Is SBF a superhero, villain or simply misunderstood by the crypto community?
FTX CEO Sam Bankman-Fried is a controversial figure in the world of crypto, perhaps the most contentious following his recent statements on regulation. Over the past year, SBF has been in the trending section of CryptoSlate’s people directory almost weekly.
SBF, along with his companies Alameda Research and FTX, bailed out both BlockFi and Voyager following the collapse of Terra Luna. He also engaged with Celsius but chose not to invest in them due to holes in the balance sheets to the tune of $2 billion.
Through these activities, a few have hailed SBF as the savior of crypto, while others have pointed to possible personal motivations for his actions. The founder of Solana-based Solend, Rooter, called SBF “a profit maxi: profit at all costs.”
Below I attempt to address ‘What is SBF’s position on regulation?’ and whether he has been misunderstood.
Crypto regulation and SBF
Questions about SBF’s motivation for his public views on crypto regulation have been riding high over the past few weeks. SBF’s comments on DeFi revolved around blocklists, sanctions, consumer protection, hackers, and licensing for DeFi protocols. Most notably, SBF contended that marketing DeFi products to U.S. retail investors would likely require a license and KYC obligations.
Directly, SBF remarked,
“If you host a website that makes it easy for US retail to connect to and trade on a DEX, you would likely have to register as something like a broker-dealer.”
The crypto community is not on board with the requirement of licenses and KYC checks for DeFi, as Erik Voorhees from Bankless wrote in a recent blog post. CryptoSlate covered the response alongside Wintermute CEO Evgeny Gaevoy’s take on the situation. Fortune.com referred to the debate as “the battle for crypto’s soul” while describing SBF as “the most powerful man in crypto.”
The dispute spilled over onto Twitter on October 20 when SBF responded by remarking that “he did not feel heard” by Voorhees.
From your original post, it isn’t clear where/how you draw the line. I think this is why so many have been upset about.
“Everyone should respect OFAC’s sanctions lists”
Everyone? Every American or all humans? Should a protocol developer from Japan be blocking all Iranians?
— Erik Voorhees (@ErikVoorhees) October 20, 2022
The outcome of the social media sparring match was the pair appearing on the Bankless YouTube channel during a livestream to discuss the issue face-to-face. The conversation is the first high-level public debate between two key industry personalities not to be beholden to 280 characters. As such, it could be viewed as an accurate representation of the significant aspects of the debate.
The conversation was extremely productive and addressed the root of much of the controversy. The following breakdown highlights the major aspects of the discussion and the crucial factors that affect the rest of us in the crypto industry.
SBF on crypto regulation
At the start of the Bankless livestream, SBF directly addressed whether crypto should be regulated. His response began by saying that “parts of it should be and parts of it shouldn’t.”
Several times SBF stipulated that “the details are in the nuances” of the debate. Speaking on nuance, SBF contended there to be two axes by which the community should address crypto regulation.
- “How regulated crypto should be”
- “How thoughtful are we about which parts of it are regulated?”
SBF commented that it is the second axis he cares about the most, giving the example of stablecoins to support his argument. Many have questioned the legitimacy of Tether’s holdings over the years, and some form of oversight as to whether a stablecoin is fully backed is a necessity in SBF’s mind.
The FTX CEO went as far as to say that there should be “really thorough regulation confirming the number of dollars in the bank account is at least as many as the number of tokens.”
However, SBF argued that making a simple transaction in a store using a stablecoin should not require regulatory oversight through a “broker dealer,” a point he viewed as “very important.”
Labeling it as his “core thought,” SBF posited, “We should be really thoughtful about where the regulation comes in and what it does.” He believes that regulation is coming to crypto in the United States, and the debate should focus on which parts should be regulated, not whether they should be regulated at all.
SBF confirmed that he believes that “some of this regulation is definitively good… and it is not just a compromise.” Further, he reasoned that he is “cautiously optimistic” about any upcoming U.S. regulation on crypto.
“I’m optimistic that it will end up striking a balance where it will do a good job of providing a large ratio of customer protection to restriction of commerce.”
Erik Voorhees on crypto regulation
Erik Voorhees replied that requiring stablecoin providers to disclose their exact holdings would be a “higher bar than the Federal Reserve itself already applies.” Unlike the traditional banking system, the crypto industry already uses cryptographic proofs throughout its ecosystem.
“The crypto industry already have a higher standard of what constitutes knowledge, what constitutes proof and so it is a little ironic for people from the traditional financial world imposing on us the need to be proving anything.”
Voorhees contended that crypto is already “heavily regulated” and is subject to laws worldwide. He asserted that it would be his “panacea” for it not to be regulated but that this is not the case, referring to it as “encumbered.” Regulations are a significant factor in the state of traditional finance and the imbalance of the “status quo,” according to Voorhees.
Progressing his argument, Voorhees noted that the industry must ask itself if it wishes to move closer to the traditional world or to build something better. Voorhees believes that transparency within the current financial system is insufficient and asked, “why are we being burdened with additional requirements for transparency when we’re already more transparent.”
Regarding regulation at a high level, Voorhees took a strong stance stating that.
“The moral premises under which these regulations get imposed on us are important. They’re always cast down as if we have these morally prescient individuals in the government that know what’s right and wrong.”
This sentiment is one Voorhees wishes to challenge as the crypto industry is building “more virtuous financial systems than what exists today.”
The DeFi debate
SBF responded to Voorhees by agreeing that some of his posts may have included at least some “lazy choice of wording.” He agreed that DeFi is more transparent when it is entirely on chain but that companies like Celsius were much less regulated and transparent. SBF also clarified that by using the word ‘everyone,’ he meant ‘everyone in the U.S.’ and everyone around the world – a question raised in Voorhees’ original response.
“I would be excited to see bilateral engagement around ways that we can minimize the amount of collateral damage dealt while making sure to sanction terrorist activity.”
Voorhees level-headedly replied by requesting that OFAC sanctions related to crypto activity come with official “allegations” rather than a direct decree. OFAC sanctions do not require supporting evidence, and DeFi protocols may be required to censor addresses without knowing the exact reason why.
For example, rather than banning crypto use in North Korea, Voorhees argued for more crypto usage in the country to help its citizens break free of financial tyranny.
Voorhees summarized his position on how to engage with governments on crypto regulation by asserting that.
“My ask is that people like Sam who are engaging [with the government] be very careful about what they ask for and where they draw the lines.”
SBF’s opinion that crypto should “remain open and immutable” is one that Voorhees agreed on. However, SBF’s proposal that the front end of DeFi protocols like Aave should perhaps be regulated as a financial institution is where he drew the line.
The FTX CEO denied the assertion that he believes DeFi should be regulated in such a way, stipulating that “a lot of this is just permissionless code.” Therefore, SBF hopes that any U.S. regulations are a “light touch” on DeFi.
However, SBF sees the need for DeFi regulation when currently regulated financial entities like “Schwab” decide to offer DeFi products to its customers.
SBF confirmed that he thinks the most critical aspect of DeFi is that permissionless on-chain code, smart contracts, payments, and validators should be free of regulation, going as far as to call them “sacred.” He is willing to “compromise” on regulation to keep these things free of regulation by accepting regulation for front-end DeFi services. SBF then gave an example definition of an entity subject to regulation based on this compromise.
“A website hosted on a centralized service by an American that targets financial products at American retail back ending on to DeFi but is non-custodial.”
Voorhees responded to SBF’s suggestion by claiming that “the tendency of the regulators is to make the world a darker place no matter what” and that SBF is compromising too readily. His libertarian views appear at odds with SBF’s arguably pragmatic approach to regulation at a fundamental level.
Since the days of Satoshi, the crypto industry has focused solely on a financial system free of regulatory oversight by governments. Voorhees remains true to this vision in his rebuttals toward SBF. However, at this point, does the debate not reduce to a discussion on political grounds rather than objective profiteering? The crypto community is unsure.
Online perception of SBF
A clip of the discussion has been circulating on Twitter in which one Bitcoiner, Duo Nine, asserted, “This guy does not deserve what crypto has to offer. I’d be very careful about anything this guy touches.” The clip shows SBF failing to assert a reasonable rebuttal of Voorhees’s argument that censoring DeFi would be akin to censoring e-mail in the late 90s.
SBF stutters and fails to find the words to respond during the clip, and it ends with a comedy outro mimicking the Larry David show Curb your Enthusiasm. However, the podcast continued at this point, and SBF did find words to showcase that he understood Voorhees’ point of view, as stated earlier in this article.
Wait till the end. #FTX CEO has lost the plot IMO. This guy does not deserve what crypto has to offer.
I’d be very careful about anything this guy touches.
He should not do interviews either.
— Duo Nine | YCC (@DU09BTC) October 29, 2022
A source familiar with the matter who asked to remain anonymous stated that the discourse around SBF has been “overblown” and is not in keeping with their experience of the FTX CEO. However, the source confirmed they had many trader friends who “dislike him and avoided trading on FTX as long as possible.”
During the livestream, SBF mirrored the above sentiment, claiming that others have been “misrepresenting pretty grossly what my position is, and I feel like I never said that” in response to a question on the need for compromise in the user interface of DeFi.
SBF confirmed that it is possible that the crypto industry may have to compromise on some aspects of regulation relating to the front end of DeFi protocols that interact with users inside the U.S. However, he also affirmed that he is “not saying that we should make happen… those I think would be probably not the right tactics.”
My take on the situation
From his conversation with Voorhees, it is hard to argue that SBF has malicious intent, as he continuously admitted to not knowing if he is correct and was firm that many aspects of crypto are “sacred.”
It is my view that SBF has made suggestions on compromises that could be made to keep on-chain transactions free of regulation that are now being taken as evidence he wants DeFi to be fully regulated.
Whether SBF’s public comments truly reflect his private actions remains to be seen. Yet, while I may not agree with everything SBF has said, I also do not agree with everything Voorhees expressed.
The issue is nuanced, and it is important to ensure an understanding of the opposing viewpoint before going on the attack. Regulation is coming to crypto, and the battlefield requires everyone in the crypto industry to engage in intelligent debate. Infighting will not lead to a revolution in the financial system, but considered civil discourse has a shot.
Thus, it appears that the jury is still out on SBF’s role in the crypto industry. Some view him as the savior following his bailouts of Voyager and BlockFi, some believe he has ulterior motives for personal gain, and others contest that he is simply misguided.
The topic of crypto regulation is unlikely to go away anytime soon. While SBF is involved in shaping U.S. legislation, the spotlight will remain firmly on him for the foreseeable future.
The complete debate can be viewed here.