The Quant with a Conscience
In 2017, Sam Bankman-Fried was a successful trader at Jane Street, a prestigious and notoriously risk-averse Wall Street firm. But SBF, as he would become known, was restless. He was a devoted follower of "effective altruism," a philosophical movement
that encourages using data and reason to do the most good possible—often by earning vast sums of money to give away. For SBF, the quiet, disciplined world of Jane Street wasn't ambitious enough. The real money, he believed, was in the new, chaotic world of cryptocurrency. It was a digital Wild West, full of inefficiencies a smart quant could exploit. So, in late 2017, he left the security of Wall Street to start his own firm.
A Golden Arbitrage Opportunity
Bankman-Fried's first big play was built on a simple market anomaly: the "kimchi premium." Bitcoin was trading for significantly more on South Korean exchanges than elsewhere in the world, sometimes at a 30% markup. For traders, this was a classic arbitrage opportunity: buy low in one market (like the U.S.) and sell high in another (like Korea). While the concept was simple, executing it was a logistical nightmare due to South Korea's strict capital controls. This was the kind of complex, lucrative puzzle SBF excelled at solving. He, along with co-founder Tara Mac Aulay, set up Alameda Research in Berkeley, California, recruiting a team of fellow effective altruists to chase these profits. The name "Alameda Research" was deliberately bland to avoid scrutiny from banks who were wary of crypto businesses.
Chaos, Profits, and Early Cracks
Alameda's first year, from late 2017 to late 2018, was a whirlwind of frantic activity. The team, mostly young and with little financial experience, dove into the arbitrage trade. At one point, Bankman-Fried claimed the operation was making up to $25 million per day before the price gap closed in early 2018. But behind the massive profits, the firm was organizationally chaotic. Bankman-Fried's disregard for traditional risk management—a stark contrast to his training at Jane Street—created immediate friction. The firm reportedly commingled trading capital with operating funds and kept poor records. Within months, things came to a head. In a particularly alarming incident, the firm simply lost track of millions of dollars in tokens.
The First Exit
By April 2018, just a few months after starting, the situation was untenable for some. Co-founder Tara Mac Aulay and a group of other senior employees quit, citing deep concerns about SBF's approach to risk management and business ethics. In a tweet years later, Mac Aulay said she and others left because of these concerns, a decision that now seems eerily prescient. The departing employees essentially walked away from a company that was, on paper, incredibly profitable. Their exit left Bankman-Fried in sole control, surrounded by a smaller, less-experienced, but more loyal team, including his former Jane Street colleague Caroline Ellison, who joined in March 2018. This consolidation of power set the stage for everything that followed, from the launch of FTX a year later to the eventual, spectacular implosion.
