How Sam Bankman-Fried’s ‘Effective’ Altruism Blew Up FTX
The Alameda Research and FTX founder believed he had singular insight into how to fix the world's problems. Instead, he wound up exemplifying them.
The ongoing collapse of Sam Bankman-Fried’s crypto empire will have innumerable victims. One of the most important may be “effective altruism,” Bankman-Fried’s beloved philanthropic philosophy.
In very broad strokes, effective altruists believe that making a lot of money to influence the world is a noble goal as long as you’re very, very smart – and there is evidence that this mindset contributed to the decisions that have cost Bankman-Fried’s victims billions of dollars.
This article is excerpted from The Node, CoinDesk's daily roundup of the most pivotal stories in blockchain and crypto news. You can subscribe to get the full newsletter here.
Late Thursday, the team behind FTX’s philanthropic “Future Fund” resigned. The Future Fund was set up to help implement Bankman-Fried’s effective altruism playbook, but departing staff say it won’t have funds to deliver grants it had already approved.
The resigners wrote in an open letter that "To the extent that the leadership of FTX may have engaged in deception or dishonesty, we condemn that behavior in the strongest possible terms. We believe that being a good actor in the world means striving to act with honesty and integrity."
That’s a bleak thing for a philanthropy to have to write about its founder. But the problem for effective altruists is not just that one of their own behaved unethically. There is reason to believe that the ethos of effective altruism (sometimes shortened to “EA”) enabled and even encouraged the disaster at every step along the way.
Above all, Bankman-Fried’s frequent public emphasis on philanthropy helped him garner positive press, political influence and even investment. Reputation laundering through philanthropy is hardly unique to him, as explored by writer Anand Giridharadas in his recent book “Winners Take All: The Elite Charade of Changing the World.”
But effective altruism more specifically could have excused or encouraged behaviors that led to FTX’s downfall. Perhaps not least, Bankman-Fried more or less acknowledged in an infamous “Odd Lots” interview that many of the tokens trading on his platform were probably frauds.
That implies he and FTX were always facilitating harm to its users, but the neoliberal and utilitarian underpinnings of effective altruism allowed him to justify that as a matter of consumer freedom.
A less charitable summary of effective altruism, then, would be that it is little more than a fancy way of saying “the ends justify the means.” Effective altruism also encompasses an emphasis on “long-termism,” which can read like another excuse for mercenary corner-cutting today, so long as you commit your loot to improving tomorrow.
Bankman-Fried grew up in Silicon Valley, where long-termism is a pillar of the libertarian/neoliberal “Californian Ideology,” ideas seemingly shared by the likes of Marc Andreessen, Mark Zuckerberg and Elon Musk.
(For a longer dive into Bankman-Fried and the EA mindset, I recommend this Vice piece by Edward Ongweso Jr. and Jordan Pearson).
Effective altruism may even have provided a direct rationalization of a large, secret and illegal bailout loan to sister trading shop Alameda Research, which appears to have helped bring down FTX. One speculative but incisive comment circulating on Twitter laid out the effective altruism case for financial fraud:
“They all thought the risks were worth taking to accomplish the most they could for humanity … SBF thought he was someone who could do more for the world than others, and that it was his responsibility to bear that risk, and he convinced many others in the effective altruism movement to align with him.”
Of course, the ugly truth is that it wasn’t Bankman-Fried “bearing that risk,” but the customers who trusted him. Bankman-Fried certainly could have made that mental and ethical error, because effective altruism also implies a messiah complex – in fact, “Savior complex” is in the title of a fawning profile published (and since deleted) by Sequoia Capital, one of FTX’s venture backers.
Effective altruism posits that making money by (almost) any means necessary is OK because you, Elon and Zuck and SBF are so brilliant that you absolutely should have all the power implied by billions of dollars in the bank.
But as we’ve discovered about all three of those false messiahs, convincing yourself that you’re brilliant doesn’t make it true.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.
Learn more about Consensus 2023, CoinDesk’s longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.