Sam Bankman-Fried's risk-taking didn't pay off

Sam Bankman-Fried knew exactly what risks he was taking; he explained them in some detail in a podcast last year. From his point of view, they were risks worth taking. From the point of view of other crypto-market participants now surveying the rubble, however, they most certainly were not.

Why it matters: FTX and Alameda Research were both fully controlled by a single man with a highly idiosyncratic risk appetite. The final result: Ingnominious bankruptcy.

His personal philosophy of wealth meant that, in contrast to most billionaires, there was no point at which he took his foot off the growth pedal in order to start dialing back on risk.

The big picture: SBF, as he's universally known, was in many ways the public face of crypto.

• No other industry player had so much credibility — and money — that Tony Blair and Bill Clinton would fly to the Bahamas to make a joint appearance at his crypto conference.
• That credibility is now shot to smithereens, and there's no one who can take his place. It's a safe bet that neither Clinton nor Blair will ever appear at a crypto conference again.

Between the lines: SBF was hyperaware of the risks involved when an exchange allows its clients, and especially its biggest clients, to lever up. He was also gaining edge in an incredibly risky way: By borrowing money against his own token, FTT.

• The idea: He was a big enough whale, especially when it came to FTT, that he could effectively set its price, and therefore ensure he would never face a margin call.
• That was a +EV trade, to use one of SBF's favorite terms — it had (or was supposed to have) positive expected value. On the other hand, in the low-probability event that it didn't work out, it could wipe him out — and take much of the rest of the crypto market with it.

The bottom line: In SBF's utilitarian calculations, that was a risk worth taking. In theory, a bet can be a smart bet even if it doesn't always work out. In practice, however, that's generally not the case when you're risking absolutely everything.

• The catch: We live in a fat-tailed world where the unlikely happens every day. Do this trade for a few years, and you're bound to lose once. And when you lose once, that's game over. (At least until Andreessen Horowitz bankrolls your next company.)