FTX’s balance sheet was bad
bloomberg.com
bloomberg.com
In other words, suppose I create token SCAMMER, and I say its supply will be capped at 1 million tokens (or 10 million, or 100 million - that's the "nice" thing about crypto, I can kinda choose whatever number I want), and then I'm able to sell 10 of those tokens for $100 each. According to FTX math, I now have $99,999,000 of assets on my balance sheet, but of course if I actually tried to sell a lot of my "kept" tokens I would tank the SCAMMER price.
Even better, and I think what is probably more common in the crypto industry: suppose I get my buddy to create a SUX2BEU token. I tell my buddy I'll by 10 SUX2BEU tokens for $100 each if he buys 10 of my SCAMMER tokens for $100 each. Now suddenly we can both say we have huge assets on our balance sheets! Until, of course, someone decides to pull aside the curtain covering the wizard.
So many ponzi schemes on top of ponzi schemes...
It sounds good to perpetuate the "but Amazon.com had extra capacity they could sell" but it's not true.
With that definition, AWS is a startup. So was the iPhone. Both invented their respective markets, and had to grow quickly to do it. If either of them had needed to raise money from VCs, smart VCs would’ve invested. But they didn’t need to raise capital, since they were already a successful company.
But, when the gold rush is over, the shovel-seller may have to do big layoffs.
https://www.cnbc.com/2022/11/14/spacex-just-bought-a-big-ad-...
Your definition for "a bunch" is a bit questionable, but good on you for posting the source.
I think if it had been $500k or $1M I would've called it a bunch, but $160k seems low.
[1] That's right M is for a thousand, because M is a thousand using Roman Numerals. You thought you would never have to remember that.
The ad campaign SpaceX is buying to promote Starlink is called a Twitter “takeover.” When a company buys one of these packages, they typically spend upwards of $250,000 to put their brand on top of the main Twitter timeline for a full day, according to one current and one former Twitter employee who asked to remain unnamed because they were not authorized to speak on behalf of the company.
Which means 160k spent is actually well below typical deal and these deals are pretty normal for Twitter. So one may actually be worried that maybe SpaceX got a deep discount or something.
A uses B uses C
C uses A but not B
B uses C
"Ooooo, A uses B I should use them for C!"
Just selling to other early-stage startups doesn’t generate much growth/revenue or make you look like a solid business to a sophisticated investor. SaaS/B2B companies that make it big do so because they get huge numbers of small-medium businesses using their platform, not just startups - E.g., Slack, Stripe, Square, Shopify, Canva, Zendesk, Zapier, Segment.
Having other startups using your product is a good early source of product feedback and a strong signal to very early-stage investors, but that alone doesn’t give you the huge growth you need for bigger funding rounds.
It’s very different to the scenario PG was describing in the late 90s; in those days, a startup would be founded, quickly IPO to raise several $million from unsophisticated retail investors, then spend much of it on advertising on Yahoo to drive traffic and artificially push the share price up. Hence when the music stopped in 2000 all that ad spend dried up and Yahoo’s share price crashed.
All those companies I mentioned above are going fine; slowed growth, sure, but they have real businesses with broad customer bases well beyond the startup ecosystem, so they’re all able to continue operating and keep doing OK.
Same way with games I enjoy. I never tend to buy the "skins" or "cosmetics" unless one _really_ clicks with me.
You aren't spending $25 on video game shit, you're spending $25 on a fun skin to show your pals, or upgrades to help your friends beat some boss, or whatever
Once you get on that path, it can lead pretty normal people to some very dark places indeed
Maybe you've already found a decent app (or realised that your camera has a built-in scanner), but the confusingly-named Barcode Scanner (https://play.google.com/store/apps/details?id=com.google.zxi...) scans QR codes without fuss.
I’m on iOS, tried a few but they all wanted a subscription and were a terrible experience without it. So I wrote simplescan.vercel.app / https://github.com/mcintyre94/simplescan which does the job for me! Though Apple have broken using the camera when you save it to your Home Screen and open it as an app which is annoying.
Ah, that explains it! Your usecase explains it, but I'm reasonably assuming Android because recent iOS versions have it built-in.
As does Android, just open the Camera app and point to the code.
There is a way to rate and classify derivatives appropriately, you just can't hold the ratings people hostage. I don't think there's a way to do that with crypto.
The banks weren’t to blame for 2008 any more than were the hoardes of FOMO buyers - in that they were both pretty culpable but neither of them were the real problem.
Lax regulation of the rating agencies was the real smoking gun. I’m not even sure it was ever addressed given all the banker witch hunts that ensued, and will next time too.
Dave Chappelle was on Saturday Night Live this past week and did a bit in the monologue about why we can’t have good regulations. Worth checking out:
https://m.youtube.com/watch?v=_m-gO0HSCYk
(Starts at 8:50)
The spent their HELOC and never had to pay it back, they took the "first time homebuyers tax credit", and many of them lived in the house they "bought" for a year or two without paying any mortgage payment until the bank finally took it back. They never paid income tax on any forgiven debt, and they never paid income tax on the imputed income from living in a nice house for a couple of years rent-free until the bank finally was able to take possession of it.
Nothing wrong at all, it's good to bootstrap an initial customer base and get some user-feedback, but until the chasm is crossed to "real" customers, one could argue that this is the same case nowadays. So the dotcom time was no better nor worse than right now in terms of startup viability.
In some cases you could see it being positive not having your stock price drop everytime the Fed announces a new rate increase or jump everytime they don't (or etc etc with other events) if your primary goal is to continue at a steady pace to achieve some goal.
That’s a rather fine and unimportant distinction.
It is characteristic of crypto, just not only crypto.
And, in the case of crypto, the asset never represents anything but itself.
> in the case of crypto, the asset never represents anything but itself.
This is the foul taste of all crypto "assets". They are not assets because they have no intrinsic value for anything.
The nearest real economy analogy is the art market, which is hopelessly inflated, utterly riddled with fraud, and with very little intrinsic value.
But you can hang a painting on a wall and look at it. Even if it is a fake it still looks good on the wall.
Crypto has none of that. All it has is the scam, the fake, the hope of a bigger fool.
Shame on us for letting this happen. It gives a bad name to geeks in general and cryptography specifically.
Crypto doesn't have the same properties, but if a crypto token isn't a security then you can get some other tax benefits via wash sales.
Don't know the "real" price because it's infrequently (or never) traded.
Tokens, etc. are easiest to think of as securities (aka stock) generally, albeit securities in a more abstract thing than a company.
Also; stock in private companies is often not tradeable at all, but no accountant is going to call those fake.
There are multiple ways of plausibly pricing assets.
None are generally accepted that would let someone just make up a ridiculous valuation and stand up to any scrutiny, but people can always do what they want until the auditors show up anyway.
Now, whether or not this is how banks act in practice is another question. It is, perhaps, how they should act if they're being conservative, but it is likely that others will swoop in and often enough grab that interest for themselves. And in the rate environment we've been in until very recently, those are likely the banks that have managed to survive in many cases.
The fundamentals for your ponzi coins are so bad they might as well be worth zero, so why would that insignificant value difference matter anyway?
Crypto tokens are unable to generate revenue.
In the case of crypto companies who create their own tokens and then use them as collateral, they never actually paid anything for the tokens they own. There's not even a cost basis. It's entirely made up.
Not only is what the crypto companies doing much worse, but it is rare for VCs to leverage their investments in companies. It's not like their fund is levering up 2:1 and buying companies, like a PE fund does, because in the case of VCs their investments are usually not producing cash flow. But in the case of some of these crypto companies, they were levering up using collateral of tokens they made up that they never paid anything for.
It's much, much worse than anything recently seen in finance. CDOs were bad in 2008, but at least the mortgages were a secured claim on a physical asset that someone actually paid something for.
Also my phone does not flag DogeCoin as a misspelled word.
Anyone who invests in this stuff is either really dumb, or morally impaired yet smart enough to exploit people who are really dumb.
Sure, there's fraudlent accounting, and wash trading, and other bullshit, but that's all just the some and mirrors that allows the ponzi scheme to work.
a ponzi scheme reports a profit, and pays out that profit to early investors. (the payout is actually later investors inflow.)
the only one of the ones you mentioned that is actually a ponzi scheme is the "delivering a yield." its the yield delivery, aka dividend, that makes it a ponzi scheme, not just fraudulently running away with the money. the scheme works because people get paid out regularly, and have no reason to believe their money isnt working for them.
exactly how crypto works.
That is not a ponzi scheme. The selling of the asset to the next sucker, and the price going up, and each person in line getting to shave some profit off the next person is not a ponzi scheme. (It's also exactly how non dividend end paying stocks work. The stock is only worth what the next person is willing to pay.) Youve described a pump and dump.
A ponzi scheme has a mechanism to give a fraudulent "RETURN" to investors that HOLD. That is the definition.
None of the clow bucks are claiming that the underlying product is producing its own profit, the only value is the holding of the asset itself.
Everyone is now using ponzi to mean any sort of scheme including ponzi, pump and dump, etc. But thats not what the word ponzi actually means. And when you say things like "by definition" we need to stick to the actual definition.
""" You can now earn yield on your crypto purchases and deposits, as well as your fiat balances, in your FTX app! By opting in and participating in staking your supported assets in your FTX account, you’ll be eligible to earn up to 8% APY on your assets. """
How does one provide 8% yield on BTC I have no idea.
To me, FTX is a classic Ponzi scheme according to the most uncontroversial definitions of "Ponzi scheme".
Europe's hashrate could disappear overnight and barely anyone would notice.
Is there any country that's dependent on crypto mining? I think you may have meant the inverse--a country that crypto mining isn't dependent on (like it was on China... until China banned it a few years ago).
I'm not mining, I'm heating my winter swimming pool with this ASIC based heating elements!
Tax any externalities and let the problem solve itself. Yes, you might end up with some heated sidewalks or other conspicuous consumption, but at least you end up with resources that can counter the problem.
Why not simply prohibit proof-of-work coins and be done with it? There are so many disadvantages and no benefits, it seems.
This is well understood and goes on all the time in NFTs, it's usually called wash trading.
People in crypto know this is happening. The reason they still speculate is because it's hard to predict when it will collapse, and some people think they have an edge predicting that sort of thing.
These shenanigans have been going on for a long time in wealthy groups.
Isn't this what happened with Quadriga exchange?
The regulator said Thursday that Vancouver-based Quadriga's late founder Gerald Cotten committed fraud by opening accounts under aliases and crediting himself with fictitious currency and crypto asset balances, which he traded with unsuspecting clients.
On Thursday, the OSC attributed about $115 million of the $169 million clients lost to Cotten's "fraudulent" trading.
Another $28 million was lost when Cotten used client assets on three external crypto asset trading platforms without authorization or disclosure.
The OSC said he also misappropriated millions in client assets to fund his "lavish" lifestyle and because he was in sole control of the company ever since 2016, he "ran the business as he saw fit, with no proper system of internal oversight or controls or proper books and records."
https://www.cbc.ca/news/business/osc-quadriga-gerald-cotten-...
Anybody can do that, true. What you also need is credibility and willingness to destroy that. Look at Fried Bankman, he had had tons of pedigree and knew what ears to wisper too. He apparently wasn't saying anything smart and yet people believed him. He was even rude and playing videgames during meetings and yet people believed him. It's easy and yet it isn't. I think scammers have qualities normal people don't have and when all those line up we get a super bankrun like what happened in this case.
Here are the docs for V1 (V3 is different, but the core pieces remain) https://docs.uniswap.org/protocol/V1/introduction.
V2 docs have fun diagrams if that is useful for you https://docs.uniswap.org/protocol/V2/concepts/protocol-overv...
It's quite interesting, and essentially what happens is that a pairing pool is created, ETH <> Shtcoin for example. So now for that shtcoin to have "value" it needs to be liquid within the pool, ie can go into ETH. The cost of the coin is determined mathematically based on the ratio each side of the pool.
In that way, "DeFi" feels the same about the finance industry.
It was no secret that SBF hated traditional finance. And so I assume he refused to learn anything from it. But what he ended up creating was almost a hilarious parody of the financial system.
That's at least how I can square the circle about how someone who could criticize Lehman Brothers for letting themselves get overleveraged on shady asset classes could literally have negative 8 billion dollars in "Hidden, poorly internally labeled ‘fiat@’ account" and then publicly go to Twitter to say they have a "liquidity problem".
More likely is that the child of prominent academics might actually be more intelligent than average themselves and certainly provided more opportunity to flourish.
I'm confused as to what you are asking - Jane St certainly hires plenty of people out of college not for nepotism reasons.
The fact that he did not have a prior job before college is not evidence he was hired for nepotism.
Let me guess - he also got into MIT through nepotism as well.
I'll let others decide on whether they find that reasoning convincing!
I know kids who definitely got in because of parents money, but it certainly did not impact their grading.
What grade inflation really means is that for many, if not all, majors at a school like Harvard, you can take a path of classes that will end up with you completing your major and having a high GPA.
That said, there are certainly classes that will be much less nice to you when grading and have a self-selected group of students. My guess is that if JS has enough people from, say, Harvard, they will know the difference between a student who took hard upper level courses to complete their major vs. just the simple basics.
In terms of why this grade inflation is so prevalent, one reason I think is that faculty want to have students in their courses/run a "superstar" course, and students select classes with the easiest grading policy. Schools like MIT (and Princeton as well) specifically combat this and so are known for grade deflation.
It seems entirely reasonable to me that Jane Street would consider a Bachelor's degree from MIT in math or computer science, being clever, and a prior internship at Jane Street as qualification to work at Jane Street.
> Jane St (unlike customer-facing finance firms, like Goldman Sachs) does not really engage in this style of nepotism hiring that I know of.
Wow i'm sold.
I promise you I have no affiliations with JS whatsoever, just think that there is lots of sloppy reasoning going on in this thread.
Makes your claim unconvincing though. At least if you had worked there you might be in a position to make a claim either way.
The class of people hired by firms like Goldman Sachs is obviously nepotistic in nature and very different from the class that JS hires.
A substantial portion of the GS mix is athletes & what I would call traditional Northeast elites, Jane St hired mostly out of the top physics, CS & applied math classes I was in.
Beyond that, having parents who are prominent professors is nothing special at these schools and definitely would not give you pull at these institutions. Finally, Jane St has no incentive to engage in this sort of hiring because they are not customer/client facing.
The practical version of Effective Altruism for most people is essentially "if you're well off, you should donate a chunk of your income to buying anti-malaria bed nets/deworming medicine/direct cash transfers for the global poor". I don't see how that could "sour" in your mind, seems like a fairly unreservedly good thing.
I want to point out that there are real people [1] being helped by Effective Altruism right now. Telling them "sorry, can't help you any more, some rich asshole in the US just committed a scam, and he claimed he wanted to help you too" just seems incredibly petty and cruel to me.
[1] - This is also a group that traditionally doesn't receive much attention either.
All the mainstream political suggestions for taxation/wealth distribution focus on correcting wealth inequalities within a rich nation. Very few (if any) suggest redistributing from wealthy western nations to the global poor.
Obviously AMF has been around before EA, the big difference is the additional amount of money it’s been able to deploy. I personally know many people (including me!) who started donating significantly because of EA.
Isn't it against EA ethos? Helping some people right now, right here? I read some posts about this movement, and from them it seemed like EAs are more interested in the far off stuff - developing benevolent AI, transumanism, space travel, gene vaults, terraforming, Mars colonisation etc. (there is nothing wrong with these activities). Because helping people right now is "just" altruism, not effective altruism.
> I read some posts about this movement, and from them it seemed like EAs are more interested in the far off stuff
You can’t really use that as a metric to judge the movement, since there’s only so much one can write about “donate money to AMF”, but you can write pages and pages about the far off stuff.
Jane Street - NYC
EA - Berkeley
Crypto - the Bahamas or something?
VCs - Palo Alto
```Palo Alto (/ˌpæloʊ ˈæltoʊ/; Spanish for "tall stick") is a charter city in the northwestern corner of Santa Clara County, California, United States, in the San Francisco Bay Area``` - https://en.wikipedia.org/wiki/Palo_Alto,_California
Jane St is a prop trading firm - the only money they have to lose is their own.
Jane St is fully above board and has no such associated firm managing customer money.
A plausible story to me is that they were good at whatever they screen for in the interview and then at Jane Street they made a bunch of money. Then they attributed too much of that to themselves and not enough to whatever institutional processes and risk frameworks they benefited from. They bring themselves but not those processes to their own trading firm, and then boom!
for me just knowing how to setup a quant trading firm, how to choose prime brokers, how to find and select vendors, leased lines, how to setup paper work, cap intro relationships, exchange memberships, FIX certs, are of equal value as alpha tricks, and really I dont even see a lot of evidence that the Almeda / FTX people were particularly well-seasoned in any respect.
But the point is you can't infer anything about Jane Street risk controls from people who didn't have that role.
I'm talking about the Jane Street risk control people not being able to filter out two of the biggest fraudsters of this century. Yes, I know that, technically, the Jane Street risk control people most probably only focus on the risky stuff that might bring their house down, and, as such, they most probably wash their hands when it comes to the deeds of their former employees, but I was under the impression that when those sort of shops hire someone there's also a general screening for "is this a guy/lady that is going to swindle billions of dollars in the near future"?
And, to be honest, I guess that's what the cachet of people like SBF was, especially in a very deregulated and wild market like crypto is. More exactly "normal" people would have thought along the lines of: "this guy has worked for Jane Street -> I've read Jane Street are cool, honest people, so they must have done some vetting of their employees -> SBF most probably won't run with my money".
More generally speaking, as you most probably well know, the whole house of finance is built on trust and trust alone. That goes for crypto, that goes for traders like JS, that goes for boring money market funds, that goes for the FED itself (probably with trust decreasing from Fed -> to MMFs -> to traders -> to crypto).
When such swindlers like SBF and Caroline Ellison both happen to have worked at any one entity that's part of that chain of trust that I mentioned, then said entity can't just wash its hand saying "well, we checked out on them, they were fine when they used to work for us", it doesn't work like that. People will start asking themselves: "Are there other swindlers now working for JS that JS has failed to catch during its vetting process? If yes, do they risk bringing the whole JS house down?".
All the while the IBs and the algo traders and all those fancy financial shops will keep saying: "how could we have known? We're not mind-readers! These are not our people!". Madness.
Also, by "JS risk control" people I was not only thinking about the spreadsheet guys. I hope to the gods of Mammon that there still is some sense of "is this guy trustful? Does he belong in this trust-based industry?" active inside of those firms, and, no, I don't expect the spreadsheet guys from credit risk to be in charge of it.
If you're telling me that "no, there's no such department in any of those institutions! Any crook can get hired as long as he passes the technical interview" then I think the industry has a whole has a big f.ing problem.
They make money from the pennies in the spread, many many many times over. They are not making over-leveraged big bets.
I encourage you to talk to anyone who works in market-making finance.
Let's also try not to conflate "blowing up" with actual fraud. Traders are free to lose all of their own money, and doing so is not fraud
Furthermore, Jane St only trades their own capital - ie. not capital deposited by customers in an exchange and not capital provided by selling ownership stakes of itself on a public market. This is a clear distinction from Knight.
It's as if some guy just had a bunch of money, traded it and made some more money, hired a bunch of people to keep trading it, and it has made a ton of great returns and people are asking: is this a scam?
Who would it be scamming? The only suckers are this guy.
It would be worrisome if most of Alameda was full of ex-JS traders, who had been there for 7+ years.
Unless they use leverage, which they all do. Then, they can easily lose their lenders (or options buyers, etc.) lots of money.
SBF worked at Jane Street, but he must have been there in a capacity that insulated him from this sort of knowledge. At large firms such as that there are very specialized roles that juniors typically start within, where the visibility is fairly limited.
My only question is was he able to pay for his private jets or residences in FTT? He seemed pretty convincing to a lot of people so it would be interesting to see if everything was paid in his own made up currency.
SBF is notorious for advocating expected-result decision-making with risk entirely disregarded, and essentially saying if you aren’t in the high risk range where the median (rather than expected) result is break even or worse, you are usually being too cautious; he's not ignorant of risk, just deliberately contemptuous towards it being a negative factor in decisions.
Turns out, when you chase Gambler’s Ruin that hard...
And I'm not buying into his whole effective altruism thing. What I think is that SBF had a strong desire to make money, ethics be damned, but had a troubled conscience. Effective altruism gave him moral comfort and helped him rationalize his actions.
Only because you seem to be reading into it a positive moral judgement that I did not, in any way, express.
> Misappropriating custodial funds is not ever acceptable when you are running an exchange, no matter how good your EV looks like.
I didn’t say it was.
> And I'm not buying into his whole effective altruism thing.
SBF doesn’t just advocate that method of decision-making in the context of EA, he advocates fairly consistently for financial and other decision-making.
>"Before joining Alameda as a trader in March 2018, Ellison spent 19 months as a junior trader at Jane Street after graduating from Stanford University with a bachelor's degree in mathematics in 2016. In a podcast two years ago, Ellison explained that Jane Street was her first job out of college. A diehard mathematician and Harry Potter fan born of two economists, Ellison she hadn't wanted to go into trading but "just didn't really know what to do" with her life.
> "She was persuaded to join Alameda by SBF, who also previously worked for Jane Street. When she quit Jane Street, Ellison said she felt bad for staying such a short amount of time. However, this feeling quickly dissipated when she arrived at Alameda and discovered that she had "kind of more trading experience than a lot of Alameda traders," anyway."[1]
And similarly for Constance Wang the FTX CEO/COO:
>"Constance Wang joined FTX as chief operating officer in the Bahamas in 2019. Initially, she was chief operating officer (COO) of FTX's crypto derivatives exchange. In January 2022 she was promoted as CEO of FTX digital markets, with responsibility for the Bahamas HQ. An org chart published by the Information puts her one level below Sam Bankman-Fried.
>This looks like a big job. All the more so because Wang is only a few years into her career. Before she joined FTX, most of her time had been spent at Credit Suisse in Singapore.
>Wang wasn't an MD at Credit Suisse. She wasn't even a director or associate director. She was an analyst and she worked at the bank for two years, first in KYC in the private bank and then in APAC risk and controls. It was her first job out of university.
"Admittedly, Wang didn't go straight from Credit Suisse to FTX - there was an eight-month detour to Huobi Global, a crypto exchange in Singapore first. However, the fact that this was sufficient to land her a job in her late 20s running 'institutional clients servicing and operational procedure,' at a fund with $1bn of revenues last year, looks slightly questionable."[2]
[1] https://www.efinancialcareers.com/news/2022/11/caroline-elli...
[2] https://www.efinancialcareers.com/news/2022/11/constance-wan...
https://www.theguardian.com/books/2022/nov/14/ftx-crypto-kin...
Not sure of the timeline but she was asking why not double down on a 50/50 bet every time (if you lose) - you can earn "infinite" money but lose only your bet.
I am not sure working somewhere means you are an expert in it. It's incredible these people managed to create a company size of FTX.
> It's incredible these people managed to create a company size of FTX.
Didn't they got hundreds of millions in play money from their network (school friends). This worked while everything was going up and new cash was coming in.
"Never confuse being long in a bull market with genius."
--John Bogle
I'm pretty sure you're referring to this tweet
https://twitter.com/0xHonky/status/1591630071915483136
In which case she wasn't the person asking the question. Somebody else was asking it, and she was unequivocally saying that it wouldn't work.
> (I'm not an expert on traditional finance but my impression is that it's a lot more boring; largely brokers will just try and have margin requirements conservative enough that it's very unlikely for you to actually lose all your money.)
This person was managing all that money.
1. "I'm not an expert on traditional finance"
Clearly.
2. "it's a lot more boring"
So I knew this guy who used to game the customs at New Delhi airport. Back in the day he would fly over to Singapore, buy some expensive electronics, and try to get it past customs without paying duty - he was a "mule."
There was one particular customs agent who knew this guy and would catch him. The mule would pick flights during that agent's shift - told me that it was boring otherwise.
These kids were getting a kick out of risky trades.
3. "conservative enough that it's very unlikely for you to actually lose all your money."
This tells me they knew what they were up to and they didn't really care - it was part of the game.
The whole saga is fascinating. Can't wait for the book/movie combo to come out.
>Clearly.
And is that a problem? "traditional finance" is a sprawling subject. There are literally four year degrees on "finance". Yet, jane street hires (a "traditional finance" trading firm) regularly hires people with only mathematics degrees to trade for them. Other hedge funds/trading firms do the same as well.
> 2. "it's a lot more boring"
>There was one particular customs agent who knew this guy and would catch him. The mule would pick flights during that agent's shift - told me that it was boring otherwise.
>These kids were getting a kick out of risky trades.
Don't you think you're reading a little too much into this? Someone calls traditional finance boring so they must be some sort of adrenaline junkie?
>3. "conservative enough that it's very unlikely for you to actually lose all your money."
>This tells me they knew what they were up to and they didn't really care - it was part of the game.
In some ways traditional finance's margin requirements are more conservative. Regulation T specifies that for stocks, initial margin is 50% (ie. if you buy $100 worth of stocks, you need to pay for $50 out of your own pocket), and maintenance margin is 25%. A quick search says that FTX's margins are 10% and 5% respectively. However, in other ways traditional finance's margin requirements are looser. Because they expect that the lender is a legal entity they can go after, they're much more lenient when it comes to liquidating customer's accounts. That's how lenders got burned on Archegos, because Archegos were giving excuses, the lenders believed them (also, liquidating your customer is rude and they don't want to lose their business), and didn't liquidate them. Crypto on the other hand is far more conservative in this regard, because they basically assume that the only assets you have are the assets in your account. To that end, crypto exchanges (including FTX) have margin monitoring 24/7 and will automatically liquidate customer accounts when they dip too low. So to get back to your original point, they do care, and it's something they thought long and hard about.
I look forward to seeing how this plays out, especially for Lewis' book.
Still the whole blog and her various public interviews are wild. I know we are operating with the benefit of hindsight but I find her very unconvincing - for example when asked about math in her job she said she doesn't use any really, except maybe elementary school math. That you only need to be able to take some risk (laughs awkwardly).
I was an options market maker. That taught me a lot about options but little about finance. The latter comes from curiosity and initiative, up to and including reading history books. Given SBF was post book or whatever, the ignorance isn’t surprising.
How? DeFi protocols are behaving predictably and not pausing user withdrawals or hiding billion dollar black holes in their balances.
https://twitter.com/web3isgreat/status/1538546864542429184
https://twitter.com/web3isgreat/status/1539113641336872961
https://twitter.com/web3isgreat/status/1587956557274353667
Remember, programs are proofs of themselves, but that doesn't mean they provably do what you thought they did.
Risk profile in Uniswap and established DeFi protocol is more transparent than FTX. You cannot verify and audit a CEX, you have to trust they are doing things right, or trust the third parties who audit them. If you are skeptical of Binance or Tether audits then you understand the want for open source DeFi.
You're not wrong. Crypto is the natural evolution of the gold bug.
Gold bugs funamentally don't understand the finance system. The gold standard was never about fully backing your currency with a global commodity (fun fact: the US dollar was never 100% backed by gold reserves). A gold standard is actually just a peg, a promise by the government to exchange dollars for gold (and vice versa) at a fixed rate. And you don't technically need any gold for that.
Yet gold bugs harp on about gold reserves and that's the least important part of the gold standard. Either way you have a trust issue. FDR famously performed a sovereign debt devaluation, for example.
Likewise, my experience with crypto people is they too (generally, not always) don't understand why the TradFi system is the way it is. Worse, they seem to use wilful ignorance of that as a badge of honor (while muttering something about "disruption").
So gold bugs who (rationally or irrationally) hate TradFi find a natural home with similarly minded Crypto Andys.
I mean, it's not even that fringe is you consider that Central Banks sure hoard a lot of gold specifically because they see it as useful in certain (bad) economic scenarios.
Gold standard is dumb for reasons you say. Commodity money is by design supposed to be 100% backed, as the gold is actually inside the money and the face value is the weight gold inside it.
[https://en.m.wikipedia.org/wiki/Methods_of_coin_debasement]
Each money has its own weakness. One of the big weaknesses with fiat and gold-backed money is that it can be debased even while it is in your personal possession.
- problems with availability - in most traditional societies, there just weren't enough coins to meet transaction demand, and so people transacted based on credit or other informal ledgers.
- problems with theft
- problems with weight
- problems with people shaving some of the metal off
- problems with counterfeits -- not actually easy to test the percentage of gold in your coin
- problems with credit markets. Credit markets need to move money around quickly and efficiently, and be able to raise large sums. That's not compatible with socks filled with gold buried under your rose bush. The money needs to be available in the credit markets so it can be efficiently deployed, moved around, etc.
So from the beginning, gold was used for specialized purposes -- e.g. to settle international trade or large payments, rather than as a primary means of payment.
There is no way to get around this. The moment you introduce gold, merchants will start borrowing gold by selling Bills of Exchange -- effectively promises to pay gold. These bills of exchange will be more valuable if they are bearer instruments, and so the merchant will make them bearer instruments (to allow raising more money). Then you get a market in which people are buying and selling bills of exchange at a discount. Now you have a discount rate and a money market, and all you are missing is a financial crisis in which a large bank steps to staff their discount window when the smaller traders are forced to close their own. All of a sudden, you are back to credit-based money, as the Bills of Exchange are themselves used to settle more trade than the gold coins. It's just a lot easier to carry a piece of paper that says "X promises to pay 1000 gold coins next year" then it is to actually lug 1000 gold coins around.
The ease of convenience, the needs of merchants to tap capital markets, will ultimately subvert whatever metallic standard you come up with. Then, financial crises will drag in the government to start regulating and centralizing the capital markets.
1. Up until the fairly recently (ie the last century) it was the densest element anyone could get in quantity. This was not true for silver so silver currency could (and was) debased (like you say). This was more difficult with gold as doing so would lower the density;
2. Gold has a relatively uncommon appearance. There are very few substances that could imitate its look. Iron pyrite (aka "fool's gold") is the common one but it's not as dense and is harder. It's also why people would bite into gold coins to verify it;
3. Shaving or cutting coins was actually more of a feature than a bug. Consider "pieces of eight" [1].
Previous metals as a basis for coinage were more important than perhaps you're giving it credit for. Ultimately what happened was that the coins themselves because a store of value and the metal content became less important as counterfeiting coins wasn't typically trivial. This of course was what ultimately led to paper money.
[1]: https://www.kingmanyachtcenter.com/sea-history-what-is-a-pie...
>It's just a lot easier to carry a piece of paper that says "X promises to pay 1000 gold coins next year" then it is to actually lug 1000 gold coins around.
Not sure if you've ever carried around a gold coin, or ~$1800 (the value of 1 oz gold coin). But the amount of space it would take up, within factor of 2.
~1.8 cubic inches for the gold and 1.2 cubic inches for the bills. So maybe 50% worse space wise for the gold, but in any case not enough to make carrying gold much more burdensome than cash. Sadly you can no longer obtain large (~$1000) bills as they have been eliminated pretty much worldwide.
Perhaps I wasn't clear, but the phenomenon I'm describing is one in which the credit market grows to become more important than the metallic market and eventually destroys it, because in order for the bank trying to calm the crisis to credibly maintain that discount window open, it will need the power to create money in unlimited amounts (not actually to create it, but to convince investors that it can create it).
So what happens is that when credit markets are in their early stages, they go through violent disruptions every few decades that get more and more intense as the credit markets grow, and at some point, the survival of the economy as a whole is at risk, and sometime before that happens the government says "enough. We need an elastic money supply that can guarantee that bills remain discounted no matter what. We have to put an end to the cascading failures due to panics/manias in the credit market." That's when the metallic market is replaced with fiat.
So while you often hear how every fiat currency fails, you don't often hear how every metallic currency is replaced by fiat, and I'm trying to describe this process -- that functioning currency markets inevitably give rise to credit markets, and it's the credit markets that are required for capital investment and economic growth, not the currency markets. Thus the need for stable credit markets is inevitably what drives the abandonment of metallic or any other kind of inelastic money -- of which bitcoin is an example.
This is not to say that inelastic goods can't survive as a tradeables. Stamps even survive as tradeables. So do paintings. But they don't survive as currencies in an industrial economy that requires a large, steady flow of capital investment.
The dollar was created by the coinage act in 1792, with dollars being made of the equivalent amount of silver or gold. To me this seems like practically same thing as being 100% backed by gold reserves.
If we're talking about paper dollars or originally "Demand Notes" from 1861 onward that would be the case as they were put in place because the government was broke trying to fund the Civil War,[1] and had to issue currency on credit[2] (about $1.5b additional in todays dollars, for comparison there's about $51b total in 2021).
>A gold standard is actually just a peg, a promise by the government to exchange dollars for gold (and vice versa) at a fixed rate. And you don't technically need any gold for that.
Wouldn't you need enough reserves to allow anyone who attempted to exchange their dollars for gold to do so? Fractional banking and bank runs seem like a rough analog.
[1]https://www.mycreditunion.gov/financial-resources/history-un...
[2]https://www.cs.mcgill.ca/~rwest/wikispeedia/wpcd/wp/d/Demand...
[https://www.history.com/this-day-in-history/fdr-takes-united...]
Like Tether, if you can’t actually redeem it for what it’s nominally backed by, is it really backed by it?
I think to some extent we've been riding that initial wave of trust and backing. The alternative I suppose is we've figured out how to manage things correctly and no longer need a peg, but the lead up to the end of Bretton woods sounds ominously familiar to the 2000s. CBDCs seem like the only thing that could potentially fill a similar role.
"However, from 1950 to 1969, as Germany and Japan recovered, the US share of the world's economic output dropped significantly, from 35% to 27%. Furthermore, a negative balance of payments, growing public debt incurred by the Vietnam War, and monetary inflation by the Federal Reserve caused the dollar to become increasingly overvalued in the 1960s...The American public believed the government was rescuing them from price gougers and from a foreign-caused exchange crisis."[1]
That is quite odd. FTX was the very definition of traditional finance (with or without whatever regulations you may think is required). Maybe he was bullshitting you too?
Crypto is now infested with Wall Streeters and VCs trying to convert it into some grotesque form of the old system they are familiar with and failing catastrophically. In a few years decentralized DEXs will all but replace the centralized exchanges.
It's a grotesque level of criminal fraud, but unlike when that happens in traditional finance, there will be no bailout. These fraudsters will get wiped out and there is no one to appeal to who can save them.
You may feel that the others were too greedy and naive, and therefore deserve what they get. Perhaps. But they're still getting wiped out, and they didn't participate in the fraud. (Unless you consider all of crypto to be a fraud...)
Losing tons of money is not the end of the world, even if it can feel like it. It might just mean you have to swallow your pride and go work at Walmart or McDonalds for a while to build yourself back up. Millions of people live that life every day.
Stay humble. Stack sats.
I'm enjoying this shit as much as anybody but unsophisticated people are certainly feeling this right now.
This seems to become clearer every day.
https://decrypt.co/114235/ontario-teachers-95m-ftx-pension-f...
he is a fraud
Please write less pompously and more to the point.
I Googled but there are no real results. Thanks!
This (in theory) makes them feel sick and develop an aversion to the cigarettes.
Essentially it's a metaphor for forcing someone to go all-in on something they wanted just a little taste of.
So the analogy is take something you like and then force it on you 24x7x365 until you hate every moment of it.
To point out: that’s part of the narrative SBF was selling. I wouldn’t take it literally. There’s a certain kind of person who can/will say anything, and seem sincere, just to get you to part with your money.
Uh? The guy worked in traditional finance for a few years and was pushing for more regulations on cryptocurrency. His parents were compliance lawyers. He donated tons of money to the democratic party to push for regulations. He ran a centralized exchange. This does not exactly scream DeFi... He was just an opportunist who saw crypto as a means to get rich quick and apparently, getting rich from trading fees was not quick enough for him.
There are a lot of "gold bugs" types in crypto but they mostly self-custody BTC and stay away from shitcoins and day trading.
He was definitely not pushing for bank supervisors examining the books of Crypto exchanges.
FTX could not withstand a bank supervisor momentarily glancing at their books from a distance.
I think it's absolutely absurd that "smart money" was pumped into this to the tune of billions upon billions of dollars. The popularity of this delusion, and the madness of the billion-dollar crowd is so much worse than anyone could have thought.
When things are good, Ponzi schemes appear smarter, hipper and more profitable than ordinary businesses and so no one want to run anything else after a bit. That's why the Fed is there to "take away the punch bowl just when the party is getting interesting" - because, whatever their other virtues, markets won't stop this before disaster strikes.
Instead the Fed has been pouring vodka constantly into the punch bowl since 2009. This bubble is primarily their fault and now after it burst they have decided to go the other way and raise rates into a recession.
Some investors must have known it was a massive scam, but thought - hey, what if I successfully exit before the bagholders? What if I am the ONE that makes a fortune off this deal?
But alas, the thing with many of these crypto startups is that they crash and burn so fast. One minute they're worth billions, the next minute the founders have vanished or in custody.
Regulations are coming, no mater how much the crypto fundies hate it. Regulations don't conjure out of thin air, they are almost always reactionary measures. So maybe that's one good thing to come out of it all - these companies will be forced to be more transparent, as well as facing hard jail-time if/when they play with client money.
Haven't laughed that hard in a while.
https://news.ycombinator.com/item?id=33594284
I think people would do well to remember that Levine's job is NOT to do your due diligence for you; he's an entertainer.
That is a gross cynical misrepresentation.
He appears to me to be a financial geek, interested in the mechanics of finance for its own sake, and who finds comedy (often dark comedy) in the mechanics of our financial systems.
Philosophically, we can’t be 100% sure of his motivations to publish his insights, but everything of his that I have read points to the reason primarily being that he finds it fascinating, a nearly purposeless academic joy.
In other words, don't make major financial decisions based on Levine not saying it is a good or bad idea.
He puts such disclaimers on basically everything he says.
What should I base my major financial decisions on?
But that's not why FTX blew up. They went down seemingly due to straight up fraud and/or theft. FTX users had no indication that FTX was doing anything other than holding their assets and collecting transaction fees. They're completely different situations.
Easy to pile on after the fact.
> 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.
https://www.bloomberg.com/news/articles/2022-04-25/sam-bankm...
If you think about it mathematically, it's important to understand that no amount of concatenation of the primitive of "moving around risk" can do anything more than that. And, in particular, no amount of concatenation of things that leave net risk either the same or somewhat greater can ever end up reducing the amount of risk in the system.
However, each such composed operation introduces a place for someone to misprice the risk, especially as the risk is communicated across lossy channels, let alone channels with a certain amount of incentive to misrepresent the risk to the buyers on the other end. So while no amount of combination of those primitives can ever reduce risk overall, it sure is full of opportunities to convince people the risk has been reduced, and for them to take various actions based on that. Combine that with one of the most popular operations being to take a nice risk gradient that gradually ramps up from "high probability of small bad event" to "low probability of big bad event" and shoving all the risk into "super low probability of total utter unrecoverable catastrophe", and the whole thing is just destined to explode hopelessly.
And yet... perhaps some readers are saying well, duh, jerf, how else could it be, I would say to you I'm firmly middle aged now, but those castles based on financial engineering have been floating in the sky my entire adult life now, even counting the so-called "crises" I've seen. And to the naked eye, those castles have gotten bigger, higher, nicer, and more numerous the entire time. It takes... something... some pretty big cajones to stare up at those things that have been floating in the sky for so long and saying "they can't possibly do that forever". Especially when you may well have bankrupted yourself seven times over trying to trade on that presumption, even if it is in fact true in some abstract sense.
The financial system is rapidly simplifying. It's going to be a painful process for quite a lot of people. A lot of people who think they are on solid ground are going to discover they've been herded onto the flying castles without realizing it. It will, if nothing else, be very educational I suppose.
You're going to get that as late as possible after someone has sold hella FTT-USDT perps and stood enough USDT there to survive funding fee for a few weeks.
Maybe the next one!
https://youtu.be/VbDiWXFxqr8?t=2348
The whole conversation is fascinating.
I had this full quote on my clipboard. It's a masterpiece. 3 Cuil (‽).
https://mobile.twitter.com/klenwell/status/15921781646752522...
These, blegh took all the fun out of it and I just stopped getting Chinese take-out.
Before someone tries to Hanlon's razor this, these guys were not stupid, they can pretend to be but they come from very competitive backgrounds, they knew what was going on.
They're going to jail.
> FTX worked fine: People liked its technology, and it seems to have made money. The problem was in its balance sheet, which was full of snakes, and its governance, which put all the snakes there.
Fucking lol.
One theory is that the crypto quant funds figured out how to exploit the Alameda FTX market maker starting in 2020-2021 to take tons of money from Alameda. But FTX couldn't just turn off the Alameda market maker because most of the FTX trading volume, and therefore FTX revenue, was these crypto quant funds taking money from Alameda. So if they turned off the Alameda money spigot then their revenue would drop off a cliff and they wouldn't be able to raise more money from Sequoia or the UAE. And the value of FTT was tied to the trading volume and was a huge portion of their assets, so if volume fell they would be insolvent.
Basically they turned customer deposits into revenue at pennies on the dollar.
https://www.opensecrets.org/outside-spending/top_donors
That's right, Ryan Salame - CoCEO of FTX. Trying to make this into a partisan thing is silly.
You can't be the exchange, the person loaning out huge margins, and the person backing up the entire system, all in one. Too many conflicts of interests, that leads to making suboptimal decisions. One part of you has to keep the process propped up, so that the value of margin loans you gave out don't fall, which means eating up a lot of lot of losses from the people you gave margin loans too. And you can't stop eating up the losses, or the whole thing collapses.
This was always going to fail. The only play they had was to keep the crypto hype going so that something other than them will drive the prices up and they can exit all the losses they took on from market making quietly. And that was the play they were going for. Hence all the SBP hype, the superbowl ads, the naming of sports arena. Excess crypto hype was their only play. And that's all they did the last few months. Find ways to get publicity for crypto, SBF etc
I'm picturing Matt Levine being carted away by nice men in white coats after finishing this paragraph
(see https://lithub.com/crypto-nerd-sam-bankman-fried-who-just-lo...)
“I’m very skeptical of books. I don’t want to say no book is ever worth reading, but I actually do believe something pretty close to that,” explains SBF. “I think, if you wrote a book, you fucked up, and it should have been a six-paragraph blog post.”
Like, I’m literate and basically read stuff all day. And I can get through a textbook as a part of a course, but force me to read a novel and by page 7 I’m falling asleep and losing track of the characters.
I’m on the fence about borrowing/buying a book that was based on a podcast series because I fear 90% of what it covered was in the podcast.
His books are a mess because he had no idea of how to organize them.
The scam clearly worked without all the effort.
If he didn’t want to be doing criminal things, he has plenty of means and opportunity to do them non-criminally.
I can wholeheartedly recommend his Newsletter. Not the first one being so funny.
How in the world is a balance sheet not a report that is generated by a system, viewable by any executive? Did they not have a CFO or any finance people or accountants?
Depending on your line of business, this is actually not a simple thing when you're trying to mark assets to market in a meaningful way. When everything you own is liquid, it's one thing. When things are less liquid, it's another. This is true even of completely legitimate businesses.
Typically there’s a 3rd party fund administrator whose core responsibilities include calculating the value (NAV) of the fund.
Sometimes funds have Level 2 or Level 3 assets, which may require management effort to value and may not have real-time pricing available.
Perhaps not?
"If you take a look at the about FTX page, it shows six senior team members: the CEO, the COO, two leaders on tech and two on compliance and legal. Something is missing. For a company managing billions of client funds, $16 billion according to the Wall Street Journal (WSJ), is it not odd that there is no Chief Financial Officer (CFO)?"
Of course, it also happens sometimes that they are cooked in some specific way, and that is used to hide that fact.
The fact that a company managing billions of dollars couldn't even do this much is very, very telling.
There's a pretty solid 90% chance that every exchange with a stablecoin is going to blow up, but I'd only guess a 30% chance of Coindesk going under.
https://fortune.com/crypto/2022/11/14/binance-promised-trans...
This wasn't seed capital, this was $213mm. And it wasn't just a bet that didn't turn out, it was fraudulent at its core.
All for a valuation range of $200MM - $500MM.
Meanwhile a hastily compiled excel sheet seems to satisfy the largest VC's in the market? Billion dollar valuations based on totally unsubstantiated numbers?
Audit's are expensive (like $30-$80k). But surely better than losing $200MM on hot air.
Or more charitably, Sequoia presented with something more professional looking, but completely incorrect.
> “I sit ten feet from him, and I walked over, thinking, Oh, shit, that was really good,” remembers Arora. “And it turns out that that fucker was playing League of Legends through the entire meeting.”
> “We were incredibly impressed,” Bailhe says. “It was one of those your-hair-is-blown-back type of meetings.”
https://web.archive.org/web/20221027180943/https://www.sequo...
I have no idea if anything like this happened. But if it did I don't think anyone has to report it. And I don't think it would be illegal. (But I think it should be illegal.)
Exactly. This is the first time I've seen the media asking the right questions.
The answer probably is in part that most of it never existed to begin with-- those 'customer' liabilities probably include the probably fictional billions in arb gains SBF claimed to have and some amount of magic beans deposited by related entities.
E.g. Deposit $1 billion magic beancoins you essentially made up (or a friend made up), then trade them for "Bitcoin perpetuals" (levered paper bitcoins) with FTX itself acting as the counterparty. Now the 'customer' is owed $1bn in bitcoin on FTX's books and ftx is long a billion in magic beans.
Then get your friends in the media to write glowing stories about FTX's meteoric rise and some suckers come in, deposit real bitcoin, invest money from real pension funds, etc. and the 'customer' can then withdraw some of their paper bitcoins. ... at least until the exchange runs out of anything except magic beans and someone forgets to set the switch to 'more magic'.
> FTX worked fine: People liked its technology, and it seems to have made money.
Well, the people who deposited there liked the 8% APY they gave people simply for depositing funds. Prudent people saw that obvious ponzi scheme marker and stayed the hell away!
I think I adequately described a credible sequence of operations, but your dismissive reply has made it impossible for me to tell which parts weren't communicated effectively.
The central unanswered question is "where did the real money go?": Those ftx related magic beans were constructed for ~free. The balance sheet makes it look like billions of Bitcoin are owed, so where did they go?
The idea that FTX didn't pay for the magic beans is just an assumption, but it's not necessary. They could have paid a related entity for them using the paper bitcoin traded on the site.
I'm suggesting that related entities such as Alameda research and SBF personally deposited magic means and traded them for Bitcoin "perpetuals", with FTX awarding them paper Bitcoins. This creates a bitcoin liability on FTX's balance sheets even though no billions of dollars ever existed.
Some amount of actual valuable assets were deposited, then withdrawn by people who traded magic beans for FTX bitcoin liability (and/or were awarded bitcoin through FTX's 8%/yr yield program on customer deposits) -- leaving FTX with a balance sheet full of huge Bitcoin liabilities.
In that scenario one could go back through the transaction records and unwind some of these magic bean trades and make FTX less insolvent, but they'd still be insolvent because of the real assets that were withdrawn by parties that only brought magic beans into the picture, as well as FTX's spending, donations, bills for their designer amphetamines and cleanup services for their orgies, and other "business expenses" typical of their industry.
Isn't it obvious? It was paid to customers and others that took the money or equivalent dollar amount in assets off the exchange. Either to a bank, another exchange, on-chain self-custody, political donations, salaries, stadium naming rights, Sam's "make it all back" scheme, etc.
Matt is smart, so maybe he knows, and the question is rhetorical.
If their balance sheet was full of some external asset that had lost a ton of value you could say, okay customer deposited Bitcoin and FTX used it to buy whatevercoin and whatever coin lost 96% of its value. The money went to the people selling whatevercoin.
But in this case it's a mystery-- their balance sheet is full of magic beans but most of them are magic beans ftx and crew appear to have printed from nothing, not magic beans they would have had to buy on the market.
So customers deposited real money, a bit was spent on donations/etc. And FTX created some magic beans-- so where did the money go?
And my conjecture was just that a big chunk of the liabilities are also fake too-- the result of magic beans being deposited by 'customers' (really FTX insiders) and traded for paper bitcoin ('perpetuals').
Customers deposited $8B you mark $8B of cash as assets and $8B of customer claims as liabilities.
You send that cash to Alameda *off the books* because otherwise you will raise some alarms in internal procedures. Now your assets and liabilities don’t match anymore.
You want to do some accounting because you are about to go bankrupt, you now end up with a $8B hole that you mark as “Hidden poorly internally labeled account”
1. FTX had no CFO [1]; and
2. Their accounting firm is on the Metaverse [2].
(1) is particularly shocking because its normally the CFO's experience and reputation that gives investors and customers confidence in published numbers (yes, there's that awkward trust element against that seems to be an anathema to Crypto Andys). Even if it's not a regulatory requirement, I"m honestly shocked that the investors (Sequoia, etc) didn't insist on an adult in the room so they could trust the financials.
Horrible for the customers. No sympathy for the investors. A giant fail by the financial press for not highlighting this issue earlier as it's a definite red flag.
[1]: https://www.ledgerinsights.com/ftx-warning-signs-no-cfo/
[2]: https://www.coindesk.com/business/2022/11/11/meet-the-metave...
I have had for a while this secret plan to become the richest person in the world by a wide margin. Because I seem to be too lazy to actually execute it, I think it is better to just publish it for the hope that someone else does it:
So, the plan is to create a new cryptocurrency called Googolcoin (GGC). The supply of the coin would be - as the name implies, 10^100 GGC. I would pre-mine all but say 1000 of them for myself and leave the rest for miners. Then I would start making the market and put all of my GGC for sale, at a price of $1/GGC. Of course, I would also put offer to buy as many GGC as anyone wants to sell at say $0.7/GGC. Then I would go and bribe someone and buy one GGC from me. And there you have it. My net worth would be orders of magnitude greater than all other wealth in the earth combined! Take that, Elon.
(If my reader at this point has not realized that the concept of market cap for cryptocurrencies is stupidest thing since... well previous stupidest thing, I would recommend selling your crypto ASAP.)
Reminds me of Max Fosh briefly being the world's richest man.
I remember when maps.me added crypto and many users fled to Organic Maps. I didn't know that FTX was behind it.
FTX is an even bigger mess than Wirecard.
The upcoming series of FTX articles will be better than the Elon saga I think.
Anyone else old enough to remember Nick Leeson and Error Account 88888?
https://www.independent.co.uk/news/business/how-account-8888...
FTX balance sheet, revealed - https://news.ycombinator.com/item?id=33577437 - Nov 2022 (286 comments)
(too many other FTXen to make a generic list)
Compliance lawyer was previously involved in massive online poker scams. Guess who's that lawyer' ex-colleague lawyer, also involved in the scam, is working for? tether/iFinex/BitFinex.
Go read @bitfinex'ed 's Twitter account. He's been exposing tether / iFinex / Bitfinex / Alameda / FTX and SBF as frauds since the very beginning.
Seems like the account trashes mainly Tether/Bitfinex, but also whatever other crypto company shows up in the news (eg. FTX, Binance, or coinbase). If you trash everything, of course you're going to turn out to be the guy who was right "since the very beginning". It doesn't mean that you're actually a good source or anything.
For instance, I scrolled all the way to the bottom (to escape all the recent FTX tweets), and found a retweet[1] portraying FTX as some sort of predatory lender and how "SBF HAS ACTUALLY RISKED LITTLE OR NOTHING", which we now know is the opposite of what happened (matt levine says that the probably lost money bailing all those companies out).
[1] https://twitter.com/otteroooo/status/1571522943305523206
They are frauds because they lack proper accounting controls, store money in assets they themselves control, move money between shell companies for ‘attestations’ and pretend it’s an audit, refuse to get proper audits and because some of the people running them have a history of fraud.
Bitfinex and Tether are particularly obvious.
But he was right. Do you really think tether/iFinex/Bitfinex/Deltec are nice persons playing it fair?
It's clear he wants Bitfinex to fail and Bitfinex shall eventually fall.
Whether he's "right" or "tether/iFinex/Bitfinex/Deltec are nice persons playing it fair" is besides the point. I even plainly admit that he was right in my original comment. My point is that the tweets coming out of the account has zero signal because he calls everything a scam, in the same way a permabear analyst is always predicting a recession in 6 months.
- mint one token and sell it to your friend for $1.
- make a tweet saying that supply of your currency will be capped at 1 billion tokens.
- you now own $999.999.999 in assets!
Analysts hate this one weird trick!
How can TRUMPLOSE assets still be on their balance sheet? (Aside from "we have no idea what we're doing...")
TRUMPLOSE is the 2020 one, so your point stands that there is no explanation for that account still having a huge amount of money. That said, we now know that internal labelling of accounts was not FTX's forte, so...
That's not how it works
but yeah, it's also possible the money just ended up at a third unknown entity
"Around the time the crypto market crashed this spring, Ms. Ellison explained, lenders moved to recall those loans, the person familiar with the meeting said. But the funds that Alameda had spent were no longer easily available, so the company used FTX customer funds to make the payments. Besides her and Mr. Bankman-Fried, she said, two other people knew about the arrangement: Mr. Singh and Mr. Wang."
https://archive.ph/HYKVo#selection-1129.0-1129.402
That's allegedly hell of a lot of money to lose over a shared woman who didn't even pop out your kid. Honestly dude probably could have made out and at least not gone to jail if he hadn't been allegedly defrauding his customers to prop up his amour's company.
There he is a blog authored by SBF himself from like 2018 where he was touting their innovative market superior market-making approach, which ultimately boils down, they had automated circuit-breakers, and if the worst came to the worst, some robust 3rd-party entity will come in absorb the losses. He never explained why anyone would want to do that. (I wish I can find that article where he explained it). He probably was using Alameda as that 3rd-party entity to absorb the losses. And since they were also recklessly handing out margin loans for people to trade with, those losses can get really large really quickly if crypto prices went down and stayed down. If they rebounded, they will make a killing. Which is why hyping crypto and SBF so prices rebound is their only play.
yes, I am sure there was some frivolous spend there. But my strongest hunch is that majority of the funds Alameda lost was from backstopping FTX when prices went south. He thought he was too smart. he basically reinvented the wheel. he reinvented the entire financial system with himself and his company playing the role of the Feds, larger bank, smaller bank, and retail bank, stock market exchange all in one. The FED has the economic and political and military might backing him. Alameda has funds deposited by users, and some guy who thinks he is too smart.
> In Austrian business cycle theory, malinvestments are badly allocated business investments due to artificially low cost of credit and an unsustainable increase in money supply. Central banks are often blamed for causing malinvestments, such as the dot-com bubble and the United States housing bubble. Austrian economists such as the Swedish central bank's Nobel Memorial Prize in Economic Sciences laureate F. A. Hayek advocate the idea that malinvestment occurs due to the combination of fractional reserve banking and artificially low interest rates misleading relative price signals which eventually necessitate a corrective contraction – a boom followed by a bust.
Really great piece, thanks for posting.
I wish I had Matt Levine's eloquence to put this madness into words. Great analysis and I just want to add a small thing: while a balance sheet looks like a simple listing of assets and liabilities, that's not how you go about constructing one. Your financial statements are the result of a sequence of double-entry bookeeping statements, and the balance sheet is one particular view on the data processed by this formalism. There is no way assets couldn't add up to liability plus equity, no matter the market fluctuations, valuation uncertainty,... (your numbers might be out of date/incorrect, but they would still be internally consistent). The resulting checksum mechanism is an interesting aspect why double-entry bookeeping was such a useful tool for merchants on busy, dirty, buzzing medieval markets.
FTX, on the other hand, looks more like a mechanism for funnelling cash to who knows where - that's the big question that Matt correctly points out: where did all the money go? There's no way you can spend $16bn on meth and yachts and mansions in the Bahamas in the space of a few years.
I read somewhere else that the portfolio of Alameda contained over 400 companies that looked like little more than a Twitter profile with a handful of followers. It's not hard to imagine that the people behind those 'firms' were the same or related to those who are now saying 'whoopsies, they looked like such good trades back then, my bad'.
Sounds like the VCs may have managed to recoup their investments using customer funds before the thing blew up.
How does one of the world's largest VC firms, Sequoia, with 90b dollars in assets not do simple due diligence on their investments.
Do VC firms not do background check on executives, or look at financial statements of the company they put their money in?
Neumann went into WeWork's endgame looking like a fool, and emerged from it a rich wizard.
Another unhinged druggie it seems - I hope he goes to jail for fraud.
It seemed something a year out of sync, aimed to get ‘greater fools’ to take a second look at crypto, completely divorced from the headlines a week ago and a week hence.
The Bloomberg crypto issue was great! What were your specific problems with it?
I read it cover to cover and didn't get a single sense of it "boosting" crypto. If anything, it was really in depth and skeptical.
Why doesn't Bloomberg take an issue and reprint the first few chapters of Extraordinary Popular Delusions and add a paragraph about each of the 20 times that people said "it's different this time" and it wasn't? That wouldn't be news but it would be timeless wisdom that would serve readers well.
If people are curious about crypto, and their only sources of information are polemic, that seems much, much worse for everyone.
There is no accounting for taste.
That take on ESG as an excuse to mask out antitrust violations, wow, never thought of it like that.
Agree with everyone else here, Matt Levine is top notch.
So HN please go invent more multi-billion-dollar insanity that is too crazy to even be called a scam, because the world needs more of this great writing.
This is absolute gold.
Also...
> FTX/Alameda were funneling customer money into effective altruism. Bankman-Fried seems to have generously funded a lot of effective altruism charities, artificial-intelligence and pandemic research, Democratic political candidates, etc.
This is just catnip to the "right-wing" media machine, Even worse is that it's not even really that far-fetched of a theory. Billions spent influencing elections and policy over the last 3 years, and a $10B hole of customer funds just missing. This is just reinforcing the worst conspiracy theories out there, and I'm sad to see it..
*edit, formatting
For someone who just arrived on Earth from another planet, modern campaign financing rules are indistinguishable from bribes, regardless of who the money goes to.
[1] I mean, aside from the obvious answer (Which is that their guys aren't the beneficiaries.)
Even if you consider billionaires to be a disgusting stain on society, like myself, there's still a difference between stealing money to spend on stuff (political donations or Lambo's) and spending money/stocks you legally made in a horrible, earth-killing industry.
I absolutely detest greed in all it's forms, but I also don't think people should lower their morals and ethics to match the lowest of the low, as if they're Robin Hood (the character, not the company).
I think the rumor is probably conflating "actual" ($ backed) aid with the crypto donations individuals made through FTX at the beginning of the war, but who knows.
The owner of this firm probably had more pull with the higher-ups than SBF will ultimately have - he got no jail time & a 5 million dollar fine. He's already back to running hedge funds.
Partizan politics aside... SBF's very mom was running a fundraising campaign. And after George Soros SBF was the biggest donor.
SBF had already siphoned $95m out of Canadian teachers pension funds.
> This is just reinforcing the worst conspiracy theories out there
At this point it's not just conspiracy theories anymore. BlockFi had already reached an agreement with the SEC (and SBF "bought" BlockFi when it was in trouble) and it's totally obvious that FTX would have been a licensed regulated exchanges once the current bill would have passed.
It's an undisputable fact that the chief FTX lobbyist was an ex-CFTC commissioner. He apparently also was an ex- colleague of the SEC's chair, Gary Gensler.
And as weird coincidence would have it: Gary Gensler was an ex-colleague of Alameda's 28 years CEO's father.
And you dare to say it's "re-inforcing conspiracy theories"?
Let the scum of this earth be exposed for what it is.
I'm not defending people because they happen to be leeches close to the political party I'm voting for.
The conspiracy theories I was referring too are the"jewish space lazers, George Soros Jewish Cabal Running The World Drinking Babies Blood" type anti-semetic conspiracies spouted off by people like Kanye and other far-right conspiracy nuts.
This gives them ammo and confirmation bias that the more nutty and harmful theories have legs, and that can have real-world, extremely dangerous outcomes.
Without digging into the minutia, it seems like a classic example of 'pay both sides so that no matter who wins, we get a seat at the table.' Unsurprisingly, the incumbents got paid more.
The causes don't seem to matter, pay to play does.
Now, if the right is ready to embrace an end to corporations and millionaires donating to political campaigns, it's a fantastic idea that we should embrace. If, of course, it's just sour grapes and complaining after losing a midterm senate election after putting forward a slate of some of the worst candidates they could field, I don't have a minute of time for it.
Given the historic track record on campaign financing, I think it's the latter.
This isn't the smoking gun that Republicans want to portray it as. A third of their political spending went to Republicans. Companies will typically donate to the incumbent party because they're the ones who actually write the laws, so it's not unusual for them to donate more to Democrats.
That should have read “dubiously funneled money to his mates fake charity”
For all of this the fact that he was, even back when he wasn’t “the next big tech wizard” was funneling 50% of his salary, tax deductible, to his friends charity fund should have raised flags that this “charity” is actually that, and it should be put under scrutiny now, because it’s obviously these guys slush fund.
The HN crowd is generally hostile to crypto scams, but there are likely exceptions.
Even a comment like this one will get aggressively downvoted in the current climate.
Honestly, all you need to see is dang's comment history [0] to see the proportionate amount of time they have to spend moderating crypto comments.
[0]: https://news.ycombinator.com/posts?id=dang&next=33563869
Even if we move the most important/useful coins off of proof-of-work †, I think governments around the world may move to outlaw cryptocoins. At which point whatever modest legitimate utility that existed will be eliminated and only the black market will remain.
† this seems difficult or impossible for bitcoin until/unless it forks to something that looks completely unlike bitcoin.
Crypto has massive uses in evading capital controls in countries that have traditionally had trouble managing their own currencies, like the Turkish Lira or the Naira. In these countries, it is often illegal to hold substantial sums of dollars and not safe to hold these sums on your person.
These are "black market" uses from the perspective of the Nigerian or Turkish government, but immensely valuable to the user - and from my American perspective, probably a positive use case.
I wonder what portion of bag holders in this round were part of the cohort that hasn't seen a crypto winter yet.
They've been spectacularly wrong and lazy on this one.
https://www.newcomer.co/p/sequoias-bad-year-just-got-much-wo...