The Ex-Jane Street Trader Who's Building a Multi-Billion Crypto Empire

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:16)

And I'm Tracy Alloway.

Joe Weisenthal (0:18)

Tracy, do you remember the conversation that we recently had with Doug Sifu, the Virtu CEO?

Tracy Alloway (0:24)

Yeah, that was a great conversation. Doug's funny.

Joe Weisenthal (0:28)

Yeah, no, that was a really fun one.

Obviously, that was a discussion about high-frequency trading, electronic market making, and listed equities. And what's striking is ultimately, I mean, these are like profitable businesses, but they're in that business just scraping for pennies or fractions of a pennies. Like these are pretty efficient markets. It's hard to wring more profit out of them.

Tracy Alloway (0:55)

It's definitely a volume business. You're making a penny on the trade from a tiny, tiny, difficult to see spread.

Joe Weisenthal (1:04)

Right, there's so many different players in this. Everyone's trying to get their margin. And so, you know, I've said it before, you know, US listed equities in particular and probably elsewhere too. It's like, they're pretty efficient market.

Tracy Alloway (1:20)

Yeah, I think that's right. I mean, I think, well, we also just had an episode on the US treasury market.

And I think you'd probably say stocks and maybe US treasuries are the most liquid markets out there, corporate bonds, not so liquid. We've talked a lot about that on the show.

Joe Weisenthal (1:38)

So one thing we haven't actually talked about, I realize, is we've done a few episodes about crypto and Bitcoin, but we've never really talked about market structure in this space, as far as I know, or at least not in depth. And my impression is, even though the sort of industry of this ecosystem that's been built around it, several years old now, I think it's safe to say completely still on the other side of the efficiency spectrum from the space that the virtues of the world or the Citadel securities of the world are playing in.

Tracy Alloway (2:12)

Yeah, I think that's a fair assessment. I mean, for one thing, you have just tons of platforms and the market is completely fragmented. And then you also have these big regional variations where the price of Bitcoin can be one thing in Korea and then a different thing on a platform in the States.

There are a lot of arbitrage opportunities, I think, but also I can't imagine what it's like trading in that environment. And I think you probably have to think about costs and platform risk and other things a lot more than you would for certainly for equities.

Joe Weisenthal (2:49)

Right, so you have these sort of like massive different, you know, all these different platforms, huge spreads potentially at times between what an asset trades at one place or elsewhere, different regulatory regimes, different currencies, different banking systems. In theory, though, those costs create big opportunities for savvy traders.

Tracy Alloway (3:10)

Yeah, and we've heard some stories about people making millions, possibly billions, just by arbitraging like a simple regional spread.

Joe Weisenthal (3:19)

Yeah, so today we're going to talk about crypto market structure with someone who I think is basically the perfect guest to discuss it because he previously was in the world closer to the sort of market making world that we talked about with Doug. We're going to be speaking with Sam Bankman-Fried. He is the CEO and co-founder of the crypto exchange FTX. He's also the CEO and co-founder of the crypto hedge fund, Alameda Research.

And previously to that, he was in the market making business I think trading ETFs at Jane Street which is one of these trading shops that competes in that space of high tech market making for regulated listed assets. So has really seen both ends of the spectrum, the perfect guest to talk about crypto market structure with us, Sam, thank you so much for joining us.

Sam Bankman-Fried (4:19)

Yeah, thanks for having me.

Joe Weisenthal (4:21)

So Sam, I've read a little bit about your work. I take it you got not this boom, but the last sort of like crazy cycle for crypto 2017, I think, is when you sort of made that switch over.

I think you were at Jane Street at the time. Talk to us first about sort of like your background. How did you first get into finance and how did you find your way into the world of before we even get into crypto and make that jump the world of the world of trading?

Sam Bankman-Fried (4:53)

Yeah, it's interesting, in retrospect, looking back on it, it seems like so weird and contingent how some of these things happened. But also, ineffable isn't quite the right word, but it worked out remarkably neatly given that. But the context is, so I went to MIT as a math nerd, albeit a math nerd who was sort of coming into the middle of their college experience, having reckoned finally with the fact that I wasn't going to become a math professor. There are probably pretty compelling arguments that that wasn't going to be true. But realizing then really doing academic research with maybe a little bit of a hole in the plan. So I didn't really know what I was going to do with my life. The one thing that I didn't know was that I wanted to find out how I could have the most positive impact on the world. I've been into utilitarianism for a very long time and recently started getting into affective altruism, which is basically this movement of like, if you're trying to figure out how to impact the world, like try and quantify things, try and figure out what the most efficient way of doing that is, what the ways that gives you the most bang for the buck and was kind of playing around with a lot of possible careers that were kind of all over the place.