“A blind leap into the unknown” – this is how Caroline Ellison could be compared to billionaire Sam Bankman-Fried.
In November 2022, the cryptocurrency world was rocked after CoinDesk (a news site specializing in digital assets and the future of money) raised concerns about the financial health of two of the world’s largest crypto exchanges, FTX and Alameda Research.
As a domino effect, the protagonists of this story were questioned by the crypto community and competitors as firms buckled to stay afloat in the volatile market.
Days after reports that Alameda was heavily invested in FTT, the digital token issued by FTX, 130 companies associated with Alameda and FTX filed for Chapter 11 bankruptcy.
Caroline, content behind the scenes, was suddenly thrust into the spotlight. Her incomprehensibility raises eyebrows. Was she the mastermind behind it? collapse of FTX or was she a scapegoat?
Who is Caroline Ellison?
Caroline Ellison[ImageCredit:Caroline’[email protected][ImageCredit:Caroline’[email protected][Bildnachweis:[email protected][ImageCredit:Caroline’[email protected]
Caroline Ellison grew up in suburban Boston and had a special gift for mathematics. Born to Glenn Ellison (the head of the Department of Economics on Massachusetts Institute of Technology) and Sara Fisher Ellison (Senior Lecturer of Economics at MIT) in 1994, Caroline loved to read books and has been described as “nerdy” and “highly intelligent.” At the age of eight she prepared an economic report for her father in which she analyzed the prices of stuffed animals.
Life at Stanford:
After attending Newton North High School, Caroline attended Stanford University in 2012 and graduated with a degree in mathematics. She was described by her college professor as “focused, very mathematical and bright”.
Self-proclaimed bibliophiles, her Tumblr reviews have ranged from the Harry Potter books to a substack by Matthew Yglesias, a business and politics blogger.
In college, she began researching the principles of Effective Altruism (EA).
EA is a philosophical and practical movement or community that calculates how a person can use their time and resources to find the best ways to help others. Effective altruists prioritize global health and development, social inequality, and animal welfare among some of their charitable causes.
Living in the Capital of Jane Street:
She then worked for 19 months as a junior trader at a quantitative trading firm, Jane Street Capital. There she met Sam Bankman-Fried (SBF). She later said on the FTX podcast that she had not always been interested in markets and investments before.
Before I even traded, I didn’t really consider myself a trader person.
Life in Alameda Research:
When Sam Bankman-Fried founded Alameda Research in 2018, she quit her job after he persuaded her to join the crypto firm. The inner circle consisted of Caroline, SBF, Gary Wang, Nishad Singh and Sam Trabucco. Upon arrival, she was surprised at how Alameda made fast-paced Jane Street seem slow. According to her, it was a fledgling cryptocurrency hedge fund.
That was a lot like, “Oh, we don’t know what we’re really doing,” Ellison told Forbes of her first impressions of Alameda.
One of Alameda’s aggressive trading strategies was arbitrage, which involves buying a coin in one location and selling it for more in another location. In 2018, Alameda made $20 million from an arbitrage trade because the bitcoin price in Japan was higher than in America.
That same year, Alameda Research was relocated from Berkeley to Hong Kong, where everyone was heavily trading crypto. It has been alleged that Ellison and Bankman-Fried lived in a luxury complex in the Bahamas along with Wang and Singh and were apparently romantically linked.
It was like, wow, the way you do things is just someone suggests something and then someone codes it and approves it. An hour later and it happened.
By 2020, Alameda had begun “yield farming,” a high-stakes endeavor in which investors chase yields by lending their crypto holdings.
Ellison’s skeptical concerns about decentralized finance sparked arguments within the company.
In 2020, Ellison revealed her affinity for LARPing – in which people dress up to represent fictional characters.
The beginning of FTX: Alameda’s sister company
In 2019, Bankman-Fried founded FTX Crypto, handing the reins of Alameda to Ellison and Trabucco. They were featured in Forbes “30 under 30” for building a quantitative trading company making $3-4 million daily. This revenue was invested in blockchain platforms. At the same time, FTX emerged as a promising institution and an important marketplace for large and small investors to buy and sell crypto. The sister company was a big player in the digital world and also often traded on FTX.
The year is 2020. Your heroine works for a digital currency exchange that allows all citizens of repressive regimes to move money anywhere in the world.
— The now-deleted Tumblr diary of a 25-year-old Caroline Ellison.
The inner circle formed a board called the FTX Future Fund Grant grants for investments in “socially responsible enterprises”. This was their way of encouraging effective altruism.
The Rapid Rise of CEO Ellison
Cryptocurrency prices soared and FTX boomed. In July 2021, both Ellison and Trabucco were promoted to CEO positions. They led an operation of a 25-strong team. The math genius was active online as @carolinecapital on Twitter and LinkedIn.
In an interview for Liquid, Ellison spoke about her plans as CEO of Alameda. She shared her views on the formalization of the digital currency world.
We’ve occupied a fairly unique place in the crypto industry,” she said in the interview, “bringing traditional financial backgrounds to help the crypto markets become more orderly as well as more efficient.
In an endless thread on Twitter, she illustrated her decision-making process.
So I don’t think success can usually be achieved by getting difficult decisions right. There is more to it than looking for bigger problems and opportunities and actually trying to address them.
Between 2021 and March 2022, Alameda Research collected $60 million worth of crypto tokens on the Ethereum blockchain.
Crashing at breakneck speed
Some critics view effective altruism as encouraging excessive risk-taking, since people may believe that bigger paychecks translate into gigantic donations.
Alameda had already earned a reputation for being a breakneck risk-taker. It would throw away tokens recklessly, sell things whenever it wanted and had no control. Trabucco, who was the public face of the crypto firm, resigned in August 2021, making Ms Ellison the sole CEO. He described working at Alameda as “difficult, exhausting and consuming.”
As it became increasingly out of place, strategies changed to rely more on intuition.
Alameda began struggling with losses between May and June 2022. The digital currency market was in free fall. Panic gripped investors. They began frantically withdrawing their funds from FTX, even amid reassurances from SBF and Ellison.
Bankman-Fried tried to be a hero, buying up troubled firms and providing loans to help restabilize the crypto market. Though Alameda was also on the brink of collapse, workers were told little to nothing about the management scenario that was spiraling.
Former employees of FTX and Alameda spoke to CoinDesk that the group had a major conflict of interest and went wild in oversight.
The descent into bankruptcy raised alarm. Changpeng Zhao, head of Binance, has been a rival of FTX and announced plans to divest FTT holdings as a risk management measure.
The Internet spar between Zhao and SBF prompted Ellison to calm the situation. But it backfired when Alameda’s balance sheet was leaked and concerns about the hedge fund’s assets surfaced.
Ellison’s last post on Twitter said not everything was disclosed and that Alameda had more than $10 billion in assets.
A few notes on the most recently circulating balance sheet information:
– This specific balance sheet relates to a subset of our business entities, we have >$10 billion in assets that are not reflected there
— Caroline (@carolinecapital) November 6, 2022
Within days, on November 9, 2022, Ellison addressed her staff in a video conference where she admitted that Alameda had dived into FTX’s client funds to cover their liabilities and a string of bad trades. While Bankman-Fried now concedes this as poor judgment, FTX had a strict rule against it. She told her staff that Bankman-Fried, Wang and Singh were also aware of the decision, along with her. Alameda owes the crypto market more than $10 billion.
They were all fired from their positions. FTX is under investigation for mishandling client funds and the jury is still out on the extent of the role Caroline Ellison played in one of the most shocking financial scams in history.
The plausibility that the collapse of FTX is collusion is very likely. Ellison’s fading online identity, in contrast to the widespread media coverage of Bankman-Fried, raises questions as to whether her silence is the answer to her involvement in FTX’s collapse. Bankman-Fried is now being considered for extradition to the United States.
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