That gets them out from bankruptcy in the Bahamas, which is much tougher than US law. The Bahamas still has classic tough bankruptcy laws, where there's no debtor-in-possession reorganization. It's straight to liquidation, with a court-appointed receiver in charge.
This should be, and may be, converted to a straight liquidation. Chapter 11 can be useful for restarting companies that actually do something, like General Motors. There, much of the value is in the ongoing business. FTX, going forward, has no ongoing business. Lawyers for creditors will be making that argument.
Note that Bankman-Fried is still employed by FTX, "assisting".
Current banners at FTX.com: "FTX is currently unable to process withdrawals. We strongly advise against depositing. Deposits of TRX, BTT, JST, SUN, and HT are disabled. All onboarding of new clients has been suspended until further notice."
"We have reached an agreement with Tron to establish a special facility to allow holders of TRX, BTT, JST, SUN, and HT to swap assets from FTX 1:1 to external wallets. This functionality will be enabled at 18:30 UTC, November 10, 2022."
>"We have reached an agreement with Tron to establish a special facility to allow holders of TRX, BTT, JST, SUN, and HT to swap assets from FTX 1:1 to external wallets. This functionality will be enabled at 18:30 UTC, November 10, 2022."
These centralized coins are hilarious. How can you negotiate a special facility to swap to those assets when they're presumably gone? Also now that they've filed for Chapter 11 won't all these 'activities' and withdrawals be frozen?
Justin will conjure more out of thin air, and be probably views it as more profitable to encourage as many sheep into his ecosystem as possible, even if that means covering losses.
I'm not familiar with any of the listed currencies, but in a properly-designed cryptocurrency a deposit to a given public key is just any transaction[0] that includes a output to that public key. There's no such thing as accepting or not accepting deposits, at most they could actively refund them, which bankruptcy presumably prevents them from doing.
IOW, they're saying: "If you give us money, we will (/may) be forced to give it to our creditors rather than back to you, so don't do that.".
0: IE, a message published by Alice to the effect of "[Alice's public key] gives [Bob's public key] X [coin]s. [Alice's signature for this message]", published on the distributed ledger. Note that Alice can create and publish such a message without any input from Bob.
There are still people who believe. This is the top comment on FTX on Coinmarketcap, posted yesterday:
$FTT -- Take a screenshot of this post
1. Someone is going to buy out FTX and this exchange is not shutting down. By someone I mean Elon Musk kind of people.
2. No. FTT isn't going to wipeout if we talk about the fall, most of the cryptos have all fallen significantly. So a crypto going down from $24 to $3 doesn't mean the are going out for good.
3. $8 Billion Dollars as some here are fidgeting to understand isn't a large number if you look at the entire market cap of the crypto sitting at $800 Billion and $3 Trillion sometime back.
There are people who truly believe. And there are those who exploit that belief.
I don’t think it’s possible to stop someone from depositing something into a wallet/key. That’s an issue with things like doxxing or spreading humiliating media of someone. You can push anything via the protocols to any address.
I don’t think you have a choice to accept a deposit or not, do you? You can’t stop people sending you coins. And sending them back costs you money so you wouldn’t do that.
What address do you think people would send to? You can't send to some random address that you think is owned by an exchange and have it show up in your account. They give you an address to send to when you say you want to make a deposit. How did you think it worked?
They can either send it back or add it to their ledger. You are conflating sending to an address with an exchange keeping a balance. A cryptocurrency and an exchange are two very separate things.
many other exchanges and wallets force users to store an address book of addresses associated with them. this user experience will result in deposits to their old addresses at FTX. there is nothing FTX can do to prevent that.
yes, could. in practice even functioning exchanges opt not to bother. it is a poor practice we should call out, this is definitely something that a regulatory framework could address and carve out procedures for. (people could do spam attacks, so there is a line on how much to bother)
Wait, why does a Bahamas based company get to choose the jurisdiction where its bankruptcy proceedings are held? Surely if they are a Bahamas company they are beholden to Bahamas bankruptcy laws?
How was his compensation negotiated? Obviously, you would need to be paid a lot to wade into this shit show but at the same time, every dollar paid to him is a dollar out of a creditor's pocket. What are the incentives on every side driving this negotiation?
If you're in the Bahamas you can withdraw. People on Twitter with millions in FTX have been paying Bahaman citizens to KYC their accounts so they can withdraw. This is obviously highly illegal.
A few of my buddies were able to change out 1000 or so dollars each to BTUSD or something like that. Not really into crypto so I don't know the details but they just exchanged 100$ at a time or so and it took a few hours for each transfer to confirm
> Chapter 11 can be useful for restarting companies that actually do something, like General Motors. There, much of the value is in the ongoing business. FTX, going forward, has no ongoing business.
I was looking for a diplomatic way to write "and nothing of value was lost...", but you nailed it.
A financial firm with nominal billions in outstanding debts and credits seems like the worst thing to shut down with a straight liquidation. Nothing says "these creditors get nothing" like the need to immediately firesale numerous crypto tokens moving the price dramatically.
I've seen some comments saying that this is all delayed fallout from the Luna/Terra collapse last spring, it's just that FTX had the means (its own token that it could pump and move around its own entities) to paper over the hole in its balance sheet until now. Can anyone more familiar with the situation elaborate? How much further will the contagion spread?
1. Alameda essentially needed a bailout in the spring.
2. Alameda, though, also had a large chunk of FTT coming due in the fall that was basically part of the vesting schedule of the original FTT ICO.
3. So, FTX lent Alameda customer funds in the spring.
4. In the fall, when the vested FTT paid out to Alameda, they immediately paid it back to FTX.
5. The thing that looks highly suspicious and fraudulent is that SBF tweeted out that the big FTT move that day was just normal "rotation".
Also, particularly interesting to me, the FTX-US president, Brett Harrison, resigned the day before that transaction at the end of September. He also just liked an interview on LinkedIn where Brian Armstrong (Coinbase CEO) was being interviewed, saying "not all crypto companies are like FTX, where it appears they fraudulently misappropriated customer funds".
The above is speculation, but it's based on on-chain data.
How would that play have had an effect after the bailout was repaid? I can see if there was the run while the ftts were loaned out, but why would it matter once they were returned?
It wasn’t “repaid”, the FTT was posted as collateral for the loans (customer deposits).
But still, should be fine at that point, right? The loans are nice and overcollateralized, what could go wrong?
Problem is that FTT is itself a bet on FTX. So if the news comes out that FTX and Alameda have these shady linkages, some of your customers will want to withdraw—and at the same time, FTT will fall.
Oops—the value of that collateral just crashed and now you don’t have enough assets to process the withdrawals.
Which makes FTT fall more, and more people want to withdraw.
It’s not like some fluctuation in Bitcoin price, where maybe you could get lucky and wait for it to come back up. FTT is just a bet on you, and you can’t process withdrawals, so why would that ever come back up?
Its hard to tell, but looks like the fall out is far from over. There are a lot of rumours running around so unsure what is true and what is not, but we've gotten confirmations from a lot of crypto companies to be affected one way or another. Genesis (a big OTC trading company) lost about 160M but their parent company wrote them a check. BlockFi seems to be in the hole and has closed withdrawals. Blockfolio (an FTX owned company) paused withdrawals. Anything SOL/SRM related is likely affected. Any market maker worth its salt had money on it as well... think we will see a lot of blood in the coming days/weeks.
Does anyone know the effect on Nova Labs and the Helium Network? It was my understanding that they recently switched the network from the Helium Network token (HNT) to Solana (SOL).
I was at the Jump Crypto hackathon during the terra luna depeging. Jump crypto has a unique structure because as part of their investment, they get a chunk of coins to market make with. They have no requirement to be on the long side of the market making so during the terra luna collapse they made an absolute killing (Even though terra/luna was one of their biggest investments). Also, jump has it's other business running HFT on the stock market that is much more profitable so it can always bail out it's other side.
Everyone's confidence is shook, so I expect a lot projects will be delayed due to lack of funding/interest, and volume will dry up significantly in the coming weeks/months. NFT market was never particularly liquid to begin with, so it might grind to a halt for a bit.
But there's light at the end of the tunnel, I'm sure. With regulators focusing their eyes on tokens and exchanges, NFTs might get a bit of a revival some time down the road. Especially if money starts flowing into it again looking to escape the regulatory hammer.
By their own figures, Tether is now undercapitalized and just had billions withdrawn. They made those payments. But, as Hemmingway said, bankruptcy tends to happen gradually and then all at once. Tether is in a hole. Nobody knows how close they are to not making payments. But when they implode, it will be sudden and the blast radius will be large.
Does Tether weather this squall? Based on history, probably. Based on economic fundamentals, they will sink at some point.
> By their own figures, Tether is now undercapitalized...
Where has Tether stated this? Last I heard--today--Tether has continued to claim the opposite.
(edit to add, 45 minutes later:) I see patio11 makes the same claim, but I've now read both his recent articles on this and he is making a LOT of extremely stretched assumptions to pull off this reasoning, and even then the best he has is that it must have momentarily become insolvent in the past :/. And so like, maybe they are undercapitalized... but if they are it is because they are lying, not because their own figures somehow demonstrate such.
1. Tether has attested, under penalty of perjury in response to orders by a NY court that they aren't backing USDT with dollars, they are backing it with various financial instruments.
2. Tether has claimed, prior to that, that USDT is backed by dollars.
3. Since #1, Tether has not been transparent about their backed assets. Oh, sure, they say that they own X billion dollars of <some particular asset type>, but we don't know if those are AAA assets, or utter garbage[1], or whether they are counterbalanced by liabilities.
4. So far, the track record for unaudited crypto funds is not great.
On the scale of 'Untrusted', 'Trusted', and 'Completely Trusted'[2], I would definitely put them int he 'Untrusted' category.
[1] The fact that they were even considering buying FTX leads me to believe that they have no aversion to paying good money for garbage.
[2] Promotion to the third category can only happen posthumously.
Tether might be able to plug the hole depending on how big it is if treasury rates rise fast enough for returns to paper over their previous asset allocation or mismanagement mistakes, and redemptions don’t exceed assets on hand.
The point of this article was to make the consequences of the following statement clear:
And now you know enough to understand what I'm saying with an otherwise opaque statement like "Tether is 35:1 levered on risky assets during market contagion."
Yes, if everything goes Tether's way, they can weather anything, forever. But eventually it won't, and they won't.
Scoopy in the Alchemix discord had this to say:
"If you are on any CEX or CeFi app or earn product, get out RIGHT NOW. Rumors are swirling and it is possible that none of them are solvent.
I am not kidding, really, get out now. I care too much for our community to not have said anything to warn you."
Those same network effects that propelled web3 into stratosphere are going to bring it down back to earth. Not necessarily vanquish it, but put web3 in its place, so to speak. A scenario I'd imagine where DEXes / DeFi will endure and possibly thrive, but DEXes / DeFis don't have the kind of moats to justify astronomical valuations... which is both a good and a bad thing, depending on which side of the coin you are on.
Tech VCs have already circled back to AI, so doubt private companies in need of more money can stay afloat for longer, if they weren't being careful with volatile crypto assets.
I agree with you, but context definitely matters here... With all the dominoes starting to fall, there is nothing wrong with moving funds out of exchanges or to a temp address. This seems equivalent to going cash in the equity markets as a hedge. I would go even further and claim that it would be foolhardy to not take this random Discord advice if they haven't already figured it out on their own lol.
It means there's no such thing as a free lunch (aka anything giving you "guaranteed" magically higher-than-traditional-banks interest rates is probably shit).
Every coin on every market is being driven by the same collective mania. Just Coinbase is more ethical or Eth is ideologically pure doesn't mean their value isn't determined by the same rampant speculation and outright fraud that dominates the entire space. You may not see an outright bankruptcy but prices and volumes can plummet nonetheless.
They will be fine _modulo people's interest in crypto_. The way I think about it is that their business model is taking fees off of every transactions, so as the interest tapers off so will their earnings and valuation.
What you said is all true and what everyone thoight until sometime today when they said they are cutting off withdrawals and part of the bankruptcy too.
I feel perfectly fine having my crypto stored on Coinbase’s end. As far as I know their business model makes perfect sense and they don’t take the weirdly big risks all of these falling dominoes have.
Also, if Coinbase goes bankrupt and takes everyone’s crypto with them I feel everything will crash to essentially 0.
A week ago someone could have said that about FTX. Loaning customer assets was explicitly disallowed in their TOS, and was not something I had even heard rumors they were doing (though I'm not that up on crypto rumors).
Well they can't make money because all the other exchanges offer better fees/lower spreads since they're loaning customer money out. They'll never be big enough to actually makea. profit while there are shady exchanges offering a better product(until it collapses).
There aren't many compliant exchanges operating in the US, though; Coinbase seriously even raised their fees a couple years ago because they thought they could do so, even while other exchanges are trying to lower them: they aren't merely competing on fees.
Crypto doesn’t do anything there’s no productive asset. Literally every dollar coming out is a subset of the dollars that went in.
It’s less than that even due to electric bills and all that.
Contrast that to a productive asset, like a farm. You start with land and put dollars in and you get food. And you still have the land. There’s more food than there was before.
Or if you’re one of those Elon worshippers, he starts with rocky ore and seawater or whatever and ends up with lithium battery packs.
So with that established, when you see this guy running around spending hundreds of millions of dollars the next question has to be whose dollars were those. Because they don’t have them any more and they ain’t getting them back.
I don't think people realize how big of a collapse UST was. $18 billion market cap that vanished in a week. The fact that Do Kwon is not in jail yet is astonishing to me. FTX by comparison is on the hook for $10 billion, about half of the UST collapse. Everything we're seeing is a result of Do Kwon's scamming.
Y Combinator also backed a failed company [1] that was trying to take advantage of the high APR (20%) for UST staking. [2] I don't think there has been confirmation yet about how much UST Alameda was holding, but if true, it would add more context to CZ's tweet "liquidating our FTT is just post-exit risk management, learning from LUNA. We gave support before, but we won't pretend to make love after divorce." [3]
UST wasn't a true stablecoin (it isn't like any dollars disappeared from the ecosystem), so I'd put it in the same category as the hundreds of billions in "vanished" market value that was a simple consequence of the declining value of crypto in general. Whether or not Alameda was holding a bunch of UST or Luna, is another question. SBF seemed to be pretty all in on fringe shitcoins, so I would not be surprised if they had significant exposure.
For someone that only dabbles in crypto - what are the reasons people choose to use high-risk exchanges like FTX, and buy even higher risk "sh*t coins" on them? Especially the exchange-created-and-owned coins - of which I have yet to see one actually do what it promised.
Is Coinbase just not cool anymore, or is there some advantage to using exchanges like FTX until they go belly-up?
- FTX had much bigger trading volume (which might get people better fills)
- FTX had lower fees than Coinbase
- FTX offered a lot more coins to trade than Coinbase
- FTX (like many others, but not so much Coinbase) were giving large sign up bonuses, and advertising like crazy. (Finance YouTubers like Graham Stephan, Meet Kevin, Jeremy Financial Education, Minority Mindset, etc. are taking some heat for their paid promotions they did for FTX.)
- FTX offered options on some cryptos, like Bitcoin. This seems to be kind of rare.
- FTX offered leverage (like most of the other big exchanges, but not Coinbase)
- Since FTX also set up a separate FTX.US entity, it gave the perception that it had all the same US regulation protections as Coinbase. And since FTX was much bigger than Coinbase, it gave the perception that FTX was more likely to be more solvent than Coinbase. A month ago, I suspect if you asked most crypto people which exchange was more likely to go under first, they would have all said Coinbase.
This whole industry looks very unhealthy. The large exchanges that most people use like Binance and FTX have books and operations shrouded in mystery, so nobody really knows how solvent any of these things were. FTX said they were not lending out coins (and by law, as an exchange, they are supposed to have all assets), but only after a leak revealed by Coindesk, did the public find out something was really wrong. Without that leak, FTX would still be doing business as usual.
Meanwhile, Coinbase which is a publicly traded company in the US which is many magnitudes more transparent with their books (because they are required to be), can't seem to make a profit.
The overall implication is that regular exchanges that just make money from fees are in an unsustainable business model. And all the other exchanges that are making a profit, might be doing all the shady things that FTX was caught doing.
> FTX (like many others, but not so much Coinbase) were giving large sign up bonuses, and advertising like crazy.
Any company that sponsors more than one Formula 1 team is high on my "probably not a good thing for humans" list. The shit that has taken the place of tabacco advertising is just automatically suspicious.
Coinbase doesn't offer the leverage that offshore exchanges do. FTX was popular originally because they offered 100x leverage, later reduced to a maximum of 20x. They also had better spreads, probably because they were making their own market and had inside info. I think that people generally didn't expect FTX to be high risk. It's got a profitable business, all they had to do was not embezzle customer funds.
> Coinbase doesn't offer the leverage that offshore exchanges do. FTX was popular originally because they offered 100x leverage
Sounds like a red alarm for me. There's probably a good reason domestic exchanges don't let you extend out that far... particularly on extremely volatile securities.
Definitely alarming, but mostly for counterparty risk. If the exchange is just a middle man then they can't lose as long as they're able to liquidate toxic positions before they're negative. Turns out FTX was also the market maker through alameda and because of that was hesitant to liquidate toxic positions, leading to the embezzlement to try to save alameda and the current crisis.
market making in a volatile instrument is not easy. when all instruments are .96 correlated it makes it harder to balance your book. the good thing is that its retail flow but just because its retail doesnt mean you won't lose money when the market jumps in one direction or another.
That kind of gets into philosophy of what governments are for: should they protect people who make bad decisions from themselves? Does the answer change if people are actively marketing the bad decision? Does the attempt at doing so suggest they're actively trying to keep poor people from getting rich?
(This comment is an explanation of a viewpoint, and not an endorsement.)
I see it as the government should get out of the way of those who know what they are doing and the risks.
The problem is, these exchanges do not make you go through the same "vetting" processes traditional securities brokers/exchanges do before you can leverage up to your eye balls and lose everything.
They also go out of their way to make it "fun" to trade crypto - gamification at it's best - which reduces/removes the traditional apprehension of getting in way above your abilities.
We can liken a lot of these exchanges to gambling more than investing.
That is to say, an 18 year old with $500 in total assets shouldn't be eligible to leverage 20x or more. That's just a life-changing problem waiting to happen.
In the absence of a government, people would respond to fraud using violence. The government protects embezzlers and fraudsters from the violence of those they have cheated, but in turn creates non-violent consequences for such behaviors.
All of these places were offering insane APRs as well as other perks for staking your coins. So speculators park real money, expecting that they'll be smart enough to see the crash coming and slurping up that sweet return in the meantime.
And it's glaringly obvious everyone offering these outsized returns is literally just pulling a ponzi.
FTX’s lending product was (theoretically) peer-to-peer, the rates were driven by actual borrow demand from other people.
FTX was just a tremendously better derivatives exchange than everybody else when it was launched. To this day only Okex of the major exchanges has a competitive margin system imo. Continuous pnl realization and cleaner perpetual models are icing on the cake.
Theft of user funds aside, SBF likely knows more about derivatives and trading them than most exchange operators and it shows in the design of the exchange.
"... the rates were driven by actual borrow demand from other people..."
Or, alternatively, the rates were artificially inflated by a ponzi operator interested in getting more and more people joining the pyramid. Just like Coinbase, FTX was, with 99% certainty, not profitable. Of course, the creators of the pyramid WILL profit and take resources for themselves to buy things like, let's say, a 10% stake on Robinhood, or invest in many real state properties around the world, a la Do Kwon. People are just gullible, anyone who believed on those "crypto earn" vehycles, paying 5 to 10 times the market interest rates, is probably the same people that would buy magic beans from a random dude in Times Square.
"FTX’s lending product was (theoretically) peer-to-peer"
that's the point of theoretically?
Their spot lending system didn't come out until well after they had cemented their spot as a top exchange, and if you look at the rates anytime in the last year they were well under market rate - like ~1-2% rates for most major products.
It might have been part of the scam, but this looks much more like pretty bog standard "let's go trade our users funds away".
Their little friend BlockFi was offering 8% at the end of 2021 if I'm not mistaken. That was the moment I got out of the crypto space for good, the ponzi mask was all but gone at that point. The fact that FTX bought BlockFi just cemented their ponzi friendly, to say the least, business model.
Ah yeah, I was thinking about the ftx on-exchange spot margin system.
You're definitely right that the retail lending aspects were generally somewhat scammy. I suspect those rates made more sense pre-2021 when it was very expensive and hard for crypto firms to borrow capital, but offering 8% fixed on dollars in any recent time was a loss leader at best.
It's sadly looking more like sbf was buying up these firms to do exactly as you said and grab capital to fill the whole, and hide their own liabilities to said firms.
I am convinced that him not believing in it, getting paid a boatload to do a commercial stating he doesn't believe in it, then it failing is definitely the plot for a Curb Your Enthusiasm episode.
You would be surprised how easy it is for people to get sucked into a crypto bubble vortex that makes you feel like you're missing out big time by not being invested in crypto.
I was pretty heavily involved in the personal finance community on Twitter and there's two camps.
1) VTSAX and chill (basically dump money into an ETF and forget about it)
2) Moar passive income by side hustles and crypto
The latter became more and more common and ultimately drowned out the former. I believe it's because the market was doing so well that folks' risk meter just wasn't registering.
Probably the same reason why people choose to get into MLMs.
> well that folks' risk meter just wasn't registering.
That's because they were probably still in school back in 2008. I remember the days of late October 2008 like it was yesterday, and back then I was a no-name computer programmer working for an independent mortgage broker, not a big finance schmuck from Wall Street.
That one is easy... FOMO - Fear Of Missing Out. People see the 10,000%+ returns extreme early adopters obtained and think they need to get in before the good-getting is done. Most of the time they're wrong and just throwing money into dark pits...
"Gamified" trading apps like Robin Hood have made it all too easy to feel much lower risk that it is in reality though.
For the rest, crypto can be part of a diversified investment strategy. Not all crypto is outright scams... but you do need to be able to handle the volatility.
I bought some (emphasis on the some, sadly) Bitcoin when it was $80. I’ll never get a return like that in my life. Other people are chasing that dragon. Unfortunately it leads them to burgeoning “shitcoins.”
It’s all fine if you view it like the lottery and put “fun money” into it. It’s not fine if it’s your primary investment vehicle. For what it’s worth I still think Bitcoin and Ethereum will be fine and bounce back up, eventually.
“they abolished the fundamental distinctions between investment and speculation… they ignored the price of a stock in determining whether or not it was a desirable purchase.”
Benjamin Graham & David L. Dodd, Security Analysis, 1934
Where is he a commie? EA has insanely famous liberals like Steven Pinker on their side. If that’s what you’re trying to get at. Otherwise I’m puzzled since his main focus is EA.
I know this gets into politics a bit. But when it comes to forming my worldview about these things there is usually the rational side then there is the gut instinct.
The rational side told me (and the best investors in the world) these guys were the smart people in the room, the wont do anything stupid.
Then you look at SBF: he is a major democratic donor, he supports UBI, his underlying driver is to make money to give it away, he is a vegan, he hangs around with clintons etc.
I believe ever since the bloody collapse of communism, the modern descendants of that ideology never label them selves as communists. They use different words to achieve the same end: stakeholder capitalism, effective altruism, UBI etc..
Its a huge leap and to clarify I'm not saying they are closeted or anything. I guess what I'm saying is we are living in a very weird world where nothing is as its seems.
Therefore its more important than ever to rely on ones gut instinct about a person. Its more important than ever to not disregard signals like a high iq person who is also a vegan or supports UBI.
I know this is a controversial opinion but its my 2 cents. I think the corruption of the intellect is the most fatal of threats.
The kind of damage avg people can do is often limited and can be seen from a mile away but these high iq people with a god complex can destroy entire civilisations with their good intentions. SBF is a good example, next is vitalik and Proof Of Stake ethereurm (IMO)..
I don’t think SBF really cares about UBI. That’s pretty clear via his actions.
The problem with trying to put EA alongside post communist thinking is that actually identifying socialists and communists have huge issues with EA and can’t see how EA is the same as their ideology.
Being a capitalist is one of the biggest issues. Completely supporting the current structure of society and being able to selfishly take advantage of it by making the most money possible [and donating some of it] is not close to communist ideals. It’s better than being someone who is just selfish, but EA still allows one to selfishly take advantage of capitalism and privilege without issue. In the name of supposed altruism. Just the name is troublesome. Seeing oneself as so good.
Then going as far as celebrating this selfish behavior and making that a core part of the ideology. As well as fawning over overly rich classist and uber wealthy millionaires and billionaires who donate to one of the two major party presidents is not post-communist ideology.
To give some credit to EA, actual socialists and communists are be able to view EA people as allies at times. Not more than that though.
I think there's a real chance of the entire market going pretty close to zero. The market was only ever suspended by pure belief. If the belief is shattered it's over. There's no earnings report or central bank bailout to stem the tide. The market is in freefall. And the only thing keeping from hitting zero is the collective will of those who are doggedly clinging to their sunk costs.
Alameda's bets went bad in the crypto crash earlier in the year. FTX loaned it up to $10bn in customer deposits against trumped-up collateral (its own token). Somehow, Alameda must have lost most of that money, either by using it to cover its liabilities from the crash, or making more bad bets. When it was leaked to Coin Desk that Alameda's balance sheet was padded with FTX tokens, confidence in the token rapidly collapsed. That obliterated the collateral protecting FTX's loans, ripping open a ~$10bn hole in its finances.
Predicted it, but was willing to make money off of suckers anyway, and then also caught himself with his own pants down despite knowing it was BS? Phenomenally stupid, or just plain corrupt and moderately stupid?
I’d encourage you to listen to the odd lots podcast where Sam gets lost in the explanation of what crypto does and his soon to be famous hypothetical “x coin,” and the “box” it uses to derive value from it.
Yes, it explicitly mentions that FTX US is included:
> FTX Trading Ltd. (d.b.a. FTX.com), announced today that it, West Realm Shires Services Inc. (d.b.a. FTX US), Alameda Research Ltd. and approximately 130 additional affiliated companies (together, the "FTX Group"'), have commenced voluntary proceedings under Chapter 11 of the United States Bankruptcy Code in the District of Delaware in order to begin an orderly process to review and monetize assets for the benefit of all global stakeholders.
Excluded are:
> The following subsidiaries are not included in the Chapter 11 proceedings: LedgerX LIC, FTX Digital Markets Ltd., FTX Australia Pty Ltd. and FTX Express Pay Ltd.
To be fair, any billion-dollar multinational will have an organizational chart that looks very similar to this. Companies like EY exist, almost purely, to create 'tax effective' structures with hybrid debt instruments and service agreements.
Being US only limits your structure options. Start generating some international revenue and you’ll see how your entity/structure requirements increase.
That’s actually just a tiny, tiny subset of the overall Enron corporate structure. The chart you linked just shows the capitalization and ownership of one of the off-balance sheet structures that Enron used to conceal debt. This structure was capitalized with Enron stock, which worked great as long as the price kept going up, but once the value of that stock fell beneath a certain value, the single-purpose entity used here became insolvent and accounting rules (finally) required that that debt be consolidated back onto Enron parent’s balance sheet.
It’s a situation with many interesting parallels in the crypto industry. Not only does history rhyme, but sometimes it really does repeat.
This is a huge oversimplification but my recollection is, there is a design arm of the IKEA structure which is a non-profit. They create and own all of the designs and IP related to products, which a different IKEA subsidiary then licenses and pays royalties on, essentially negating much/all of the margin of the finished good.
It's quite common to spin off daughter companies per project, it isn't unusual or illegal in any way. Without at least type and ownership information it's hard to tell if it's iffy.
From the Sequoia article on SBF / FTX, it's very likely to be able to trade internationally because each country requires you to have a bank account in that country to be able to access their markets.
In the Sequoia article, SBF gained his initial funding for FTX from executing trades from the US to Japan, where BTC was overpriced because no one bothered to arbitrage it because of the setup difficulty. The way he did this was by contacting a friend to open a bank account in Japan and manage the funding over there while he managed the account US side.
I am sure some of it is normal corporate shell game but I'd imagine at least 50% of this setup was for regulatory purposes. Even small fintechs will have "shell game like" company structure to please regulatory forces that require having certain things be independent from the consumer platform even if the two companies are working towards the same goal.
That sounds to me a lot like a cover story to try and convince people there was actually a value-add. I'm skeptical that the barriers were so high they discouraged anyone from seizing essentially free money, but he solved this with a Japanese friend's bank account.
No one did it for Japan first probably because they have pretty strong criminal liability stuff for securities violations and other financial crimes and don't play the "no fault settlement" game.
It's not illegal to arbitrage but yeah I think what you are pointing at is you have to be regulatory-ily buttoned up for Japan markets vs a more loose market where you don't have to be super careful & can learn as you go.
So SBF having been in finance before (Jane Street), he knew where the footsteps were and how to do it vs a fly-by night crypto investor with no finance background.
Supposedly the Japan “subsidiary” (if you can call it that) was set up by a Japanese person and a resident of Japan, who was a contact of SBF through the Effective Altruism thing. I think they knew something was shady, because the account they had opened in Japan was with a small rural Japanese bank.
When that “arbitrage” turned out to be really lucrative one of the founders of Skype (Talinn something) gave SBF a $50 million loan. SBF and that Talinn guy knew each other also from that Effective Altruism sect-like thing.
All this info was part of a Sequoia congratulatory piece on SBF, they of course had also given him money. The article has since been taken down, it’s still reachable through Web Archive.
This guy has major Epstein vibes (minus the girls). comes out of nowhere super politically connected, investing in research, with a pretty dubious origin story of how he got rich.
What do you even need a blueprint for? The guy did an interview with Matt Levine and laid the Ponzi scheme straight out: scammers make boxes that pay fake coins when you store your money in them, they put so much money into the boxes that the fake coins seem valuable, then they rug pull everyone and move on to the next one. That's how he described his own business.
I remember listening to that interview and this part always got me:
> Matt: (27:13)
> I think of myself as like a fairly cynical person. And that was so much more cynical than how I would've described farming. You're just like, well, I'm in the Ponzi business and it's pretty good.
I seriously cannot understand how after this interview Sam still had any kind of support from VCs and so on.
I hope the late 2010s-early 2020s will be remembered as the dot-com era of extremely dumb money...
> Because they thought they could make money by finding a bigger fool
$10B "somehow" "gone" is QED that someone did find their marks.
More interesting is how none of these guys are seeing the inside of a jail and doing the jailhouse orgies. I wonder if 'defenestration' will become a meme in crypto world too.
> I seriously cannot understand how after this interview Sam still had any kind of support from VCs and so on.
yes you do - because they're at best amoral and know their position and connections means they can make money out of shit like this by ensuring there's a series of bigger fools waiting to buy them out.
Forget VCs. This interview snippet went semi-viral, I don't understand how FTX's customers didn't try to pull all their money out right then and there.
I hate to be the That Guy this time, but pump-and-dump is a different kind of fraud from a Ponzi. Not that anyone cares to make the distinction anymore.
Hey, that guy, tell it to Matt Levine and SBF, who literally used the term in the interview.
:)
I'm just reacting to the idea that you'd need to see the SBF corporations laid out on a diagram to reach the conclusion. When Carrell's character says "they aren't confessing, they're bragging", he's talking about an allusion. The Ponzi schemes here are not allusive. SBF literally bragged about them.
That still doesn't mean they're using the term properly, at least in regards to kind of scam you were describing in your comment, or what that comment's parent was referring to.
"SBF/Matt Levine said it" does not automatically make it true.
To be honest, you don't explain how they are wrong and then tell us that "SBF/Matt Levine" saying it doesn't make it true but both have a public recognisable background in finance, we have absolutely no idea who you are to even judge if you could be right or not.
Instead of debating semantics, enlighten us with how/why they are using it incorrectly and what you mean by this being a pump and dump and not a Ponzi. To me it definitely looks like a Ponzi: money from new entrants in the system go to pay off earlier entrants, a pump and dump from what I know would require SBF/FTX pumping up FTT to then dump it all leaving bag holders in the wake of the crash.
That's fair -- I thought that by highlighting the correct term, against the parent's description with its mislabeling, that would be enough to make the point, especially since a) the issue of "Ponzi" misuse comes up so much, and b) one could just look up the terms and compare. But, to make it explicit:
Ponzi scheme: Taking later entrants' investments to pay earlier investors on the false pretense that the venture's activity generated the returns.
pump-and-dump: Duping others into thinking an asset has value so that it can be resold above its legit worth.
The original description given clearly fits pump-and-dump better[1], since it's based on making an asset seem valuable:
>>laid the Ponzi scheme straight out: scammers make boxes that pay fake coins when you store your money in them, they put so much money into the boxes that the fake coins seem valuable, then they rug pull everyone and move on to the next one.
For tptacek's part, he could have defended his claim by presenting a substantive understanding of the distinction and justified the label in his own words. Or, somehow indicated this was a point of contention at all. Or done anything whatsoever beyond arguing, in effect, "the perp used the label, therefore it must be accurate". That does not advance the discussion, or indicate a prompt for the kind of contribution in the first half of this comment.
Is this just the natural outcome of running a multi billion dollar crypto business? Do you hire so many experts and lawyers that they set this up for you as an ideal structure?
Seeing how stupid/greedy SBF was, it makes me wonder if people like him are smart enough to truly understand the need for such structure without having experts in place.
You need that many companies trading with each other to create value and muddle the waters... Intangible assests and future flows passed from one entity to the other and priced at some unrealistic assumptions create/raise paper value.
SBF would be a nobody without Sequoia and others throwing money at him. I'm more concerned about the judgment of monied people who are so desperate to find their own Adam Neumann, that they forgo common sense and invest based on 'feel'.
It's almost like they asked GPT3 or Dall-e to create "a corporate structure that is so confusing it will be a liability shield to keep my ass out of jail", and then used whatever came out
if you're a creditor, good luck getting any part of what's left over after they pay the accounting firms to unwind this. On second thought, if you're an accounting firm, good luck getting paid if you do any work for them.
These days owning a crypto exchange is a shell game where you try to hide the funds and liabilities into a chain of companies located in offshore jurisdictions.
Binance does the same but even more extreme — they don’t even tell where their HQ is actually located.
Money launderers and tax evaders have long used these tricks. Those people don’t normally get VC capital at $34 billion valuations though. The crypto implosion ought to be a massive lesson to the industry.
I'm really skeptical of Binance, whilst I would never accuse them of anything specific, I have no proof. Their structure, governance and business model combined with their refusal to meet basic regulatory requirements makes me feel uneasy.
Binance is effectively saying “I’m not going to tell you where I am but you should let me manage your money.” It takes a special kind of gullibility to accept that, but in the crypto world left has been right and black white for a very long time.
Binance’s US subsidiary is just as safe as FTX.US was, despite their claims otherwise. It will fall along with the other dominos.
Even the assets are questionable — as Tether’s attestation language change shows. They value their assets at what they’re worth “in normal market conditions” which is a flashing red light for bank run vulnerability.
Exchange is pretty simple business. Customers deposit coins and fiat, trade between them and pay you commissions. If you don't send any of those coins out, there is no risk, no liquidity crunches, no liabilities whatsoever. This guy took customer coins to gamble, and lost. Story as old as Romeo and Julia.
> If you don't send any of those coins out, there is no risk, no liquidity crunches, no liabilities whatsoever.
If you don't send any of those coins out, there are no profits for the exchange operator, either. Look at how Coinbase does everything more-or-less by the book, and barely makes money. Trading fees just don't cut it.
Yet, some fly-by-night exchange incorporated in the Bahamas is offering wild signup bonuses and lower fees and yield that would make Scrooge McDuck blush.
it looks like the usual nonsense of "here's some bank account balances", with no explanation of what liabilities they hold, or how much related party loan crime they have on their books.
If a hedge fund trades on an exchange in Singapore they will probably want a corporate structure there for trading and tax purposes. Larger trading operations aren’t just clicking sign up on random exchange websites and allowed to start trading billions of dollars. Legal agreements need to be inked, collateral deposited, etc.
It looks like it? At least from a cursory reading of the press release...which goes against everything that has been said up to this point. The hilarity continues.
Was he in denial? Lying? Clueless? I have no idea at this point.
He seemed earnest and genuine, but everything he’s saying is the exact opposite of reality.
Maybe he was having an anxiety attack. I had one once, and it completely sucks. It ruins your ability to form logical thoughts.
(It’s rare to see someone so powerful be so confidently mistaken. The confidence is the part I’m struggling to figure out. There doesn’t seem to be much benefit for him to knowingly lie about FTX US not being impacted, so it seemed like something else was going on.)
If he comes out the other side massively wealthy, then what was there to be "mistaken" about? You're extending an incredibly generous quantity of sympathy to someone that has absolutely not earned even a little of it. Speculating that he had an anxiety attack! I mean, really.
It kept some number of people from withdrawing their funds from FTX US yesterday, leaving more money in the pot to return to other stakeholders. This has nothing to do with game theory, what would that even mean!?
Ah yes, yet another “game theory” perspective. Seriously, what is it with crypto enthusiasts and making everything about game theory? What does it even mean in reality?
It's a way of ignoring basic fundamentals and construing any move by anyone the way you want it because of 'rationality' as opposed to actual evidence or the most obvious reason.
Rumors were that he was still trying to raise some kind of last minute savior financing after Binance backed out. If so, his best cards are to show that not everything he has is a shitshow and there may still be some real value financiers might be able to buy for pennies on the dollar if they save him from complete collapse.
> He seemed earnest and genuine, but everything he’s saying is the exact opposite of reality.
Con man is short for “confidence” man for a reason. What they’re good at is gaining the unmerited confidence of others. You got played by his charisma. Remember this for next time.
> It’s rare to see someone so powerful be so confidently mistaken.
I struggle to see how this could be true after 4 years of President Trump and Elon Musk's various undelivered promises. It's not rare, it seems to be extremely commonplace.
It absolutely blows my mind; if this[1] failure of an attempt at a "get out of jail free" disclaimer is something you feel the need to write out so poorly, and in all caps, after your diatribe, maybe - MAYBE - you shouldn't have said a goddamn word.
Yeah! That was the tweet that made me suspect an anxiety attack / some other health condition.
The weirdest part is that all 23 tweets were posted simultaneously at 8:13am. So he had the opportunity to say nothing; he could’ve clicked “save draft” instead of “tweet all”.
This guy is just taking a play from the same book Trump, Musk, Kanye, etc use. Only, he's turned it up to an 11. It'd be a funny skit to see a Trump character reading this guy's tweets/interviews and saying "whoa"
Especially on twitter, where by default you only see the first few tweets of a chain.
"Here is a bunch of information about the ongoing potentially criminal collapse of my company - oh by the way I'm a bad dev so some of what I said above might be wrong, don't act on this information."
Wrong. FTX US is the US based exchange that accepts Americans. You gotta always read the latest SBF tweets because he consistently says 1 thing then the next day does the opposite.
> Announcement 2022-11-10: trading may be halted on FTX US in a few days. Please close down any positions you want to close down. Withdrawals are and will remain open. We will give updates as we have them.
If withdrawals are open, then it seems FTX.us still has all its customers assets and can return them, but will not be able to pay its own bills for hosting, staffing, etc. in the very near term. So yesterdays statement that it wasn't affected by the loss of funds implosion would be accurate, but if the business was reliant on funding from other operations to survive, it can still go bankrupt.
People get all antsy in their pantsy and can't read nuance.
I think people are jumping to conclusions by saying that because FTX.us is included in the filing, all user funds are completely gone. Not to say I blame them for thinking the worst, but we'll probably know more once the dust settles.
If the guy is dipping into supposedly segregated client accounts to run his prop trading, and lying about it.. why would he not do the same with FTX US money.
So, SBF seems likely to have flat-out lied, right up to the last moment. At this point, why would you choose to trust any crypto company that wasn't perfectly transparent in how it holds assets, backs coins, what it's borrowing on, etc?
Do we blame individuals or the technology that enabled them? I don't know. I do think we need to get back to building useful tools that people need.
Like Elizabeth Holmes, they are kids of the elite who are well connected and supported at high levels. Further, SBF is one of the biggest political donors and there may be corruption in the SEC. The general counsel of FTX US had served as lead counsel to Chairman Gensler at the CFTC.
And then there's this from a congressman yesterday, "@GaryGensler runs to the media while reports to my office allege he was helping SBF and FTX work on legal loopholes to obtain a regulatory monopoly. We're looking into this." https://twitter.com/RepTomEmmer/status/1590717374801809409
Perhaps, but I think many (Dems and Reps) will recognize a sinking ship when they see one. Tighter regulation on cryptocurrencies (and related businesses) was starting to arrive, regardless. There is little incentive to try to slow this down, if the people being regulated don't have any money left to donate to your campaign.
Indeed, the deregulation that led to the 2008 financial crisis was a thoroughly bipartisan effort, one that began in the Clinton Administration. This is why Brooksley Born is a hero for our times, and Larry Summers, a villain. https://en.wikipedia.org/wiki/Brooksley_Born
You might notice that I didn't say that. But I am skeptical that the party that has branded itself as the anti-regulation party for my entire life is really going to embrace regulation all of a sudden in response to the malfeasance of someone they perceive as being a political enemy.
> embrace regulation all of a sudden in response to the malfeasance of someone they perceive as being a political enemy.
Given the GOP's willingness to strong-arm twitter and facebook (remember Trump tried to have it investigated by the DoJ), I feel like regulating companies due to being a political enemy is exactly what I'd expect the GOP to do. Perhaps it's the one time you can be sure they'll start regulating.
From my perspective, the democratic party is constantly talking about how bad Citizens United is (and I am very sympathetic to that) while taking millions upon millions from large companies and wealthy individuals.
> I remember thinking at the time when the Senate called Zuckerberg up to yell at him that if I were Zuck, I would have just said, "thanks for the tax cut, dudes".
Because most of the adults know that there is a window when you can get rich off a known con and get out before it blows up with quite a lot of cash.
The best part of these being unqualified children is that they don't even realize that part of the deal they've signed up for is to take the fall when shit finally hits the fan.
There's plenty of people who have made money from SBF behind the scenes, but you'll never hear their names.
This couldn’t be further from the truth. SBF had enablers who knew what this was from the beginning but kept mum about it. They actually helped hype it up then exit with profits.
He worked at Jane Street prior to starting his own company which was built on a successful arbitrage. Whatever his issues - qualification isn’t one of them.
I’m not defending this catastrophe (which seems like it was partly an execution by a rival), but this kind of comment is just bizarre on hacker news in the world of tech companies and startups. Age is not a good proxy for competence.
Don't know why you are getting downvoted. Yes, I believe that using customer funds to punt shitcoins at a supposed "quant market making firm" is really dumb, but people here really think the people in this operation are random idiots/got there via underhanded means. I think they just believed that the gravy train would last longer than they thought.
Several Alameda employees worked at JS, which is by far one of the most successful quant firms out there and they only hire the best. He also exploited a very creative arbitrage to start the firm, which is also not a fluke.
Then again, I would expect no less since the people on here constantly complain about leetcode interviews and "not wanting to interview for big tech for XYZ random reasons" when I know damn well they couldn't pass even if you gave them the answer.
These aren't valid reasons - I don't want to get into a flame war though.
- Blockchain's main innovation is solving the double spend problem in a decentralized way.
- This means that self-custody is a new capability.
- Self-custody without a centralized authority is a big deal and can empower users (especially those in hostile countries or places with bad currencies).
- There's an extension of this with smart contracts and ethereum that allow for programmatic uses which can extend to completely transparent decentralized finance.
- zk-SNARKs allow for privacy to exist within the above systems.
That people don't self-custody because they don't understand how it works (and terrible UX) is a real problem and why most people should not be using cryptocurrency. They can still get screwed by regular collapses of fiat currency (and they do often), but they won't be helped by increasing their risk with something they don't understand.
The centralized exchange failures are independent of this and arguably a symptom of how centralized finance can cause problems because people don't self-custody funds. Your reasons dismiss the new capabilities they provide (self-custody, protection from government debasement of value, global use) and are an example of the type of HN response I'm talking about.
That isn’t really a solution. The confusion is the inability for most people to discern the words decentralized and distributed, which is the primary fraud of crypto. Centralized finance already has distribution in place just for security and continuity of business, so blockchain doesn’t really provide anything new there.
The only enticing quality of blockchain to finance is just elimination of transaction fees on a more open ledger.
It's unregulated and decentralized, and banks are not your friends. To be honest, they're not, but that doesn't make any of this Ponzi 2.0 economy great.
This is the result the "crypto community" asked for. They may not have wanted it, but they asked for it. A combination casino/money laundry/ponzi breeding ground also comes with intelligent crooks who are capable of running longer games.
You want recourse? That means oversight, audits and regulation.
>why would people throw billions of dollars at unqualified children?
Because investors had too much cash and became increasingly desperate to earn a return on it. When they have an abundance of cash, they become wreckless and wasteful with their investing as they chase profits.
same cause of the 2008 recession, too much money chasing risky bets. Once the party gets going, you will be stupid to not join in. Just amke sure you're not the one holding the bag, when the music sotps.
I know little by way of the crypto world, but I have to say that calling platforms like FTX, Binance, and others "exchanges" strikes me as very much misleading.
In traditional finance, the "exchange", as in "the New York Stock Exchange", only facilitates the calculation of market prices for a range of assets and the matching between sellers and buyers. Exchanges don't even manipulate money - that's left to other, highly regulated, professions, such as brokers.
Brokers hold your assets and sometimes lend you money, but are very restricted with what they can do with it unless they qualify as banks, which requires complying with an array of complex capital requirements.
So really, I don't understand: how are those entities not offering "investment services" and so not under SEC supervision?
SBF has Tweeted a lot of things in the last few weeks that were provably false, sometimes just hours after he sent them. I was surprised that everyone here just took him at his word about FTX US.
Dumb question, but what happens to stuff like Miami Heat’s FTX Arena etc in situations like this? Should we expect a name change for the arena at some point soon?
I also think this is an interesting question. Coming from a lay person I'd imagine it would remain with that name until the contract is up for renewal. Depending on how the naming deal was structured, the money to do the deal would probably have come from FTX' marketing budget in a lump sum up front (presumably) for a fixed number of years. When that's done, the arena will find another source of funds and give the rights anew.
Edit: here's [0][1] some sources that says FTX ponied up $135M for the name to remain through 2040. Your question still stands, will that name stay even if the organization that has the name doesn't exist or is circling the drain? All depends on the terms of the contract, I guess.
>Coming from a lay person I'd imagine it would remain with that name until the contract is up for renewal.
As a lawyer, not a transactional lawyer so this is pretty far outside my expertise, I'd imagine they'd include some provisions for this type of scenario in the agreement. Even if it didn't, the stadiums owners would probably offer FTX some sort of partial refund to give up the naming rights, which they would have to to pay back their creditors. They could even just breach the agreement and offer a settlement.
Eron field got renamed pretty fast. So will this stadium.
A few years ago Consol Energy broke a naming rights deal early; the original deal was $105 million over 21 years, but they were only about 8 years in. The Pittsburgh Penguins found a new partner in PPG Paints pretty quickly. And Consol didn't even go bankrupt!
The Heat will find another partner, and they may or may not try to get money out of the FTX bankruptcy proceedings, but I'm guessing the odds of that aren't super high. Probably more efficient to cut bait and move on.
Unlikely is was paid up front. The news articles say things like "$90m over 19 years". There is also almost certainly terms in the contract relating to the reputation of the advertiser (FTX in this case).
All of this is handled much differently if a party is in bankruptcy (which is the point of bankruptcy).
The administrators / bankruptcy courts will try and do a deal with the stadium. Something like "we can auction the rights again and we will keep 90% of what we get for them, you can have 10%, so you are 10% up, for nothing"
If there's time left on the deal, but the arena would rather not keep the stinky association, can't they sell a new naming rights deal today, and send a portion of the new proceeds from that to FTX?
In a way it would be another asset for the bankruptcy liquidator to disperse.
Yeah that makes more sense. They have the asset (rights through 2040). Would be pretty funny if it turns out that these naming rights are the single most valuable asset they own today.
I just looked up a similar situation from 20 years ago[0,1].
- They miss their next payment and the contract is terminated. The arena owners find a new sponsor.
- The naming rights are considered an asset of FTX and are sold off during bankruptcy proceedings to recover cash. The buyer puts their own name on the arena for the rest of the contract term.
Considering naming rights are sold for such lengthy terms (20 years in FTX's case) it is incredibly common for companies to go under or get bought out in the middle of it.
Both of those are unlikely. The whole point of bankruptcy is to mitigate things like contract terminations. Further, the bankruptcy court will have little, if any involvement in the eventual sale of the naming rights to a new sponsor.
The company probably has the yearly naming rights fee cut into payments. When they miss their next payment, their name will be removed from the arena.
This happened to Adelphia with the Tennessee Titan's arena in 2002. In that situation the stadium was renamed to a generic "The Colosseum" for a few years because they had trouble finding a new naming partner. I suspect they'll have an easier time finding a replacement in this case, but who knows.
The Sacramento Kings' old arena was called the Power Balance Arena in 2011-12. Power Balance went bankrupt in 2011, and the arena naming rights went to Sleep Train the following year.
I don't think this is a dumb question. I was also wondering. They had a 19 year deal 135 million naming rights with the Miami Heat, but I'm fairly certain they didn't pay everything up front. Apparently the county owns the arena, so they will be involved.
I assumed he got paid based on my limited understanding on how actors in TV commercials are compensated. It would be weird for Larry David to be in an ad that aired during the Superbowl and not get paid.
It's also quite possible they caused it. Fractional reserve banking by definition means keeping only a percentage of customer deposits readily available.
What solves it is the Fed stepping in and agreeing to print money no matter what to cover customer deposits if need be (FDIC insurance). That's hard to replicate in the crypto world but likely possible.
> What solves it is the Fed stepping in and agreeing to print money no matter what to cover customer deposits if need be (FDIC insurance).
The FDIC is not related to the Fed, and certainly does not entail a commitment of mobetary policy (it involves a fiscal commitment by the USG, but the whole point of the Fed is to separate monetary policy from fiscal actions.)
This whole thing is just the .com crash all over again. Super Bowl ad’s the same year of the crash even.
I happened to be at a hotel earlier this year that was hosting a crypto conference and the attendees looked like the kinds of people a multi-level marketing scheme attracts. Very different from a few years ago.
You must not have been following cryptocurrency for that long. This sort of thing happens every 2-3 years. This isn't a wild, unforseen crazy market calamity, this is your run of the mill downturn, this ones mild so far actually. You're only hearing more "bloodbath" talk because the news covers it nowadays, and the news loves to exaggerate bad things and make them sound worse because that's how they keep the lights on.
The previous dips though haven't been this leveraged though. Over the past couple years the amount of opaque and highly leveraged instruments against crypto has ballooned. There's a lot more on the line this time around imo.
It seems like a fundamental flaw in their business model rather than a market downturn.
This seems like a bigger deal to me because FTX is part of then new wave of crypto companies that were supposed to be legitimising crypto. And even they can't stay afloat. It's just a matter of time before the next crypto giant falls.
Every time there's a bull market a hundred new operations spring up. And some of them always present themselves legitimately, and most of them always fail when the downturn comes. This is a run of the mill downturn, it happens every single time. A ton of "crypto giants" don't survive the downturn, every single time.
I’ve held BTC since 2011 so I think I get it. My point is the industry around it collapsing. It’s not just crypto crashing but the industry built around it collapsing at scale. This isn’t Mt.Geox level - this is .com level.
But it's not collapsing at scale... not yet anyway. It's just one exchange, a big one but just one going under. It's scams and rug pulls predictably going under, same story as the last cycle. The only difference is that the news is covering it, it makes it seem like a bigger deal than it is.
And you want them to go under. When the scams stop going under is when you have a real problem, because that means the entire industry is in fact a scam.
Why would it collapse the whole system? These blockchains run themselves, the ones worth a shit anyway. They were here before these companies, there's nothing fundamental that prevents them from being around after.
I am not really convinced of Tether having trouble anymore. I've been hearing it for years. They seem to have gotten lucky and cleaned up their act before collapsing, every time they do an audit or anything the last few years they show full collateral backing their assets in circulation. With regard to binance, I couldn't tell you one way or another, but they've survived more than one cycle so they probably know what they're doing.
Did it? Or did the cruft just fall to the wayside where it belongs. From my recollection the panic lasted a year and within 5 years the companies that were part of it actually doing interesting things were valued much higher than at the peak of the bubble.
All it decimated were hype merchants and their lemmings. Hopefully the same is true here. I think it will be.
> I happened to be at a hotel earlier this year that was hosting a crypto conference and the attendees looked like the kinds of people a multi-level marketing scheme attracts.
So people who are barely holding on to the bottom rungs of the (American) middle class, and who are the traditional targets of multi level marketing (and also religious) hucksters?
That doesn't bode well for the argument that the crypto ecosystem isn't a set of scams, regardless of whatever the merits of the underlying technology has.
So for "normal" financial institutions (eg banks, mutual funds, brokerages) you are legally required to shield custodian assets. They rea typically held in trust. Due to various scandals there's a lot of regulation. There's even government protection (to a point) for individual customers (eg FDIC insurance for bank depositors).
All of this is necessary to stop situations like FTX/Alameda. A bank can't take your money and bet it on blackjack but there seems to be no such protection for these crypto exchanges. All of this is necessary to maintain confidence in the financial system (yet another reason to roll one's eyes at libertarians).
I mention this because it's just another case of crypto lacking protections the non-crypto financial system has and ignoring lessons learned over the last 5000 years of finance.
I saw a comment on HN yesterday where someone in the Navy said that when they get a new CO it'll be one of two types: the first will work out how things work and then incrementally improve things. The second will immediately reshape everything in their image without figuring out why things are the way they are.
I see that trend in management too. But it seems to be a problem with the entire crypto space. Otherwise smart people completely ignorance of the financial systeem just reshaping crypto with no regard for history.
As for SBF, this is a fraud on a massive scale, like Madoff scale. I really wonder what will happen here because what should probably happen is he'd spend the rest of his life in prison.
I would like to clarify that the regulations on "the financial system" have probably enabled just as much fraud as they have prevented over the long run. The financial system you speak of is a huge collection of bets and leverage and interesting interpretations of the truth ("why yes, your money is 'safe' with us!"). The regulations make it work just barely well enough that it only comes crashing down, what, every 10 or 20 years now? If instead of adding regulations and saying, "there, now it's totally going to work, put your money back in," I wonder what things would look like if we had instead said, "yup, loaning your money to banks/corporations/governments/individuals is super risky, learn from past mistakes!" ? Maybe people would only risk what they can actually afford to lose and we wouldn't get into these cycles where people get over leveraged, things crash, bankruptcy gets declared, and the poor and middle class foot all the bills. Over and over and over. A libertarian can dream...
> loaning your money to banks/corporations/governments/individuals is super risky
This is called a "low trust society". The flip side is of course that nobody will lend you money. Mortgages and consumer credit are scarce. Business credit is difficult. Large amounts of capital need to be tied up in buffers. The overhead of keeping an eye on everyone is considerable. You don't get "First World" levels of development with a low trust society.
I actually really like the idea of not needing to rely on trust so much. Needing to rely on trust is a big problem that Bitcoin solves. There's no single Bitcoin Chair than can tweak the policy or supply of Bitcoin that you have to trust. No congress or president that can change the rules of the Bitcoin game that you have to trust. Bitcoin is impossible to forge, no trust that someone is handing you real money needed. There are no charge backs, payments are fully settled in minutes not days, you don't have to trust that you'll get paid and stay paid. No couriers, no middle men that you you have to trust to not steal your money in transit. If you want to prove to someone that you have the funds for something (like maybe FTX proving to customers they have the funds they said they did), you can sign a message with the private key of your wallet and everyone can verify that you have the funds in that wallet.
Many of the crypto scams that are out there are claiming their coin has these same properties when it doesn't and that's where people at getting burned by "crypto." Yes, regulations could reduce the risk of these frauds happening, but they won't eliminate it. Bitcoin eliminates the risk.
> Needing to rely on trust is a big problem that Bitcoin solves.
No, it doesn't. As soon as anything is external to the Bitcoin network, you now require trust. This is so well-known it has a name: the oracle problem [1]. Crypto Andys, of course, just double-down and say we need more crypto. Just like libertarians who when confronted with the problems of lack of regulation they will argue the solution is even less regulation.
> There's no single Bitcoin Chair than can tweak the policy or supply of Bitcoin that you have to trust.
Instead there's unaccountable miners who with 51% of the hash power can completely rewrite the rules with no recourse. Bitcoin has already forked multiple times [2].
> There are no charge backs
Chargebacks are a feature not a bug.
> no middle men that you you have to trust to not steal your money in transit
You have just demonstrated quite a lot of ignorance about Bitcoin. A 51% attack has nothing to do with changing the rules of Bitcoin, just to start. Maybe don't slam something you don't really understand?
For those who believe crypto and web3 is the future, has any comparable emerging technology been met with as many scandals and busts in so little time?
This has nothing to do with the technology of cryptocurrency. In fact, it's the complete opposite.
What people are doing with FTX is taking their money off of public blockchains and giving them to something like a bank or stock exchange where ultimately customer funds are accessed in secret. This is again, antithetical to cryptocurrency which has the main features of avoiding the necessity of banks for operating with digital money and having a public, mathematically verifiable ledger.
All of this nonsense is people using the interest around cryptocurrency to promote what is essentially gambling.
Some people have even theorized that they were intentionally trying to sully the reputation of the technology since it makes old fashioned financial institutions obsolete, and the family has strong ties to the establishment (with massive investments in old-fashioned financial schemes).
I'm just trying to explain what cryptocurrency is and how that is different from cryptocurrency exchanges.
Cryptocurrency speculation on centralized exchanges literally does not use cryptocurrency and it's a shame that people think that's what it is.
What cryptocurrency actually is is a secure and auditable way to do transactions and record keeping in a very large group of people. That's what I and many other people use it for. Completely unrelated to day trading, and using the actual chains.
The technology enabled countless scammers and hackers to disappear with people's funds. It's daily news. Failing exchanges are just an off-chain variant.
This has nothing to do with cryptocurrency. It's just an exchange that gambled away customer deposits and then was liquidated. They're banks. We've reinvented banks with all of the drawbacks and none of the benefits.
This isn't the way cryptocurrency was meant to be used. We were meant to hold our money in our own wallets, not leave it in some centralized exchange so it can "efficiently" allocate the funds. People keep using exchanges as if they were banks and they keep getting burned in ways only banks are capable of.
What of the rumour that Bahamians are allowed to access their funds for legal reasons while everyone else can not? Most of the FTX employees including SBF are based in Bahama? Isn't this just insiders cashing out before creditors/users?
The sheer number of affiliated companies is not unusual in regulated industries as each tends to be a special purpose vehicle to segregate the associated assets and liabilities.
He should have just stuck to running an exchange and trying to innovate that game (note - earlier in the year lots of talk around their automated margin plan for wider industry beyond crypto). Theres a decent business there.
Yes, that’s generally what happens when an unregulated bank goes bankrupt. The list of creditors will be long, and some have priority claims so they get paid first.
Everybody said this can happen. Coinbase was forced to include a warning to this effect in their filings as a public company. But nobody cares when the going is good and FOMO is strong.
Mutual funds and ETFs can have the same problem, but they generally structure it so the fund is a separate entity and a "customer" of the parent company. If the fund house goes bankrupt, the fund is safe because the fund house didn't actually own it.
While I don't touch crypto for the same reason I don't touch Beanie Babies, it's made me think more about what is money, what's intrinsic value, and what protections are in place in case something goes wrong.
They are starting at begining of 2023, I'm creditor, just gave bank account details etc. Most people will get their money back because all assets were converted to fiat from the time of collapse and BTC was worth then magnitudes less than today.
Can anyone speculate what Bankman-Fried's exit plan was?
Was this a fraud that got out of control, or premeditated? If it was premeditated, what was the exit plan?
Did he expect to be able to gamble with customer funds indefinitely?
Were the Effective Altruism intimations genuine?
Why, if Alameda was a market maker, and they therefore presumably have some form of insight into the markets, did they then decide to take a huge directional bet on Crypto [source?]? This is contrary to market making principles.
What was the purpose of encouraging employees to invest? Was it to buy their silence/cooperation ('you have to stay employed and invested if you ever want your money back') if they found out about the fraud, or did Bankman-Fried genuinely believe it was to their benefit?
Why were there so many puff pieces in the media, without any journalist questioning the narrative?
My thoughts are that FTX was maybe a legitimate business, but then Alameda was his trading baby that just happened to be run by kids, including himself, that have no idea what they're doing and was losing money left and right. Then using FTX customer funds was viewed as just a "let's move these funds over to get our trading back on track and when we do, we'll move them back". That's my honest guess if I'm being generous as to their intentions and thought process. Not saying it isn't criminal though, because I think it is. It's also a complete guess as an outsider to all this.
I think they thought they were honest and doing things properly, and didn't realize that their holding of FTT was making them as bad as the other frauds before. I think these ouroboros are complex enough that even main players don't necessarily understand the position they've put themselves in.
Let’s not treat senior management and owners of a company that has gambled away billions of dollars of customers (and investors) money as kids. They should get jail time from what I’ve read so far.
They were either criminally stupid or did this on purpose. It really wasn’t that complex. This isn’t even close to 2008 complexity since this was all happening within one organization With the same owner SBF.
I don't really care whether they're kids of not. I do think it's possible that they step by step ended up in a situation they didn't realize they were getting into. Doesn't mean I think they shouldn't be punished if such a treatment is required.
But again and again, supposedly smart finance folks end up blindsided by retrospectively obvious stuff. There's just too many complicated fabrications on top of one another.
I'm not particularly sanctimonious, I think the average vilain of the day is most of the time just an average person making dumb mistake.
You’re right, and I see where you’re coming from, but the reality is that this can end with a 50 year prison sentence for SBF. That’s what Wasendorf got for swiping a mere $200M (the largest fraud in history prior to this, according to Animats): https://news.ycombinator.com/item?id=33564752
I think that reality hasn’t set in for most people yet. Especially SBF.
I was referring to the same miscreants as the poster was.
It’s only plausible to a certain point that they were unknowingly bad actors. They’d have to willingly be deluding themselves.
No one commits multi-billion dollar fraud accidentally.
They’d have to turn a blind eye to something any reasonable person would consider a ‘are we the baddies’ moment. Or two. Or dozens.
As to if it’s documented? One can hope, but I’m not holding my breath. I’m sure there have been many shredder parties (or digital equivalents) happening in many places since the news broke.
Oh you’d be surprised. I think most people are capable of this kind of fraud. It’s human nature to judge others by their actions, but judge yourself by your intentions.
Most people cross that threshold well before a million bucks.
You can tell by the shape of the lies that are inevitably told. Someone who actually thinks they’re doing something ok won’t go to such lengths to hide important details, or omit specific things that are inevitably omitted.
And in this case, why not just update the TOS to be clear what they’re doing?
Yeah and the point is no one sane would seriously say Madoff thought he was being honest. They’re making an analogy between Madoff and SBF being similar/the same.
[2022-11-13] If I may follow up on myself: I didn't know anything about this situation and just commented randomly. It seems obvious a few days later that it was straight up fraud.
I made a comment on that video elsewhere. It’s pretty clear they were way out of their league in more ways than one.
They’re the type of people that are too smart for their own good where they can’t even see how idiotic they’re being. Or maybe they’re just spoiled. Or maybe they just think they’re smart. It’s interesting to me that Jane Street prides themselves on their hiring process, but they apparently hire folks like this.
Other than people losing money, I am super glad these reality checks are happening. But I wish they’d happen to more as well, e.g., Musk and Trump.
I've studied along guys/gals who've done IMO, also had them as co-workers at other times, they have never performed well.
I really like Linus' saying "talk is cheap, show me the code". These people can make a thousand arguments about why something should/shouldn't work (but never write code), then you show up with working code and they don't have much else to say.
How does it reflect poorly on Jane Street? These are people who left, after not very long.
If your thesis is "they were inexperienced and operating without sufficient supervision" then that's a big part of what the structure of a place like Jane Street gets you.
I think it means Jane Street likely hires with a lot of bias for elites and “twitchy” smart people. The CEO of Alameda was an intern there and invited back for a full time position. Hearing her speak in interviews makes it seem like she has no idea what she’s doing and not all that intelligent or thoughtful. So it’s weird that she, seemingly easily given she states in interviews that she had no trading experience prior to Jane Street, made it through their supposedly rigorous hiring process. It seems their hiring process may not be as rigorous or effective as they hoped, which seems obvious even looking at the process in a vacuum.
Most probably. Web searching for that Caroline Ellison young lady I found some articles describing her as a young math prodigy when she was in highschool (or something like that).
-- having watched a series of in depth interviews with Do Kwon - the interview with Sam Bankman-Fried on Odd Lots - and now this - I wonder if these children had any mentors? - where were the adults? --
Interestingly the lack of finance graybeard mentors was listed was a factor for why a short seller (Marc Cohodes) suspected ftx was going to go down, over a month ago.
I think the adults are the investors who are just older versions of these people that made billions selling some random website to Yahoo in the dot com bubble days.
That sounds like some of the thinking that went into these historic arbitrage disasters.
Some young kid thought he knew better than his elders, and was doing arbitrage, which is moving around vast amounts of money, for very small gains (but safe ones).
They had all this money at their disposal, and just knew that these stuffy old farts were "missing the boat," so they figured that they'd just use a bit, to make a small bet, and put it back...
That’s my guess too but the size of the hole (8bn+) makes it hard to imagine it could all be lost in trading, either in a big bang, or gradually for years.
I also don’t understand why there are competing cryptocurrencies? Without governments and borders, shouldn’t one standard currency be enough? (Technical challenges aside)
Some people think it's good to trade some of bitcoin's security for extra features, or at least, think that enough people will feel that way in the future to make these tokens good investments today.
Those people look particularly silly on days like this.
>I also don’t understand why there are competing cryptocurrencies?
A lot of these "competing cryptocurrencies" are just financial instruments, kind of like you could have stock in a company, but you can also trade options and futures of the same underlying stock.
Crypto-currencies have no underlying. A crypto-currency is like a bunch of imaginary confetti. Why is every crypto organisation is issuing its own brand of confetti? It's a legitimate question. It's exactly the same confetti.
One third of FTX fees were used to buy and burn FTT tokens. This is nearly the same as stock buybacks, and makes it a security, i.e. an instrument that derives its value from the success of a business.
Buying your own imaginary confetti doesn't magically turn your confetti into a stock or into a financial derivative. A stock confers ownership of the firm that issued the stock. These tokens don't confer ownership of anything, and therefore are not like stocks.
Stocks and derivatives are not the only types of securities. I don't really see what you're getting at here.
For most people, the only important part of what you call "ownership" are the cash benefits (buybacks, dividends, and acquisitions). You can see this from the small price difference between GOOG and GOOGL.
Of course they do it because they can manufacture something that people will pay for out of nothing, and then can use that for other things that get them real value.
> A lot of these "competing cryptocurrencies" are just financial instruments, kind of like you could have stock in a company, but you can also trade options and futures of the same underlying stock.
No they weren't. This comparison has no relation to reality.
Why are there multiple racecar teams? If there is a standard set of rules, why can't there be a standard car that hits the maximum ideal speed around a track, and a standard racer to do it? Or even just automate it?
My understanding is that Alameda was a market maker, which should have less exposure to down / upswings.
What kind of bets was Alameda making? Why would it need so much leverage?
I understand why loaning money to Alameda could be rationalized a risky, but not sketchy move (if Alameda posted collateral, paid reasonable terms like anyone else would, etc.).
Whenever I see this kind of fervor and people getting rich off of it I liken it to pro wrestling. Everybody puts on the same show and lots of people cheer because they love the act and lots of people cheer because they think it's real. It's possible Alameda thought that wrestling was real.
My impression is that Alameda was also a legitimate business that also made a lot of money with a lot of leverage for a while, but eventually the tide turned or it had one bad leveraged trade and poof.
There’s this incredulous passage from Sequoia article that’s been taken down since. Make of it what you will
At this point, mid-2019, SBF decided to double down again—and scratch his own itch. He would bet Alameda’s multimillion-dollar trading profits on a new venture: a trading exchange called FTX. It would combine Coinbase’s stolid, regulation-loving approach with the kinds of derivatives being offered by Binance and others. He only gave himself a 20 percent chance of success, but, in his mind, SBF needed extreme risk to maximize the expected value of his lifetime earnings—and, therefore, the good his earn-to-give strategy could do. The fact that he was, by his own lights, overwhelmingly likely to fail was beside the point.
The point was this: When SBF multiplied out the billions of dollars a year a successful crypto-trading exchange could throw off by his self-assessed 20 percent chance of successfully building one, the number was still huge. That’s the expected value. And if you live your life according to the same principles by which you’d trade an asset, there’s only one way forward: You calculate the expected values, then aim for the largest one—because, in one (but just one) alternate future universe, everything works out fabulously. To maximize your expected value, you must aim for it and then march blindly forth, acting as if the fabulously lucky SBF of the future can reach into the other, parallel, universes and compensate the failson SBFs for their losses. It sounds crazy, or perhaps even selfish—but it’s not. It’s math. It follows from the principle of risk-neutrality.
I'm not sure I follow... SBF seems to be talking about the marginal utility of a dollar. True, most people think of this value as logarithmic. However, Kelly Criterion makes no such assumption: It's simply the optimal bet size (as a fraction of your bankroll) that optimally maximizes your returns over successive game plays. If you over-bet, it's much more likely that you'll blow-out -- as SBF mentions in your link (and ironically, occurred to SBF & FTX!).
The super stupidity of using math to dazzle people around you is my greatest lesson from this. In my highly technical field, I can use math without treating it like some precious scripture. But it’s good to know it is so unfamiliar to a normal person in the VC world, I can use it to justify even a startup doing genocide as a platform or something.
What calculation? What's the formula that gives you the odds that your Ponzi scheme will be discovered? What can possibly "model" that, aside from a scifi-level reality simulation? It's not even math, it's math LARPing.
Yes, I feel so cheated that all I needed to do to get money for my ideas was to just talk like an ayn rand novel protagonist. At least Zuckerberg did all this but was legitimately a genius. Made sense that bankers put up with that shit cos they could tell he was smart af. But when you’re larping to be a banker like most VCs are, you’ll just copy what they did like a monkey without understanding why they did it. And I wasn’t there to part their money from them. Fml.
It's almost like people who don't actually know anything about math, statistics, or probability shouldn't be believed when they make poor arguments using the same.
Maybe there's a reason it takes 4 years of extremely tough classes to understand the basics of "hard" math.
It’s not just that. But like if I made up bullshit like “the emerging market populations are growing hard and will strain earth’s resources. Our startup needs to kill them to save the planet, here’s a log Utility function to explain it”, some VC out there is an idiot enough to give me money. Maybe if I’m playing league of legends while saying it, I’ll get more cash than I even want to raise.
> Maybe there's a reason it takes 4 years of extremely tough classes to understand the basics of "hard" math.
On top of that, any decent tech school also has an "ethics of engineering" course somewhere along the way, or at least I did about 20 years ago when I was a student (we had quite a stupid professor, but the intention was there).
I thought it was convenient how people's response to that class immediately showed me who shouldn't be allowed to run, start or control anything. "This class is bullshit and stupid" no, you are a selfish asshole who refuses to spend even half an hour a week understanding the history of the industry and the mistakes we made and how your work will have an impact on people so refuse to let that be a negative impact.
I this is exactly it. When you let utilitarianism run your life, you try and maximize your ability to do good, even if you have to bend a few rules on the way.
But outcomes aren't certain and high EV plays can still carry a substantial amount of risk, which is exactly why we have finance regulations.
Diminishing returns don't apply for SBF - his life's goal is to fund effective altruist charities, so each billion is as valuable as the last as long as there are good projects to fund.
I don't think people are comprehending how tragic this whole situation is (acknowledging that it's SBF's fault). This collapse put the brakes on a powerful force for good, and lives that would have been saved won't anymore.
> Diminishing returns don't apply for SBF - his life's goal is to fund effective altruist charities, so each billion is as valuable as the last as long as there are good projects to fund.
Let's be honest: we don't know what his life goals are. He said that his goal is to fund charities, but that's a pretty common thing for wealthy people in the U.S. to say because saying so gives you a lot of social status at no cost. Very few people actually proceed with any plans of significant charitable donations.
We don't know what his life goals were, but we do know that he was sending a huge amount of money via the FTX Future Fund, granting it to a wide range of projects. That whole team resigned yesterday: https://forum.effectivealtruism.org/posts/xafpj3on76uRDoBja/...
Well he failed miserably at that. If he had stuck with his original supposed $1 billion, he could have given almost all of it away and still lived a very comfortable life. As it stands now, his charitable foundation has pledged far less than $1 billion (at it remains to be seen just how much it pledged actually gets paid out).
Perhaps if he had spent more time donating money (his stated aim) rather than inventing convoluted financial structures (FTX has over 100 related companies!), he would have achieved more, and cost people a lot less.
There are lots of reasons to be mad and lots of red flags, but having over a hundred companies is pretty normal in this space. To operate a financial business legally across many jurisdictions you generally need to have subsidiaries in each jurisdiction. Ex: https://wise.com/help/articles/2974131/what-are-the-wise-gro...
Lehman Brothers didn't allow individuals in many countries around the world to make trades on their platform, so I don't think they're a good comparison here.
(Sorry for saying "financial" earlier when the reference class is really something more specific like "international retail finance")
Most obscenely rich people in history attempt to redeem their reputation at some point through philanthropy, from Nobel to Gates. It’s an old story and the guilt which leads to philanthropy doesn’t justify the means.
Jho Low gave a few hundred million to charity too after stealing a few billion from the Malaysian government. It's easy to be charitable if it's not your money you're giving! But I guess you're right that this is a different than that. No one is really saying that he got rich from this massive fraud (although a clear accounting of what actually happened is not available yet and probably won't be for years), in fact he lost most of his net worth because of it.
No, Bankman-Fried is a scheming fraudster hiding under the cloak of so-called “effective altruism”. He’d have done much better for the world if he didn’t found a crypto exchange promoting scams and being reckless enough to trade with user deposits and losing it all.
Every serial gambler in the world thinks that they are just temporarily in the red and one big break away from winning big. They just need to invest a little bit more.
Regarding his exit plan: not sure if you will find a good answer right now. One way to get some insight into this type of mental game is to read about other major scammers who just couldn't help themselves and got too deep to pull out. Bernie Madoff comes to mind, and there are many books written about him and his business.
U.S. Department of Justice lawyers are already closing in.[1]
Using customer funds held in custody is theft. Period. People go to jail for this.
This may be the biggest embezzlement of customer funds held in custody in history. Most scams involve misuse of funds invested, not just held in custody. The biggest outright theft of this type seems to have been Peregrine Financial.[2] That was $200 million, far smaller than this one.
What happened to the CEO of Peregrine? Here he is, 10 years after conviction:
Bureau of Prisons Inmate Locator
RUSSELL R WASENDORF
Register Number: 12191-029
Age: 74
Race: White
Sex: Male
Located at: Jesup FCI
Release Date: 02/19/2054
I just want to say, you have some of the most fantastic coverage of events like this.
It feels like having an investigative journalist on payroll. The delay between an Animats comment and this showing up in the news is significant. Thank you!
(I remember your comments about the CEO that forged pay stubs being similarly excellent. Someday it might be worth collating them. In the meantime, whenever Animats says CEO Foobar is going to prison, Foobar had better start mentally preparing themselves for the journey.)
It's just knowing some basic financial history. Crypto scams are not new kinds of scams. They're mostly scams from the 18th and 19th centuries, with a new paint job. "Extraordinary Popular Delusions and the Madness of Crowds" (1841), has the first time around for most of these bad ideas. Mass market scams first got going when newspapers appeared. At last, you could reach large numbers suckers at low cost. Before newspapers, scamming was a one-on-one in person thing.
We still have both mass-market and one-on-one scams, but now they can both be done remotely.
There's not much originality. It's mostly the same old scams of a few standard types, sometimes in new packaging.
Stories like that are really interesting to dig into. They all seem to get caught because the world changes (audits happening via internet in Wasendorf’s case, the economy imploding and sinking Alameda’s risky investments, etc) rather than from any particular mistake. The mistake always seems to be that they started cheating in the first place, and then it was just a matter of time.
Of course, we only hear about the ones who were caught. It makes you wonder how many stories like this were swept under the rug — if Alameda had made money instead of losing it, FTX would probably still be online, even though they’d still be committing the same large scale fraud.
Anyway, thanks again for all this, and especially for all the detail you put in. (Your comment pointing out that SBF is firmly under the SEC’s jurisdiction was wonderful.)
By the way, that Wasendorf story (Animats’ second link) is quite interesting. He skimmed $200M by forging bank statements and was eventually caught only when the world switched to electronic auditing. Previously he was able to fool everyone by intercepting the snail mail: https://www.forbes.com/sites/walterpavlo/2012/07/13/pfgbests...
> This may be the biggest embezzlement of customer funds held in custody in history.
I wouldn't be surprised to learn that the amount of actual customer funds that went in were much smaller than claimed.
Keep in mind FTX was mostly 'perpetuals' -- fake assets. It might be that a lot of the customer funds were just fictional gains, also may be that a lot of them were paper value owned by SBF entities.
I've been trying to find anyone I personally know that had FTX exposure and so far I'm coming up dry.
How about everyone with assets stuck in FTX that can’t withdraw them? When your accounting is fictional it might be hard to pinpoint who’s money went where but everyone got screwed in the end
Interestingly, many madoff victims had paid tons of federal gains taxes on the fictional gains and were unable to get the money back from the government.
Ultimately the US government is the party that gained the most financially from Madoff's scheme!
Yeah I think it’s why SBF immediately went on about not knowing everything that was going on, that he messed up by misunderstanding things, etc. He’s trying to lay the groundwork for plausible deniability here.
He will either go to prison or kill himself I would bet.
Betting someone will kill themselves or go to prison is far from constructive, and is triggering to many. Go to prison is one thing. Suicide is another. It's not a joke.
EDIT: Suicide is something that's hit personally lately - my response was likely something based on that. To the person who responded - I didn't think you considered suicide a joke - and plenty do consider it. It's never a solution though. You even got an upvote.
I’m not joking. And I agree it’s a serious matter. But staring down at 40+ years, a significant number of people would kill themselves in his position.
“I’d bet” is a figure of speech. Not the stated desire to gamble.
He won't get forty years. If he ever is indicted in America, he has to be extradited from the Bahamas first. Anyone with money can delay extradition proceedings for a couple years. Maybe he'll agree to extradition on the condition that he is granted bail in America (where he'll have $200,000 a month security guards from Guidepost Solutions enforce the conditions of his bail). Then he'll have Ben Brafman or a bigger $2000/hour firm, assisted by the world class investigators from Kobre & Kim and other high priced co-counsel negotiate the best deal possible and he'll plea guilty to some counts of wire fraud. Then at sentencing we'll hear about all his great charitable deeds, there'll be 100 letters from high level businessmen, politicians attesting to his great character, how he thought he was doing the right thing but "takes responsbility" for his actions, etc. Then maybe due to the massive losses and large number of victims he gets 10-15 years which of course after the 15% time good credit becomes 8 and a half. Then maybe we'll also find out he had a substance abuse disorder which makes him eligibile for the RDAP program and accordingly a 12 month sentence reduction. He'll also be eligible through the First Step Act to earn sentence reduction through "evidence-based recidivism reduction" classes in prison. And even if there is court ordered restitution almost no one ever pays that or if they do it is only a small fraction (there are major white collar fraudsters on $200/month payment plans for $10 million restitution orders). This is assuming he even faces justice in America because there are reports of several hundred million dollars of crypto being moved out of FTX wallets which to me looks like the internet money version of a "go bag" and someone intending to flee.
I think it likely started with a small mistake, not necessarily an innocent one but maybe one that was assumed to be low-risk. And like in the Fargo movie/show, Sam just kept digging the hole deeper trying to get out of it.
This explanation seems pretty plausible from a game theory angle. The selfish cost of losing 1 billion dollars and losing 10 billion dollars for fraud is the same. Either way he is ruined and probably goes to prison, so he keeps gambling even if the odds aren't in his favor, and problem grows exponentially.
Altruism is a lot easier when it's not your neck on the line.
That's an interesting take. Probably wouldn't happen though, the argument being that illegal dreams taking place in the metaverse would contagiously spread to the unmetaverse.
The part where he was lending out deposits to make big bets looks very problematic, and hopefully illegal.
The CEO described how a feasible 'pyramid' could work with Levine on Bloomberg and it looks like he was doing just that.
This is basically a smart kid breaking all the rules, doing mostly what he was allowed to do legally with all of the misrepresentation and hyper - plus a little bit of illegal stuff which is all you need along with the massive leverage that comes along with it.
But I would say aside from his shenanigans - this is a crypto problem. At the base of the pyramid was an 'asset worth nothing' well ... of of crypto is essentially that.
The critics who follow this space rather closely seem to suspect that Alameda was especially exposed and damaged by the Luna collapse. This should have been Alameda's end, but because FTX can create FTT tokens out of thin air and it is so easy to manipulate the price, it can create the illusion of solvency ("flywheel").
Presumably, SBF was hoping that the crypto winter would end soon, which would bring everything else massively profitable for them again, and then plug the holes he had.
But how, if you had spent time being a market maker, that is to say you understand market neutral strategies, would you convince yourself to take this bet? It seems contrary to his presumed understanding of the markets.
My personal hypothesis is that people keep attributing the successes of SBF to his intellect rather than a mix of intellect and luck, like the rest of us mere mortal. That list could as well include SBF himself. One can be lucky often but not forever, and sooner or later the "prodigies" see the fault in their impeccable algorithms.
this is it. Luck can look a lot like genius. We see it everywhere. And when you have credentials behind you, you really start to attribute luck to your genius.
People who understand that betting on red over and over again isn't a long-term winning strategy usually don't make the news for fraudulently pissing away 8 billion dollars of customer funds.
He didn't have an exit plan because, like every gambler, he was sure his "system" was better than anything that came before and couldn't possibly go tits up.
Like every gambler, he was wrong of course, and eventually lost it all because gambling is stupid.
They expected the gambles to pay off, and faster than customers started withdrawing en masse. Reminds me a lot of AIG's sketchy Securities Lending back before 2008.
> Can anyone speculate what Bankman-Fried's exit plan was?
I can speculate based on recently revealed facts.
SBF did grease politicians to the tune of 40 million USD in political donations. Several have described these donations as: "bribes" (I'll let you judge). (as a sidenote I wonder if these politicians are going to give these donations back to the people SBF scammed).
A US congressman, as reported here several times, wrote: "GaryGensler runs to the media while reports to my office allege he was helping SBF and FTX work on legal loopholes to obtain a regulatory monopoly. We're looking into this".
It's "allegedly" but it's a fact that a US congressman posted that.
It's also established that a colleague of the SEC's Garry Gensler happens to be the father of... Drumroll... The 28 years old woman CEO of Alameda.
So I'll speculate a TL;DR:
SBF was working hand in hand with corrupt politicians and corrupt officials to kick Binance out of the US through regulatory capture in order to grab Binance's insane market share (easily 10x the size of FTX).
SBF would then have continued the established FTX/Alameda scam through FTT. So he'd have then used FTX to pump the price of FTT (and, because why not, other manipulated shitcoins too) in order to keep pretending traders at Alameda were geniuses.
Alameda would have been fully legit and would have take shitloads of money from various pension funds and investment funds (knowing he already got some: why not think he would have gone for more?).
That's my speculation: why stop at 1/10th the size of Binance when you can donate tens of millions to politicians (which is pocket change when you're making billions) and work with the SEC to get a monopoly on crypto exchanges in the US, all the while pumping the value of your Alameda fund and all the while having covers of magazines and people everywhere (Bloomberg, Sequoia, JP Morgan, etc.) saying how big of a genius you are and how geniuses all people around you are.
The guy is a megalomaniac: no longer than a few weeks ago he was saying that companies worth tens of billions were "potential acquisition targets".
And I think that, had the overall markets not have been crashing hard, he may have succeeded at all that, creating a scam 10x or 100x bigger than the one he actually ran.
But the market crashed and CZ took the opportunity to reveal the FTT scam to get rid of a very dangerous competitor. No matter if Binance is legit or not: SBF was after Binance but Binance was too big for SBF too chew. Binance may be going down too (no clue about that) but Binance was never going to go down alone while letting SBF free to run his SEC-endorsed scam.
Binance leads the industry in proof of 1:1 reserves of custom holdings.
CZ knew about FTX's finances because he was the original investor in FTX. The reason he had FTT to dump in the first place is because of that initial investment in FTX.
No, you're thinking of Kraken, which has been doing this for years (not an endorsement!). Binance just did it, by revealing their wallet addresses, and promised more in future.
Two important points:
1. Generally Proof of Reserves is a term where all holders can validate cryptographically that their funds are accounted for. This is harder because it's natural and efficient for an exchange to co-mingle multiple customers.
2. Doesn't mean they're solvent! They might owe customers $100bn for all anyone knows.
It's still far better than nothing, but FWIW their history of lying about their home jurisdiction, and massive "out of nowhere" growth is a huge red flag that you should be aware of (FTX did the latter even faster, of course, being founded in 2019!).
Im 9-to-1 that Binance is shady asf but I don’t have much evidence - outside of the fact that they used to list tokens in exchange for a share of the pie, which in my eyes is super dodgy.
It's called value destruction. The coins value dropped very quickly, the counter parties then where either 1) Most likely nobody, (as in nobody cashed out, as the myriad altcoins approached the limit of worthless) and 2) traders on FTX who cashed out other ,"more valuable" coins they were lent after depositing altcoins as collateral.
They accept FTT as collateral, give out a leveraged loan to the other company. The company spends that money on things like stadium rights and bailing out other failed crypto companies. Collateral falls to a value of 0, and the money is spent.
He wouldn't be safe from US authorities in the Bahamas. They'd happily turn him over. The US Navy leases a lot of land on Andros for a Navy base that is a significant part of their GDP iirc.
Howdy HN, as some of you may know from previous comments of mine, I’m always on the hunt for swag from dead companies (Lehman Brothers letterhead, Theranos shirts, Clinkle phone case, Enron desk art, et al). The more fraudulent the collapse, the more interested I am.
I’d love to get ahead of the ball on this one so if anyone here has any, and I mean any, FTX swag you somehow have picked up over the years, I’m a very motivated buyer. I’d also do unspeakable things for swag from any one of the subsidiaries on that absolutely ludicrous flow chart I’ve seen floating around.
I’m serious.
And whatever you do, don’t sell it to /u/filmgirlcw, she is also a collector of deadco swag, and thus my competition here.
I want to buy a Theranos Edison machine and am willing to pay. If you know anyone that has one, parts of one, or anything like that, my email is in my bio and I am very happy to talk to you.
I intend to take a small portion of it, melt it into steel ingots, and include it in 'Order of the Engineer' rings for myself and my colleagues who are also engineers.
We are looking for physical equipment in which engineers screwed up and the general public paid a high price for it, as a reminder to ourselves that our work is meaningful and is one of service to the people we serve with our efforts. If you know of any equipment that may fit that bill, I am looking to pay for that too.
Maybe a very long shot but in an earlier thread from a year or so ago about a similar topic, this HN user mentioned being in a Theranos facility during liquidation: https://news.ycombinator.com/item?id=29791488
We've not been able to source any 'failures' outside of some fragments of the space shuttles that fell on people's land.
We're looking to get as many failures as we can before melting down out rings, casting in the debris in appropriate masses and compositions (they still needs to be steel rings at the end), and then reforging/casting the rings for all of us, with enough of an ingot left over to continue the process as 'failures' continue onward.
It's entirely symbolic, but does take effort and time.
Perhaps it would be better to say "you might also like to contact /u/filmgirlcw, who is also in the market (and here is how)"
You are not in competition - you are both tiny versus the size of the market, and can work together to grow the amount of offers, thus lowering the overall price.
Two years ago, when Twitter was banning right wing politicians (and left wing ones too), it was a private company that can do whatever it wants.
Suddenly in the past two years, it has magically transformed into a national security risk with global consequences.
Which is it? if the former, then they should be able to do what they want, including ban whom they want. If the latter, it needs to be regulated and certain rights ought to be enumerated for its users.
I don't know that anyone likes how moderation is ever done. If you try I bet you struggle to find folks who have ever liked twitter / the ecosystem for very long ... ever.
If twitter is a national security risk, it needs to regulated and not be a private company. If twitter is not a national security risk, then whoever owns it makes the rules.
-SBF's other pet project Alameda Research suffered huge loses after Luna blew up.
-Alameda Research, a 'backer' of FTX was given billions of FTT tokens that they 'owned' by FTX because they participated in its 'ICO', transferred it FTX, and then used it as collateral to 'borrow' FTX user assets, hoping they could gamble with it and make back their money.
CZ, of Binance, got wind of this somehow, and holding billions of FTT on Binance, decided to tank the price by saying it will all be sold immediately
From the marketwatch article it sounds like this was essentially a hostile attack from Binance, first dumping the token to collapse the price, then pretending to be interested in an acquisition to keep FTX from looking at other emergency measures, then pulling out at the last minute.
Compare this to traditional finance with events like the collapse of Lehman, then Bear Stearns, with Morgan Stanley next in line to fall. Their competitors stepped in, with a major push from the Fed, to prevent the collapse because they knew it would trigger a domino effect that would crash prices and bring them all down. Binance seems to be doing the exact opposite.
Binance triggered the collapse, but the stage was set by FTX/Alameda by "creating its own token" (per "The FTX-Alameda nexus") and "loaning" $10bn to Alameda using their "own created token" as the backing collateral.
Of course, there's a risk that the hedge fund could lose some or all of the customers' funds. And the exchange promises that customers can have their assets back on demand, which could be a trifle problematic if they are locked up in leveraged positions held by the hedge fund. But this is crypto. There's an easy solution.
The exchange can issue its own token to replace the customer assets transferred to the hedge fund.
The exchange will report customer balances in terms of the assets they have deposited,
but what it will actually hold will be its own token.
If customers request to withdraw their balances, the exchange will sell its own tokens to obtain the necessary assets - after all, crypto assets, like dollars, are fungible.
["The FTX-Alameda nexus" - emphasis mine]
FTX the exchange appear to have lent client funds to Alameda research.
The loans had very poor collateral behind them, meaning that FTX were exposed.
It is not currently clear if or how Alameda lost the $billions of client assets, or if they are just illiquid.
There is noise that the client assets were spent on things like the summer bailouts of defunct crypto firms, but I think we are just speculating at that point.
Just noting that the FT article has a statement from its interim CEO:
“The immediate relief of Chapter 11 is appropriate to provide the FTX Group the opportunity to assess its situation and develop a process to maximize recoveries for stakeholders,” [John J] Ray [III] said.
Well, secured creditors really. They may or may not be insiders.
The people who are really hosed are the non secured creditors. Who, again, may or may not be insiders.
That said, in either case, they are very likely to be extremely disappointed in what is recovered. I just have a sneaky suspicion that even the USD6 Billion that everyone hopes remains available, is not actually there.
Group holdings yes, but the US exchange and some of their other acquisitions are in US. It seems to be quite an elaborate cluster of firms that have filed for bankruptcy, which makes me think maybe someone was doing funny stuff with money.
You can't really pick and choose where to have your bankruptcy. This filing is for FTX's US entities, those in Antigua will be wound up with Antigua's rules.
FTX Trading Ltd is "is incorporated in Antigua and Barbuda, and headquartered in The Bahamas", yet the linked statement clearly says FTX Trading Ltd (plus the FTX US entity, and Alameda, and others) are filing for Chapter 11 under US law in Delaware.
Is there a parent company of FTX Trading Ltd that's based in the US?
Edit: Apparently "Paper Bird Inc" is registered in Delaware, is 100% owned by SBF, and has ~89% ownership of FTX Trading Ltd.
As a sidenote, many of the commitments that SBF made to the FTX Future Fund were either in FTT or paid in installments, which means that they will never be paid at all. Huge impact on the EA movement and their grantees.
This where the investors including the big silicon valley investors that make billions of returns step in and make the little people whole. If BlockFi needs a line of credit to allow withdrawals, each of the investors needs to be in line to provide that credit at the expense of the partners and LPs. Officers eat last.
I transferred my crypto out of FTX.us.
The pilot transaction was successful, but about the main transaction, while I’ve confirmation from FTX.us about initiation, 12+ hrs. Later, there is no confirmation of a successful completion of the transaction. I don’t see crypto in my either my FTX.us wallet or the target wallet.
Is there a way I can get my crypto? Thanks!
(FTX sponsored the chess tournament where Hans Niemann said "the chess speaks for itself" after winning the first game of his match against Magnus - and before promptly losing the remaining three)
Bitcoin's difficulty adjusts on-demand. Regardless of how many or few people use it, as long as some people do then it'll keep existing and sitting there clearing transactions all day long, spitting out new blocks every ten minutes like clockwork. That's the beauty of Bitcoin -- it's a program that once started never stops running, like a watch that keeps ticking.
The work in place to build L2 systems (Lightning, Web5, etc) that can derive a secure economic system from that base consensus clock will continue on just fine.
Ethereum has a good developer network. It does work well as a decentralized, distributed compute engine. The costs are also coming down with new scaling solutions.
Paying for digital products (software, digital items) is hands down far better wtih a web wallet than a credit card.
Ethereum is probably the only crypto I can imagine holding for the medium to long-term
The CEO of Alameda said "we tend not to have stop losses... I'm trying to think of a good example of a trade where I've lost a ton of money... I probably don't want to go into specifics with that"
Now how did this place end up managing billions of dollars and SBF the darling of politicians?
The picture is starting to come into focus. SBF used customer funds to become one of the top political donors. He donated $40M and was planning up to $1B. His parents are Stanford Professors who are well connected in the political world.
Caroline, Alameda's CEO, also said "My advice for college is that classes don't matter that much and friends and networking are really important. Probably the most valuable thing you can do in college is find the coolest people you can and spend lots of time hanging out with them". Apparently so.
Her dad is the Department Head of Economics at MIT. Prior to getting appointed to the SEC, Gary Gensler was a Professor for the Practice of Global Economics & Management at MIT.
The CEO of GoldmanSachs met with SBF to help FTX get regulatory approval.
From a congressman yesterday, "Gary Gensler runs to the media while reports to my office allege he was helping SBF and FTX work on legal loopholes to obtain a regulatory monopoly. We're looking into this." https://twitter.com/RepTomEmmer/status/1590717374801809409
It looks like Enron or Theranos 2.0. The kids of the elite were being elevated into positions way outside their ability and supported at high levels with no scrutiny. The fallout from this is going to be astronomical.
> Caroline, Alameda's CEO, also said "My advice for college is that class don't matter that much and friends and networking are really important. Probably the most valuable thing you can do in college is find the coolest people you can and spend lots of time hanging out with them".
This is mainstream advice if you're at an Ivy, Stanford, etc. You're learning the same material as the people who go to a state university. The advantage is the proximity to power, the people you rub elbows with who can help your career down the line.
This is the entire premise of elite business schools – nobody is dropping $100k/year for the content that you can get on YouTube for free.
> You're learning the same material as the people who go to a state university. The advantage is the proximity to power, the people you rub elbows with who can help your career down the line.
I got my MS CS from Stanford and this is completely false. I did my BS CS at Georgetown, and even between the two there was a huge difference being at Stanford. The course material pushed me way harder, there were more resources (e.g. robots), a much wider selection of electives, and more consistently brilliant peers. I never felt behind at Georgetown; I certainly had those moments at Stanford, even though I did very well there in the end.
The original comment applies more to humanities and business school than to hard sciences. But it's still relevant in STEM.
> I got my MS CS from Stanford and this is completely false. I did my BS CS at Georgetown, and even between the two there was a huge difference being at Stanford.
Stanford is probably the best-known school in the world for Computer Science. Georgetown (while a great school) is known for its international relations. So I'm not surprised that Stanford had more CS electives, resources, etc.
But the fair comparison here is a school like UC Berkeley, University of Illinois, or [insert flagship state university here]. Is the quality of education really that different vs. Stanford? Or is the Stanford name brand on the resume the differentiator?
Also, a masters program should be harder and more competitive than an undergrad program!
> and more consistently brilliant peers
Exactly. At Stanford, your "consistently more brilliant peers" will be in positions of power down the road. They'll be hiring managers at Google and Apple in <5 years.
This is actually generally how finance works though. The whole industry is built on the illusion of superior competence.
"Prestige" is a determining factor in someones ability get a job running a hedge fund/financial asset management. Generally they need to have gone to the right school, worked at the right bank, then at the right hedge fund. Each should show a good amount of tenure ( > 3-5 years ).
A major asset manager that I won't mention hires PhDs from Harvard as a way to get people to invest in their fund. Behind the scenes, away from all the quant marketing nonsense, is some guy you've never heard of making gut based trades on the market.
To see this all you have to do is interview at a few "prestigious" financial companies.
A while back I interviewed with one of the top trading firms. It was for a lower level position that I normally wouldn't take but I was excited about the prospect of working with some truly brilliant quants.
Wow was I disappointed. The discussion with the quants quickly relieved that they had absolutely zero interest in their field, and not a particularly deep understanding of the fundamentals of the mathematics they were using. It became clear that their entire course of study was focused on getting in to high paying financial company, and all the things they had to learn on the way there were just boring prereqs.
I've met a lot of really talented and smart applied math people over my career, and this quant team was not in that groups of people.
That said all the engineers I chatted with were great. My takeaway was that these companies do need talented engineers to run these systems but the "brilliant quants" is more or less just, as you say, the illusion of superior competence.
I think it really depends to be honest. I don't think what you are saying is generally true of people at prop trading firms, the ones that I know were generally very into math/physics and got lured by the high pay.
With prop firms, there is little need to schmooze the rich with fancy degrees
"This is actually generally how finance works though. The whole industry is built on the illusion of superior competence. "Prestige" is a determining factor in someones ability get a job running a hedge fund/financial asset management"
It's not just finance, people everywhere are impressed by a prestigious background, and assume if you can drop certain names on your resume you must be great.
Such names will open all sorts of doors for you that are firmly shut against the riffraff.
Of course, conmen have used such patinas of prestige to their advantage since the dawn of time.
There's also the irony of the fancy office. If you're a customer of a professional and walk into a very luxurious office, you know ultimately you're the one paying for that. If it were a separate surcharge to meet in the fancy office vs something basic would you chose to pay it? Yet psychologically we all feel more confident in the fancy office.
I saw this at Bridgewater. Hired only ivy league, smart people actually. But their total discretionary control was a tiny % of fund. Hedge funds are mostly marketing. When 2008 financial crisis happened, Dalio was making the big trades in the control room himself on gut feel.
This. Someone from Bridgewater mentioned that Dalio's "radical transparency" and all that we-record-everything nonsense is just a marketing bluff. Actual decisions are made behind closed doors by a few people.
I do feel like SBF path was obviously distinct from this hedge fund/IB pathway you are describing.
For one, he got hired for a prop trading firms - in which these effects are not very large because they have little-to-no interest in clients and managing assets.
To be fair I heard from a few places that you really don't want to do stop losses on crypto exactly because of companies like FTX - since the traders and the exchange are really the same people, it's possible that there isn't a good enough chinese wall between them - when that happens the traders can see your stop losses which is like holding a massive sign saying "Here, take my crypto for cheap".
I hope people read this and really understand what it says. It Crypto had any intrinsic value this paragraph would be ridiculous ... but it's not. At least tulips were pretty to look at.
The only reason big banks doesn't do this openly is because they actually have regulators breathing down their neck so they have to either hide it well or find ways around.
The problem isn't crypto, it's the lack of accountability.
> The only reason big banks doesn't do this openly is because they actually have regulators breathing down their neck so they have to either hide it well or find ways around.
I thought that's what the whole PFOF debate in the US was about? That e.g. Citadel is allegedly using SL and order book information to hunt stops on thin volumes.
Not from the US and I didn't follow it too closely, maybe I got it wrong.
> Now how did this place end up managing billions of dollars and SBF the darling of politicians?
It's not that hard to be the darling of politicians in this day of extreme polarization - you just tell them what they want to hear.
SBF made a good safe bet that coming off as "pro-regulation" would be a winning strategy in the current climate. Heck, it was probably a good bet regardless of whether Democrats or Republicans are in power, because even though Republicans are nominally anti-regulation, being against "Silicon Valley billionaires" is basically the one thing that gets bipartisan support these days, so flattering politicians with "we need you to regulate us" was probably a good strategy.
I guess the way it works is before they blow up people go "clearly they're doing great, they know something we don't. You think they need stop losses, but that's because you just don't get it. Stop asking questions".
This stuff just worries me so much. These people are looked up to as some gods of business, insight, or whatever. Even I have been guilty of getting caught up and being jealous of these younger people with so much apparent success. But then you find out, in gory detail, about just how much bullshit it all is, and that these people are just from elite circles who got handed keys to the Lamborghini after just playing with a Tonka truck. I mean, just hearing these people speak is cringe. They don’t understand how anything actual works. I can’t believe that something that literally stops your losses is not an effective risk management tool.
This is what you find with kids from the elite class. They can take on mind blowing risk because they can fall back on their parents when it fails. People from lower socioeconomic levels cannot do that. Our government sets back and let criminal actions go unpunished, letting people truly treat life as a Monopoly game.
Yeah, it's funny to see Alameda called out for this, when most hedge funds don't use stop losses. It's pretty reasonable not to want their assets liquidated at a bad price in their sleep, in response to a price movement which might have been an artificial blip.
Is this how it always is and has been in Silicon Valley or Tech in the US. Startups started by well connected or well off kids, with backgrounds at elite Universities. Background and connections count for so much in that industry, it makes you wonder how much has been lost or how much potential was lost because people didnt go to the right schools.
no, this is not true. The reality of Silicon Valley since the mid-1970s is an explosive and unpredictable mix of institutional money, their cohorts and practices; defense industry, their cohorts and money (these fit your hypothesis somewhat); dramatic and overlapping physical inventions using silicon parts, the people that build and promote those, their investor and insiders; marketing success more like Hollywood of old, their cohorts and practices; non-USA money and investment systems, their cohorts and practices; international Fortune 500, their cohorts and practices.. and more I am leaving out..
My point is this doesn't feel like stupidity or some confluence of mistakes. It feels more like someone realizing they can get people to invest in their house of cards while knowing it's a house of cards.
How many times are we going to allow someone to slice us with weaponized stupidity before we realize that willful ignorance is actually a powerful tool in the malicious actor's/white collar toolkit?
On the street, the cops/court'll beat you with "ignorance of the law is not an excuse".
In the board room, the corporation can do no wrong, here's your settlement, chapter 11 plox.
SBF should delete twitter mostly to stop publishing increasingly ridiculous "I’m really sorry, again" messages: "Hopefully things can find a way to recover. Hopefully this can bring some amount of transparency, trust, and governance to them. Ultimately hopefully it can be better for customers."
That gets them out from bankruptcy in the Bahamas, which is much tougher than US law. The Bahamas still has classic tough bankruptcy laws, where there's no debtor-in-possession reorganization. It's straight to liquidation, with a court-appointed receiver in charge.
This should be, and may be, converted to a straight liquidation. Chapter 11 can be useful for restarting companies that actually do something, like General Motors. There, much of the value is in the ongoing business. FTX, going forward, has no ongoing business. Lawyers for creditors will be making that argument.
Note that Bankman-Fried is still employed by FTX, "assisting".
Current banners at FTX.com: "FTX is currently unable to process withdrawals. We strongly advise against depositing. Deposits of TRX, BTT, JST, SUN, and HT are disabled. All onboarding of new clients has been suspended until further notice."
"We have reached an agreement with Tron to establish a special facility to allow holders of TRX, BTT, JST, SUN, and HT to swap assets from FTX 1:1 to external wallets. This functionality will be enabled at 18:30 UTC, November 10, 2022."