In hindsight, Sam Bankman-Fried’s April interview with Bloomberg’s Odd Lots podcast was a harbinger of his epic collapse last week. He described a “box” that has value only because other people put money in it, and, when confronted with the idea that he described a Ponzi scheme, admitted there was a “depressing amount of validity” to that.
But what’s only now becoming clear is just how much of his cash, which ascribed value to countless crypto projects out of thin air, was coming from his complex web of 130-plus now-bankrupt entities.
A prominent example is Serum, one of the largest assets on FTX’s balance sheet. The exchange had $2.2 billion of the near-worthless token on its books before Bankman-Fried’s empire went bust last week, according to people with knowledge of the firm’s balance sheet. It also held similarly insignificant coins called Maps.me and Oxygen, said the people, who added that the document may not provide a full granular picture.
The most striking thing of all: It’s not clear who, if anyone, at the highest levels of FTX or Alameda Research, Bankman-Fried’s trading house, seemed aware of or involved in how much money they were giving to Serum projects, where it came from, or what it’d be funding.
Some specifics are emerging about the “magic impact” that Bankman-Fried described months ago. Interviews with people familiar with Serum and documents reviewed by Bloomberg News provide a glimpse of the missing accountability that played a central role in both Bankman-Fried’s rise and how he could tear an $8 billion hole in FTX’s balance sheet.
“At the time we did them, we thought those investments were positive expected value investments on their own merits,” Bankman-Fried said Monday in an emailed statement.
In the fallout, thousands of customers, employees, investors and brand ambassadors are processing why they put so much faith in one man, in a system meant to be trustless and transparent.
“Everyone thinks accounting and auditing is boring -- until something like this happens,” said Gabriella Kusz, chief executive officer of Global Digital Asset & Cryptocurrency Association, an industry consortium.
Within weeks of Bankman-Fried’s appearance on Odd Lots, the $60 billion TerraUSD and Luna crypto ecosystem collapsed. The aftershock contributed to the bankruptcies of hedge fund Three Arrows Capital, lender Celsius Network and broker Voyager Digital, among others, and rattled even digital-asset diehards. Bankman-Fried went on a bailout bender, configuring deals worth $1 billion.
If there was ever a full-blown crisis of confidence across the crypto industry, judging by the $200 billion of losses in the digital-asset market over the past week, that time is now.
Too Easy
For one founder building a project using Serum, getting tens of thousands of dollars from Bankman-Fried’s orbit was almost too easy.
The harder part was figuring exactly where the money was coming from.
The person, who spoke on the condition of anonymity for fear of retaliation, describes an increasingly unsettling process unfolding after securing an online introduction to Alameda Ventures, the firm’s VC arm, through an acquaintance.
A team of faceless Telegram correspondents associated with FTX-linked entities appeared in a group chat. One of them, identified only by the initials “JHL,” approved a grant without anything more than a slide deck, asking no questions about what the money would fund, according to messages reviewed by Bloomberg News.
No compliance review. No handshakes. No strings attached. The only condition: To receive the grant, they had to open an FTX.com account first.
A separate slug of money also raised alarm bells.
The official investment contract was signed by someone the founder had never met, nor interacted with, who had a listed address on the 21st floor of a business plaza in Panama, according to the document viewed by Bloomberg News.