SBF’s planned congressional testimony was wild: “I am, and for most of my adult life have been, sad”

Just sharing a few memorable excerpts below. Full testimony here.

b) In addition to being false, the claims do not make sense to me. Alameda Research’s own insolvency was triggered by a market crash, which in turn triggered FTX’s insolvency; it would have been absurd to create a market crash in order to take out 3AC, and then in turn bankrupt my own businesses.

7) Various claims that I created a hard-partying culture at FTX
a) Our ‘parties’ were mostly dinner and board games
b) I didn’t have my first drink until I was 21, and to my knowledge have never been drunk

b) I have a prescription for Emsam, and have for roughly a decade. I use it, daily, for its only on-label use as an antidepressant. It is not generally the case that people are expected to talk about their private medical conditions, but enough paparazzi have snapped photos of my belongings and theorized about it online that I guess I have no choice.

On Twitter, CZ claimed that “we decided to pull out as an investor” in a thread chalk full of lies.
a) In fact, I reached out to CZ in 2021 to initiate discussions about buying them out of their stake in FTX.
b) I initiated these discussions because, among other things, it was becoming increasingly difficult for FTX to operate with CZ as a significant equity owner. CZ was not cooperative in sending his KYC information to regulators that we were applying for licenses with.

c) The last few months have been difficult enough for everyone that it feels unremarkable to me, in comparison, that I need to put on the official Congressional Record that I am, and for most of my adult life have been, sad.

Podcast notes – Sam Bankman Fried (FTX and Alameda founder) on Invest like the Best

SBF – founder of Alameda Research, FTX, before that at Jane Street, one of world’s youngest billys

What’s your Truth North?
Day to day – efficient markets, does the risk engine work, does product design make sense (eg, equity markets currently are not 24/7, but it shouldn’t be that way, it’s more a historical artifact)
More generally – philanthropy (effective altruism / utilitarianism), how can I maximize my positive impact on the world

Lots of organizations having lasting impact on long-run future of world, the trillions of people to come after us
What’s become clear is society has no fucking clue what to do about pandemics – not restricted to just one country – even the countries thought to do well initially, economies stalled out, and not clear path forward
What would it have taken for us to be in a much better place?
1. Took a year after covid hit to begin distributing vaccine – could have had it in 2 months
2. Early detection systems, better vaccine production systems, reduced regulatory time for testing / approval

How much is society putting in to prepare better for next pandemic?
“I don’t know…zero?”
Doing things to solve this can save tens of trillions of dollars, and have enormous impact

What’s perfect state of markets?
Start with latency – how low does it need to be to capture most of economic value – as close as possible to release rate of new economic information
Milliseconds is probably enough
NYSE is milliseconds, but then it’s closed overnight, and on weekends and holidays – “which is sort of insane”
Always open is pretty important

Another easy win: Order books should be free and publicly available
That’s whole purpose of exchanges – so why hide it, except for people paying $50M/year – trading firms are paying it
Crypto exchanges – fees come from transactions
Equity exchanges – service is mostly a commodity, so only proprietary stuff is their data
Amount of intermediation is insane – mobile app, clearance custody, prime brokers, equity exchanges – all these intermediaries take fees, slow things down, add tape
Innovation slows down too – if exchange wants to move 24/7, needs everyone else to change too, “weakest link component”

Reasonable trading fee is 1 or a few bps (basis points) – larger fees mean less efficient pricing, less liquidity, less overall economic activity – total net fees not just matching engine fees

Crypto represents a migration to better end state – always on, more transparent, globally accessible

State of fairness in crypto markets today
-most important thing is transparency about transparency (everyone agrees what market structure looks like)
-having a level playing field to start with (it’s still a total mess, but less so than 3 years ago)
-eg in 2017 lots of Japanese got excited about bitcoin, but bitcoin price in Japan was a lot higher than rest of world (10% arbitrage opportunity) – exact opposite of inefficient market
-today these arbs still exist – eg, Coinbase trading higher than Gemini for weeks at a time due to flows – driven by lack of liquidity, idiosyncrasies with some assets (eg, Tether), lack of integration with fiat / banking

How to solve a lot of this?
“Stablecoins” – useful to move within the crypto system
eg, USDC – can move 24/7, fast and on blockchain, remove reliance on wire transfers

How much fiat inflow has actually gone into space?
Higher bound – Crypto market cap = $2.5 trillion (this was an old podcast)
Lower bound – $100B of stablecoins outstanding
Probably $400-500B in actual fiat has invested (20-25% of total market cap)

What will change the ratio – most financial institutions are PLANNING to buy bitcoin at some point – they now have mandates to get involved, but they all say “they’re not ready yet”
Should materialize in next few years
Probably the ratio will get closer to one (of actual fiat inflow to total market cap)

Huge demand for good infrastructure in crypto – exchanges still crashing during busy times

When SBF first entering crypto, hardest part of the crypto trade was the wire transfer
Lots of inefficiencies in traditional financial infra – wire to Nigeria is 10%, credit card fees are 3%
Crypto rails can help fix this – eg, all social data posted immediately on-chain, means a tweet can immediately be liked on Facebook, or a TikTok video can be instantly published to Instagram

If you’re in crypto and you’re not thinking extremely hard about regulation and compliance – you’re making a huge mistake

Must remain dynamic / flexible in long-term planning, to adapt to constantly changing environment

Crypto trades almost as much as US equity ($200B in global daily volume) – but US itself is far behind
Crypto is totally new asset class, born 5 years ago, and now is almost as large as the largest asset classes

Reasonable to find strategic parts of ecosystem to put bulk of regulations – eg, any centralized exchanges, or fiat-to-crypto conversion points
“Take steps in right direction” to protect consumers, detect financial crimes – will address most of large points of concerns, and help crypto ecosystem to thrive

There will be stable coins in world – if US bans them, then it will go to EUR or CNY

Why are derivatives so important for markets?
-in every asset class, there’s more derivatives trading volume – if you don’t need physical delivery, derivatives are more economically efficient
-average trade doesn’t require to get the actual thing (eg, a stock, or gold, or oil)
-so it requires less assets on balance sheets, more efficient markets, lowers capital requirements and transaction costs

What competitive differentiation among exchanges
-cross-margining (eg, FTX allows collateral to applies across multiple assets / trades)

Thoughts on paid acquisition
-most FTX users came from Twitter, from user memes and endorsements
-don’t buy FB / Google ads
-for hardcore traders, product is what drives it
-for new / casual traders, name recognition matters “and we’re way behind on that” (compared to Binance or Coinbase)
-want not just recognition of FTX the name, but create a powerful association
-only a few endorsements matter – should be extremely choosy

Thoughts on user generated asset era
-are books UGC? Sort of, but historically the gatekeepers are bookstores and publishing houses – it’s author UGC, but with bottlenecks and gate keeping
-before, 7 asset managers drove equity markets, now it’s social media and asking friends – Tesla is great example, people taking choices into their own hands
-NFTs are UGC, direct to consumer
-tokens / token economies are flourishing around the world, but not in the US due to regulations
-ultimately it’s good, more efficient markets, more dis-intermediation, and more curation will emerge naturally

Right now, there should be many Layer 1 blockchains, competition among them, to see what emerges
What’s end game that matters the most? 1 billion users using a chain, trillions of dollars using a chain
To get there, need millions of TPS (transactions per second)
You want to maximize composability, even across shards
If you don’t get there, you won’t be primary player to facilitate all the activity that’s required

5-10 TPS is not enough to be general purpose medium, but it DOES allow you to move bitcoin around – “has potentially a large role in the world” – it’s a different thing from ETH or Solana

Most economically efficient thing is single centralized server
Decentralized blockchains have maybe 10K servers? Will always be less efficient
Blockchains will be connection layers – across more efficient / centralized services

What he thinks he’s good at:
number of concepts he can hold in his head, and reason about
make sure not to lose the important threads
-maybe relatively better RAM (flexibility)
-not so good at long-term storage of info and facts

His wealth / fame has changed how people interact with him, but not huge change in his day-to-day life

All the expected value is in the upside tails not in the median outcomes, and you should take that seriously – often the right path is the one that might fail
As world speeds up and becomes wackier, this becomes more and more important
Acknowledge things that sound crazy and unlikely may not play out that way

When he started FTX, he was most optimistic on his team about success – thought it was 20%, team even more pessimistic
But even he was way under-estimating the upside
Straightforward EV analysis was the correct one

Most kindest thing anyone’s done for him: lot of people in effective altruism community have been dedicated and selfless, making personal sacrifices to seek the altruistic upside

Podcast notes – Sam Bankman Fried (FTX founder) with Tyler Cowen

Guest: SBF – FTX and Alameda Research founder, crypto billionaire
Host: Tyler Cowen

What is his production function?
World is messy, huge power in getting quantitative / numerical when it’s hard to do so

Worked at Jane Street before crypto
Lot of interview questions are game questions
You’re always making probabilistic decisions, focus on the factors that matter and ignore the rest

Trading is grinding to do a good job
Goal is making money
Constantly think of solutions and try them out

Parents are famous Stanford law professors

Utilitarian perspective – turn things into numbers, and decide which number is the biggest, even in a messy system

Crypto today is enormous fraction of discourse in politics and regulation
Understand the nuances, possible directions
200 countries – each one is trying to figure out how to regulate crypto

Thought he was a good manager until he started Alameda
Seems easy when things are going well
What to do when two employees vehemently disagree?
First, think of the object level truth / answer
Find the right answer
Company culture should focus on that right answer, being ruthless about it
Need agreed upon process to make hard decisions

Some sports teams outperform every year
eg, Belichick + Patriots
They’re known for doing the right thing – what play optimizes our winning – it’s not about conventions or what’s popular
In sports, a lot of fruit is low hanging, focus on that

Supporter of effective altruism
Lot more funding for it now than before
Still need more innovation in how to properly spend money
Also need more good people – to start and lead projects and take responsibility for their success
A leader who can get everyone to take leap together, putting flagpole down

Next $million, where do you give it?
Two things
1. Pandemic preparedness (covid response screwed up, haven’t improved for next one, we got lucky all things considered). We just shut everything down. Vaccine was fast by vaccine standards but not by “people are dying” standards. Lobbying Washington for more spending on pandemic preparedness. Funding vaccine capacity / vaccine stockpiles / early detection systems
2. ?

He’s a pure Bentham-ite utilitarian
Tyler: Why spend money on life extension? Easier to grow utils than save them
SBF: Not compelled by life extension research, not necessary for world flourishing

SBF is vegan
No problem with eating meat if you’re net happy
When he switched to vegetarian / vegan, took 6 months to make real progress
Easier to go cold turkey than steadily wean off it
Doesn’t like cognitive load of deciding whether to eat meat

Everything gets weird at infinity when you think about expected values
Infinity matters, but no one has good account of it

Crypto
Can you coherently regulate stablecoins?
All stablecoins backed by dollars, in regulated accounts – solves most of current problems
But lots of gray area, like what’s difference between PayPal and USDC?
Banks can re-hypothecate, but what about stablecoins?
How do you regulate a coin that doesn’t call itself stable, but in reality has a very stable price?
A stablecoin is stable in both directions (asymmetric for consumer)

DeFi
Tyler: where is implicit (hidden) leverage?
In 2008, lots of bespoke OTC swaps that weren’t properly accounted – these exist in crypto too
Everything’s on-chain, but it’s inconsistently tracked
Dai – algo stablecoin, backed by crypto assets, not perfectly stable – but can also be used itself as collateral for other loans / leverage

Do we have rational theory for crypto prices?
Dogecoin – does away with pretense – can’t do DCF – bizarre and wacky but powerful – it’s just supply and demand (memes and anti memes)
Elon’s greatest product is TSLA (the stock, not the car)
Are there other asset classes aside from crypto that have price models that are similarly artificial / unreliable?
Meme stocks show this

Bitcoin’s price comp with gold is useful
Currently trading ~10% of gold
Swiss franc or bitcoin – which has more impact on world? Now the answer is obvious, but it wasn’t 2-3 years ago

What does it take for global scale blockchain?
take NYSE, Nasdaq, Google, Facebook
if billion users, 10 clicks per day, 1M TPS (transactions per second) – need something of that scale
most blockchains can’t support that today
ETH can support 10 – off by 6 orders of magnitude
ETH2 will support thousands of TPS per shard, but the shards don’t talk to each other

Growing up, McDonalds fries were his favorite
hard to find good fries in Asia
Tyler’s favorite fries are in Patagonia (also Belgium)

likes Beyond Burger – huge fraction of all veggie burgers sold, taste a lot better than most veggie burgers

currently in Bahamas – somewhat bullish on it, great place for some types of businesses
investing in schools, health infrastructure
nimble small state, robustly democratic
people are very nice
close to Miami
how would he give away $10M in Bahamas?
Health and hospitals
cash transfers are always a reliable answer