FTX: Building an Arbitrage Infrastructure for Traders

Ash Bennington, senior crypto editor for Real Vision, welcomes Sam Bankman-Fried, CEO of FTX, to discuss Alameda Research, the founding of FTX, the Serum Project, and the future of crypto and blockchain technologies. In 2017, Bankman-Fried saw how market makers were not that active—the sector was going wild with very little liquidity, and few people were doing arbitrage market making. In other words, a large purchase of Bitcoin on one exchange would cause the price to go up, yet the price increase would not be reflected on other exchanges. The lack of consistent price changes across exchanges opened the door for arbitrage, which resulted in users trading at larger volumes than liquidity providers could handle. In order to solve this issue and allow arbitrage to be executed at more sophisticated levels, Bankman-Fried started FTX. Filmed May 24th, 2021. Key Learnings: Theoretically, all Bitcoin should be trading at the about the same price, and market makers, liquidity providers, and arbitragers are typically the systems that keep those prices in line. By doing arbitrages, markets become more efficient by providing liquidity to wherever demand is coming from. Back in 2017, not only were there issues dealing with banks, but also with exchanges that were not professionally made—these issues often led to the point where people, not programs, were managing liquidations, which could ultimately lead to millions of dollars a day in "bleed". As such, Bankman-Fried believed that there had to be a better way for trades to be conducted and created FTX as a platform designed by traders for traders.
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