🎙 109 - SBF and the Future of FTX | Sam Bankman-Fried

i think that's something that i've gotten a lot more excited about in crypto over time um is the the opportunity to use it to have to have impact on the world welcome to bankless where we explore the frontier of internet money and internet finance this is how to get started how to get better how to front run the opportunity this is ryan sean adams i'm here with david hoffman and we're here to help you become more bankless david excellent episode today with sbf

sam bankman freed bankless listeners a few things to listen for as we go through this episode number one we cover how sam built a 30 billion crypto exchange in less than three years simply incredible number two what ftx will actually look like in the future is vision for things number three what the x uh fdx super bowl ad did for crypto what it did for fdx as well interesting story there uh number four and finally is sam on team defy or does he plan to position ftx as a competitor david

really cool episode today what did you think yeah i think uh people in the crypto twitter sphere will think that this episode is gonna be spicy just because uh it would appear at least at the cursory level that f ftx and the bankless thesis are kind of misaligned uh but i think once you get spf and both ryan and i into the same room all of those things kind of disappear and i really enjoyed this conversation with sam and kind of just getting to peek under the hood is really what motivates him uh to build such gargantuan institutions

in the world of crypto and how we are actually aligned on some of our fundamental principles about how uh there are these islands of centralization or pockets of centralization that decentralized crypto rails can allow the navigation between uh which i think is just another uh interpretation of the defy mullet and so i think we definitely align there as well as some other things and in addition to talking about the ftx ad uh we also asked sam's opinion on the coinbase ad uh and you know it was more than just a conversation of two ads it

was more about just like what did each ad do for the industry as a whole uh so just a small snippet of topics that we talked about in this podcast guys the reason we're having these conversations with the big crypto exchanges of the world uh we think of them as the the banks of the future the crypto banks of the futures because these are people who are shaping like it or not they are shaping the industry and brian armstrong we had that conversation in october november of last year go back and listen to that one for for another uh now we have sbf i think we'll have cz from

binance on a time we really want to understand their their takes on the world and their value systems and so we definitely get into that with sbf why is he here does he care about decentralization is he worried that the crypto exchanges of the world uh might lead to a more centralized future and and become the same thing that we're leaving these are questions we asked sbf today and why you should tune into this is because people like spf are helping to shape the future it's important that we hear what he has

to say and know how he thinks guys we are going to get right to the conversation but before we do we want to tell you about these fantastic tools for going bankless from the following sponsors the brave browser is the user first browser for the web3 internet with over 50 million monthly active users control your digital footprint with built-in privacy and ad blocking inside the brave browser you'll find the brave wallet the first secure crypto wallet built natively inside of a web 3 crypto browser web 3 is freedom from big tech and wall street more control and better

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guest sam bankmanfredor sbf as most of you know him he's the founder and ceo of ftx fdx has got to be the fastest growing crypto currency exchange in the world at least uh it feels that way he also manages assets through alameda research which is a quant trading firm that he founded in 2017 always a busy guy a brilliant trader now he's the leader of one of the world's largest crypto exchanges so he's definitely someone to pay attention to and uh sbf it's great to have you on

bankless welcome my friend thanks for having me uh we heard you recently celebrated your 30th birthday so uh also happy birthday thank you thank you i'm glad uh you you you're choosing to spend some time early in your 30s with uh with the bankless community we're grateful for that we're excited about that but how's it feel how does it feel to be 30 yeah good how does it feel to be 30 and to have um accomplished so much in crypto you know i mean in many ways it honestly doesn't feel that that different than 29. um but uh

you know it's um it's been a wild few years and i think it's been particularly interesting just sort of seeing um you know the difference between uh you know what uh what what sort of like a standard trajectory is and then what what happens if you really sort of you know put your feet on the gas pedal a little bit and um and sort of don't assume that anything is impossible until proven otherwise well that it feels like you've had your your foot on the gas pedal uh ever since

you joined crypto and that's actually actually where we want to start the story here uh with you sbf is um you somehow manage i was looking back at when ftx was was founded and it was uh 2019 may 2019 less than three years ago which is incredible you are now a top three crypto exchange and you've built all of this in the last three years how did you do it like is it what going back to what you just said is just you haven't uh taken your foot off the gas pedal but

like how how is this even possible yeah i mean you know that's a piece of it but it's not all of it and um you know i think other things that that really contributed to this i mean one of them is just like taking a step back and and saying all right like um uh what you know what's the right thing to build in the first place like where is there a real need and you know sort of a combination of like there's a lot of demand and not

enough supply of some product um and you know i think we felt like the exchange space was one of those spaces you know it's a place where there would um they really are one of the core pieces of infrastructure in the crypto ecosystem um and you know the exchange of circuit 2018 they just weren't that good and i think we sort of looked at that and like all right there's a big opportunity here to really jump in and um uh and that that if we do like you know and if we build a really great product

um you know we we could pretty quickly become a pretty big big piece of the space if so if everything goes goes exactly right and and i think that like yeah choosing the right place to come in was one piece of it and then you know and it's you know feel a little silly saying this but like building a great product it's a thing that i feel like a lot of people legitimately sort of fail to emphasize nearly enough and uh but but but obviously it's incredibly important sam you made bill the creation of ftx

just look easy from like the outside in at the cursory level glance it just kind of looks like ftx just just uh was built out and manifested basically perfectly according to plan and i remember coming being a person coming into the class of 2017 crypto watching people uh comment on the rise of binance and how binance was this underdog exchange that penetrated into a market that seemed completely saturated and seemed unpenetrable and that was in 2017 2018 and then ftx did it even more

so in in 2019 was it as easy as it looked from the outside yeah it was yes and no there are a lot of details i mean there's just a lot of specific things to get right and a lot of sort of deep dives into those and you know understanding everything from you know licensing regulatory compliance to customer support how to manage a team that's growing payments you know fiat integrations like there's a bunch of pieces of it but i think what i would say is like none of

these pieces have felt sort of insurmountable and so i think there is a sense in which like it was at least close at least close to sort of like straightforward of a high-level pathway available as it looked like if you executed really well and um you know the devil's in the details there but i do think that there was just a straightforward opportunity tell us what you saw when you saw that opportunity is ftx successful because it capitalized on a specific niche or what did fdx do

well that other exchanges left on the table yeah i think that like there's a lot of different pieces of this and i do think a lot of this traces back in the end to like sort of you know we we we tried hard and built a good product and weirdly enough that sort of set us apart from a number of other products in the space um but uh but but more specifically like margin malls are one of these right like you know anytime you have futures or derivatives or leverage you have to figure out like you know

how do you liquidate people how do you margin call and those were just like absolute [ __ ] shows in 2018 for most exchanges they're losing a million dollars a day tapping incompetent margin models they just like let people put on a position with way too much leverage you know not nearly enough collateral and then wait to march and call for too long and by the time they got around to it it was too late and um you know obsession was already underwater and then they'd you know claw that back from wilford made money that week and

that that's not a good system um and so one piece of it was just cleaning that up a lot and thinking about look like how do the p you know what first of all like how do people do this in the rest of the world and and what are the right models for this what's the right way to think about this so you know i i think that that was like that was one piece of this um and uh and that that's something that we really focused on a lot you know another piece of this was um you know thinking about what like

you know i guess cross-margining maybe i should add as well surf another interesting piece of that um you know which is basically how instead of having a ton of different completely independent margin um you know for for each different product on the exchange which becomes a mess really quickly um just having you know one wallet where you deposit whatever you want um so that was sort of another important piece of this um you know other things i guess like um you know thinking about like how can we help

um you know build a product that like just like works the way people are expecting it to and i think especially on whenever something goes weird or wrong like whenever whatever wacky things happen is always when you know everything breaks and and customers get frustrated what happens when there's a fork what you do with the futures on the underlying what happens if there are network halts um you know and what happens if teachers start going

to a really big discount and having a plan for those cases that sort of like was reasonable and fair to people was was sort of another thing we thought about you know and then i think the last thing that i'll say is on the regulatory side and this has become an increasingly big deal over time you know we've been thinking about you know from from from sort of like you know first principles almost like what is the right um you know what's the right way to think about the regulation for a crypto exchange and i think there's a really really hard problem at this point but

it's not an unsolvable one and i think the world is to some extent divided up between people who have sort of like you know are trying half-heartedly on this people who have given up people like it's there's a lot of messes here um but but i think that like this is a thing on which you can figure out what the right thing to do is and do it if you try hard enough and that's another thing that we've really been been emphasizing a lot so i think i know those were like some things that i guess we did differently than you know many of our competitors but um uh

but i think a lot of this was just like trying to have consistently good execution across the board well you guys have certainly had that and that you know i can't help but wonder as we look back through the other exchange of founders throughout history is like ev every two to three years a new exchange seems to come along so we had brian armstrong launch you know coinbase with his co-founders 2012 uh the winklevoss twins 2014 with gemini and then he had 2017 was cz in binance 2019 was ftx and which you just launched sbf

so it feels like we're due for another um you know crypto exchange founder do you think that there's someone out there who could uh come and give you guys a run for your money is this just the the trajectory of things or do you think things have solidified you have the big players now and that's that's all there's going to be for the foreseeable future i don't expect there to be another traditional crypto exchange coming out anytime soon which is going to become a big player i think that like there's a lot of appetites a few years ago for new players in the space i just don't think there's nearly as much

appetite now um that being said um i think there are going to be new players in the space which are sort of tangential to i think you know looking at players like paypal right which are they're not crypto exchanges but there are mass retail products that are starting to integrate crypto as a front end and i think we're going to see more and more people like that start to dip their toes in the space um and uh and play plately some role in it sam i want to zoom all the way back out and get down to some of the basic questions in here uh everyone who comes into crypto i

think comes into crypto for their own specific reasons and so i want to pick your brain as to why you're in crypto so when when you look at crypto why are you here like why did you start alameda why did you start ftx what about this industry interests you yeah well it's you know as for why i got here in the first place um i you know originally i was trading and i i just saw arbitrage opportunities you know i looked around at the space and there was you know there are billions of dollars a day of volume trading globally in crypto

and um that's a lot of volume uh and the the the threads were just absolutely ludicrous given that you saw one percent spreads all over the place occasionally five or ten percent spreads and so obviously got involved just trading doing arbitrage on those um and i think when i got involved i basically had no idea why crypto would be useful for the world i just sort of thought look there's a thing you can trade these numbers you know i'm used to seeing tickers trading up prices and um and and that was sort of how i initially thought of it and i think it

wasn't until i've been in the crypto ecosystem for a while that i started to understand why it existed in the first place um and i think a big piece of this is thinking about like well like what's the alternative and what what's it what's it replacing what's it doing in the world you know it's one thing you can do is be a payments fee uh you know vehicle method whatever you want to call it and you know as i got more involved in the crypto ecosystem um i started to have to among other things like send

money to and from exchanges um you know just because like i was trading on them right so i had to like wire money to coinbase and and as i was doing arbitrage as i was like just trying to make money doing crypto arbs not nothing sort of more complicated that it weirdly kind of quickly became clear that the hardest part of that job um was actually going to be the fiat part that that was gonna be harder to like send the wire transfers necessary in order to trade crypto than

it was gonna be to do the actual crypto trading and and that was sort of the point at which i started to think like oh wow that's that's pretty weird like that shouldn't be the hard part of what i'm doing right now that should just be an afterthought but it was the hard part and it started getting me thinking like boy there's there's something wrong with that system right if like i'm trying to trade crypto and fiat is still the hardest part of that and you know we're spending probably five man hours in banks

physically branches banks like sitting there talking to tellers and stuff in order to do the wires that we need we were you know a three-month-old startup with like 12 people so that was like a big part of the task and um and i think it's like a really compelling example to me of like you know something here is just not working smoothly what was it that wasn't working smoothly to you that you identified is it was it kind of the existing banking system would would you say or was this just an

opportunity in crypto that you felt like uh was unfulfilled and needed some fulfilling it's an interesting question and i think there's a little bit of both frankly um i don't think it was only one or the other um and i do think that like um you know both the existing systems like like part of this was just like banks were not excited to support cryptocurrencies right and they weren't excited to support crypto companies and you know that meant that it was pretty

uh pretty messy um so that was definitely a piece of this but i think another piece of this frankly um was that uh you know they were even when we started looking outside just the raw crypto ecosystem it still seemed like a mess and you know it was a mess even when we were trying to do payroll like that was not nearly as easy as it should have been um and and to be clear that that is not something that should be super hard

like you know this is that that should be like just about the easiest thing um that you know that you can do um you know everything that we tried to do uh in fiat was difficult and you know if you tried to cross border it got so much harder um anytime you try and send from one country to another sort of optimistically it would cost you a percent and it would take like two days that was like the best case scenario and you had to get pretty lucky for that to happen there's often like this um

i i guess this list of reasons that people join crypto right and i think this is um distilled down probably it's too reductionist but it is still distilled down to these three things money you're either here for the money you're here for the tech or you're here for the movement you know the values of the thing uh read a recent forbes article with you sbf and uh a few quotes from that i'm interested in your thoughts on uh i'll read them now beg mcfreed is no crypto evangelist he's a mercenary dedicated to making as

much money as possible he doesn't really care how solely he so he can give it away he doesn't really know to whom or when we'll get to that giving it away part in a little bit uh the writer goes on asked if he would abandon krypto if he thought he could pile up more money doing something else say trading orange juice futures he doesn't even pause i would yeah can you talk about that a little bit more i thought that was a really illuminating part of the article and i'm curious if that kind of you know explains a little bit why you're here i think what you've described so far about

your journey in crypto is like the entrepreneur's journey it's like i saw a problem in the market that wasn't getting fixed and so i decided all of like i could do a better job of fixing it and there was this massive market opportunity so i'm here to fix it right maybe that's not quite the money reason why you're in crypto it's sort of like you saw a need and sort of the entrepreneur's reason you're in crypto but i'm wondering if if that um if that is true if you could if you saw a need in the orange juice futures market and

there was a big market opportunity there could you have been there instead is there anything particular about crypto's value system that compels you or is it really about the entrepreneur's journey and kind of the the money side of the equation you know it's complicated and i mean certainly at the beginning right when i was first getting involved there's nothing crypto specific about what i was again i don't really know what crypto was even um and so i think certainly from you know at the beginning absolutely could have ended up in a different place um and you know i think

today like if i see you know a good opportunity somewhere i want to be you know able to take advantage of that you know whatever space that's in and so that's that's definitely true as well now i will also say that like um it was you know i think i there are really great things to be doing in crypto that i'm really excited about and i'm not super tempted to be uh giving those up and i think that's true from sort of a monetization perspective but i also think that that's just true from you know the sort of impact that i can have

on the world perspective and i think that's something that i've gotten a lot more excited about in crypto over time um is the the opportunity to use it to have to have impact on the world and i think that like um i that again i don't think that's something that i was like super attentive to when i first got involved in the space i think that's something which you know much more has sort of come over time for me as i've explored things more um but but i do think that i feel pretty compelled

by um uh by its use case now in a way that that wasn't obvious to me at the beginning um and that i want to see through and and and i think this is from the perspective of like this intermediate financial markets i think it's from the perspective of you know allowing international monetary transfers to work reasonably um and a bunch of other things sam there's this term that i've learned recently that i've been using more and more because it seems to describes uh the reasons as to why so many people feel compelled to join crypto regardless and that that term is uh being nerd

sniped as in crypto has just like this insane amount of surface area of problems to be solved uh and while perhaps you didn't come into crypto uh because of the ethos alignment you just came in here because there was this arbitrage opportunity and then there was this problem that you discovered crypto eventually pulls in all people that are obsessed with like problems or puzzles and like they like to solve these puzzles because it's they're fun puzzles to solve inside the crypto industry does this uh resonate with you at all is this

a reflection of what you got in here for it absolutely does and i do think that like um you know that that a big part of this is like um i that like the more i've been here the more opportunity that i've seen um to find something really impactful to do in this space and uh and i think i didn't appreciate all of that when i was sort of like first looking at it a long time ago um

but i but i i i think it's huge there's this common trope in crypto where you like you come for the money and you stay for the tech is that kind of the trajectory that that you've seen yourself on is like oh first there was arbitrage then i found discovered i could build this this business but then you just recently alluded to there's more and more use cases that you can see crypto helping create more and more real world impact uh is this kind of the trajectory that you've seen yourself on yeah i think that sounds about right and what are those use cases what are those

like high impact things that have really uh captivated your attention yeah so i think one piece of this is like you know every time that we pay for something in the states you know we're sort of like by default believing something like um three percent um to various fees along the way which is a lot to be paying um that that survey is one piece of this you know a second piece of this is um i you know whenever we uh you know send

money overseas and we're losing you know optimistically five percent sometimes 20 um on on spreads there um that's you know horribly inefficient and and and a lot of what's going on is like you know how can you how how does a payment work right now like if if you know one person wants to pay another what does that mean what's it entail and i think part of the answer here is like well that payment only works if there are

uh two people who both respect the same payment method right like they both agree on what it means um for that payment to happen um but in order for that to happen um you know what what you have to have you you ought to have um a situation where like there is some payment method if you're talking overseas which is well it's probably not run by a country because it's cross-border

um it's probably not run by a company i don't think we end up with like one company having sort of the proprietary payment method for the whole world um you need a third option and i think blockchain is one of the first times that we've found a another way to do you know let's have lunch right to have some ledger that you reconcile between two parties and so i think that's that's super compelling i think that when we do so there's payments internationally there's payments domestically um i think you look at holding assets especially i mean

ukraine right now i think is a great example of this right like right now there's huge amounts of cryptocurrency based donations going to ukraine because how else are you going to get funds there easily um and and i think if you're in ukraine right a lot of people are thinking hard about like what should they be storing their assets in where you know where do they feel confident that it's going to be you know uh stable and so i think like that's another side of this and um uh and so i think all of those are like

various reasons that like um uh that that we're starting to see more and more um uh you know usage of it um and uh and i think those are those are just some of them you know that's just there's the tip of it and i think you can just sort of keep going here and keep finding like more and more reasons why you know existing payment messages don't work in a lot of cases um and and purple presents a really compelling you know alternative to that

how much um does decentralization matter in all of that sbf do you think in in general the crypto community um do you think decentralization is overrated or underrated in the crypto community i think that's a good question so i guess i'll say here's a vision for decentralization which i feel like moderately compelled by um as like you know my current best guess for the way to do it which is basically that you have like a bunch of centralized islands

you know whether they're centralized exchanges whether whatever they are um which are then connected um to each other by decentralized rails right and so you have like and that's sort of like in some sense what we have right now right where there's like there are all these exchanges and each one of them is centralized but you can withdraw your assets from them to your own self-custody wall or to another exchange you're accounted another exchange you can decentralize blockchain rails my guess is that like that's roughly how we're going to see things building out

and and it means that you can have the efficiency of a centralized entity performing some operation but the exit strategy of being able to go to a decentralized platform or to self costing and a native language that each of these platforms can all talk with each other in order to communicate more to send assets between each other and that if you're building a new platform you can do that with as well now that's obviously ignoring defy which is a more fully decentralized vision of of you know a financial ecosystem and i think that can work for some things i

think that when you look at things that are like not incredibly like computationally intensive um i think that d5 makes a ton of sense i think there are some balance on it right you're looking at like a few hundred milliseconds of latency at the minimum you know you're looking at some costs you're going to be massively duplicating server costs effectively um for all the validators and so for like you know things where compute or throughput or something like that is the current biggest bottleneck it's not a great fit but for things for which that's not much of bottleneck i think you can start to build them fully decentralized