SBF ‘flew too close to the sun,’ says author of new book about FTX bankruptcy

Sam Bankman-Fried unsurprisingly emerges as the sole protagonist (and possible antihero) in a new book on the collapse the FTX exchange that rocked the crypto world late last year.

“My book’s thesis is that there’s only one character, and that’s Sam,” Brady Dale, a crypto reporter at Axios, says in an upcoming episode of The Scoop. “It’s the story of Sam. And then a bunch of people who got sucked into his vision.”

Released today, the book, “SBF: How The FTX Bankruptcy Unwound Crypto’s Very Bad Good Guy,” was written in real time, with Dale saying that he didn’t take time off from his day job for the project and felt at times like he was “drowning in Sam.” The author says he used Greek and mythical images throughout the book to bring life to the story and comment on Bankman-Friend’s worldview.

“Do I think it was a Greek tragedy?” Dale says. “I certainly think Sam was someone who flew too close to the sun. And I also think he thought he knew how to fly places that other people knew not to fly to.”

It’s among the first books being released about the spectacular implosion of FTX. “Big Short” writer Michael Lewis had spent months with Bankman-Fried ahead of the collapse and is also working on a book.

SBF’s surprise revelation

He said the biggest surprise of the project came on the day when he was supposed to turn in the final manuscript, when he finally landed an interview with Bankman-Fried and asked him for the reason that the FTT tokens at the center of the exchange’s problems seemed to be directed through a wallet controlled by sister trading fund Alameda Research after an unlock event.

“And so I asked Sam why that was and he said, ‘oh, well, that’s because FTT always belonged to Alameda. That was the deal from the start, like all of the locked up, set aside FTT was Alameda’s. That was our payment to Alameda for letting our executives come work for this new exchange, FTX. That was sort of FTX’s payment to Alameda,'” Dale recounts. “And I mean, that was a big revelation.”

While Dale says he had viewed Bankman-Fried to be a “super smart guy” and “unique in the space,” he found the former billionaire to be “surprisingly unemotional.” He also believes that FTX had not necessarily been doomed to fail and that it had been fine through the end of the bull market in 2021. 

‘Sam needed to be at the top of the heap’

“My guess is Sam believed that when the bear market came, he either had to win then and make FTX the number one cryptocurrency exchange in the world, or he was always going to be number two to Binance,” Dale says. “I believe he thinks that that was his opportunity. And so they took a few last big swings in late 2021 and early 2022. This is my guess. And that’s what went wrong for them, because they thought they were the smartest guys in the room.”

“Sam needed to be at the top of the heap,” Dale continues. “It wasn’t just enough to be successful.”

The book, published by John Wiley & Sons, is available at booksellers around the world. 

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Arbitrum’s backtrack raises questions about nature of DAO governance

Arbitrum was forced to backtrack on a key proposal earlier this week after token holders in the Ethereum Layer 2 scaling project who control the protocol’s decentralized autonomous organization staged an apparent revolt by voting to stop the planned transfer of ARB tokens worth about $1 billion meant to capitalize the Arbitrum Foundation.

While the result could be seen as a win for the promise of DAOs — truly decentralized governance that works, even when it goes against what management wants — the ordeal raised a number of thorny issues. The central question being whether or not an organization can really function from the bottom up, at least in the beginning stage and especially when huge amounts of money – and potential profit – are involved. 

"A key issue DAO governance can face is the misalignment of short-term incentives with longer term goals," Charlotte Dodds, head of marketing at uncollateralized lending platform Maple Finance said in an interview.

She pointed toward her previous experience in more traditional tech companies such as TikTok and said that sometimes centralized decision-making is necessary when companies want to quickly scale.

That’s exactly the argument that the Arbitrum developers initially tried to make when the plan to capitalize their Arbitrum Foundation first drew controversy, calling it a "ratification" instead of what many thought should have been a more of a consultation. 

Arbitrum eggshells 

"When it comes to setting up a DAO, there’s a chicken and an egg problem," the developers said in a governance forum post on Sunday, arguing that parameters involving code transfer, security council creation and the drafting of a constitution needed to be set before the DAO could take over. "There simply was no community that could have voted on these numbers, and the very act of creating the community required these parameters to be specified."

The debate followed the high-profile airdrop of Arbitrum governance tokens last month, an event that saw more than 1 billion ARB tokens allocated to nearly 300,000 wallets. It also resulted in the creation of the ArbitrumDAO.

"Slightest whiff of ‘team dictates everything’ won’t be met with benefit of the doubt from here," they wrote. "Build community or just don’t bother."


Nick Cannon, vice president of growth at Gauntlet Network, said that chickens and eggs might not make the cleanest analogy, but that "the evolution component is real and tough to get right."

"How can you know the mandates/stances of DAO delegates before delegation?" he said, adding that Arbitrum could have used better messaging.

"In some cases it’s better to ask for forgiveness but with DAOs you always want to ask for permission first," he said. "The clarity post should have come first."

Big Tent

And while users including PaperImperium favor the big tent approach promised by many DAOs, BlockTower Capital general partner Thomas Klocanas pointed out some of the problems decentralized organizational structures face, including voter apathy and low participation.

"For the most part, it doesn’t really work today, in an overwhelming majority of cases," he said.

"We have too much speculation around the space," he said. "A lot of market participants hold tokens with no long-term interest in a specific project, so they don’t bother to look into governance, let alone participate."

It’s a sentiment that was shared by Maple’s Dodds, who pointed out that some token holders may be more interested in personal profit over the long-term sustainability and vision of the protocol. You can have decentralization on a purely technical level, she said, but it becomes harder on an ethical level.

Expectations of profit

"Some token holders have become accustomed to expecting profit from governance tokens, whereas when you’re building a business, you’re in it for the long haul," she said. "The incentives are not necessarily aligned in any of this," Dodds continued, noting that many DAOs were purposely structured in a decentralized way so that their tokens would not be classified as securities.

"What is the point of a DAO? There are huge advantages to being community-led, but in reality, it’s complicated," she said, noting that even if voting may be decentralized, the initial allocation of tokens may result in a centralized voting process.

Klocanas said that investor activism could point to a possible solution, noting projects including Paladin and StakeDAO that are working to create "governance markets." 

"Long term though, tokens can’t just confer rights to governance," he said. "We need to find a way, as the crypto community and from a regulatory perspective, to have these things naturally evolve from idea, to meme / utility token, to governance token and eventually to network equity- ie something with cash flow rights but not to a company / common enterprise, but to a network / collective."

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Kraken is on track to launch bank ‘very soon’ despite regulatory ‘weird place’

Kraken is moving ahead with plans to launch its own bank despite a challenging regulatory environment and the recent shuttering of its on-chain staking services for U.S. clients to settle U.S. Securities and Exchange Commission charges that it violated securities laws. 

"Kraken Bank is very much on track to launch, very soon," Kraken’s chief legal officer Marco Santori told The Block’s Frank Chaparro on The Scoop podcast. "We’re going to have those pens with the little ball chains. We’re going to order thousands of them and attach them to the to the desks of Wall Street banks everywhere. With our logo."

A new bank born from the crypto sector would come at a tumultuous time for an industry still dealing with the widespread fallout from the collapse of FTX. There have been multiple enforcement actions over the past several weeks and rising uncertainty on the regulatory front. SEC Chair Gary Gensler said last month that the Kraken settlement, which included $30 million in fines, should "put everyone on notice in this marketplace."

Santori declined to discuss the SEC settlement in detail, but said that staking had been a small percentage of Kraken’s revenue. Kraken neither admits nor denies any of the allegations in the complaint, he added.

"It does of course affect pretty dramatically our product mix in the U.S.," he said, adding that the SEC moev will push American clients who want staking services offshore to far riskier exchanges.

"It’s really indicative of a pretty unfortunate situation here stateside," he said. "We’ve got a regulatory environment that is essentially forcing users off to use offshore exchanges that will gladly accept their business with so little as a VPN."

Rising caution

With crypto-friendly bank Silvergate shutting down its widely-used Silvergate Exchange Network amid capitalization troubles, Santori said that Kraken’s banking relationships were secure and that the exchange had a "diversified group of banks all around the world."

He did warn that increased caution on the banking front could stifle innovation in the sector.  

"We’re returning to an era where banks are going to be very cautious as to what accounts they open," he said. "Wall Street is going to be fine. Kraken and Coinbase are going to be okay. But the guy or gal who has a new idea about how to provide infrastructure to the crypto economy, it’s going to be a really tough road over the next few years for them. No question."

Santori said he didn’t think there was a conspiratorial crackdown on the crypto sector in the U.S. Nonetheless, he said the issue could become electoral fodder as the presidential race kicks off in the country. 

"There’s definitely not some anti-crypto group that meets every week in some shadowy room in D.C.," he said. "But there are a group of regulators who happen to all feel roughly the same way about crypto … I think they just believe basically in one fundamental thing, that what crypto is today is what’s important, and what it will be or could be in the future is really not."

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.