https://mobile.twitter.com/LucasNuzzi/status/159012259020682...
In summary:
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.
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?
And now you’re insolvent.
https://www.kraken.com/learn/what-is-serum-srm
> Serum is a decentralized exchange software built on Solana where cryptocurrencies can be bought and sold by traders
more rumours are surfacing, including Yuga Labs (biggest name in the NFT space), Jump Crypto, Paradigm... this is basically our Lehman Brothers moment
edit: looks like Yuga might be ok after all. luckily, sometimes rumour is just a rumour.
By their own figures, Tether is now undercapitalized and just had billions withdrawn.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.
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.
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.
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.
I am not kidding, really, get out now. I care too much for our community to not have said anything to warn you."
Not sure what that all entails.
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 think they'll be fine.
Also, if Coinbase goes bankrupt and takes everyone’s crypto with them I feel everything will crash to essentially 0.
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).
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.
[1] https://news.ycombinator.com/item?id=31686140
[2] https://www.bloomberg.com/news/articles/2022-03-23/terra-s-p...
[3] https://twitter.com/cz_binance/status/1589374530413215744
Is Coinbase just not cool anymore, or is there some advantage to using exchanges like FTX until they go belly-up?
Larry David + Steph Curry "endorsed" television commercials?
"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 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.
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.
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.
Benjamin Graham & David L. Dodd, Security Analysis, 1934
Hash rate is still climbing, the price will follow.
Everything else is noise.
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.
(This comment is an explanation of a viewpoint, and not an endorsement.)
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.
Since governments usually have to enforce the consequences of those decisions, ye.
- multiple sub accounts - 20x leverage with tiered liquidations - you could use your portfolio as collateral - advanced trading tools
This is why it was so shocking to see them collapse for doing such a stupidly bad thing, the guy seemed super smart (albeit vegan+commie).
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)..
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.
And it's glaringly obvious everyone offering these outsized returns is literally just pulling a ponzi.
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.
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.
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".
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.
- 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.
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.
People are saying that Alameda Research lost a lot of money due to Luna / Terra and were bailed out by FTX user funds, a loan with FTT as collateral.
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?
https://twitter.com/westiecapital/status/1591089073468280832...