Related Articles
Sam Bankman-Fried just ain’t all that, says Pat Rabbitte. “He’s not that remarkable … I just don’t see it.” Rabbitte was a customer of FTX, the crypto exchange founded by Bankman-Fried that filed for bankruptcy in November. Bankman-Fried is set to go on trial in New York on October 3, charged with conspiracy and fraud relating to the collapse of the exchange. Like hundreds of thousands of others, Rabbitte’s money is tied up in the bankruptcy proceedings. What happens to those creditors is far worthier of attention, Rabbitte says, than what happens to Bankman-Fried. “He is not that interesting.”
In this opinion, Rabbitte is in the minority. Before FTX collapsed, Bankman-Fried (or SBF, to some) was very much a main character. The 31-year-old, who styled himself as the respectable face of crypto, steered the exchange to a $32 billion valuation in only three years. He courted regulators, politicians, and venture capitalists. He fraternized with sports stars and supermodels. He seduced reporters at the largest English-speaking publications. He’s the “next Warren Buffet,” they crooned, the “Michael Jordan of crypto.” Decked in his trademark costume—a T-shirt, shorts, and dad sneakers—he projected a humility unlikely of the world’s youngest billionaire.
When FTX crumbled and the gory allegations followed, Bankman-Fried’s reputation cratered too. But fascination with his character was amplified. The question shifted from “How did he achieve so much?” to “How did he deceive so many?” The salacious details of the sexual encounters between Bankman-Fried and his inner circle will feed into the circus of his trial, rekindling the debate about his genius, morality, and legacy. Rabbitte will follow along, but not obsessively. His focus, along with a group of other FTX victims, will be elsewhere.
In May, a group including Rabbitte began to gather on the messaging platform Telegram to discuss an idea that, to many ears, might sound impossible: restarting FTX, without SBF. They had all lost money to the exchange. At the end of the bankruptcy, they can expect to recover a portion of that money, though probably not all of it and not for years to come. Firing up the exchange, they think, could provide a route to a faster and fuller recovery.
To a large extent, FTX was SBF. It was the sum of his entrepreneurship, marketing, lobbying, and risk-taking. Now the brand is in tatters. The group of creditors, who call themselves the FTX 2.0 Coalition, believe the exchange has a future without him. “The business was essentially good,” Rabbitte insists.
Bankman-Fried was raised on the campus of Stanford University, where both his parents taught. They were law professors, but mathematics was his forte. After graduating from the Massachusetts Institute of Technology (MIT) with a physics degree, he took a job as a quant trader—someone who programs software to trade for them—at Jane Street Capital, one of the biggest firms on Wall Street. He was reportedly drawn by its associations with effective altruism (EA), an intellectual movement that advocates for earning as much money as possible in order to give it away. The idea struck a chord.
Most PopularGearThe Top New Features Coming to Apple’s iOS 18 and iPadOS 18By Julian ChokkattuCultureConfessions of a Hinge Power UserBy Jason ParhamGearHow Do You Solve a Problem Like Polestar?By Carlton ReidSecurityWhat You Need to Know About Grok AI and Your PrivacyBy Kate O'Flaherty
In 2017, Bankman-Fried started his own trading outfit, Alameda Research, taking seed funding from effective-altruist donors. Early employees were mostly EAs too; it was all about earning to give. The firm focused on arbitrage trading, whereby profits are realized on tiny differences in the prices of assets across different exchanges. Specifically, it took advantage of the lucrative kimchi premium, a gap in the price of bitcoin on exchanges in South Korea and elsewhere.
Soon, Alameda earned a reputation for profitability, says Mike van Rossum, founder of rival firm Folkvang, and Bankman-Fried as the brains behind the operation. It was apparent he was “crazy smart,” says van Rossum, of the first time he met Bankman-Fried. “He’s the quickest person, like machine-quick. I haven’t really seen that [before].”
A reputation as a boy-genius with an altruistic vision would become the foundation of Bankman-Fried’s public image—and his efforts to develop FTX, the exchange he resolved to set up. Folkvang began to trade on FTX almost immediately after it launched in 2019. A few peers were reluctant, says van Rossum, because Bankman-Fried was fairly unknown, but eventually all the big crypto investment firms were using it. “In the end, we drank the Kool-Aid,” he says. Two years later, a surge in the price of cryptocurrencies brought millions of regular people to crypto investing, too. Many, like Max Windhagen, a university lecturer from Germany, chose FTX for the range of trading options available, but its founder’s persona played a role, too. “He was able to come across as very harmless,” says Windhagen. “It’s like the nerdy kids at school. They are smart, but don’t seem to possess the social skills to manipulate others.”
Bankman-Fried leaned into his mythology. He was frequently in contact with the US Securities and Exchange Commission (SEC) and Commodities and Futures Trading Commission (CFTC) over regulation of the crypto sector, endearing him to policymakers. He also ingratiated himself with venture capitalists, who fawned over him, and the media, which lionized him. Later, he started a charitable foundation that donated millions of dollars to EA causes, under the FTX brand. He also pledged to give his entire personal wealth away.
In 2022, when crypto markets stumbled, jarred by the collapse of the Terra-Luna stablecoin and the hedge fund Three Arrows Capital, Bankman-Fried seized on another opportunity to play the hero. FTX swooped in with rescue bids for crypto exchange Bitvo and lenders Voyager Digital and BlockFi, which had been caught in the fallout. He was anointed crypto’s white knight. The veneer of legitimacy around FTX grew thicker, and the exchange became the second largest in the world.
Last November, it all fell apart. A CoinDesk report raised questions about the health of Alameda’s finances and its dealings with FTX. That triggered a surge in customer withdrawals, which the exchange couldn’t handle, forcing it into bankruptcy. A month later, the US Department of Justice accused Bankman-Fried of misappropriating customer funds, which had allegedly been used to bankroll risky trading activity, acquisitions and venture investments, real estate purchases, marketing campaigns, political donations, debt repayments, and loans to himself, his parents, and others. For every dollar’s worth of assets a customer stores, an exchange is supposed to keep a dollar’s worth on hand for withdrawal. But FTX couldn’t meet withdrawals, the indictment asserts, because the money was missing.
Most PopularGearThe Top New Features Coming to Apple’s iOS 18 and iPadOS 18By Julian ChokkattuCultureConfessions of a Hinge Power UserBy Jason ParhamGearHow Do You Solve a Problem Like Polestar?By Carlton ReidSecurityWhat You Need to Know About Grok AI and Your PrivacyBy Kate O'Flaherty
When FTX fell, many victims engaged in a self-flagellation of sorts, upbraiding themselves for their credulity. Windhagen lost a fifth of his net worth—not enough to ruin him financially, he says, but “enough to really hurt.” He had always been suspicious of personality cults, but for whatever reason, did not “adjust his risk assessment” for Bankman-Fried. Folkvang had half of its assets on FTX, worth tens of millions of dollars. Risk management was “pushed to the back of the to-do list,” says van Rossum, in the fervor of the crypto boom, but also partly because he felt he could trust the FTX executives. “We got screwed over,” he says.
The brands that Bankman-Fried had for years so carefully curated—both his own and FTX’s—fell to pieces in the span of a week. In an interview with Vox a few days after the bankruptcy, he said the quiet part aloud: It was “just PR.”
The precise origin of the push to restart FTX is unclear. It’s possible multiple parties came to the idea at once. But in January, a back-of-the-envelope calculation started a discussion. Sunil Kavuri, an FTX creditor with a background in finance, valued the exchange at roughly $8 billion, based on transaction volumes for the previous year. It was a crude calculation, Kavuri admits, that didn’t account for intangibles like reputational damage, but it also illustrated the potential for FTX to be worth more to creditors alive than dead.
Kavuri proposed a debt for equity swap. The FTX exchange would be auctioned off to outside investors who would inject capital to get it back on its feet, and those owed money by FTX would be given a stake in the new exchange. If FTX 2.0 succeeded thereafter, the value of each creditor’s equity might some day exceed the amount they originally lost, creating an incentive for those people to use it. “The key is that the exchange has much greater value as a going concern,” says Kavuri, “than split into its parts.” Intrigued by the idea, private equity firms and crypto media began to contact him to ask about his valuation.
The FTX 2.0 Coalition was born a few months later, of the idea that, for a reboot to be taken seriously by John Ray III, the restructuring expert in charge of the FTX estate, small creditors needed to make themselves heard. Typically, the interests of creditors in a bankruptcy are represented by an Unsecured Creditors’ Committee (UCC), which has a formal voice in negotiations, but the group felt a grassroots approach was necessary. In one of the earliest messages on Telegram, Loomdart, the pseudonymous founder of the group, said he hoped to form an “army of people.” Everyone should help to spread the word, he said, because “the most important thing is pure eyeball exposure.” So far, the coalition has almost 3,000 members.
The plan to reboot the exchange has its detractors. The main objections revolve around the damage done by Bankman-Fried to the FTX brand and the cost to an outside investor of rebuilding a viable business from the wreckage. Reports compiled in the wake of the collapse, after all, suggested FTX had next to none of the accounting, data security, and corporate governance systems one might expect of a legitimate business, so what precisely would an investor be purchasing?
Most PopularGearThe Top New Features Coming to Apple’s iOS 18 and iPadOS 18By Julian ChokkattuCultureConfessions of a Hinge Power UserBy Jason ParhamGearHow Do You Solve a Problem Like Polestar?By Carlton ReidSecurityWhat You Need to Know About Grok AI and Your PrivacyBy Kate O'Flaherty
“A reboot is certainly optimistic. It’s highly unlikely, from a practical standpoint,” says Alan Rosenberg, a partner at the law firm Markowitz Ringel Trusty and Hartog, and member of the American Bankruptcy Institute. “FTX was a total mess. There was nothing right about it. An investor would need to be willing to invest in the time, energy, and money to completely restructure and revitalize [the exchange].”
Although a reboot is possible from a legal perspective, says Rosenberg, the deficiencies of the FTX business mean restarting the exchange will require large amounts of capital and a wide range of expertise. “It’s a huge undertaking. You’d have to create a whole new company,” he says. “I don’t know what there is to sell, beyond the customer base.”
Regulatory hurdles might also stand in the way, says Thomas Braziel, founder of 507 Capital, an investment firm that has taken a multimillion-dollar position in the FTX bankruptcy by purchasing debt from creditors. The estate administrators will need to convince the SEC and CFTC that any outstanding business defects have been cured, or otherwise face objections in bankruptcy court. A reboot is not necessarily a Hail Mary, says Braziel, who is open to the idea in principle, but “it’s a more aggressive play than going for par.”
In spite of the objections, in July, the FTX 2.0 Coalition received its first real indication that its advocacy work might be paying off. A draft reorganization plan filed by Ray proposed that FTX assets be marketed to investors with a view to starting a new “offshore exchange company.” The plan was bare-bones, but showed that a reboot was at least under consideration. A presentation deck published on September 11, meanwhile, revealed that multiple parties have submitted bids to invest in the new FTX.
Neither Ray nor FTX responded to requests for an interview. But according to Braziel, who relayed a conversation with Ray from early July, the FTX estate is serious about the prospect of a reboot. Ray is “100 percent behind it,” says Braziel.
Whether the FTX 2.0 Coalition has helped to steer Ray’s thinking is an open question. It doesn’t have a line to Ray’s team, nor does it have a voice in the bankruptcy court. But its members are convinced the noise they’re generating is making a difference, by signaling public support. Attorneys from Alvarez and Marsal, as well as from Sullivan and Cromwell, two firms employed by the estate, recently began to follow members of the coalition on X, formerly known as Twitter. “We know they’re taking notice. I’m convinced,” says Rabbitte.
The multiple bids, meanwhile, suggest that prospective investors are buying into what the group has long been saying: that what’s left of FTX is just a list of customers, but an immensely valuable one. That list, the argument goes, is the product of hundreds of millions of dollars (allegedly of customer money) spent on marketing FTX and dressing the image of SBF, its mascot. “The most important thing [an investor would be purchasing] is us,” says Rabbitte.
Most PopularGearThe Top New Features Coming to Apple’s iOS 18 and iPadOS 18By Julian ChokkattuCultureConfessions of a Hinge Power UserBy Jason ParhamGearHow Do You Solve a Problem Like Polestar?By Carlton ReidSecurityWhat You Need to Know About Grok AI and Your PrivacyBy Kate O'Flaherty
FTX had managed to accrue more than 9 million customers under Bankman-Fried, a (loosely) estimated 1.4 million of whom are creditors in the bankruptcy. Even though not every creditor will want to use FTX 2.0, those that plan to continue trading crypto will be incentivized to stick around. As equity-holders, a portion of trading fees and profits generated by their activity will make its way back into their pockets. The new exchange would start life with a horde of customers, all of whom are invested in its success, without lifting a finger.
Larger creditors like Travis Kling, the founder of Ikigai Asset Management who is owed the 18th largest sum by FTX, have also lent their voices to the coalition. “In the current landscape, exchanges are fighting tooth and nail over customer acquisition,” he says. “Having hundreds of thousands of customers on day one gets over the cold-start problem,” he says.
There is also plenty of room in the market, says Kling, for a new exchange that’s cleaner than clean. The world’s largest, Binance—charged earlier this year by the CFTC and SEC with a litany of violations and reportedly under investigation by the US Department of Justice—is facing a “Category 5 shitstorm,” as he describes it. In this context, there is a “clear opportunity to come in and compete.”
The hope is that something positive may yet come, says Loomdart, of the great fortune that was spent on the Bankman-Fried boosterism, so crucial to attracting people to FTX. The new exchange has the opportunity to succeed both because of Bankman-Fried—or rather the customer list he created—and in spite of him.
“People say the FTX name is tarnished, but I don’t view it like that,” says Loomdart. “FTX was Sam. It got to where it was because of him. That’s true. But it’s not about restarting Sam’s FTX. It’s a different beast entirely.”
