Sam introduces Shaan to Sam Bankman-Fried, then a 29-year-old self-made billionaire who built his fortune through crypto arbitrage — exploiting price premiums between the US and Asian markets. Sam walks through SBF’s journey from Jane Street trader to founding Alameda Research and FTX, and explains how he compounded 10% daily margins into a $10 billion fortune while donating heavily to effective altruism.
Speakers: Sam Parr (host), Shaan Puri (host)
Introducing Sam Bankman-Fried [00:00:00]
Sam: This one is very interesting. Have you ever heard of this guy before? Don’t google — I want to tell you the story. So don’t google this guy.
Shaan: All right.
Sam: Let me tell you the story.
Shaan: I’m just — I googled him. I’m just thinking, oh wow. Okay, yeah. Young guy, young guy, 29 years old.
Sam: His name is Sam Bankman-Fried — I think that’s how you say his name. And if you heard him talk, I actually want you to listen to a YouTube video for a second, because he sounds like an absolute dweeb. And I loved it. I was like, oh, this guy sounds like he would be a self-made billionaire by 29. He sounds like a tech genius.
Shaan: Have you brought this person up to me before?
Sam: No, I just discovered him like two days ago.
Shaan: Okay. So what’s this guy’s story?
From Jane Street to Alameda Research [00:01:00]
Sam: So this guy — I’ll just call him Sam for short. He’s a young guy, very smart. He takes a job as kind of a hedge fund trader with a group called Jane Street. And then he leaves and starts something called Alameda Research. It’s called Alameda Research because he needed it to sound as legit as possible and not like what it actually was.
Shaan: So what was it?
Sam: So this guy was into crypto. There was this known thing happening as crypto was getting popular — this is around 2017, the first big run-up, when bitcoin went from three thousand dollars to twenty thousand dollars. It crashed later, but during that period — 2016, 2017, 2018 — bitcoin was emerging. And as with any new thing, there was kind of a wild wild west quality to it.
The Kimchi Premium [00:02:30]
Sam: So there was this thing where in the US the price of bitcoin was, let’s say, ten thousand dollars. In other countries where the exchanges weren’t built yet, or the country had some regulations, there was a premium — more demand than bitcoin available to buy. Because you need — like in Korea, there was this famous thing called the kimchi premium. The kimchi premium was that in Korea, whatever bitcoin was selling for here, let’s say ten thousand dollars, it was trading for fifteen thousand dollars there. About a 50% premium. It fluctuated, but I think 30% was kind of the average over time.
So everybody saw the arbitrage: what if I could buy it in the US for ten grand and immediately sell it in Korea for thirteen, fifteen grand? And a whole bunch of people were trying to do this. But there were all these problems.
Shaan: Yeah.
Sam: The reason there was a premium in the first place is because it was hard to buy bitcoin in Korea. So one idea was: you buy it in the US, you go to Korea, you sell it. But now you’ve got Korean won, the local currency. For the arbitrage to continue, you have to convert the Korean won back to dollars so you can go buy more bitcoin in the US. The problem was, you can’t convert large amounts of Korean won back to dollars easily — the government had tight regulations. You couldn’t funnel large amounts of money out.
So a whole bunch of people were trying to crack this pinata of money and couldn’t do it.
The Japan Premium and the Odyssey [00:05:00]
Sam: What this guy did was — he went for the Japan premium instead. Far less appealing. It was only 10%, not 30 or 50%. But he’s like, still — if I can trade US bitcoin for 10% more in Japan every single day, I’m making 10% compounding daily.
So he went through this odyssey where for about a year all he’s doing is setting up this trade. Actually, first when he was figuring out if he could capture the kimchi premium, he was doing calculations like: what if I chartered a private plane, filled it up with a hundred people, flew them to Korea, they each sell bitcoin there, each one converts some amount back to dollars, and I fly them back every day? He was running those numbers. And he concluded: I don’t think it works.
Shaan: Wait — so you had to be there physically?
Sam: It’s not that you had to be there physically. You have to complete all legs of the transaction. You have to be able to sell your bitcoin in Korea at the premium, but now you have Korean won. And you need to convert that back to dollars. There are caps — they won’t let you convert because of what it looks like.
The way he described it: what he wanted was essentially to sell five million dollars of bitcoin for the local currency and convert five million of that local currency back to US dollars every day. If you go to a bank in Korea or Japan and say, “Hey, I’d like to convert five million dollars of your local currency to US dollars and exit the country” — they’re going to ask where you’re getting all this money.
Shaan: Yeah.
Sam: He’s like, if you go to Bank School 101, that’s what money laundering looks like. That is exactly what money laundering looks like. Even though I’m not money laundering — I’m buying and selling a good that’s differently priced in different regions — to the bank on the ground where I need to do these conversions, it looks shady. Too shady. They won’t let you do it.
Cracking the Trade [00:08:30]
Sam: So he spends like a year of his life going to Japan, solving each piece of this puzzle. He had to find a US exchange that would give him really high limits — even though he’s this dorky kid with no track record, no collateral, no brand name. He figures out how to solve that. Then he goes to Japan and figures out how to sell a huge amount of bitcoin there. Then he figures out how to convert from Japanese yen back to US dollars. And he has to do all of it in the same day and wire transfer it all back to the US — so he can buy the full amount again the next day.
The way the timing worked, it was always in the last hour of the banking day that he’d be trying to get all the wire transfers done to get the money back to the US for the next trade.
The Numbers: 25 Million Per Day [00:11:00]
Sam: The end of this story is this guy’s arbitraging twenty-five million dollars a day, making a 10% margin — compounding every single day. And in basically three years, he’s become a self-made billionaire. He’s worth ten billion dollars now. That’s a combination of the money he made from the arbitrage trade and the fact that he then built his own exchange.
So he’s got a trading company — Alameda Research — that made hundreds of millions on the arbitrage. And he used that to create an exchange called FTX.
Shaan: And FTX is basically like a more sophisticated Coinbase? Where you can do derivatives, options, all different types of things, internationally?
Sam: Exactly. It’s a proper company. It’s a proper exchange with a full product suite. And Alameda Research accounted for about 10% of all bitcoin trading during that period — which is just insane, given how much money was moving.
Effective Altruism and the Biden Donation [00:13:00]
Sam: He got on people’s radar because he was the biggest donor to Joe Biden’s presidential campaign. He wrote a five million dollar check at the last hour — like literally at the eleventh hour — that let Biden do a last-minute blitz of TV ads across all the swing states.
And this is kind of interesting: his whole business philosophy is this thing called effective altruism. Which is basically — go be a greedy capitalist, try to make as much money as you can, but your goal is to give away at least half of it while you’re doing it. So it’s not like a philanthropist giving away 1% or 10% as a tithe. His goal is giving away 50% of his liquid net worth every year. That’s his mindset.
Shaan: Where did he get the money to start this?
Sam: He started with a very small amount and it just compounded very quickly because he’s basically getting 10% extra every day. I don’t know exactly where he got the initial seed capital or how big it was — he hasn’t specified that. But he did say at the max they were doing twenty-five million a day on the trade, which is basically a 2.5 million dollar profit per day.
Closing Reaction [00:15:30]
Shaan: What does this guy look like? You said he sounds crazy — I’m looking at pictures.
Sam: Oh my god. He’s extremely genuine, humble, high-pitched voice. Kind of just a nerdy guy. He accounted for about 10% of all bitcoin trading himself — just his firm — during that time period.
Sam: Dude, I love these people. I love freaks.