Sam Bankman-Fried was born in 1992, and during his early years…
Wait, I don’t think that’s why you’re here.
So let’s dive right into the important parts
Leaving all the personal information aside, he was pretty good at math, or at least he had a minor in it and attended a summer program for mathematically talented high-school students.
Finally, the moment we have all been waiting for…
Trading roots:
He started by working as an intern at Jane Street Capital in 2013 and later returned for a full-time position there, where he worked for about three and a half years. Over there, he worked on the international ETF desk.
Now what exactly is Jane Street Capital?
Jane Street Capital is a proprietary trading firm. (Proprietary Trading Basics: Proprietary trading means trading or investing with the fund’s own capital, whereas hedge funds take capital from investors.) They are one of the largest market makers, and they invest in multiple things, including crypto.
The Quant trading firm:
He founded Alameda Research in 2017 after leaving Jane Street Capital. Alameda Research(The lesser of two evils) was a quantitative trading firm specializing in cryptocurrencies.
Now there’s a nice story behind the name of the company, and that is:
He stated that the term “research” was included to avoid being scrutinized by bank employees.
“If you named your company Cryptocurrency arbitrage Mumbo Jumbo” (he never said Mumbo Jumbo), no one would give you a bank account. But everyone wants a research institute”.
I’ll give him a point for that.
The Kimchi Premium:
Basically, the kimchi premium that Alameda exploited consisted of buying bitcoin in the U.S. and selling it in South Korea, making a profit from the price differences. Since the demand for bitcoin was higher in the South Korean markets as compared to the U.S. The spread in the price was around 50% during the peak.
For e.g. If bitcoin was priced at around $10,000 in the U.S. and $15,000 in South Korea, they would buy it in large amounts and then sell it on the Korean market.
It was a difficult trade to perform, according to him, because the “won” was a restricted currency and it was difficult to convert it to U.S. dollars.
While looking for similar opportunities, he stumbled upon the Japanese crypto markets. He saw that there was a price difference too, but it was only around 15% (as compared to 50% in South Korea) at the peak, but they could convert the Japanese yen to dollars pretty easily as compared to the “won.”
Many people were trying to do the same thing, but they were unable to scale it, but he was able to work it all out and scale it, and it was said that the firm sometimes made around a million dollars a day from this arbitrage opportunity.
He kept on doing this back and forth until Alameda Research became one of the biggest market makers in crypto.
This is when Sam Bankman-Fried had the idea to start his own crypto exchange called FTX.
About FTX:
It was founded in the year 2019 by Sam Bankman-Fried and his colleague Gary Wang. FTX was the new kid on the crypto block. It was incubated by Alameda Research itself and raised $8M on its seed round from different investors.
Binance was an early investor in FTX.
Binance bought around 20% of the FTX when it was only 6 months old.
By that time, Alameda Research had already become one of the biggest market makers in crypto and had been investing in many companies.
More about FTX and it’s growth will be covered in the next chapter.
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