Caroline Ellison and the secrets behind the collapse of FTX

The once obscure figure of Caroline Ellison has recently emerged as a major figure behind the apparent success and then surprising collapse of FTX.

The exchange, whose token is FTT, has suffered collapses of up to 85% to the point of announcing bankruptcy in recent weeks.

Moreover, a pile of secrets about the inner workings of Sam Bankman-Fried‘s cryptocurrency exchange has come to light. In fact, Ellison apparently headed Alameda Research, the trading company through which Bankman-Fried moved cryptographic tokens in tandem with the execution of FTX. 

Amid the revelation that FTX borrowed money from customer accounts to finance betting through Alameda, Caroline Ellison became the subject of online speculation. 

Caroline Ellison before FTX’s collapse: a leap into the unknown 

Former Alameda Research CEO Caroline Ellison, in statements made before the FTX collapse, claimed that the world she was catapulted into was incredibly fast-paced: 

“Someone suggests something and then an hour later it has already happened.”

Moreover, Ellison claims she took a real blind leap into the unknown when she left her Wall Street job to join her former colleague, Sam Bankman-Fried, in the fast-paced, almost instantaneous environment of Alameda Research.

More precisely, Ellison left her job at Jane Street Capital around 2018 to join Alameda Research, the cryptocurrency exchange firm founded by Bankman-Fried the year before. 

The environment at the bold young company was very different from her concept of working on Wall Street, Ellison said in an episode of the 2020 FTX podcast, as first reported by the Wall Street Journal:

“It was like the process of doing things, only someone suggests something and then someone else codes it and releases it within the hour.”

Now, after nearly four years at Alameda, more than one of which the 28-year-old spent as CEO, Caroline Ellison has been fired from the bankrupt cryptocurrency exchange, the Wall Street Journal reported. 

Ellison and SBF: the concept of “effective altruism” was at the dawn of Alameda. What it is and how it works 

As we know, Bankman-Fried’s FTX group, including Alameda, failed to obtain emergency financing and filed for bankruptcy in early November.

According to a Bloomberg Sunday report, the cryptocurrency empire owes a total of $3.1 billion to its 50 largest unsecured creditors.

Although the names and locations of the creditors have not been disclosed, the largest unsecured creditor owes more than $226 million, while the rest of the customers that make up the 50 largest claims each owe at least $21 million, Bloomberg reported.

The current situation is drastic, but how did it all come to this? What reasons, apparently between Ellison and SBF, moved the creation of Alameda? 

Going back to Ellison, we know that in the FTX podcast episode, the young trader described her decision to follow Bankman-Fried in her efforts and their shared feeling of “effective altruism.” 

This led to the creation of the Future Fund, a formula for making grants to non-profits and investments in social impact companies. 

Effective altruism has been a subject of study for both Ellison and Bankman-Fried since college. Specifically, it is a philosophical movement that uses calculus to understand how people can use their time, money and resources to best help others. 

Indeed, eventually, it appears Ellison had joined Stanford’s Effective Altruism Club. According to WSJ, critics of the practice say that effective altruism encourages excessive risk-taking.

Hence, here’s what might be behind, among other things, the implosion of Alameda and the collapse of FTX, as reported by Ellison’s own statements: 

“The general idea of effective altruism is to try to do the best you can and use expected value to measure that good.”

In addition, Ellison was asked about her plans to save money for future retirement after explaining effective altruism in the 2020 podcast episode:

“I’m not really thinking about it much right now. It really doesn’t make sense for me to be concerned about savings. I’ll probably just make more money in the future.”

But who is Caroline Ellison really? And what role did she play in the collapse of FTX? 

Since the collapse of FTX, Ellison’s virtual presence is dwindling by the day. Her LinkedIn, online photos, and contact information have largely disappeared in the past two weeks. 

This has left journalists and investors scrambling to find information about her.

Moreover, it appears that curiosity has only increased since CoinDesk reported through anonymous sources that the young woman was in a relationship with SBF.

However, right now the most reliable information about Ellison comes from her Tumblr account and the handful of media interviews she has given over the years. 

What can be found about her online suggests that she is an extraordinarily bright and highly educated personality, as well as a mathematical genius and a great reader. She also appears to speculate frequently about gender roles and changes in culture and society on Tumblr.

When FTX gained the prestige it had as an exchange, Ellison remained largely out of the spotlight. From what FTX employees told Forbes, it appears that Ellison was content to remain behind the scenes.

Only after the collapse of FTX and the fallout on the entire crypto market did many media outlets rush to bring to light various information about Caroline Ellison’s alleged involvement. 

CoinDesk, as previously anticipated, reported through anonymous sources that Ellison was part of the crew of ten FTX and Alameda employees all living together in the Bahamas. 

What will be the future of Ellison, SBF and the FTX empire?

Moreover, it appears that Ellison had a relationship with SBF. It is now unclear, like so many other things, what her role was within the collapse of FTX nor what will happen to the young woman going forward. 

In addition to the online presence of her accounts being diminished, it seems that her physical location is also unclear. However, the last time that Ellison posted online was on 6 November when she tweeted in defense of Alameda’s financial statements, writing: 

“A few notes on the balance sheet info that has been circulating recently: that specific balance sheet is for a subset of our corporate entities, we have > $10b of assets that aren’t reflected there.”