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Exclusive: How billionaire Sam Bankman-Fried approached a crypto deal

Depending on who you ask, Sam Bankman-Fried is either the “white knight” of cryptocurrencies — or a mercenary intent on making deals at a time when the latest downturn has left many companies struggling. face. Perhaps unsurprisingly, the 30-year-old billionaire who runs the massive crypto exchange FTX considers himself the former.

Bankman-Fried, widely known as SBF, admits he first got into crypto to make a lot of money. But in Fortune’s Latest cover feature, he says his overall motivation – especially coming in late – is also to contribute to the greater good. “I want to be in a position where when we work with people we are a little more generous than we are specifically for being,” he said.

However, what is his strategy when it comes to who – or what – he invests in and how does he approach a deal?

“There are a number of things related to this issue,” SBF said.

Breaking Kingpin Cryptocurrency Investment Strategy

When stablecoins follow the Terra . algorithm explode in May, it starts a Domino effect Hit the biggest players in the industry along with investors on a daily basis. By the summer, the industry was reeling from a market crash so bad that even Bankman-Fried “didn’t guess” it.

With crypto investors struggling – their life savings trapped on platforms with little hope of return – and the future of the industry in doubt, Bankman-Fried decided to participate. Direct investment, or despite FTX or Alameda Research (a trading outlet he founded), SBF has provided lifesaver solutions to several devastated crypto companies, from broker Voyager Digital to the lending company BlockFi.

When evaluating a potential investment — or rescue mission — SBF says he first asks himself: “Is there a way for us to recover a client’s assets?”

When looking at a “potentially threatened company,” he considers whether their “endangered” customer assets are recoverable, he said. “BlockFi is an example where the answer is just “Yes”. But why?

While BlockFi didn’t have “a ton of capital” on its balance sheet prior to its collapse, SBF said, “on the other hand they are a fairly healthy business. They have had real business dealings with some places that have been successful, but have real risk management, and their losses are minimal. [post-crash] for that reason.”

According to SBF, BlockFi wants more capital to act as a buffer to customer assets amid a market downturn, but otherwise it’s a “healthy business,” he said. That health, for him, determines whether he can return or not.

Next, the SBF looked at whether helping one company stop the “contagion… You know, if one place blew up, it could blow up many others? Will we see a chain reaction? “If so, it would add value overall to trying to prevent that,” he explained.

Finally, the SBF asked: “Is there a good deal for us here? Or to be precise, is there a ‘not bad’ deal for us here? The mission here is not trying to make incredible acquisitions. The task here is to make trades that make sense, maybe even a bit bad, but not terrible. “

He added that, just because FTX has a healthy balance sheet, “We can’t pay for it all with crap.”

While it’s great to try to help many companies in need, SBF explains that sometimes it’s healthy to let some projects die. By not doing so, “you’re trying to revive something that shouldn’t have been there in the first place,” he says.

“The bigger part of this”—which is what SBF “underrated when I first started doing business”—is the trust between business partners. “Lack of trust is a major transaction cost.”

“I don’t want to have to worry when I’m negotiating about whether the other party will try and fuck me in 20 ways that I didn’t anticipate. Because if that’s true, then doing the deal becomes impossible, right? “

His standard is, simply, “we are not going to try and make love to you. We will try and be reasonable. We will try and be generous when we can. Let’s try to work sensibly together and look at things from both of our points of view and then we can think about splitting the pie.”

To learn more about SBF’s views on trade execution, as well as his thoughts on the future price of Bitcoin, be sure to check out full Luck conversation.

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