FTX’s Sam Bankman-Fried explains how he built a $32 billion crypto exchange in 3 years after growing annoyed with ‘crappy’ platforms – making him a multibillionaire at 29
- The FTX crypto exchange is now worth $32 billion, despite having been founded only in 2019.
- Sam Bankman-Fried set it up after becoming annoyed with “crappy” exchanges, he told Insider.
- The 29-year-old explains how the company grew so quickly, giving him a net worth of more than $24 billion.
A lot of people have gotten rich quickly in crypto. But few have gotten rich quicker than Sam Bankman-Fried.
He’s worth $24.5 billion, according to Forbes, although that may be an underestimate.
“I think it was accurate when they wrote it,” Bankman-Fried told Insider this week. “I think it’s probably a little bit higher right now.”
At the root of Bankman-Fried’s wealth is the FTX exchange, which he co-founded in 2019 and is now one of the biggest cryptocurrency-trading venues in the world.
The Bahamas-based exchange reached a valuation of $32 billion last month, when it raised $400 million from illustrious investment firms such as SoftBank, Tiger Global and Temasek. Its US spinoff is worth $8 billion.
Bankman-Fried graduated MIT with a physics degree, and then landed a job at the Wall Street trading firm Jane Street in 2014. Three years later, he founded crypto-trading firm Alameda Research, which was soon making big money taking advantage of price discrepancies in global markets.
By 2018, he’d come to the realization that the existing crypto exchanges simply weren’t very good: they were glitchy, unsafe, and had next to no customer support.
“You felt like, these are really central, important, valuable systems, which are really crappy right now, and we can do better than this,” he said.
Bankman-Fried and his cofounder Gary Wang, a fellow MIT grad and ex-Google software engineer, thought they probably had the technical know-how to build an exchange.
The key question was, could they attract customers? “Answers ranged from probably not to definitely not,” Bankman-Fried said. “I was the most optimistic, at like 20%.”
But gradually customers came. People started talking about the new exchange on social media and telling their friends. The trickle turned into a flood in 2021: FTX had 5 million users by the end of the year, with daily volume peaking at a record $60 billion in May.
Read Insider’s profile from December: FTX founder Sam Bankman-Fried gets by on 4 hours’ sleep and multitasks on 6 screens. Insiders break down what the 29-year-old crypto billionaire is really like — and the tough questions facing his company.
A key part of FTX’s success is that crashes are extremely rare, Bankman-Fried says. On top of that, traders are drawn to its policy of allowing them to have one account in which margin balances offset each other, rather than numerous margin accounts. (Margin means borrowing money from a broker to trade with.)
And they like the complex crypto derivatives that FTX specializes in, which allow them to bet on the future price of major tokens such as bitcoin and ethereum.
However, as a hub of risky trading activity, FTX is firmly in the sights of regulators and law-makers.
Bankman-Fried found himself in Congress last week, where Democratic Sen. Sherrod Brown asked him: “Is it reckless for crypto companies to get rich by selling Americans such a dangerous, risky product?”
FTX’s users break down roughly 50/50 between individual and institutional investors. Institutions, such as high-frequency trading firms, hedge funds and family offices, are responsible for about 80% of the revenue and volume, however. That contrasts sharply with Coinbase, the US’ biggest exchange, which derives the vast majority of its revenue from retail traders.
From four employees at the start, FTX now employs roughly 250. By contrast, Deutsche Bank, worth $4 billion less than FTX, has more than 80,000.
Investors are desperate to get a chunk of the exchange, but Bankman-Fried says he feels no pressure to take it public. “We don’t need the capital, we’re profitable,” he said. “We’re gonna do whatever feels right for the company.”