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Comment by mertd | Hacker News Reader

> In all, the spreadsheet says FTX Trading’s assets were $900mn of “liquid” assets, $5.5bn of “less liquid” assets consisting of crypto tokens

Aren't tokens supposed to be "liquid" or is this a different way of saying the tokens are worthless?

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My understanding is that a lot of their assets were in their own cryptocoin that they borrowed against like:

1. Make million new coins called $mikecoin

2. Sell 1 $mikecoin to a friend for 1 USD

3. Claim that the "Total Market Cap" for $mikecoin is 1 million USD

4. Borrow Bitcoin or dollars against your $mikecoin reserve.

This seems to be the trick. I think this same thing also explains the high market cap of many altcoins, such as Solana. Instead of selling and crashing the price, these are held onto and used as a collateral to borrow against.

The two sentences

> Instead of selling and crashing the price

and

> these are held onto and used as a collateral to borrow against.

Are not compatible. If selling the assert crashes its price, it is a terrible collateral.

I would like to see how lenders justified in writing accepting large quantities of FTT as collateral.

My understanding that it is an extension of the old joke about someone wanting to sell a dog for 1 million that was finally traded for 2 cats worth half a million each.

Basically extended comment of michaelbuckbee. You have your $mikecoins "worth" 1 million and someone else makes $annacoins worth 1 million and some other party makes $bobcoins worth 1 million - and you each "lend" them to each other to make a complicated net. Then Mike, Anna and Bob just wait for some people to invest real money - and cash out. People who bought those $mikecoins, $annacoins and $bobcoins think that they can "always sell them back at the market", but the market didnt really exist. From those 1 million coins minted, maybe 250 thousand were sold, rest are held by creators to sell them to bagholders.

Your explanation is the clearest one I've read thus far, of how these token scams work.

Tokens are very liquid, until they are not. And sadly with both FTT, Luna and so many others, that transition seems to happen instantly and without any warning.

Well, I guess the warning would be that someone created something from nothing and said it was worth a few Billion dollars, but other than that, it's a surprise event to everyone - just ask Sequoia Capital and Forbes.

Liquid doesn't just mean "can trade out of it at any time", but also "would typically be willing to trade out of it at any time". If a market is in a downswing, you're typically told to hold on to your stocks: buy low, sell high. The same rule would apply here. But that does mean they're not guaranteed to be liquid ("willing to trade") at all times, given that there's a risk of loss if you are forced to trade out of it at times of a market-low.

tokens are as liquid as worthless currency of many dying countries out there. Who are the takers for these tokens? For instance, the whole world loves to swap their real assets (commodities, etc) with US dollars. How many want to part with their US dollars for these tokens? Hardly any. So, worthless.

Not worthless! Just, you know, worthless right now.

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