be managed. NO CONTROLS