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Binance to acquire FTX (bloomberg.com)
740 points by jmsflknr on Nov 8, 2022 | hide | past | favorite | 737 comments




Binance was threatening to dump a huge amount of FTT tokens on the market. FTX has a big+vulnerable position in FTT. FTX asked Binance to sell them the tokens for a fixed price, so as not to crash the FTT token price. Binance declined - this was yesterday/today. Of course the price of FTT crashed today. And now Binance buys FTX to help them out... smells like Binance played 4D chess all along.

https://decrypt.co/113674/binance-moves-to-liquidate-its-ent...

https://decrypt.co/113788/binance-ceo-declines-alamedas-bid-...

https://decrypt.co/113866/battle-crypto-titans-ends-binance-...


FTX should never been in this position. They are an exchange. Nobody should be able to obliterate them by playing around with their crypto.


I was having this exact conversation with my friends y'day. An exchange marketplace shouldn't be in this position unless they are also participating in the market directly or indirectly through funds, their own and the customers' funds.

Customers' assets (either crypto or fiat/USD) should be backed 1:1. The only reason for FTX to pause withdrawals and then assure investors that their money is safe is a sign that they are using customers' assets/funds to participate in the market.

How long before SEC/regulators wake up and regulate these shadow-banks disguised as exchanges as other exchanges?


> An exchange marketplace shouldn't be in this position unless they are also participating in the market directly or indirectly through funds, their own and the customers' funds.

Yes, although the limitation with this line of thinking is that in most market-related activities (including running an exchange) it's hard not to be structurally long the market in various important ways. For example as an exchange your commissions are going to be highly correlated with market activity and may also be per unit in some cases and so would be directly correlated with market prices in that case.

As a second-order effect, customers' trading limits are going to be affected as prices fluctuate even if you don't directly offer margin yourself, because not only does the value of the thing they've deposited with you change and therefore affect how much other stuff they can sell this for but also they may have made that deposit by pledging collateral elsewhere and borrowing against that to create margin so that margin loan will be affected.

You can definitely try harder to avoid the problem than FTX though which seems to have been pretty much all-in on it's own illiquid token (FTT) and Alameda using leverage on FTT as their main source of funding. One of the things I learned at Goldman during the crisis is that you can't rely on a mark for anything illiquid - you have to have a real liquid market price.


> having this exact conversation with my friends y'day

There is a strong, vested interest in portraying FTX's collapse as a one off. Binance doing them dirty doesn't cast a pall across the industry. Fundamental problems, likely replicated systemically, does.


> How long before SEC/regulators wake up and regulate these shadow-banks disguised as exchanges as other exchanges?

Very long in this case, as SBF was the biggest donor to the Biden campaign.

Last few weeks he was even trying to involve himself in writing the regulations he wanted, trying to kill DeFi and make it comfy for himself against other CEXes, no doubt.

Some people say that's what triggered CZ to act.

And now the whole of FTX and $8 buys you a mosquito net, what a world.


Do you have a source for the Biden funding remark? Open secrets suggests about 11M in donations came from SBF controlled entities but that’s pretty far down the list. The top contributions were from Bloomberg at 93M.

Those are for company controlled pacs as well, so not just SBF.

For individuals the best info I could find doesn’t list SBF as a major donor.

https://www.opensecrets.org/2020-presidential-race/joe-biden...


Sounds like a crypto ponzi scheme


Hard agree. While Binance prompted the downfall, FTX created all the conditions for it by playing fast and loose with its clients' money.


They are an exchange that allows future trading and margin trading which require borrowing money/assets/coins. The FTT tokens were probably put up as collateral for loans. The drop of the FTT value probably triggers calls on those loans. Thus the liquidity crisis.


It shouldn't work this way. Customer funds should be segregated from whatever prop trading the rest of the business is doing.

The only way this happens is if the prop trading business is over-leveraged somehow and the exchange bailed it out with FTT.

Customer deposits should meet liabilities 1:1. If they don't, somebody is lying.


> Customer deposits should meet liabilities 1:1. If they don't, somebody is lying.

That’s not how banking works. You hold illiquid assets. Sometimes they move in price. If they move enough in price you’re insolvent. Limiting bank runs is a genuinely hard problem.


Exchanges aren't banks, and crypto exchanges especially shouldn't be banks. Crypto is liquid and can be redeemed in its own denomination instantly if you hold it in a simple wallet. That's what exchanges should be doing. They shouldn't be doing fractional reserve banking, and a run shouldn't be possible. Preventing runs on a crypto exchange is exceedingly easy if the operators aren't taking risks with client funds.


Well, it seems the word 'exchange' in this case is used with a different meaning when applied to FTX than the meaning you have in mind.


Which is exactly the problem.

This should be illegal, and people who do this should go to jail.

Customer funds should be 1 to 1 backed with assets.


As long as noone is being lied to, I don't see any problems.

Case A, tell your customers that their funds have asset backing, and have asset backing: fine.

Case B: tell your customers that their funds have no asset backing, and have no asset backing: fine. (Those customers deserve what they get.)

Case C: tell your customers nothing, and do whatever you feel like: fine. (Those customers deserve what they get.)

Case D: tell your customers that their funds have asset back, and have no asset backing: bad.


B and C are perfectly fair game for a government to attempt to prevent, regulate, and prosecute in my book.

I don't think anyone has an inherent right to take advantage of people's ignorance solely for their own profit even if those people "deserve what they get." We make plenty of other ways of abusing people illegal, why allow that one?


I agree that if voters want to outlaw B and C, that's their prerogative. I don't see any moral imperative for that action, though.

My formulation of 'deserve what they get' was perhaps a bit snarky.

There are good reasons for people to invest in risky ventures. Eg when you invest in a startup, you might be able to get your money back, if you ask nicely, but there's no guarantee, and there's not necessarily any liquid assets backing your funds.

I think investing in risky assets should be legal.

I also think that it should be legal for people to invest in assets that have no official classification into whether they are risky or not. Ie when the company taking your funds makes no claims (as in C), in practice the customers should assume the worst.

If you want to forbid C, alas, that leads to a lot of bureaucracy. Because you have to define what an adequate level of disclosure looks like. And then there will be lots of paperwork.


As a taxpayer I don't want to see any government resources wasted on protecting greedy, stupid cryptocurrency "investors" from their own bad decisions. They deserve what they get and their losses will serve as a useful example to others.


Case D is what we are seeing over and over again, including this circumstance


No argument from me there. I was just narrowly addressing the point in stale2002's comment.


> As long as noone is being lied to

That is exactly what is happening. There is lots of lies being told, with no transparency, and then people's money disappears.

Instead of that, if people money disappears, we should arrest the people who made it disappear.


No argument from me there. I was just narrowly addressing the point in stale2002's comment.

Though to be honest, it is well known that the long term fate of any crypto exchange is to go bust. So no one could really claim that they didn't know it was coming.

Crypto is glorified gambling. (At least so far. In principle, crypto can mature over time into something more serious.)


I don't think it can, because all those serious things already exist and require the kinds of governance that the crypto promise rails against.


In theory the eventual steady state of crypto is a fully debugged and tested perfect software system that is not exploitable.


Except none of these 4 cases happened with FTX.

SBF claimed that assets WERE backed, while it appears that they were not.


That would be case D, wouldn't it be?


Assets backed with lies and cryptobullshit. At least someone has had a learning opportunity.


Are you saying that fractional reserve banking should be illegal, or that insolvent banks should be illegal? I think the second one already basically is. Or at least with a real bank, they get shut down and the FDIC bails the depositors out.

Educated rumor is suggesting FTX may be insolvent, not only the victim of a bank run type scenario.


You are referring to liquidity providers and market maker; they provide the liquidity (in the form of loans for margin trading, among other things), take risk in exchange for market making fee.

An exchange on the other hand is facilitating trades by matching buyers with sellers. At least that's how it works in stock markets. Even if NASDAQ were to become a market maker they would have to spin a separate entity, bring their own funds to provide liquidity. Even then I don't know if it's allowed by regulation.


> Even then I don’t know if it’s allowed by regulation

It isn’t, precisely for this reason. The US Equity and Equity Derivative markets have tried a few times to get approval for initiatives using their already existing BDs (to facilitate inter-market order routing), and in every case it’s been blocked by the regulators as too risky to the underlying business.

The issue here has more to do with the lack of a centralized C&S clearing house in crypto, and is one of the reasons counterparty risk remains such a massive issue there. Having to maintain an account at each exchange, much like you would a BD, and praying things don’t suddenly go pear shaped, strikes me as insane (and is one of the primary reasons I’ve avoided getting involved in the crypto space)


that makes FTX a "shadow bank", not merely an exchange.


It's worse than "shadow bank". It's bank who is allowed to print money at its whims and create any arbitrary leverage it wants.


Well, that's what the 'shadow' in 'shadow bank' means: less/different regulation than a normal bank.

That's not necessarily a bad thing, btw.


Where's the "bank" in this "shadow bank"? You're describing a casino with a money printer.


"Shadow banks" aren't necessarily "banks". See https://en.wikipedia.org/wiki/Shadow_banking_system

> The shadow banking system is a term for the collection of non-bank financial intermediaries (NBFIs) that provide services similar to traditional commercial banks but outside normal banking regulations.[1] Examples of NBFIs include insurance firms, pawn shops, cashier's check issuers, check cashing locations, payday lending, currency exchanges, and microloan organizations.[2][3] The phrase "shadow banking" is regarded by some as pejorative, and the term "market-based finance" has been proposed as an alternative.[4]


You're moving the goalposts a bit there


The phrase already existed. If there was no more to it than you could immediately guess from the words, then it would be a useless term.


What would you say a non shadow bank is? "Money printing" is "just" a reserve ratio near or less than 0.


It makes them a brokerage, doesn’t it? Not a shadow bank.


Ok. To settle once for all whether FTX is an exchange or not. Below are the services they offer.

Futures: ... with margins of up to 101x.

Leveraged Tokens: ... up to three times the leverage. ... the leveraged coins offered by FTX don’t require any margin.

Options: (standardish).

MOVE: ... wager on the price movement ... a play on volatility.

Spot Markets: ... more than 100 different spot trading pairs.


It's fine for a trading venue to list all these derivatives, the problem in this case is that the venue and issuer are the same entity. In the trad finance world this is strictly separated.


Your margin account should be immediately liquidated and your positions closed if the value of your collateral drops below your outstanding obligations.


That's called picking up pennies in front of a steam roller.


They're more a brokerage than an exchange - you can buy Bitcoin and Eth leaveraged at 20-1 through their perpetual futures. Whilst these are presumably hedged - FTX are still taking on risk.

https://ftx.com/markets/futures

https://help.ftx.com/hc/en-us/articles/360024780511-Futures-...


But the free market dictated that they do because that's exactly the downside of their use of a crypto coin.

How many exchanges will need to go under for the market to decide that isn't a great way to operate one? How much educating of users/customers will it take?


> Binance was threatening to dump a huge amount of FTT tokens on the market. FTX has a big+vulnerable position in FTT. FTX asked Binance to sell them the tokens for a fixed price, so as not to crash the FTT token price. Binance declined

This makes absolutely no sense and is not how markets work. If FTX was actually willing to buy unlimited FTT at a given price, Binance could not have "crashed the price" by selling below that price — somebody would simply have bought at the Binance price and sold to FTT at their price.

What seems more likely is that FTX extended that offer only to a small portion of the tokens that Binance wanted to sell (to maintain the fiction of their price).


My assumption when reading the quote was that it would be an off-market transaction.

Similar to how stocks can be traded in Dark Pools outside of the regular stock market.


Their point is that if you have the money to buy $1.1B of something off market, you should also have the money to buy $1.1B of something on market. Any time someone posts an ask at or below $22, you simply fill the order.


beyond the fact that the dynamics of saying "we'll take everything at a certain price up to $1.1B" will likely lead to much more than that showing up on the market and leading to a price crash anyways... I imagine that an off market transaction can involve things like not sending $1.1B in cash to the other person the same day.


If you have enough assets, everything can show up, and you just buy them out.


It's describing an arbitrage opportunity. If person A wants to buy something for $5.00, and person B will only sell for $1.00, I stand to make $4.00 per unit by simply being a middleman for the transaction. Private or public markets, the arbitrage opportunity remains the same.


FTX was not actually willing to buy, they are suffering from reduced capital position so they were bluffing


> reduced capital position

Sounds like a euphemism to me.


Alternatively FTX was confident they could make the purchase given time, but did not have the funds on hand.


Moreover, you are assuming no one else decides to sell based… one could argue publicizing their plans was meant to encourage just that…


I think what happened is that the probably wanted to buy it with their balance sheet rather than $$ which explains why this is a liquidity crisis. Say they have a $2bn in value (crypto, company assets, etc...); they can't place market orders to buy the FTT on the open-market; but they can make an off-market deal with Binance to swap these assets.


I think maybe FTX just doesn't have the money and their bluff was called


Another problem is the bank run that this narrative created.


Isn't FTT like FTX's own issuing tokens? It's like printing one's own money. But when the backing firm fails, the printed money is worthless, just like what LUNA issued by Terra had become.


Just went over the issues on the balance sheet of Alameda Research, which is SBF's trading company.

Of the $14.6 billion assets Alameda manages, almost $6 billion is FTT based. Alameda has heavy investment in Solana, Serum, and other alt-coins. It looks like the drop in their value has lowered Alameda's asset balance. Alameda borrowed FTT tokens from FTX to put them as assets in the balance sheet to shore it up. The size of the asset balance is probably used to obtain loans and liquidity.

FTX issues FTT tokens (print money) => lends to Alameda to put under the asset balance => Alameda borrows money from outside against its assets or uses the asset/coins to invest in others => win with thin air!

The crashing of the FTT token not only tanked FTX, it's going to tank Alameda Research as well since its asset balance suddenly shrunk and might have liquidity problem.

The tanking of Alameda is going to another Three Arrow Capital event since Alameda invests in lots of other cryptos. It might be forced to liquidated those investments. Expect another bloodbath in the crypto space.


> Of the $14.6 billion assets Alameda manages, almost $6 billion is FTT based.

When that info was seemingly accidentally revealed, the spicy little nugget in there that made people sit up & notice was that the entire market cap of FTT tokens was well below the reported asset value of the tokens on the balance sheet.


> The size of the asset balance is probably used to obtain loans and liquidity.

1) Lenders don’t care about the liability side?

2) How does “liquidity” differ from “loans” here? That is, when would they do this to achieve one but not the other?


1. We don't know what the lending basis for FTT from FTX vs the claimed value of FTT on Alameda's book. FTX lent FTT at $10 to Alameda and then FTT inflated to $50 would mean Alameda has $50 asset vs $10 liability.

It's reported that Alameda Research has $14.6 billion in assets and $8 billion in liabilities. Some claim that Alameda's assets are "entirely illiquid." Nobody knows how bad things are. The only thing is that FTX has stopped the withdraws.

2. Loans for long term and liquidity for short term? Like overnight lending.

Edit: add more info.


1) What is that replying to? I was asking why the borrowed FTT would make them more capable of getting loans if it came with a corresponding liability. That would only make sense if lenders didn't care about the liability balance sheet, which is ... non standard.

Edit: That is, you said the "size of the asset balance" is used to obtain loans. That makes it sound like merely increasing assets -- even if they come with liabilities, makes them more capable of getting loans.


There are DeFi protocols where you can lock-up crypto assets (eg FTT) and use those locked assets as collateral to borrow another crypto asset (eg ETH). That all happens "on chain" and there is no way for the protocol to know if there are corresponding balance sheet liabilities.

I don't know what the OP was referring to, and I don't know if this is what they were doing, but something like this could happen.


Right, but those are generally going to be on worse terms than you can get in a negotiated loan from someone who knows your entire business. So it doesn’t make much sense to negotiate an FTT loan and then use that as collateral for a less-informed loan from a smart contract.

It would be like getting a personal loan from a bank, buying jewelry with it, and then using the jewelry to get a pawn loan — a dubious strategy, since the terms on the first loan are going to be much better.


> FTX issues FTT tokens (print money) => lends to Alameda to put under the asset balance => Alameda borrows money from outside against its assets or uses the asset/coins to invest in others => win with thin air!

The Federal Reserve issues US dollars (print money) => US Treasury borrows money from The Federal Reserve, Japan, China and the UK against its assets or uses the asset/coins to invest in others => win with thin air!


> The Federal Reserve issues US dollars (print money) => US Treasury borrows money from The Federal Reserve, Japan, China and the UK against its assets or uses the asset/coins to invest in others => win with thin air!

Win with the largest military in the world and all tangible assets and influence the US has.


Ultimately the fiscal operations of the U.S. government are backed by the total assets of the U.S. (public and private), which are far larger.


Yeah but the US can destroy you diplomatically, militarily, and economically if you try anything funny.


Of course! That's why it's so important for the US to encourage the use of the USD on a global basis, and also spend billions on the US Navy.


This is actually... extremely apt. It is commonly referred to technically as the dollars exhorbitant privilege. It would seem FTX managed to exploit this phenomenon on a micro scale. Until it didn't of course lol


It only matters if FTX was using FTT as a collateral for accounting purposes for a valuation that is not realistic considering the liquidity of a position size.


And of course they were, what else would they keep it pumped up for.


Yeah. I can't be bothered to verify, but i remember that Binance has a huge double-digit percentage of all FTT tokens in circulation. Dumping all of them would crash the tokens value. And since this is FTX's own token, they would hurt a lot, maybe even terminally.


Do keep in mind that there's a difference between liquidity and insolvency.


This doesn’t sound like very complicated chess. Sounds like those Hong Kong TV shows I watched when I was 13


Please share these TV shows so we can all watch them and learn.


The seminal HK show about the stock market would be The Greed of Man (大時代) [1]. It's 30 years old, but classic scenes in it are still used in memes even today.

Edit: I totally forgot to mention the "Ting Hai Effect"! [2] Wikipedia has a great summary which I'll just quote here:

> The Ting Hai effect, also known as the Adam Cheng effect, is a stock market phenomenon in which there is a sudden and unexplained drop in the stock market whenever a film or a television series starring Hong Kong actor Adam Cheng is released. It still remains as a popular topic among stock brokers, years after the television drama The Greed of Man was broadcast in Hong Kong in late 1992. The effect is named after Ting Hai, the primary antagonist in the drama, who was portrayed by Cheng.

[1] https://www.imdb.com/title/tt0843185/

[2] https://en.wikipedia.org/wiki/Ting_Hai_effect


I don't even know where to begin looking for this. I have zero ability to read chinese, although I can understand it verbally :P


Having lived in Hong Kong and watched some of these old shows, I concur.


Please share!


Binance continues to amaze.

Does anyone even know where it operates out of these days?


They said they’d announce it shortly in July (https://decrypt.co/105376/where-is-binance-hq-ceo-cz-says-co...). Since then, nothing

They got regulatory approval to operate in Dubai and have offices there, so maybe there (https://www.coindesk.com/policy/2022/09/20/binance-secures-l...)


The fabric of the internet.


They have a lot of positions open at their Singapore and Hong Kong... offices?


There is a pool of capital that pays people working for them onchain. They can also do fiat via local subsidiaries, and local contracts for compliance and litigation.

It's almost like it doesn't matter.

For accountability, it barely matters. For financial products they offer, it also barely matters. Most jurisdictions are too small to say anything and all their customers can circumvent any geo-restriction. They have distinct subsidiaries in major markets like USA.


That sounds like 1D chess.


Conspiracy theory was expected but Alameda was spotted to have smoke up a week earlier.

https://www.coindesk.com/business/2022/11/02/divisions-in-sa...

CZ sounds smart to withdraw quickly not to be the one in a sinking boat and it did sink quickly.


Seems more like a classic run on the bank. Made worse because:

+ the bank (FTX) was likely massively over leveraged

+ the bank's primary assets were likely not very liquid

Both of above are speculation. However, why else be forced to sell (1) to Binance?

(1) Matt Levine makes his usual solid argument as to why the price was likely zero, other than cashing out FTX debt: https://www.bloomberg.com/opinion/authors/ARbTQlRLRjE/matthe...


> smells like Binance played 4D chess all along

It's not really "4D chess" to screw over your competitor to corner the market.

That's like, business 101.


Business 101 is buy low, sell high.

Winning an evenly matched game of prisoner's dilemma with billions at stake is about as close to 4D chess there is.


Buy low esteem, sell high esteem - the concept comes from Hetty Green (long ago billionaire.)


Market manipulation is not exactly business 101.


I'm not sure this is market manipulation?


Depends on the intention I guess. They might have been genuinely worried that the token was going to crash and also didn't trust the counterparty to be able to pay for it. In this case it would have been a genuinely legitimate transaction.

But if dumping the whole stock was done with the intention, even partial, to crash the price, then it seems to me that it would be manipulation. Of course crypto is unregulated, so it wouldn't be illegal.


Typically you don't expect Bank of America and Chase to do this to each other.


Porsche and Volkswagen did.


...anymore.


I'm not too familiar but can you elaborate on how the screwing happened.


CZ tweeted "Oh shit, FTX is basically insolvent, we're gonna have to dump all our FTT magic beans!" or words to that effect.

Then, when FTX predictably tanked, he stepped in and generously offered to buy out FTX.


Same thing Soros did to the Bank of England's fake pound.


> FTX asked Binance to sell them the tokens for a fixed price, so as not to crash the FTT token price.

Why would Binance decline this opportunity? If FTX, Binance, and the market knew FTT would just crash, it sounds like a given that Binance should take advantage of the fixed price instead of losing hundreds of millions of dollars "letting the market decide".


Because they wanted to create a liquidity crisis in FTX that would force FTX to sell itself for a discount?


Presumably, it is more appealing to Binance to kill their largest competitor than it is to realize a return on a minority investment.


It depends on the fixed price offered by FTX.

If FTX could pay the current market price, then they could have absorbed whatever Binance sold on the open market.

They probably offered a deep discount.


Or maybe they offered to buy it later (when?) at a price fixed today - discounted or not. If they don’t have liquidity (why?) they cannot buy it on the market.


Illiquid means you can't sell your position without lowering the price significantly.

It could be that you need time to sell, or it could be that no one is stupid enough to buy it.

The former can be fixed with a temporary loan, the latter in bankruptcy court.


As discussed extensively elsewhere an “exchange” shouldn’t be in the business of having illiquid positions in the first place.

But here we are, and I’m not sure if FTX was offering to buy with some favorable terms regarding the time of settlement in addition to a discount. They could have bought on the open market at the discounted price but they apparently didn’t…


This is my view as to what possibly happened in last 24 hours. Mind you I have no idea if its real but i am making an educated guess based on my 10+ yrs seeing such events play out several times.

1) Alameda used FTX money and balance sheet along with using $FTT to take out billions of loans and "investments" including possibly customer funds to "invest" "efficiently" into risky investments

2) He then also used a lot of it to prop the entire market up in the 1250-1350 range over months to decouple the market possibly and keep $FTT above the $22 mark which was possibly a margin level for his collateral.

3) Market rallied and everything was fine. He is up a lot but lost few between making potentially risky investments (maybe shorting?), maybe options market making as that was his original expertise... who knows. But he clearly lost some money in there.

4) Rumors spread of balance sheet shortfall. Now mind you .. Alameda is a separate entity than FTX. So using FTX resources for trading on Alameda is a big no no.

5) CZ finds out about this. Decides to market sell his billions of $FTT position. Caroline gives up her hands and says they will buy at $22 which on the chart you can see has been the support line time and time again so clearly that line has been supported constantly..

6) The market selling pushes price below $22. Entire market and large players smell blood.. the moment the price goes below $22 the lenders market sell coins ($FTT and $SOL) for margin. This results in a loop after it breaks below $22 and goes into freefall with no support anymore

7) With no options to get more money from lenders and having no other assets to get more loans from lenders as they are already selling his assets, SBF goes to CZ and asks to bail out FTX as there is a big hole that cannot be filled anymore. CZ probably decided to take over FTX and said to SBF you have to either stop gap some of the fills from selling your assets since you did things wit the balance sheet and customer money you weren't supposed to. He probably said he will bail out FTX but NOT Alameda. Sam then either market sold everything he had...OR the lenders... Sam went to the lenders and said I am defaulting on my loans...So the lenders just market sold all the collateral. I think its most likely Sam said he is going to default on the loans and they market sold.

IF the lenders recouped 70-80% then i think its fine.

IF the lenders WERE NOT able to recoup and will have to take a write off on the loans.. we have issues. That part I am unsure about. IF a large lender goes under... then there is further contagion. The market selling off coins so quickly triggered probably more liquidations.

WHERE DO WE GO FROM HERE? We have seen bigger black swan events like in crypto past. All new concepts have days weeks like this. Stocks had it, banks had it and crypto has had it few times. There will always be new smart people to push growth and take over.

When 3AC went bust, we got to $800 on $ETH. We rebounded to 2k in time. That was close to 17-18bn. This is smaller. in time... we will be back. Not sure when.. but eventually it all comes back. Market is cyclical end of the day.


One missing piece: $1B BTC being auctioned by the IRS soon. This is such a big number that it will almost certainly be bought at a discount by an arbitrageur and liquidated on the market, so this was the impetus for the broad-market crash that killed their leveraged positions.


The 24hr BTC volume on Coinbase alone was $126B. The feds selling $1B won’t make much of a dent.


Not on coinbase alone. Coin market cap shows same volume globally


Ah yes. You are correct.


[flagged]


FTT is not a stablecoin


I earned $1,200 from Gemini's stablecoin GUSD's interest last year. Withdrew the extra and bought some nice pendant lights for my new kitchen.


I understand many did well with Bitconnect too...


Not a stablecoin. Bitconnect is my favorite crypto scam so far! It was so obviously a scam, and the bros promoting it were even dumber than that shitcoin.

A lot of crypto projects can appear scammy because a handful of people are working on something and their token goes through the roof then crashes with no wrongdoing on the part of the project. Invest in projects, not coins!


Okay, random non sequitur

This isnt a thread about stablecoins


Some more background: the companies were engaged in fighting over regulations, and on a personal basis between the 2 CEOs. It went down to really childish levels at some point.

But one thing is undeniable: SBF (FTX CEO) was trying to weaponize US regulation against his biggest rival CZ (Binance CEO). CZ retaliated by selling the FTT token, exposed the fact FTX was over-leveraged, and took over.

This is, as the kids on Twitter say, the embodiment of the old "F#$k around, find out".

Along the way every FTX client who couldn't withdraw, and every crypto user losing value got screwed - but why should these 2 characters care? The space just became more centralized, and whatever smidge of trust was left after the Celsius debacle has evaporated.


For those not up to date on crypto people, SBF is Sam Bankman-Fried [1] and CZ is Changpeng Zhao [2]. I don't know why they insist on being called by their initials like they're some sort of ticker symbol.

[1] https://en.wikipedia.org/wiki/Sam_Bankman-Fried

[2] https://en.wikipedia.org/wiki/Changpeng_Zhao


They go by acronyms on social media, namely twitter, the main place people interact with them

https://twitter.com/cz_binance

https://twitter.com/SBF_FTX


CZ is Czechia though


It will get it's acronym back shortly.


Unless it turns out that Changpeng is of the Habsburgs. Then we will have a serious clash in Europe again.


pretty much everyone is a descendant of franz joseph


Because Bankman-Fried is a mouthful/typeful to say every time, and Changpeng is a big, non-western name, and Zhao too common by itself.

Source: me referring to one of them in conversation a lot with no incentive to kowtow to his preferred branding.


You see the same thing with Middle East Leaders - MBS, MBZ, etc.

When the names are even semi-complex and the reach is global, people default to acronyms.


Pedantic nit:

Those are initialisms. An initialism is when the individual letters are individually pronounced, like "emm-bee-ess."

An acronym is when the initial letters are pronounced as a word, e.g. SOAR ("Situation Options Act Review-and-Reassess")


The broader sense of acronym—the meaning of which includes terms pronounced as letters—is sometimes criticized, but it is the term's original meaning[1] and is in common use.Dictionary and style-guide editors are not in universal agreement on the naming for such abbreviations, and it is a matter of some dispute whether the term acronym can be legitimately applied to abbreviations which are not pronounced "as words", nor do these language authorities agree on the correct use of spacing, casing, and punctuation.

[1] https://www.oed.com/viewdictionaryentry/Entry/1844;jsessioni...).


If there's one thing I really dislike about HN culture, it's the consistent derailing of a thread to "um, actually" someone on a semantics distinction that literally nobody has ever been confused by, or to shoehorn in new terminology that doesn't improve communication in any way.


I enjoyed reading the diversion. I don't think it derailed anything, except perhaps for your reply.


Some of the most interesting things I've read have been digressions from the main point. Your observation is a case in point: We're now talking about HN culture instead of wild times in the crypto economy. Is this a derailment? Or a digression?

It all depends upon whether people perceive it to be something that "gratifies one's intellectual curiosity," a line right from the guidelines. In your case, the difference between initialisms and acronyms (if any, see another reply) does not, and I accept that. Sorry!


> literally nobody has ever been confused by

um, actually...


Agreed


With the exception that people like MBS, MBZ, AOC, etc. are objectively much more well known.


Also AOC, MLK, FDR, and JFK!


Because they think the people they're most similar to are respected old-school hackers (rms, jwz, etc.) instead of carnival hucksters like P. T. Barnum.


i can just imagine jwz squirming at the idea of this and it is way too funny...


P. T. Barnum doesn't deserve the bad reputation. See eg https://news.ycombinator.com/item?id=310056


If they were imitating the older style they would use lowercase


It’s common in many internet circles to refer to prominent people by their initials. Hackerdom has a long tradition of this: rms gls esr jwz et al. It also tends to happen in US federal politics for some reason (jfk rfk gwb fdr et al) but not to everyone.


There's a little bit of cargo-culting with the practice: I thought CZ was short for the Czech Republic. The only reason I know "SBF" is because the New Yorker obliged him in that William MacAskill piece.


At least the political ones (some) came about for clarification (JFK and RFK are both Kennedies, GWB is to distinguish from "Bush"). Others come from their names being long or hard to remember/pronounce/spell (I suspect this is what happened with AOC).


The Robert Caro books about Lyndon B Johnson detail his effort to force meme “LBJ” as a reference to him.

(Mostly in terms of insisting various communications employees use it in press releases and what not).

It seems he liked the iconography of it, especially in putting himself in similar company to FDR.

Both his daughters have the LBJ initials, his wife is mostly known as Lady Bird Johnson (a nickname that predates their relationship, but is not her given name)


OT: Are those books worth reading? I loved the Power Broker but the LBJ books are a whole lot to get through.


Short answer, yes.

Longer answer - from my prospective - I enjoyed the first book Path to Power the most, which revolves around LBJs early life up to becoming a US Representative. I thought it was very on par with the Power Broker. That an the Power Broker would probably be my first recommendation to an ambitious college kid who wants to know the real Politik of how the world works.

The next book Means of Assent was my least favorite of Caro’s books, but still highly enjoyable.

Master of the Senate and Passage of Power are both great. But sort of specific to LBJs spot in life. Great, but I’m not sure they sparked my thinking quite the way the Power Broker and Path to Power did.


Maybe.

The books are designed to be standalone-ish, so later volumes spend a fair bit of time repeating things from earlier books. Caro goes deep, deep into various shady acts and new scandals which were probably shocking and relevant in 1982 but less so four decades later.

Caro also touches on a lot of the same topics as The Power Broker, and the picture he paints of LBJ ends up sounding quite a lot like Robert Moses. Is it because all powerful men inevitably end up as bullying psychopaths, or does Caro have something of an axe to grind? 50/50, maybe.


FDR went by FDR because those were his initials and ehh, people do that sometimes. Have enough presidents and sooner or later you'll get a president who does it. JFK and LBJ did it as conscious homages to FDR. There is a book "In The Shadow of FDR" about post-WW2 US politics that mentions this.


Fun crossover: IKE, internet key exchange had a proposed successor JFK


Who are "et" and "al"? /s


Can't forget pg and sama


Maybe: Crypto is full of acronyms, token tickers are a great example and apropos here --> their names have been "tokenized"...?


Ownership of personhood as documented by holding an NFT.


You've been reading the DID spec.


Which is basically an energy-wasting form of the Blue Checkmark?


With the proof of stake release for Eth, is this point still valid?

Bitcoin is still energy intensive, but that has nothing to do with NFTs.


Not even that, because that'd be a web of trust, like PGP or Keybase.


The acronyms are very twitter friendly.


DPR fans?


And over-leveraged, for a brokerage, is a major problem. A brokerage is not a bank, and account-holders are not earning interest. Therefore if you are taking their funds and doing something else with them (a pre-requisite for insolvency, unless you are hacked) is a major red flag for illegality.


Why are people trying to make up their own stories without the reason of how CZ was trying to sell FTT?

Alameda's balance sheet was already looking wrong in the first place.

https://www.coindesk.com/business/2022/11/02/divisions-in-sa...


> It went down to really childish levels at some point.

Childish bullshit in the cryptocurrency market?!??! I am absolutely shocked and surprised, such a thing is completely unprecedented...



SBF said "We don't invest client assets (even in treasuries)". [0]

He then says the purpose of the transaction with Binance is to "clear out the liquidity crunches". [1]

How could there be a liquidity crunch if assets are not invested? You can't do a bank run on an entity that doesn't function as a bank and doesn't invest clients assets... Something is shifty.

[0] https://twitter.com/sbf_ftx/status/1589598285798707202

[1] https://twitter.com/sbf_ftx/status/1590012126701441025


12:38 PM · Nov 7, 2022 2) FTX has enough to cover all client holdings. [0]

4:03 PM · Nov 8, 2022 2) Our teams are working on clearing out the withdrawal backlog as is. This will clear out liquidity crunches; all assets will be covered 1:1. This is one of the main reasons we’ve asked Binance to come in. [1]

has enough to cover all client holdings ---> not enough to cover all client holding in 24 hours. Either they lost a billion or so dollars of client segregated funds in a day down the back of the sofa or it was a lie the whole time.


As other people said, usually a lot of assets are illiquid in 24 hours. You can say I have money to buy this house, but if I ask you for the money the next 24 hours, most people will say they need more time to liquidate.

It is actually irresponsible to the users (risk management wise) to be keeping all that cash in hand 24/7. The easiest bad case example: are you keeping all your savings under your mattress?

Edit/to commenters below: I understand there are emotions, but that's simply how things work. As other fellow commenters noted, banks do not keep or even promise they do keep your money($) under their "mattress."

Say you deposited in EUR. The exchange and everyone borrows in USD, so your EUR become USD -- no way out of it. EUR goes down, and then there is a bank run. Even if as the bank were irresponsible and kept 100% liquid, they can not serve everyone 1:1 in 24h. Nobody can give you that guarantee, besides your local grocery store. We are thinking these things at the wrong scale.

We are not trying to shift blame away from FTX -- already the whole relationship was sketchy. But claims about keeping 100% USD with a 24h cashout in a worldwide scale is not something on the table right now. I get worried when people feel comfortable believing those statements.


> risk management wise

Short dated government bonds would be the safest. But tweet 0 he litterally says they dont do that, they keep the cash under the mattress and you can have it if you stop by. People stopped by and there was no cash under the mattress...


I agree. And it is sketchy when people give a guarantee we know they can't keep.


> It is actually irresponsible to the users (risk management wise) to be keeping all that cash in hand 24/7. The easiest bad case example: are you keeping all your savings under your mattress?

"We never block withdrawls" is the new "We don't crash ever" as seen in the Facebook movie.

If you are in the crypto exchange business you gotta do both actually. Don't crash the website and don't suspend withdrawls ever.


I'm not a business masquerading as a bank, lol.


Banks don't have cash on hand equal to assets either...


The CEO of a band has never say they have everyones money sitting in the safe waiting for them to pick it up whenever they wanted it.

FTX CEO litterally said that in his tweet.


My read of the situation: SBF's comments were about assets (balance sheet) rather than FTX's liquidity. I believe SBF was saying (paraphrasing) "Our balance sheet is fine; FTX doesn't invest customer assets; we're processing withdrawals as fast as possible." That's different than saying "we have 100% liquidity."

Banks make similar statements all the time -- they require regular audits of assets (stress tests) and maintain some minimum levels of liquidity.


Banks say that they don't invest deposits?


In the Glass-Steagall sense, they probably shouldn't. Mixing commercial banking and investment banking was illegal from 1933-1999, and it is (arguably) one of the underlying factors in the 2008 financial crisis.

Note: There's a difference between being a custodian of customers' investments (brokerage / commercial banking) versus proactively investing customer deposits (investment banking).


Going to need a _huge_ source on that claim. Investing customer funds is the primary way banks make their money, and has been that way essentially since the invention of banking.

From https://en.wikipedia.org/wiki/Fractional-reserve_banking:

"Fractional-reserve banking predates the existence of governmental monetary authorities"


Banks lend deposits. That's how they make their money. They have to keep some part of the deposits as a reserve.

Real regulated banks have access to the Fed to borrow in a case of a bank run.


And FDIC to de-risk customers from feeling they need to do a bank run.


To a large extent, but not completely.

Anyone who has more than the insured amount, or anyone who needs their money in the near future will still engage in a run.

There were several runs during the 2008 crisis, the most famous is the run on IndyMac Bank.

https://en.wikipedia.org/wiki/IndyMac


It’s pretty clear now it a last ditch Hail Mary effort to save them from a bank run that would ruin them


Real banks have access to a lender of last resort.

Shadow banks don't.


If you take other people’s money by promising you will be keeping their money under your mattress, yes, you should keep all that money under the mattress or you’ll be behind bars for fraud.


> it was a lie the whole time.

how many of these y'all need before you learn: all crypto is a scam. It never was anything else, it never will be anything else because it can not be anything else.

There's an awful lot of fancy piled on the simple fact that all crypto"currencies" are negative sum games. The only disagreement is whether this is an entirely new type of scam , a "Nakamoto Scheme" or the difference between these and the classic Ponzi are irrelevant like the difference between a CRT and a HDTV and then we are looking at a Ponzi.


Distributed ledgers are not a scam, and our true best hope for anti-corruption.

I would like every elected official to have all their income and spending listed on a public ledger.

True accountability of representatives to those they purport to represent will solve so many problems, both in terms of the types of people incentivized to become public servants, and also in terms of public understanding of spending and waste.

All this "crypto" is intellectual warm-up for what is to come, I'd highly suggest looking at rollups (what I would describe as ledgers within ledgers) which are delving into the true possibilities of next-to-zero cost of immutable transaction records.


>Distributed ledgers are not a scam, and our true best hope for anti-corruption.

They are not a scam, but they are almost completely useless

>I would like every elected official to have all their income and spending listed on a public ledger.

A public ledger is not necessarily a decentralised ledger. This could be accomplished by any bank account controlled by a US politician to send the payments made to a US goverment controlled webapp that's then publicly accessible (by FOI request, if necessary). No blockchain, no decentralised woo needed. What you have stated is a POLTICIAL problem, and those require POLITICAL solutions. No new or speculative technology, of any sort, is needed to accomplish the problem statement.


Ok, why is this statement not true then:

> There's an awful lot of fancy piled on the simple fact that all "currencies" are negative sum games.

?


Because it is currency itself that you measure everything else against. What my sentence meant is that without transaction fees it would be a zero sum game -- ie if you undid all crypto-money transactions then nothing is left -- but with transaction fees their sum is a negative number. But you need to measure this in something.

Note how stocks are decidedly not like this because if you undid all stock-money transactions the sum would be positive because of buybacks and dividends.


> Because it is currency itself that you measure everything else against.

So what? I cannot see the significance of that. There are many possible measures of value.

> if you undid all transactions then nothing is left -- but with transaction fees their sum is a negative number. But you need to measure this in something.

Yes? So what's the important difference between cryptocurrencies and traditional currencies?


The thing is you can buy anything in this world for money. That's what money is for. Thus, we measure these things in money.


I don’t see how it answers those questions.


He mentions that they have everyone’s money, and then the very next tweet says “we’ll clear out liquidity crunches”.

Literally a contradiction.


Giving them the benefit of doubt, this is not a contradiction. The statement means that they have enough illiquid assets to cover the withdrawal that they are working on converting into liquidity.


FTX/Alameda holds tons of illiquid FTT tokens that they cannot sell and which Binance was dumping. Thus, they might have not technically lied. But they were still wrong from the accounting perspective - they surely understood that FTT token cannot be used to cover gaps in large scale.

It was the question that matters "how fast you can process user withdrawals and with what risk"

Sam owns 8% of Robin Hood that is worth around ~$1B - he could sell that and cover some of the gap. But what we do not know yet is the size of the gap in time and space. FTX had $6B withdrawals pending on Tuesday.


> Sam owns 8% of Robin Hood that is worth around ~$1B - he could sell that and cover some of the gap.

Not knowing too much about this space have you ever seen anything like this happen? A CEO using their personal wealth to cover their customers funds seems unlikely.


That can't happen directly (I think). Mingling breaks the limited liability mantle.

He will have to buy equity or other product from FTX to infuse with cash. And if it is going bankrupt he has to stop running it to preserve the liability "shield" -- details of course depend on the country/state of organization/incorporation. I know nothing about the Bahamas.

Example: Elon for instance infused his own cash into Tesla, when it was going bankrupt. But he practically bought equity to my understanding.

Covering customer accounts is different, in a financial firm. I do not know what tools the Bahamas give to FTX. This is all uncharted territory. (Also there is legal exposure to other countries.)


This isn’t a thing, limited liability (which is the fundamental principle that distinguishes corporations from partnerships) prevents this. The only way would be if SBF was charged with defrauding FTX


> have you ever seen anything like this happen? A CEO using their personal wealth to cover their customers funds

No, but I would love to see it happen, enforced by a court, and backed by a promise of jail time if the CEO fails to comply in a timely fashion.


> A CEO using their personal wealth to cover their customers funds seems unlikely.

It’s in the category of “desperately wants to be true” of crypto crash denial.

I’ve been lampooning people defending FTX in Hacker News all day. This is what I come here for!


Free Jon Corzine!


But they're meant to store the customer assets in a cold wallet. They're not meant to invest them in illiquid assets that would need to be liquidated to give people their money. If it's not a contradiction, it's an intentionally misleading statement to avoid admitting they let Alameda Research invest the money when the entities are supposed to be completely separated.


The extremely charitable read is that

1. They have all the funds

2. Many are in cold storage or otherwise inaccessible in short term

3. Their cold storage restore process is so slow they need emergency help to provide liquidity in the meantime

Seems more like that they've either embezzled client funds or been hacked/lost some cold storage keys


In that scenario they could point to some of the wallets to help calm the fears the money isn't available. Or they could approach a number of different lenders who would be comfortable lending at high interest rates if the money is there but slow to access. They only sell if we're in the non-charitable case.


The normal way to handle this would be insurance or a line of credit, not selling your company to your competitor overnight.


They're totally solvent but no one is willing to lend them money?


“Every banker knows that if he has to prove that he is worthy of credit, however good may be his arguments, in fact his credit is gone.”


IMO this would contradict what the GP comment asserts: that SBF said "We don't invest client assets (even in treasuries)".


I thought FTX Alemeda (the trading side) invested into their own token, which is tanking thus causing problems.

Alemeda has like $14b assets and $8b in liabilities. But of that $14b, $5b are in their own token (FTT) which is kinda?? worth nothing at this very moment. So now the assets and liabilities are more equally matched, but less margin for shifting values of tokens.

I don’t know, but the derivative of their assets looks scary the last 24hr.

Disclaimer: not a crypto person


What do you mean illiquid? Worthless?


Illiquid just means that you can't cash it in quickly.

Cash is 100% liquid while a house is illiquid you might have millions US$ parked there but only if you manage to sell it, then you convert it into liquid cash.

Liquidity is a measure of how easy it'd be to trade a thing for another thing you want.


> Liquidity is a measure of how easy it'd be to trade a thing for another thing you want.

It is also very hard to trade worthless things for expensive things you want.

Insolvent institutions like to claim they are illiquid when in reality they are insolvent.

We've seen this happen over and over during the 2008 crisis.


Agreed, but in this case these tokens have suddenly become 'illiquid' because they have just become worthless. It seems that here the term 'illiquid' is being used as a euphemism.


“we’ll clear out liquidity crunches” - they have everyone’s money if they get more money from someone else.


It’s not a contradiction. It’s easy to have illiquid funds. For example cold storage or locked funds.


But cold storage and locked funds lead to you taking out a loan or just saying "sorry, it's going to be a while, our funds are locked". You know what you don't do if your funds are illiquid? Sell to your competitor over night.


There is a time delta between the statements, assets worth $10B on one day could be worth $5b the next


If everybody walked into their bank right now to withdrawal, they couldn't cover either.

Right?


And that’s why banks are heavily regulated and get protections.

If FTX wanted protections against a bank run they could also choose to be regulated as a bank.

Cryptocons want us to both treat crypto scams as banks and not banks depending on what suits them in the moment, just like they want us to treat cryptocurrencies as assets or currencies based on what suits their argument in the moment.

All to hide the fact that it’s a mediocre technology which has been surpassed by many other technologies for most of its possible uses and is nothing more than a Ponzi scheme designed to enrich its original backers.


But their point was: FTX doesn't purport to be a bank



It doesn't purport to be a HUGE PONZI either, but... Just another normal day in crypto land.


I mean, the CEO does literally tell people he's running a Ponzi.

https://www.bloomberg.com/news/articles/2022-04-25/sam-bankm...


You may as well say "if everybody jumped off a bridge at the same time...."

How many bank runs have there been in 2022 in the developed world?

The reason people don't try to pull their money out all at once is because their deposits are insured, because their bank pays into an insurance pool.


    The reason people don't try to pull their money out all at once is because their deposits are insured, because their bank pays into an insurance pool.
Only up to $250k.


https://fortune.com/2022/05/23/record-number-american-househ...

That wouldn't be a problem for the majority of Americans


If you go over $250k, you can just open accounts at other banks to keep being insured. Or get your own insurance I suppose.


My point was that if many would struggle to put together $400 in cash, they’re likely unaffected by a $250k upper limit on insured deposits


How many people do you think have more than $250k in the bank? How many people do you think have more than $250k in FTX? It sounds like you're saying it's not good enough because 0.1% of people won't get the full benefit.


They'd cover it. They might need to call up the fed, but they'd cover it.


Remember that blockchain transactions are slow and FTX has over 1m users. Even in the most positive of scenarios, I would not be surprised if it took days to clear the backlog of withdrawal requests.


Not sure what people are talking about here, bitcoin mempool doesn't even have a notably large backlog at the moment and fees are currently low/normal: https://mempool.space/

Exchange withdrawals are one to many for btc helping keep size down and most other chains shouldn't have any issues. Don't see how FTX or really any exchange should be bottlenecked by blockchains here.


It seems to my layperson’s eye that that would be a reason to get a loan for a week or a month, not to sell the company.


“How to destroy the entire basis for blockchain technology in 1 sentence”.


Indeed, all Bitcoin blocks today are full. There is no physical possibility to withdraw all those funds. That's why Binance must implement Lightning deposits/withdrawals, like Kraken did.


Adding L2 chains to this equation dumps the frying pan into the fire. We don't need more points-of-failure, it's bad enough as-is.


Inability to process more than 5 tx a second for entire world is a major point-of-failure that L2 chain cures.


Should’ve just increased the blocksize, instead of implementing some crap L2 solution.


Thats the same as to say: let's buy a couple more servers rather than replace bubble sort in our code by qsort.


Slow blockchain transactions and it would be shocking if they didn't stake user assets. Most (all?) proof of stake chains have lock up periods. Atom and other Cosmos chains are usually 21 days.


>>Our teams are working on clearing out the withdrawal backlog as is

The "as is" worries me here


You forgot 8 hours ago: Hacker News commenters are in total denial:

https://news.ycombinator.com/item?id=33518961


This is yet another episode in the continuing saga “HN consensus is bad at predicting tech”.


Now it is clear that he was lying.

They stopped processing withdrawals according to on chain data.[0]

[0]: https://www.theblock.co/post/184176/ftx-appears-to-have-stop...


> They stopped processing withdrawals

If you look at the comments on https://news.ycombinator.com/item?id=33518961 that article missed that FTX uses multiple addresses for withdrawals.


He admits they were illiquid and needed Binance to cover withdrawals 1:1.

>Our teams are working on clearing out the withdrawal backlog as is. This will clear out liquidity crunches; all assets will be covered 1:1. This is one of the main reasons we’ve asked Binance to come in. It may take a bit to settle etc.

[0]: https://twitter.com/SBF_FTX/status/1590012124864348160


Sorry, edited my comment to quote the section of yours I was trying to reply to


They have one BTC. Form an orderly queue to receive your portion.

https://www.coindesk.com/business/2022/11/08/ftxs-bitcoin-ba...


> SBF said "We don't invest client assets (even in treasuries)"

We know that was false when it was said, given the Alameda balance sheet. (FTX invested in Alameda which made risky loans to crypto folks and bought FTT, which FTX minted [1].)

[1] https://www.coindesk.com/business/2022/11/02/divisions-in-sa...


I know the SEC is struggling to stay on top of the crypto market, but it certainly seems like SBF should be in an absolutely huge amount of legal jeopardy right now. And if he isn't, then the crypto market is beyond saving and deserves to die.


> SEC...it certainly seems like SBF should be in an absolutely huge amount of legal jeopardy right now

FTX U.S. is fine. To the degree Americans are hurt, it's investors in the international entity. If anyone deserves regulatory scrutiny, it's the institutional investors betting fiduciary assets on crypto.


I wonder if SBF became one of the largest political donors in the country, not for altruistic reasons like he claims, but for protection from the SEC.


Nowhere does it say that FTX invested in Alameda.

Alameda invested in FTT which is minted by FTX which is not the same thing.


> Alameda invested in FTT which is minted by FTX

FTX issued FTT to Alameda. We have no idea what Alameda gave them as collateral, but it's clear it wasn't cash. Lending is a form of investing. (I don't get what unlocked versus collateral FTX on Alameda's balance sheet means.)


How can you say it's clear it wasn't cash? What's the source?

Also, FTX minted FTT out of nothing - effective cost zero - so no matter what they received in exchange, even if they had received nothing that is not an investment unless they received Alameda equity. I agree that lending is a form of investment but nothing says that they received a loan in exchange.

You could still be right, but it's all speculation :)


> How can you say it's clear it wasn't cash?

FTT spiraled and FTX went insolvent.


Doesn't mean they never received any cash. Maybe the CEO spent it all on crack and hookers.


This a.m. before securing an emergency lifeline from rival Binance, FTX was canvassing deep pockets in Silicon Valley and Wall St — think billionaires, not institutions — ppl familiar told me & @lmatsakis @SaacksAttack. Two of the ppl he was seeking more than $1bn.

https://twitter.com/lizrhoffman/status/1590021299295768578

He / his people didnt call me, but I would have passed anyway


> One person briefed on the fundraising blitz said what started as a $1bn ask was looking more like $5bn-$6bn by midday.


Welcome to the world of unregulated finance.

There’s a reason the FDIC exists and all banks must be insured.


There's nothing decentralized about FTX or Binance. They operate in an opaque manner like any traditional business, transparency comes from forced audits & regulation.

Decentralized finance is built on chain where all assets are publicly auditable at all times.

EDIT: parent comment talked about decentralized finance, then edited to remove mentions of defi


Even without the edit, your response feels like a no-true-scotsman

i.e. an attempt to remove bad actors who deal in decentralized cryptocurrencies from the purity that is defi.

What are some large, successful defi organizations today?


I don't see at all how you can say calling out literally centralized companies as "not-decentralized" is no-true-scotsman. It's just an obvious fact.

> What are some large, successful defi organizations today?

In my opinion, if there is an organization behind it then it is, by definition, not decentralized. Yes, even the ones that operate fully on-chain.


>literally centralized companies as "not-decentralized"

So defi is only 100% decentralized everything, even if the financial tools are decentralized? That feels like an appeal to purity if ever there were one.


Ok, my previous comment is a bit unclear about what I mean. In my opinion if there is a group of people, other than the participants themselves, who can control the operation of the financial service then it is not decentralized. There can absolutely be an organization that builds the service, but participants should not be forced to adopt updates and should be free to transfer their entire balance to any other service at any time.

I realize I’m on the fringe a bit with this but I think it’s not because I have an extreme idea of what defi is, it’s that there have been so many grifters in the last 5 or so years that have used the buzzword “defi” to sell their shitty reincarnation of long-outlawed shady centralized financial schemes as something revolutionary that it’s shifted the public perception of the term. I’d even agree with you that it’s an appeal to purity.


Uniswap. Large in terms of volume, not org size.


Uniswap, Curve DAO, AAVE, Compound, Lido, MakerDAO...


https://defillama.com/ - there are hundreds. Almost all are open source and transparent.


Tornado Cash is pretty successful.


not sure about this one.


Note that FTX.us is regulated under some US licenses and is unaffected. What was blown up was FTX.com operation that is licensed and regulated in Bahamas.

[insert coconut meme.gif here]


This has nothing to do with defi. This is purely centralized entity shenanigans.


[flagged]


I did not comment but I have some insight on regular finance and took a Udemy course on building your own crypto...

And I came to the conclusion that SBF is a crook and the whole crypto space is build on thin air.


congrats on needing to take an entire course to come to that conclusion?


Well, at least, I knew concretly what it was about (i mean the code is more expressive than a random tl;dr of a white paper).

Beside, It's more the remembering of the unfolding of the Subprime crisis and the financial books I read back then that raised the red flag.


The FDIC is just a ruse to let "useful idiots" think that everything is okay. In reality, the FDIC charges banks 90% less than the actuarial value of the risk they take on, and banks make wildly risky loans/bets all the time, knowing it's "heads I win, tails the taxpayer loses."

Insofar as you can call US Finance any better than crypto, it's because of socialized losses. IMO, bank failures are a much more appropriate solution.


What is the 'actuarial value' of the risk a bank takes on?


I can tell you a bank like say JP Morgan Chase, who is charged 5bp a year (i.e. 5 cents for every $100 dollars), has a much higher chance of catastrophic failure than 1 in 2000. Many banks just like them fail every few decades, and it was generous of me to only say they're undercharged by 90% (i.e. 1 in 200 odds), when the reality is probably more within a range like 1 in 20 to 1 in 100.


> who is charged 5bp a year (i.e. 5 cents for every $100 dollars)

Am I crazy or would 5 basis points be 0.05 cents (1/100th of a percent)


So you're making this numbers up? If banks are being undercharged, the insurer will be incurring losses. It's as simple as that.


The insurer is the United States government. They take losses on things all the time. It's called "socialized losses." I referred to it before, and it sounds like you don't even understand these finance 101 (or even basic high school civics) topics, so why are you insulting anyone?


The insurer is a corporation with its own financial statements, so it's pretty easy to see if it's operating at a loss (and thus subsidising the banking industry) or at a profit (not subsidising it). I guess you didn't know that either.


In case anyone is curious, here is what some of my research has found:

The empirical rate of bank failure in the last couple decades has been slightly over 1 in 250 banks per year (that is, ~0.4%/bank/year, or "40 basis points"). This is from these two sources: https://www.fdic.gov/bank/historical/bank/ says that on average 27.3 banks per year have failed, while https://banks.data.fdic.gov/explore/historical?displayFields... says that there have been ~6500 banks covered. (I think that the probability of a massive bank failure is in fact higher than the empirical rate, due to the tail risk of catastrophic failures.)

I have not been able to find what rates JP Morgan Chase pays for their deposit insurance, but I think this page https://www.fdic.gov/deposit/insurance/historical.html suggests that the rate is between 1.5 and 40 basis points per year. Some other sources I've found do suggest that the average rate is around 5 bps/year.

Already we see that the empirical failure rate is higher than the assessment rate. (Although note that the probability was not weighted by dollars, whereas the rate is.) This is perhaps surprising, because the FDIC claims that "The FDIC receives no Congressional appropriations - it is funded by premiums that banks and savings associations pay for deposit insurance coverage." https://www.fdic.gov/about/what-we-do/index.html Perhaps this is part of the point of this comment I am replying to.

But indeed, we find that historically the FDIC's Deposit Insurance Fund has gone negative multiple times: https://www.aba.com/news-research/research-analysis/fdic-cap... https://www.fdic.gov/deposit/insurance/assuringconfidence.pd... Historically, in such a situation, the FDIC is able to borrow from the federal government. It has done so in 1990, while in 2008 it did other maneuvers that similarly show that the rate is insufficient.

As a result, it's plausible to predict: (a) the deposit insurance fund might go negative again (ie, the insurance rate is incorrect), (b) the deposit insurance fund will definitely go negative in a situation like the S&L crisis or the 2008 financial crisis (thus requiring tricks like the borrowing mentioned above), and (c) in the event of a more catastrophic failure, the insurance fund will go so far negative that it might be explicitly bailed out by the broader federal government.


The linked article addresses this:

> Why was there a liquidity crunch in the first place? A crypto exchange is a weird sort of business, in many ways more like a brokerage than a traditional exchange.

> A lot of FTX’s business is in perpetual futures, a leveraged product, sometimes levered 20 to 1. If you are an exchange and you are in this sort of business, you will need to come up with the extra $100 to lend to your customer. Presumably that doesn’t come from your equity: You are doing some sort of borrowing, perhaps from other customers, [2] perhaps from outside financing sources, perhaps from your affiliated hedge fund, etc. You will have some customers who owe you money, and others whom you owe money. You will be like a bank. If everyone to whom you owe money demands their money back at once, you will need to get the money back from the ones who owe you money, which might be hard. (You might not have a contractual right to demand the money back right away, or it might be rude and bad for business, or you might have to liquidate them to get the money back and that would blow up the value of your collateral.) In broad strokes this is a reasonable description of what happened to Bear Stearns, a brokerage that financed its customers’ positions.

[2] (footnote in original article): Effectively a perpetual future involves you borrowing from and lending to your customer in offsetting ways: If the price goes up, you owe money to the long and the short owes money to you. If the short doesn’t pay you, then you still owe money to the long.


You mean the guy who said he named his other co "Alameda Research" so it wouldn't sound like a bank, even though it basically is, might be shifty?


How is a prop crypto firm a bank? Laughable


https://www.investopedia.com/terms/c/cashandcashequivalents....

> Cash and cash equivalents refers to the line item on the balance sheet that reports the value of a company's assets that are cash or can be converted into cash immediately.

> Cash equivalents include bank accounts and marketable securities such as commercial paper and short-term government bonds.

> Cash equivalents should have maturities of three months or less.

Don't know specifics on FTX/Alameda but this is probably normal to a degree for banks/brokers or just any regular business?


Well, if the customers are holding FTT and they're trying to get rid of their FTT, that could cause the liquidity crisis. The crisis isn't with the customer assets, it's with their FTT side of the business.


Can't have a run if you can't withdrawl!


They lied to everyone of course. Never trust these corporations. They're sitting on huge piles of consumer deposits, of course they're gonna leverage that money. They cannot resist the temptation.


Could be technically true?

They don't "invest" client assets, not even in treasuries, ie actual investments.

They "speculate" client assets, in tokens.


It's all lies. Just like everything else involving cryptocurrency.


Are you seriously asking? He lied like every other exchange does. The man's middle name is Bankman for god's sake.


And he's Fried now.


I don't understand how his middle name relates to anything about this situation.


It's an obvious joke a 3 year old kid would understand, if that kid didn't value signal by implying someone was an antisemite because of an unrelated joke that is.


For sure. I don't even think Bankman is jewish -- that's the Fried half.


Perhaps a quip on the untrustworthy nature of bankers.


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