Exiting SBF’s Shadow: How Can Sun Is Leveraging FTX’s Failures at Backpack Exchange
Can Sun, FTX’s former general counsel, has high hopes for his new venture.
By: André Beganski
February 1, 2024
Cooperating in an investigation that leads to the conviction of your former boss is an odd prelude to launching your own crypto exchange. But for Can Sun, former general counsel at FTX, that was exactly the path he took for his newly-launched Backpack Exchange.
Unveiled days after the conclusion of Sam Bankman-Fried’s criminal trial in November, Backpack Exchange is slated for a full public launch in the first half of this year. Boasting features that could’ve purportedly prevented FTX’s downfall, like self-custodial trading accounts and zero-knowledge proof of reserves, Sun said in an exclusive interview with Coinage that developers are still “rounding some edges,” but progress on the Dubai-based exchange is steadily being made.
As Backpack Exchange’s head of legal and compliance, Sun’s venture alongside Armani Ferrante, a former Alameda Research software developer, marks his entrepreneurial debut. But building an exchange in Bankman-Fried’s shadow hasn’t been all affable. Sometimes, his presence still looms, Sun said.
Looking back on one experience last March when he was barred from a meeting with a close business partner, Sun said a stigma attached to former associates of Bankman-Fried “definitely” still lingers. After Sun took a 16-hour flight to the U.S., a compliance worker pulled him aside on his way to a meeting room and told him not to join “because of what's going on with FTX,” he said.
Sun, who has a doctorate in electrical engineering from Princeton and a law degree from Yale, understood why his presence could be problematic. But, at the time, the denial still stung. His relationship with the individual began several years ago — long before he ever considered a career at FTX, he said.
“The person who stopped me was doing the right thing to protect [his partner’s] company and his business,” Sun said, acknowledging the stigma still attached to his prior relationship with FTX's founder and former CEO. “I don't blame them at all.”
Bankman-Fried was convicted of seven charges of fraud and conspiracy after prosecutors alleged he stole $10 billion from FTX’s customers. Once viewed as an industry darling, a jury found the 31-year-old former billionaire had misappropriated customer funds to make political contributions and investments, purchase Bahamian real estate, and stanch steep losses at his trading firm Alameda Research.
Overall, Sun described his post-FTX endeavors as a “baptism by fire,” revealing more about the character of people once in his professional orbit. As FTX crumbled, some people he knew stopped communicating with him altogether, while others reached out and “showered” him with support, for which he said he was “tremendously grateful.”
A press release published by Backpack Exchange during Bankman-Fried’s trial omits Sun’s role in the project, leaning on Ferrante as CEO and founder of Backpack, a Solana-based NFT wallet app. Backpack is also behind the NFT profile picture (PFP) collection Mads Lads, which Solana co-founder Anatoly Yakovenko called a turning point for Solana’s community last year in a recent interview with Coinage.
Testifying under a non-prosecution agreement at Bankman-Fried’s trial, Sun denied knowledge of fraudulent schemes conducted by FTX’s executives. He said he learned of a $7 billion hole in FTX’s balance sheet as the exchange circled the drain on November 7, 2022 — four days before it slumped into Chapter 11 bankruptcy.
After Bankman-Fried asked Sun to come up with “legal justifications” for FTX’s ill-fated hole, Sun resigned the following day. The one-time wunderkind’s request “confirmed [his] suspicion” that FTX did not have the necessary funds to meet customer “withdrawals, and that they had been misappropriated by Alameda.”
“I was shocked,” he said at trial. “I had no idea that customer funds were being used.”
‘Misled by Sam’
In some ways, Sun’s path to grow Backpack Exchange may mirror that of Solana, as the network’s community looks to grow past its association with Bankman-Fried, once one of the network’s biggest boosters.
When Bankman-Fried pleaded not guilty to financial crimes in connection to FTX a year ago, Solana had just come off its 2022-low of $10. On the day he was convicted, Solana traded hands at $40. Since then, the coin has rallied as high as $121.
“Everyone who went through the Solana bear market, you could feel the bond between them when Solana came back up,” Sun said. “I think that's even more so for former FTX people who were deceived.”
As Sun built Backpack Exchange during the depths of crypto winter, there was an influx of notable support from deep-pocketed power players. Dozens of people he had “barely interacted with” before FTX’s collapse reached out, which steeled his ambition. “Not to get too teary, but it was very, very motivating,” he said.
Hoodwinked by Bankman-Fried, Sun now shares a unique bond with some workers at Backpack Exchange, who once handled legal and compliance matters for FTX alongside him. Describing them as “the top of the top,” he said FTX's implosion provides ample motivation for them to “do the right thing.”
“We were all sort of misled by Sam,” Sun said. “It's that extra sort of motivation that I think has helped propel us on the legal and compliance front.”
Backpack Exchange’s technology has been informed by the failures of FTX in some key areas.
Alameda could pilfer funds from FTX due to special privileges on the platform, but allowing Backpack Exchange users to self-custody funds prevents the exchange from having unfettered access to customers’ crypto, Sun said. Additionally, a proof-of-reserves system lets customers verify their deposits on Backpack Exchange, “so no one has to worry that something like FTX can happen again,” Sun said.
As certain jurisdictions wrote new laws to protect consumers in FTX’s wake, the swift unraveling of Bankman-Fried’s crypto empire had a profound impact on the industry’s regulatory landscape. Licensed under Dubai’s Virtual Assets Regulatory Authority, Backpack Exchange navigates a framework put in place a year ago, which Sun believes can help firms “move forward and not repeat the same issues.”
Exchanges with lax attitudes toward regulatory compliance are quickly becoming a thing of the past, Sun said. Shirking legal and compliance duties may have helped some firms solidify market share years before, but as crypto becomes more regulated across the globe, a so-called game of regulatory arbitrage may be dying out.
“Some exchanges have taken a more casual, and probably non-compliant, approach to [regulation] so that they can get more users,” Sun said. “We started off from day one with a huge focus on being able to balance attracting users [and] having a really good product that people want to use with regulatory compliance.”
As a first-time entrepreneur and self-described “boring legal [and] compliance guy,” Sun prefaced many of his managerial takeaways by saying he has no “golden nuggets of wisdom for folks” — but cultivating trust is key. So far, he’s had success serving Backpack Exchange as a facilitator who focuses on enabling people’s talent.
“The most important thing I've found is … finding people that you can trust,” he said, “Not just to get shit done, but do the right thing when shit hits the fan.”