Someone on Twitter said, "he just got his perfect ending."
It's gonna be a fantastic book.
But SBF? The last interview I saw him give was I think with Levine; it was shocking because SBF was describing whence crypto derives its value. And Levine remarked that SBF was describing a Ponzi scheme.
For me, that interview showed two things. First, that SBF quite obviously has no morals whatsoever. And second, he's not nearly as smart as he's portrayed to be.
His whole cred derives from his MIT degree combined with his experience at Jane Street. Jane Street is a great firm, but what they do is really specific, and not necessarily the "coolest" way to make money. It's a lot of tech and infrastructure, less finance and trading chops. (The real badasses are RenTech, for example.)
Anyway, I watched a few videos that he made while working at his crypto hedge fund, Alameda. He described the strategies, and they sounded like the typical market maker stuff - arbing exchange discrepancies yadda yadda. Not the most inspired stuff.
There's also just the fundamental stupidity of thinking you can reduce something as complex as human morals and ethics to a karmic checking account balance...
How is that something that can be seriously engaged with? Other than trying to talk some sense into these people about limiting their EA calculations to a reasonably observable time-space continuum?
For instance, you push someone in front of a trolley to save 5 lives, but the trolley isn’t stopped and you end up with 6 dead.
There’s no privileged neutral really. Consequentialism just owns that. Now, that might be a separate question from whether society should act as if there’s a privileged neutral (ie be nonconsequentialist).
All I know is that when humanity faced the decision with respect to WWII medical experiments , the decision was made to not utilize the data, regardless of potential benefits.
See the problem with utilitarianism?
Unlike other hypothetical examples given here (Skynet, cancer cure), this scenario is possible today.
The article says they were advised by Deutsche Bank that they could classify certain trades in a way as to pay long-term instead of short-term capital gains taxes.
The IRS disagreed, RenTech went through an appeals process and eventually decided to settle instead of continuing the process.
There’s nothing evil about trying to legally lower your tax obligations and then being told by the IRS “Nope, you can’t do it like that.”
he's just one player in the ecosystem, trying milking as much as possible
good job building FTX into one of the largest CEX but.... :)
The real "badasses" if you insist on calling them that, work about a dozen years for a fund, hit their number, and promptly retire to do whatever the hell they want for the rest of their life. You don't read much about them vs the obsessive people who keep playing the game for the high score contest though, because there's no drama to cover.
Filming was in 2007, the 2008 financial crisis hit, and the documentary devolves into watching this mogul go bankrupt.
I remember a quote from the mogul, something like "I have nothing but the business. I've re-invested nearly every dollar I've ever earned."
It's funny that they seemingly weren't in on it -- "No it's not at all like the other things you wrote about".
These big corporate traders are being paid millions to be the best at what they do (managing stock portfolios) and then it turns out they're actually awful at it and a bunch of genius math kids are running circles around them in the dark. And somehow I'm supposed to feel bad for the lazy, clueless, suit-wearing, trash-talking traders?
Look, Michael Lewis is like the Stephen Gaghan of (semi-fictionalized) socioeconomic zeitgeist: he chronicles concepts paradigmatic of an entire generation, people and personalities that affect or transform an entire decade or generation (usually in or about the US, and often Wall Street). And he nods towards the societal implications with a sense of urgency and inevitability but also dark theater. Sure he Hollywoodizes people and quotes, not dissimilar to how the screen adaptation of Mark Bowden's superb 'Black Hawk Down' merged characters and their story arcs, or how loosely 'War Dogs' (2016) was based on Guy Lawson's 2011 Rolling Stone article  and 2015 book . [As to 'War Dogs' and Lawson's writings, there's an obvious similar moral fable to three potheads from Miami Beach becoming in 2007 one of the Pentagon’s largest weapons suppliers, by reselling Chinese bullets to US-occupied Afghanistan, and noone at the Pentagon actually wanted to know where private contractors were getting their supply, as the scale of the contracts became increasingly insane.] If you want to more accurately label Lewis' genre "semi-fictionalized socioeconomic zeitgeist", then do.
To be blunt, people have short attention spans, people in the US only read average 15.6 books/yr or median 4 books/yr , and moral ambiguity seems to sell worse than clean-cut tales casting characters as good guys and bad guys, certainly on the big screen. But these writers are still fulfilling an important service. Noone actually sits down and reads Inspector-General reports, CSPAN is occasionally great but usually dull to watch, and what now passes for US mainstream media is hopelessly coopted and long ago abandoned investigative reporting . Writers like Lewis, Bowden, Lawson(, Crichton, Grisham ) fill a very real cultural void in interpreting what's going on.
The joke is supposed to be that he's being comically clueless to do so, because it follows a series of shorts of him not "getting" the point of advancements like the wheel, the fork, the toilet, the Walkman, etc. But now he just looks wise!
 Full ad: https://www.youtube.com/watch?v=_-FQqo46CJQ
Sequoia Writes Off Entire $210MM FTX Investment; Here Are All The Other Funds That Are Losing Billions In FTX
Edit: 25 billion dollars up in smoke
Ontario Teachers’ Pension Plan faces a hit on investment in crypto trading platform FTX
No mention of it on the website
He said the investment was part of Teachers’ strategy to learn about the crypto business and whether it gives the right balance of risks and returns. “I don’t think we have the answer to that question yet,” Mr. Taylor said.
Mr. Taylor wanted to test if he could be conniving enough to profit and he turned out not to be (very few will be in the long run).
> Teachers first bought its FTX stake in October, 2021, as part of a US$420-million funding round. It was one of 69 investors, but FTX listed it first in its announcement of the financing. Teachers has never disclosed exactly how much it invested.
> The pension plan housed the investment ... a portion of the portfolio dedicated to high-growth, yet high-risk, investments. As of June 30, the $8.2-billion portfolio represented just 3 per cent of Teachers’ $242.5-billion in assets.
Teachers ... reported a 1.2-per-cent return for the six months ended June 30. By way of comparison, Royal Bank of Canada’s RBC I&TS All Plan Universe saw defined benefit pension plan assets ... shrink 14.7 per cent over that period.
If you want something more financial a short vertical spread  is a strategy in which you are purchasing insurance on the risk (investment) you just took (made). There are many such investments of this form.
Perhaps you're thinking of a collar? (short calls to fund puts?)
A short call spread is someone selling calls (option A in the link) and buying insurance on said sale (option B in the link).
When dealing with as much money as the OTPP has, you have to form a very broad risk profile: for every super-secure, government-guaranteed dollar, spend a fraction of a penny on a super-risky but absolutely humongous payoff.
FTX is not unique. A lot of crypto exchanges are doing just as much shady stuff. When you put your money with these companies, you're betting that "no really, this one is above board!" That's an extremely risky game to play when the crypto space operates with no transparency and no consumer protections.
Things like "don't allow customers to use your company's assets as collateral" and "using a bunch of leverage on volatile crypto" are much less frequent in traditional finance, specifically due to regulation or the fact that these strategies have tried and failed before.
This isn't to say that decentralized finance is exactly the same as traditional finance, because it isn't. But I think the lesson here is that when you're offering products similar to traditional finance, you should assume that many of the same rules/best practices of traditional finance should apply.
To my way of thinking, they’re not relearning anything—they’re specifically using lessons learned from history as a playbook to make, well, illicit gains.
This has nothing to do with decentralized finance. FTX was a traditional centralized financial institution catering to crypto.
The leading DeFi apps have had no problems this cycle, and that's
because they're fully on-chain, with every transaction validated atomically/in-real-time to ensure its business logic integrity. DeFi's transparency and accountability is what the best CeFi firms strive for.
The big risk with DeFi is the possibility of a smart contract vulnerability, but this diminishes over time as these apps have their source code reviewed by more people and go through more real world battle-testing.
I don't see how regulation fixes anything.
The official date given by NBER says that the recession began in December of 2007, which put the economy into a fragile state, which was intelligently managed for another 9 months, before circumstances went beyond anything that could be managed. Then the financial meltdown began in September of 2008.
Which it had lowered more dramatically due to 9/11.
Let that sync in, is my 2c.
(Extra:The FED interest rates takes 2 years to kick in to Adjustable Rate Mortgages which where the first to fall.)
Question, though, and coming back on topic: Did the rising interest rates trigger this (FXT)? There might be a path here, and it would not have the two-year delay of adjustable rate mortgages.
The business models that relied on a perpetual supply of new capital, & other overly risky gambles become less attractive to investors when you can go get 5-7% on some boring bond with no risk.
You also have liquidation spirals as speculative investors need to sell asset X because of margin calls on asset Y. Which then causes a margin call on customer2 who owns asset X which has now gone down so they go sell some asset Z.. and so on.
Recall FTX used a bunch of cash to save failing companies which would create systemic shock (ironic), acquire and invest lately, including in the Silicon Valley.
My guess here: "1-2/3-4 Billion" is enough for liquidity, nobody is going to run on us, we are trusted, especially after us saving the world.
There was "bad event rolls" in the system and when they came, nobody can/will/would give them that amount of money.
I am sure in great times, they would also find liquidity/loans more easily -- which is what they are still trying to do. ("Everyone" is keeping cash to the chest, waiting to see what happens right now.)
The fed did not cause the crypto crash. It didn't force people to gamble on cryptocurrencies. It didn't force them to not sell, at the top of the naked ponzi schemes they participated in.
As for banks - as soon as these crypto scams fail, everyone will find out just why the SEC and FDIC are there. They were not created just because some politician had an idea for more bureaucracy.
SEC and FDIC aren't usually, to the general public, negatively seen due to their mission. Its the fact they don't prevent criminal / unethical behaviors beforehand, and banks get away with alot before anyone intervenes.
I actually don't think the average US citizen is "anti regulation" with this. I think - and I include myself in this - that we see agencies like the SEC (more so than the FDIC) don't act fast enough or often enough, and when they do, the fines are a slap on the wrist vs the profit made by the bad behavior.
In a nutshell, they just aren't acting effectively, and thats why they get a bad wrap.
A better example is the IRS with a double standard of overzealous enforcement against individuals and small business who cannot defend themselves and complete non-enforcement against higher tiers of wealthy.
In the case of the SEC or FDIC, this has resulted in the near elimination of smaller fish aside from protective carveouts like the Durbin Exempt Interchange.
As far as I can tell.
b) Bank runs happened in 2008 (U.S.), 2010-12 etc.
A lot of crypto companies buy insurance similar to what the government says, but lacking regulation and the government behind you makes it as you said problematic.
But: banks are years old and keep making the same mistakes and failures. Big banks (not your corner side community bank that acts as intermediate and its job is community welfare and good relations) haven't changed. I'd be surprised if we avoid another bank related incident, if we enter a recession.
Spain used to have a lot of these, and the financial crisis blew almost all of them up: https://en.wikipedia.org/wiki/Savings_bank_(Spain)
It pretty much does. The free-for-all disregarding of laws (including laws against fraud) is the stated purpose of crypto. They've been pitching this as Fight Club For Finance since the very beginning. The exchanges with a legitimate appearance are just fronts to get you to the back room with all the unregulated tokens offering insane interest rates. If you didn't come for a scam-or-be-scammed fight to the death, there isn't any reason to use crypto. The crypto bros just missed the part where Fight Club falls apart if you tell everyone about it. Or maybe they got too excited and forgot about that rule.
This may mean that the US part of the exchange and the associated customer funds were not lent out, but we shall find out.
And billion dollar bailouts. With a few billions every decade or so, FTX probably survives such crises multiple times over.
These can be reduced but not entirely eliminated by setting reserve requirements, LTV ratios, etc., which is what https://www.bis.org/bcbs/basel3.htm is all about.
You can't really eliminate the duration mismatch without eliminating anything recognisable as a "bank", and it becomes much more expensive to get credit and to do basic financial operations.
The answer is quite simple, just keep going down with interest rates even if they are negative.
That is fully consistent with the loanable funds model.
It's completely the opposite thinking where cash is more dangerous than leaving your money in a checking account for normal people.
Why, why, why would you think that a niche crypto exchange is worth more than the biggest European exchange? We know what the comparables are people!
"5) The full story here is one I'm still fleshing out every detail of, but as a very high level, I fucked up twice.
The first time, a poor internal labeling of bank-related accounts meant that I was substantially off on my sense of users' margin. I thought it was way lower."
I don't understand this. In FTX International terms of service ( https://help.ftx.com/hc/article_attachments/9719619779348/FT... ) they say that users have full title to digital assets, that they are the property of the user, and shall not be loaned to FTX trading and are treated as they belong to FTX trading, and that users control the assets in the account.
FTX was never claiming to run a bank where they loan out users deposits for interest. They were claiming to be running a 100% allocated, straight up custodial vault. Therefore they should be able to simply return whatever assets customers owned on their service, even if every customer wants their asset back at the same time.
If they were actually loaning out customer's assets and running a fractional-reserve bank, that is just straight up fraud, full-stop.
WSJ is reporting that money was lent to Alameda based on a conversation that SBF had with an investor (saying that the gap was $10bn) but this isn't what he saying publicly...maybe this is obvious because, if this is true, then it is hard to see how he avoids jail.
NOT ADVICE, OF ANY KIND, IN ANY WAY
I WAS NOT VERY CAREFUL WITH MY WORDS HERE, AND DO NOT MEAN ANY OF THEM IN A TECHNICAL OR LEGAL SENSE; I MAY WELL HAVE NOT DESCRIBED THINGS RIGHT though I'm trying to be transparent. I'M NOT A GOOD DEV AND PROBABLY MISDESCRIBED SOMETHING.
That’s quite the (ad-hoc) disclaimer…
This twitter thread, plus some others tweets he has deleted now, could get him into some real trouble.
I feel bad for him, he's either going to jail for a very long time, or he'll have an "accident" after losing so many people so much money.
Newman, Karpelès and others are alive and free.
Some of the passage from that article reads so far removed from reality that I can't even know if it's coherent. Really wild stuff.
> Something of the sort must happen eventually, as the current system, with its layers upon layers of intermediaries, is antiquated and prone to crashing—the global financial crisis of 2008 was just the latest in a long line of failures that occurred because banks didn’t actually know what was on their balance sheets. Crypto is money that can audit itself, no accountant or bookkeeper needed, and thus a financial system with the blockchain built in can, in theory, cut out most of the financial middlemen, to the advantage of all. Of course, that’s the pitch of every crypto company out there. The FTX competitive advantage? Ethical behavior. SBF is a Peter Singer–inspired utilitarian in a sea of Robert Nozick–inspired libertarians. He’s an ethical maximalist in an industry that’s overwhelmingly populated with ethical minimalists. I’m a Nozick man myself, but I know who I’d rather trust my money with: SBF, hands-down. And if he does end up saving the world as a side effect of being my banker, all the better.
SBF maybe isn't the best quant, but he clearly knows his history.
SBF, CZ and his ilk have taken money these people can ill afford to lose in this financial climate and spaffed it up the wall on sports stadiums and billboards of themselves all over the place.
Do Kwon, 3AC guys, Celsius guys, Voyager guys, yes. Binance / CZ no(t yet).
CZ invested $500 million.
Elon was the one who passed on them.
Reminds me of Damodaran's focus on price vs. value when evaluating equities:
>I have long drawn a distinction between price and value, two terms that get used interchangeably in both academia and practice, but with very different drivers and implications. As we watch stock indices around the world gain and lose trillions each day, it is worth remembering that markets are pricing mechanisms, not value mechanisms, or as Ben Graham would put it, they are voting machines, not weighting machines, at least in the short term.
(Well-respected finance/valuation professor at NYU for anyone not familiar) https://pages.stern.nyu.edu/~adamodar/
I guess "internal labeling of bank-related accounts" is one of those "dumb" activities that they were counting on amphetamines to take care of for them: https://twitter.com/carolinecapital/status/13790363463003054...
This is an unregualated market — but even if it was regulated, what would the regular do after the fact to make it right for everyone inside an exchange or crypto that went to zero?
If the bank goes bust, the government covers the customers' losses up to a predetermined amount (FDIC covers $250k per account in the US).
This helps to prevent bank runs, because people know that they'll get their money even if the bank collapses.
It's possible (likely) that Alameda has invested that money in iliquid assets or assets that have since lost value. Also, since the loans of FTX to Alameda were backed by FTT, which has since collapsed, even if FTX makes a margin call, the collateral has a fraction of the original value.
How much he cashed out (And the timing of this) will be interesting to learn.
SBY appears to have gotten very rich through a simple arbitrage trade. Props to him for exploring the space and making the moves... but it doesn't take a genius to see that if you can buy something for cheap in one place and sell it in another for more that you can make a bunch of money if you do it over and over.
See Bill Gates, Elon Musk. Etc.
See, all of the royalty of the world that still exist.
See all of the oligarchs.
It's no shocker the richest people in the world all seem to have gone to the same universities, come from the same families, etc etc.
How many people actively try to become billionaires like he did in a systematic way?
And contrary to many entrepreneurs, I don’t see where he got especially lucky.
Lots of smart people fuck up in finance, and "dumb" people even strike gold sometimes.
I personally wouldn't touch it, but I'm at least curious to hear the heterodox argument. Somebody out there is still buying it at $3, I wonder why.
It's traded elsewhere, and there are derivatives that pay premium. There's also the chance that Binance, Tron, or someone else accept conversions of FTT at some rate that makes the trade profitable. Facts are still coming out. We can only say it's not yet worth $0.
It's not dumb or even irrational. Or no more than any thought involving crypto is irrational.
Lots of people have made money catching a falling knife right before a big bounce.
it's a common trend, and a lot of people ride that bump for significant profit.
In the case of FTX: fraud. They were giving people a useless token for tokens that had value elsewhere.
With Binance, you could make the case you own equity in the exchange, but that could have the same outcome as FTX.
It’s worth noting these types of tokens aren’t permitted on US-based exchanges. Likely because they are the most obvious unregulated securities (more so than other tokens).
Sell it to someone else.
The irony is that DeFi and blockchain protocols fixes this.
"DeFi fixes this" is like saying "moving back to horse drawn carriages will solve drunk driving fatalities!" Maybe, but no one wants to deal with horse shit.
And speed and costs are already a solved problem - see L2 rollups.
I will fully admit I have only casually followed the whole blockchain/crypto scheme, so maybe I'm wildly off on something, and would definitely appreciate informed responses.
Without blockchain, there is no "crypto", without crypto, there are no exchanges and related coins, and without those, none of this happens or exists.
How would blockchain be used to fix this?
All of the things that are being reported on this situation would not have been possible on a DEX.
Decentralized exchanges (DEX) exist on-chain. They incorporate automatic market making (AMM), not a third-party market maker with an association to the exchange. The DEX does not have custody of user funds, and it would be impossible to hide a multi-billion dollar hole in an exchange's balance sheet.
Solend is a major one that's currently falling over.. and apparently just disappeared $6M worth of users' assets;
Patrick gives a good description of the problems in that tweet thread, and why it is affected.
https://uniswap.org/ and https://curve.fi/ are the most popular, and have similar 24 hour volume to established exchanges like Coinbase.
DeFi would solve some of these problems by shifting the counterparty risk from a man named Sam to an immutable protocol that we can all audit and verify. Look at aave, compound, Uniswap.
Right, but I've never heard anyone say in response to stock market fraud, "You know what would fix this? A stock market!"
The logic path on fixing what is ultimately a blockchain-related problem with more blockchain just seemed a bit circular to me. The blockchain/crypto portion does not really seem to be solving any real-life problems, or if it has, anything it has solved is being outstripped by the problems/losses.
Leaving your coins on a centralized exchange kills the reason for a blockchain and DeFi. It’s crypto by name only.
Finance always follows commerce. It’s commerce which ultimately creates an organic price floor for assets.
Given that no commerce exists in the cryptospace there is no such floor.
You are describing a decentralized casino, but it’s taboo to say it and hence the word “asset” is being thrown around