Sam Bankman-Fried has been on the news for quite some time, mainly due to the FTX saga. He is one of the most hated persons in the crypto space. Billions of customers' funds were allegedly used to prop up his other company, Alameda. It is difficult to imagine how someone with significant resources at his fingertips would make such a horrendous mistake.
Many would argue that SBF actions were not mistakes and I would agree to some degree. However, they might not be as sinister as many would like to believe. In fact, I will argue that he was a victim of his own success. Just like most startup founders during the bull market who grain substantial traction beyond their skill or capacity, SDF failed for the idea that he–and his companies– was too big to fail.
At the peak of the bull market, a lot of businesses were overvalued. Most VCs were throwing money at almost anything. This gave a lot of businesses enough resources to play around with, and they treated every problem as a money problem. The issue with this is that money does not solve every problem, especially those that were at the core of the business–management, value proposition, staffing, etc. This realization became apparent to SBF as the hype of the bull market began to dwindle.
In the Twilight of the bull market, most businesses began to realize that they did not have what it took in terms of their brand’s value proposition. Those who realized on time did the needful to stay afloat–downsize, revaluation, etc Those who were neck deep into troubled water shutdown completely or followed SBF route–gamble with customers' funds, mostly out of fear.
The issue with trying to solve a problem without identifying its root cause, and applying quick fixes to temporarily stop it is that the problem tends to grow even bigger and uncontrollable overtime. Initially, the first-aid might seem to have abated the problem, which often leads to more reckless risk-taking. I suspect SBF had gotten away with some of these schemes that made him believe he could extend himself even further until he realized he was in a bigger mess than he had expected. I can say this because I have been there myself.
Earlier this year I got into a business that was bringing decent returns on paper. Thus, whenever I was in need of urgent cash, I would take a loan, with the hope that my business would cover it. Never did it occur to me that I was consistently borrowing to prop up a business that was bringing in decent revenues. When I did realize, I was in a bigger mess than I could even imagine.
Over-leveraging is a response to fear, and if I have learnt anything it is that making decisions based on your fears more often than nothing escalates a problem which eventually manifests. Everything I had feared–spoiling my reputation; not fulfilling my obligations–came to pass, and you know the interesting thing? It wasn't as bad as I thought. In fact, I will say there was a great relief when everything came crashing down. This reminds me of the Mike Tyson situation when he lost his fortune. He said he felt at peace having nothing because nobody could take anything else from him.
Patience is a virtue. You cannot fix a mess with more mess. Sometimes you just have to let things play out as they should, and hopefully, in that process you find a solid solution–not a means of escape. Cheers!