Sam Bankman-Fried may be headed to prison but the story of FTX is far from over. Indeed, like an evil spirit, the exchange seems destined to haunt the crypto community for the rest of its days.
Not only has the company’s downfall shattered faith in what was once the most trusted institution in the industry, but its epic implosion continues to shake faith in the most basic tenets of the web3 philosophy. Another example of this presented itself Friday when, only hours after SBF was remanded to the custody of the state, Bloomberg News reported that FTX advisers had been surrendering large amounts of user data to the FBI. If you know anything about the crypto community, it should be clear what a huge betrayal this is. Crypto fans obviously like their privacy, and FTX once promised to keep its customers identities, data, and assets safe. Now, it can be said that—in addition to “losing” (read: stealing) billions of dollars in customer funds—the platform has also proceeded to position itself as an informer for the federal government. This turn of events has to be a bit of a bummer for the droves of anarcho-libertarians who thought platforms like SBF’s might one day usher in an age of decentralised and anonymized exchange that cut government out of the picture completely.
Per Bloomberg, the company has surrendered customer transaction data to at least five separate FBI field offices over the past several months. It’s unclear exactly why FTX has been sharing this data. The requests have largely been to the exchange’s cloud provider, Amazon, for information pertaining to specific customer transactions as well as device IDs. A court filing reviewed by Bloomberg shows that, in at least one case, the FBI subpoenaed FTX for information relating to a Grand Jury in Philadelphia.
RIP crypto privacy. You can mark that down as yet another promise that the industry hasn’t managed to keep to its customers. It certainly won’t be the last.
So long, Sam, and thanks for all the theft
In my opinion, SBF’s conviction seems to mark the end of something: the era of crypto idealism. Once upon a time web3 proponents talked zealously of their products’ potential to change the world. You don’t hear so much about that anymore. Indeed, with FTX in tatters and its former leader headed up the river, is it too much to ask that we all just quit this bonkers industry altogether?
At the very least, web3 fans must be feeling burned right now. Before his downfall, Sam Bankman-Fried was one of the most well-connected and powerful executives in the tech industry and, for a time, FTX was considered the most trusted exchange in crypto. The company even tried to position itself as the “saviour” of its ailing industry by offering lines of credit to other, struggling businesses. During its heyday, countless celebrities appeared in advertisements for the exchange, and its executives donated liberally to politicians across the U.S. political spectrum, reportedly in the hopes of currying regulatory leniency. All of that credibility evaporated last November, when the exchange abruptly filed for bankruptcy and Bankman-Fried stepped down as top executive. Not long afterward, it became apparent that billions in crypto assets were MIA.
In the pandemonium that followed the exchange’s collapse, questions loomed about how so much money could be missing or why a business with such clout had suddenly become insolvent. The answer eventually turned out to be: because FTX was an insane company that operated less like an actual business than a money-crazed pirate ship. Indeed, since it filed for bankruptcy, a steady stream of reports from the company’s restructuring team have alleged rampant criminal activity and corporate incompetence, painting an almost farcical picture of misconduct on an epic scale.
But, frankly, the company’s downfall really shouldn’t be that surprising. There were plenty of red flags in the lead up to its collapse—perhaps the biggest one being that FTX was…you know, a crypto company. At this point, how many platforms have promised the moon to investors, pumped up their stocks with FOMO, then swindled customers before flaming out in a blaze of glory? I’m not keeping an official tally or anything, but it sorta seems like it’s a lot of them.
I’d also like to submit for consideration the premise that the cult of the crypto leader should be sent into permanent cultural exile along with SBF. Bankman-Fried was once portrayed by top media outlets as an eccentric but brilliant businessman, crypto’s Steve Jobs with weird hair. It’s obvious now how irresponsible that was. After his arrest and throughout the monthlong trial, his lawyers had to pivot his image slightly—taking it from crypto’s “boy king” to that of a humble “math nerd,” one who was simply out of his element in running a profitable, fast-growing company. Federal prosecutors, meanwhile, presented another, potentially simpler explanation of his character: that he, like other crypto criminals before him, was just a greedy liar who invented byzantine schemes to steal billions of dollars in customer funds. Now crypto’s former golden boy is stuck behind bars, waiting to hear how long it’ll be until he can get out and remake his image yet again, potentially this time to do the whole bad boy “pharma bro” rehabilitation thing.
You’d certainly hope that the story of FTX would permanently disabuse web3’s most ardent supporters of the many delusions that have surrounded the industry. But that’s probably not going to be the case. In the immortal words of George W. Bush, “Ya fool me, we can’t get fooled again.” If only he were right.