Sam Bankman-Fried is the founder of crypto exchange FTX and trading firm Alameda Research.
In a chat with Bloomberg’s Matt Levine, he said FTX keeps its treasury in dollars to curb risk.Some companies in bailout talks couldn’t provide numbers on their own balance sheets, per SBF.Amid the crypto market rout, the 30-year-old billionaire Sam Bankman-Fried is on a dealmaking spree.
Bankman-Fried, commonly known as SBF, announced on June 21 that FTX would provide a $250 million credit injection to troubled lender BlockFi.Zac Prince, the company’s CEO, had said a week earlier that BlockFi was cutting roughly 20% of its staff, citing volatile “macroeconomic conditions worldwide.”
In June, SBF’s quantitative trading firm Alameda Research extended a $500 million line of credit to crypto brokerage Voyager Digital.The publicly traded company later filed for Chapter 11 bankruptcy on June 6, where documents revealed that lender Alameda actually owes Voyager $377 million as well.
Earlier this month, SBF said in an interview with Reuters that FTX still has “a few billion” in cash to bail out other players in times of crises.
“Sam Bankman-Fried is the new John Pierpont Morgan,” Anthony Scaramucci, the founder of SkyBridge Capital, said in June.”He is bailing out cryptocurrency markets the way the original J.P.
Morgan did after the crisis of 1907.”
‘The test’ and making a ‘moderately bad deal’ At the Bloomberg Crypto Summit on Tuesday, SBF explained how he decides which troubled firms to help out.
In talks of potential bailouts, the exec initially assesses how bad the financial situation is for the other party, asking simple questions like what figures are on their balance sheets.Some of them didn’t even know or wouldn’t provide numbers on their own balance sheets.
“Some failed that test,” the exec told Bloomberg’s Matt Levine at the summit.
“We think either they’re not being transparent with us or they don’t know their own business.”
Per a Financial Times report, FTX could not justify bailing out centralized lender Celsius, which later filed for Chapter 11 bankruptcy with a $2 billion hole in its balance sheet.
Second, the bailout process includes comparing the companies assets to its liabilities, and if its roughly the same number then the company would be more likely to receive a line.This is to prevent further crypto contagion or customers losing their assets.
The exec added that the “best case” scenario, however, is when companies approach him with “about zero left,” meaning that they need an extra buffer before they have lay off staff or dip into user funds.The troubled firm could then received a line that is “definitely bigger than the plausible downside” and so the company has a surplus of cash.
Senior lines of credit, which are more secure and prioritized in bankruptcies, would be likely extended if a firm is going through a liquidity crunch versus a net-asset-value crunch.
It’s unclear what kind of return on investment these bailouts will bring for FTX or Alameda, however.The exec added that FTX keeps its treasury in dollars to mitigate risk and doesn’t allow customer accounts to be in the negative.
But SBF says that right now it’s okay make a “moderately bad deal” if it will improve the overall “health” of crypto as an industry.
“We need to be a good, constructive actor in this space,” he said.”How healthy the ecosystem is, in the long run, is going to be a very strong predictor of how much we can grow.”
Sign up for notifications from Insider! Stay up to date with what you want to know.Subscribe to push notifications.
