Going Infinite: The Rise and Fall of a New Tycoon

by Michael Lewis

Jane Street had gone from a few traders with a few million dollars, in 1999, to roughly two hundred traders working with several billion dollars, in 2014. One big reason was ETFs, whose global value had grown from less than $100 billion to $2.2 trillion (on its way to more than $10 trillion in 2022). When ETFs changed hands, Jane Street was often present to take an ant-bite-sized piece of the transaction. The role of the Jane Street trader—one of the biggest sources of profits—was to keep the prices of all of these ETFs in line with the assets inside of them. The price of any pool of assets should always, in theory, be equal to the sum of the assets in the pool.

And he found that the prices of both the South Korean and the Japanese ETFs were being driven by a single trader at a German bank. Every few days, the German bank trader had a bunch of buy orders to execute, in both South Korea and Japan. He’d make his South Korean purchases before calling it a day, passing the Japan orders off to his Asian colleagues to handle when they awakened in Tokyo. The Jane Street trader could now happily see the pop in the South Korean ETF and buy the Japanese ETF until the German died, retired, or figured out how much his laziness was costing him.

it would be surprising if Jane Street couldn’t learn the results of the presidential election before anyone else in the financial markets or for that matter the entire world. After all, the financial markets still learned whatever had happened the same way the general public did, by watching John King on CNN.

The results from the Florida Panhandle were the most dramatic. After the early votes were counted, it appeared that Clinton had won Florida—and thus probably the election. Florida was so important, and the Panhandle went so powerfully for Trump, that in Jane Street’s model it swung his odds of winning the presidency from 5 percent to 60 percent. “We saw the Florida Panhandle before John King saw it,” said Sam. “We even had time to freak out, to think there must be a typo, to see that there wasn’t a typo and say, Fuck it, let’s sell!”

Sam pressed his bosses to paint a picture of his financial future at Jane Street. It would depend, of course, on Jane Street’s overall performance, they said, but ten years in, if he kept on doing as well as he had been doing, he’d be making somewhere between $15 million and $75 million a year. “Jane Street’s idea was to make people so happy they wouldn’t leave,” said one former trader.

Wild salary

Modelbot had been programmed to scour the world’s crypto exchanges for inefficiencies to exploit. If for even a few seconds it was possible to buy bitcoin on some Singaporean exchange for $7,900 and sell it for $7,920 on an exchange in Japan, Modelbot would do it over and over again, thousands of times per second.

“That’s where I learned what the law is,” said Nishad. “The law is what happens, not what is written.”

Prescient?

They were making two hundred fifty thousand trades a day and their system had somehow lost, or failed to record, some large number of them. Among the many problems their shoddy recordkeeping caused was the difficulty of filing an honest tax return.

Their investors were charging them a rate of interest of 50 percent. “It wasn’t a normal loan,” said Nishad. “It was a shark loan.” In what was meant to be a collaborative enterprise, Sam had refused to share any equity with anyone.

The money grab likely would have perplexed Satoshi—as, very likely, would the very idea of a crypto exchange. Bitcoin’s original selling point was that it eliminated the need for financial intermediaries. It removed trust from trades.

Up to that moment, in late November 2018, Alameda Research had operated in the shadows. They traded more than 5 percent of the total volume of crypto markets and were still a secret.

The design that FTX (Gary) had come up with solved the problem, in an elegant way. It monitored customers’ positions not by the day but by the second. The instant any customer’s trade went into the red, it was liquidated.

The world’s most aggressive securities regulator, the US Securities and Exchange Commission, now devoted a meaningful amount of energy to arguing that a lot of these tokens were securities (which they obviously were), and so a threat to American investors, and banned from the US unless they first won SEC approval

Out of thin air FTX minted three hundred fifty million FTT tokens. Sam offered a chunk of them to employees at five cents each, and another chunk to important crypto people, like CZ, who might be friends of the exchange, at ten cents.

“The smartest minds of our generation are either buying or selling stocks or predicting if you’ll click on an ad,” he said. “This is the tragedy of our generation.”

Even if the VCs didn’t all realize that Sam was playing a video game at the same time that he was talking to them, most sensed that he didn’t care what they had to say.

Disrespectful

In the end, between the summer of 2020 and the spring of 2021, in four rounds of fundraising, they sold roughly 6 percent of the company for $2.3 billion. Roughly one hundred fifty different venture capital firms invested.

Crypto world had created what were, in effect, unregulated new banks. People would deposit their crypto with, for instance, Genesis Global Capital or Celsius Network, and receive some rate of interest, and these pseudobanks would re-lend the crypto to traders like Alameda Research.

But we were like, He’s an unusual person. We have to spend time with him in person.” But they couldn’t spend time with Sam in person. The Hong Kong government had responded to the global pandemic by requiring anyone who entered the country to quarantine in a hotel for fourteen days. Sam was understood and interpreted by his original investors mostly via Zoom, and in the middle of one of the great venture capital booms in history.

“A lot of EAs chose not to have kids,” said George. “It’s because of the impact on their own lives. They believe that having kids takes away from their ability to have impact on the world.” After all, in the time it took to raise a child to become an effective altruist, you could persuade some unknowably large number of people who were not your children to become effective altruists. “It feels selfish to have a kid. The EA argument for having a kid is that kid equals happiness and happiness equals increased productivity. If they can get there in their head, then maybe they have a kid.”

Alameda Research was no longer paying loan shark interest rates to borrow tens of millions of dollars from effective altruists. The new crypto lenders like Celsius and Genesis were willing to hand Alameda Research collectively between $10 billion and $15 billion at rates as low as 6 percent. The rate of return inside Alameda was steadily declining, but with access to vast amounts of cheap capital, its raw trading profits kept rising: from $50 million in 2018, to $100 million in 2019, to $1 billion in 2020 and again in 2021.

And of all the things they did to promote the brand, only three things really mattered, he thought, and one mattered more than all the other things combined: Tom Brady. You would think—Sam had initially thought—that if you were going to pay some NFL quarterback to stand up and say he used FTX, it would make little difference whether it was Tom Brady or Aaron Rodgers or Dak Prescott. You might see that Brady would be a bit better but think Rodgers’s endorsement must be worth, say, half of Brady’s. But everywhere Sam went, people mentioned that they had heard of FTX because of Brady.

“Can we actually talk to Elon?’ asked Nishad. “Does it actually lead to EA stuff?”

“I’ll ask them, ‘Why do I need one?’ Some people cannot articulate a single thing the CFO is supposed to do. They’ll say ‘keep track of the money,’ or ‘make projections.’ I’m like, What the fuck do you think I do all day? You think I don’t know how much money we have?”

yup

he was exploring the legality of paying Donald Trump himself not to run for president. His team had somehow created a back channel into the Trump operation and returned with the not terribly earth-shattering news that Donald Trump might indeed have his price: $5 billion. Or so Sam was told by his team.

This is wild if the Donald even considered this.