FTX founder Sam Bankman-Fried spent more time lobbying lawmakers in D.C. than any other executive that Blockchain Association executive director Kristin Smith has seen in her 20-year career in Washington.
So it’s hardly surprising, in the wake of his crypto empire going bust amid claims of fraud and misappropriated funds, that the tone of the conversations facilitated by Smith's crypto lobbying group has had to change.
“He did a tremendous amount of damage,” Smith said on the latest episode of Decrypt's gm podcast, making it clear that FTX was never a Blockchain Association member.
“Sam testified before Congress multiple times, he had incredibly detailed proposals at the [Commodities Future Trading Commission] and also legislatively that he was working on," Smith said. "He was spending a tremendous amount of time walking the halls of Congress, meeting with members, meeting with leadership, meeting with staff—he would take them out for drinks.
"I’ve never seen, in my 20-plus year career in Washington, an executive spend this much time personally lobbying Capitol Hill,” she added.
Bankman-Fried’s crypto empire, headlined by crypto exchange FTX, fell apart in November after a leaked balance sheet showed that Alameda Research, his trading desk, held billions worth of FTT, the FTX utility token, against billions worth of liabilities. When word got out, users withdrew billions from FTX.
In a last-ditch effort to stay afloat, FTX announced it had a letter of intent to be acquired by competitor Binance. But a day into the due diligence process, Binance backed out and said the company was “beyond our ability to help.” By the end of the week, Bankman-Fried had resigned and FTX with 130 other entities filed for Chapter 11 bankruptcy protection.
The bankruptcy was bad, but the federal charges—civil and criminal—pending against Bankman-Fried have made lawmakers even more uncomfortable with how involved he was in legislation. In fact, it’s since come out during the FTX bankruptcy proceedings that the company had an office across the street from the White House.
“They feel a tremendous sense of betrayal, because they all thought he was so thoughtful, and appreciated his thoughts on regulation. And, I mean, quite frankly, from my perspective, it was making our job very difficult, because, you know, we had some disagreements in terms of the strategy that he was pushing forward,” she said. “It was very much like an FTX-specific strategy as opposed to a crypto-wide strategy.”
That FTX-specific strategy showed its face when Bankman-Fried got behind the Digital Commodities Consumer Protection Act of 2022 in a big way. It was one of the first times that the crypto community criticized him en masse for backing a bill that had been labeled a “DeFi killer.”
The bill got the moniker because it proposed applying the same registration and compliance rules to decentralized finance as it would to centralized entities, like FTX.
“The ‘digital commodity platform’ definitions are all designed for centralized custodial markets. Yet, as [Sen. Kirsten Gillibrand] sharply pointed out, they also might capture DeFi protocols—no more than code—which can't comply,” Blockchain Association’s chief policy officer Jake Chervinsky wrote on Twitter in September.
For now, there’s no sign that the bill will be reintroduced for the 2023 legislative session. In fact, Sen. Debbie Stabenow (D-MI), one of its co-sponsors, has announced that she’ll be leaving office in 2025.
Listen and subscribe to the gm podcast wherever you get your podcasts.