Sam Bankman-Fried’s Biggest Grift? His ‘Best In Class’ Exchange

Never mind the alleged fraud. The centerpiece of the FTX empire – the exchange – really wasn’t that good, traders say.

AccessTimeIconSep 27, 2023 at 8:15 p.m. UTC
Updated Sep 28, 2023 at 11:14 a.m. UTC
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At least WeWork had flashy buildings to flaunt for the billions of dollars ex-CEO Adam Neumann raised. But what did Sam Bankman-Fried have to show?

SBF, as he was often called, is a pathological liar, an alleged fraud and market manipulator and also a really horrible ex-boyfriend who’s pinning his entire downfall on his on-and-off girlfriend Caroline Ellison, who headed Alameda Research.

But the biggest lie that Bankman-Fried ever told likely has nothing to do with being a supposedly spendthrift billionaire who flew private or the backdoor code said to have been used to raid billions in customer funds from FTX.

It was probably the FTX exchange itself.

The very product Bankman-Fried paraded around the world to raise his billions and build political connections was error-prone, slow and often lagged during times of market volatility.

Customer service was said to be non-existent. An online complaint form was linked to a general email address that seldom replied.

FTX positioned itself as “built by traders, for traders” – given SBF’s and Ellison’s past work experience with Wall Street quant firm Jane Street – and quickly found a following in the depths of the previous bear market.

It went from processing a few thousand dollars in trading volumes after its 2019 launch to billions of dollars at its 2022 peak. These surging volumes and his company’s soaring valuation boosted Bankman-Fried’s ego, as he envisioned creating a one-stop exchange to trade anything from bitcoin to orange juice.

An army of venture capitalists, such as Sino Global Capital and Sequoia Capital, hyped the founder and exchange up. Crypto influencers on X (née Twitter) flashed affiliate links that gave discounts on fees. The unsuspecting retail audience bought into the dreams.

When the exchange was new, its technical flaws were more forgivable, especially because Binance's early financial backing and Bankman-Fried's reputation as a skilled arbitrageur gave the startup a sheen of respectability (even if it routinely listed garbage like the Shitcoin Futures Index).

Another facet that boosted growth was Bankman-Fried’s whole Effective Altruism shenanigans. Loved by mainstream media and investors alike, the young "boy genius" wanted to eventually donate everything he made to charity.

FTX would, in its later years, even flaunt a foundation page on its site that claimed to give 1% of revenue to various causes. This made the ultimate casino for users: A gambling addiction probably didn’t matter as long as it was helping fuel charitable goods.

Except, the product didn’t work as well as advertised. Complaints ranged from poor order matching to delayed market orders. FTX’s slow execution soon became a popular joke.

Popular trader @HsakaTrades once complained about orders taking a long time to fill. Bankman-Fried, in his deflective way, blamed the web browser the trader was using. @HsakaTrades had none of that — pointing to the scores of similar issues among FTX users.

Such issues were echoed on other social media sites and forums.

“Yeah, as an exchange FTX was pretty terrible,” dcolkitt, a user from the popular technology forum Hacker News, claimed. “The matching engine was notorious for being high latency, unreliable, and having all sorts of undocumented issues.”

“Every algo trader there will tell you horror stories about trying to cancel an open order, getting a cancel confirmation, and then getting notified that the order was executed. Sometimes seconds later,” dcolkitt added.

“Occasionally sending out zero balances was another FTX special,” said another user, Vgatherps.

In hindsight, we now know SBF’s hedge fund Alameda was often the entity on the opposite side of every FTX trade, which goes far in explaining the poor fills, the lag experienced by traders, and just about everything that was going wrong at the exchange. The firm, after all, had a front-seat view to all trades on FTX – which contributed to the $1 billion in claimed revenues it made in 2020.

Today, it's unclear if supposedly sophisticated investors like Singapore's wealth fund Temasek and storied venture financier Tiger Global were sold more on Bankman-Fried's vision or lured in by the speculative frenzy in 2021.

All this raises the question: Did anyone even use FTX before investing?


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Shaurya Malwa

Shaurya is the Deputy Managing Editor for the Data & Tokens team, focusing on decentralized finance, markets, on-chain data, and governance across all major and minor blockchains.

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