Inside Sam Bankman-Fried’s grand plan for crypto space
As the knowledge and adoption of cryptocurrency spread like wildfire in developed, emerging and frontier economies, promising financial independence and technological advancement, it became imperative to establish effective and efficient channels to drive transactions void of fraud and insecurity.
FTX Crypto Derivatives Exchange (FTX) stepped in to simplify the cryptocurrency operations and ensure secure, diverse and seamless transactions. Established in 2019 with its headquarters in Hong Kong, the exchange was incorporated in Antigua and Barbuda and offers innovative products worldwide including industry-first derivatives, options, volatility products and leveraged tokens.
In an exclusive BusinessDay interview with the founder, Sam Bankman-Fried, he said FTX strives to develop a platform robust enough for professional trading firms and intuitive enough for first-time users, much of which it has successfully achieved since it commenced operations.
Despite operating high-risk speculative instruments, FTX has managed to become the fastest-growing player and the second-best performer in derivatives trading volumes as high as $17.6 billion daily, according to Coin Market Cap, a price-tracking website for crypto assets.
In its December 2020 report, the exchange revealed that its user base in total increased by 1000 percent as it added well over 100,000 new users to its platform. In addition, its active daily users increased by 786 percent, while its listed markets grew from 410 to 1100.
By June 2021, its daily active users hit 1.2 million which translates into higher volumes of daily trade averaging as high as $10.9 billion daily. Out of the 1.2 million active users,130,000 actively traded on a monthly basis, an additional 2,700 institutional clients also used the platform garnering 1,017 trades monthly. Activities of its retail and institutional users its revenue with $43 million and $23 million respectively.
Its trade volume and active user growth also rubbed off on its daily revenue, moving from $40,437 in 2019 to $237,616 in 2020. By 2021 it was making an average of over $2.2 million daily putting the business at an $803 million revenue run rate, without factoring in further growth.
Achieving a cryptocurrency exchange worth $18 billion with an A rating in three years is no small feat, it however shows the efforts of its founder and Chief Executive Officer, Sam Bankman-Fried. Inspired by his summer experience in Jane Street Capital, a trading firm, the 29 years old billionaire optimized his foresight, consistency, and determination to establish and grow Alameda, a crypto investment firm after which he launched FTX.
Kick-starting his entrepreneurship journey, he identified an opportunity between US and Asian crypto markets where currencies like bitcoin traded at much higher prices in Korea, however due to restrictions on the Korean currency, there was a limit to the amount that could be invested.
Hence he sought the same opportunity in similar climes such as Japan which although did not have a restricted currency required a complex web of intermediaries, he then partnered with Gary Wang, a former Google engineer and MIT alum, and Nishad Singh, a fresh computer science graduate from Berkeley and high school acquaintance to start Alameda Research, a quantitative trading firm.
After recording a huge success with Alameda and looking for ways to make improvements and outrun competitors, he began working on FTX which he described as an exchange by traders for traders and by May 2019, the exchange officially commenced its trading activities and has grown to become the most dependable exchange on the market according to users.
At the core of the exchange’s affairs and fast growth is product innovation and a unique culture that gives chances which have fuelled its growth. For example, unlike other exchanges, FTX permits cross-margining, this means that multiple currencies including USD, BTC, ETH, AAVE, XRP and dozens of others, are counted as contributing to a user’s collateral.
FTX initially offered 100 fold leverage which allows increased investment capacity and faster loss recovery, although it cut the amount of leverage traders can have on the platform from 100 times to 20 times. This according to the CEO became crucial seeing that leverage, despite allowing traders to borrow money to generate bigger returns, can also cause big losses, in addition, the cut will encourage responsible trading.
Other than providing a platform for crypto trading, the exchange also provides access to public securities, tokens, etc under platforms like its tokenized stocks, leveraged token, volatility tokens, prediction market and Fiat market. It also allows its platform to be used for the sale of FTX branded items like hoodies, water bottles, caps, etc.
Having made his mark in an emerging and very volatile industry without being swayed by the number of competitors, the crypto billionaire is not slowing down soon despite the worrisome glare of regulators who are working out to tackle the sprawling industry, and the rise in cyber security.
In an interview with Forbes, he mentioned that the firm has tried to build an efficient organization that could execute well in terms of building out the cross margining, having a stable API and avoiding downtime, he added that the efforts go beyond that to other areas such as compliance, intentional know your customer activities and been mindful of jurisdictions to exclude
Already, FTX has demonstrated it is a business willing to innovate and experiment, with a desire to extend its boundaries far beyond the crypto world into sports, banking, and social media; to become a kind of everything exchange.
As part of its expansion drive, the exchange is looking to increase its investments in sports and sports betting. Earlier in June, FTX bought naming rights to the Miami Heat’s stadium and weeks later signed a deal with Major League Baseball.
It is also considering the possibilities of becoming a full-stack financial business while it expands crypto trading activities because as interest in crypto expands, institutional investments will grow furthermore, it may want to enhance its tools for quantitative traders, bringing options trading to a less mature audience, and growing the number of markets and opportunities it offers.
Lastly, it is considering making an entry into the social media space, as it has demonstrated a talent for picking up large user bases and monetizing them effectively through trading.
Speaking on its operations across various locations, Bankman-Fried said there are a lot of countries that are really underserved in equity markets, with challenges centered on building out the localization and user bases in a lot of different jurisdictions.
“And that’s something that we’ve already been building out for FTX. so we’re able to leverage that to give some people easier access to equity markets than they’re able to get, especially in sort of more neglected countries,” he said
Although its operations are restricted in the USA as it is forced to function under its subsidiary FTX.us, the firm is fast spreading its tentacles across other continents after launching a 5-city African tour that will bring industry leaders and crypto enthusiasts together to discuss the future of money.