The Collapse of FTX Was a Black Swan Event

The recent collapse of FTX was arguably a black swan event. It was rare, improbable, highly impactful on EA, and explained in retrospect without being predicted beforehand. People have written about Sam Bankmans Fried’s personality, way of operating companies, and other details to explain how the collapse happened.

If all these factors were present, then why wasn’t the collapse predicted in advance? My hypothesis is that a big dose of randomness from the crypto crash was one of the primary causes of the problem and that post hoc explanations are overrated.

Although there are specific lessons from the event related to personality, money, morality and so on, a more general lesson and perhaps the most important lesson is the importance of black swans.

Black swans involve unknown unknowns. We don’t know what will happen and we don’t know what we don’t know. Black swans are improbable, unpredictable, extreme, and highly impactful.

EA faces other potential black swans in the future such as bioengineered pandemics, the creation of AGI, virtual reality, extreme climate change, unexpected wars, and sudden political changes.

Fortunately EA posts and books such as The Precipice and What We Owe the Future consider a wide variety of future possibilities. Nevertheless, I think it’s difficult to overemphasize the importance of black swans.

My recommendation is for EAs to see the FTX collapse as a black swan event and a warning shot to learn from. Going forward, when thinking about the future, it’s important to consider many possible futures including extreme possibilities and low-probability, high-impact events.

An analogy is a game of chess: we should be creative and think hard about the future because the better we can foresee future possibilities, the more likely we are to be prepared for risks, take advantage of opportunities, and ensure that the future is desirable.