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Comment by legitster | Hacker News Reader

I often joke that crypto has been run by gold bugs who were forced to "smoke the whole pack" on fiat currencies. So a lot of crypto is a nihilistic homage to federal reserve systems.

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".

View on HN

SBF (and like half the people at Alameda) worked at Jane Street or other big name financial firms. They weren't ignorant of traditional finance.

Both SBF and the other person were glorified interns and got position based upon their parents network.

Doubt it, unless you have evidence otherwise. Jane St (unlike customer-facing finance firms, like Goldman Sachs) does not really engage in this style of nepotism hiring that I know of.

More likely is that the child of prominent academics might actually be more intelligent than average themselves and certainly provided more opportunity to flourish.

Could you detail SBF's experience that would have opened doors to him at Jane St without nepotism? I ask because I can't find any evidence to show how he was able to get into that position. Thanks for the guidance and I look forward to your reply.

He went to MIT and interned there.

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.

His parents are professors at Stanford. So yeah, of course he did.

Gotcha and thanks for being upfront about your reasoning.

I'll let others decide on whether they find that reasoning convincing!

You "got" a different poster, though.

What was his GPA at MIT? Did his parents jobs get his exams marked higher?

Can't tell if you are being earnest but as someone who majored in CS at a HYPSM, I can tell you there is literally no chance that this occured.

I know kids who definitely got in because of parents money, but it certainly did not impact their grading.

I would exclude MIT from that list, but the rest of those schools basically have a huge reputation for grade inflation -- i.e., once you get in, you won't be given a bad GPA because you're paying so much. Grading people legitimately based on competence would piss of the parents/donors too much. Curious to hear your take on this.

My impression is that grade inflation is definitely a thing, I am not so sure that it is for the reasons you suggest (pissing off parents/donors/people paying for degree).

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.

I was being sarcastic because I'm pretty sure it would not impact it in anyway.

Does it matter? He did an undergraduate physics degree, the only time his name appears on Scholar is in a book of his mom or a letter from one of their colleagues, and when it was over he promptly went to some quant company that gobbles up these graduates by the busload (and spits them out again). The least important part in all of this is the grades, or possibly even what undergraduate he did.

Most of JS's trading interns and new graduate hires, are STEM grads at HYPSM schools. SBF going to MIT gave him a big leg up.

From what I've heard about Jane Street interviews from people who interviewed there for intern and new grad positions, they involve solving mathematical puzzles about probability, statistics, and betting. I know multiple people who were invited to onsite interviews, including in one case for a trading position, who were in progress on math and computer science degrees, and had no specific finance knowledge. I also know people who have done trading internships at other firms with no finance experience.

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.

Youre all over this thread defending 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.

Because it's a comment thread I find interesting, I made 4 or so comments related to Jane St, 2 of which are replying to people replying to me.

I promise you I have no affiliations with JS whatsoever, just think that there is lots of sloppy reasoning going on in this thread.

> I promise you I have no affiliations with JS whatsoever

Makes your claim unconvincing though. At least if you had worked there you might be in a position to make a claim either way.

Well I went to a major feeder school and know a lot of people hired by JS.

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.

Hahahah its the funniest thing I ever read. Some people are so doggedly invested in the believing myth of meritocracy. Yeah right a private firms hiring is totally meritocratic.

Cultivating relationships with influential people makes sense for an investment bank. Jane Street is a market maker, what exactly would they gain from it?

He was there for only three years, and at least ignorant about the finer points.

His point, I believe, it that it's traditional finance using crypto to do their usual thing. Pump and dump.

That’s not what traditional finance does…

Where do you suppose the term comes from?

Ok fine that’s not what jane street does.

Fair enough, I know very little about Jane Street other than where they are located and that I'd never qualify to work there.

(They're not located on Jane St)

Makes me wonder what’s going on at Jane Street. How sure are we they’re above board?

This is what I have been thinking. This whole thing has soured in my mind: Jane Street, Effective Altruism. Crypto, VCs, Silicon Valley culture in general I already assumed are scummy.

You got it. That is the correct line to follow. Sequoia in particular must be heavily investigated.

> Effective Altruism

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.

This is why so many people find EA annoying. People donated to malaria causes well before EA was a thing, but of course now, without EA, there's nothing.

I find it very annoying. Why I’ rely on the benevolence of a few rich people when you can do the same much more effectively with proper taxation and wealth redistribution.

> proper taxation and wealth redistribution

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.

Neither does EA, they just suggest rich people donate sometimes...

I don’t think upper-middle class programmers were donating much before EA.

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.

"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" (c)

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.

The longtermist EAs do suggest that, but by dollar donated, the more traditional global health stuff is still a large chunk of what EA do.

> 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.

None of those things are Silicon Valley. Can't blame Santa Clara County for none of this.

Jane Street - NYC

EA - Berkeley

Crypto - the Bahamas or something?

VCs - Palo Alto

Palo Alto is literally in Santa Clara Country....

```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

Maybe you should spend a moment researching rather than using some nebulous transitive property of "if they hired this person, they must also be a scam."

Jane St is a prop trading firm - the only money they have to lose is their own.

Alameda was supposedly a prop trading firm too.

FTX is the one who lost their customers' money.

Jane St is fully above board and has no such associated firm managing customer money.

One of the biggest financial frauds of this century has just been perpetrated by two young people that used to work for them, the questioning related to "how did Jane Street hire these people" is perfectly logical.

Well the interview process is more or less "are you good at probability puzzles and games somewhat related to trading."

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!

I worked on quant buy side for a long time and you dont just automatically come out of these places knowing one secret to making money trading. equally smart on paper people might be working on message passing, risk management, data analysis, special projects, also trading, simulator, database, and might spend 5 years in-house and not come away from the experience with knowledge which by itself represented major alpha.

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.

Did they work in the risk management back office at JS?

The Societe Generale guy that managed to lose 5 billion euros for the bank through "breach of trust and forgery" (to quote wikipedia [1]) didn't work in the risk management department. I don't think that was any consolation for the bank's stakeholders.

[1] https://en.wikipedia.org/wiki/J%C3%A9r%C3%B4me_Kerviel

Actually he had worked in compliance, and then they moved him to front office. Extremely dangerous. Not recommended.

But the point is you can't infer anything about Jane Street risk controls from people who didn't have that role.

> 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?".

Not sure what you think risk control does, but they don't strap traders into the brainwave reader to filter out people with evil souls.

GP is living in minority report world

Well, then we're going to have SBFs and Kervels going well into the future. Kervel was 5 billion, SBF is, what, 10 to 15 billion, going by the same progression in 5 years' or 10 years' time the next guy is going to swindle 30 billion or so.

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.

The founder of EA got SBF in. That's another can of worms but that guy apparently changed his last name from Crouch to McAuskil or whatever...

How would Will MacAskill have enough sway to get SBF in Jane Street? Also, why would that matter? I have absolutely no reason to believe SBF couldn't pass their interviews.

It's not about losing other people's money only. What I'm worried about is: are extremely over-leveraged and able to get the returns they have by doing tax and regulatory dodges that their competitors aren't participating in? Did SBF learn how to operate in the financial world from seeing how Jane Street operates?

They are a high frequency market maker. They are not a hedge fund.

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.

Being a market maker doesn't exempt a firm from blowing itself up. See Knight Capital.

Knight Capital was traded (so taking other people's money).

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

Knight was the largest market maker on NASDAQ and NYSE at the time they blew up so if you're going to use "they're just a market maker" as a defense for JS you can't dismiss Knight as "oh, not THAT kind of market maker." And Knight was known for plenty of shady activity like front running and spoofing.

Knight did not blow up due to fraud, so they were not "below board." Losing money is not against the law.

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.

I work in the trading industry. These people had short tenures at JS, especially Ellison. They weren't seasoned senior traders making big decisions. JS, unlike Alameda, has been in the business for 20+ years and have been very profitable for most of their existence.

It would be worrisome if most of Alameda was full of ex-JS traders, who had been there for 7+ years.

> Jane St is a prop trading firm - the only money they have to lose is their own.

Unless they use leverage, which they all do. Then, they can easily lose their lenders (or options buyers, etc.) lots of money.

Finally this question is no longer considered fringe.

I can't look at their balance sheet and conclude that they were anything but ignorant of traditional finance. He seemed completely unaware of duration risk, and it seems like they have never talked to an accountant or anyone who has even the slightest clue about what a balance sheet should remotely look like.

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.

They knew this balance sheet was bullshit. They were just trying to cover up the $10 billion "loan" they gave alameda after it blew up in the spring. I agree that alameda made mistakes that traditional funds wouldn't, but the balance sheet isn't one of them.

Or he thought he could get away with it and grow fast enough where it wouldn't burn him.

You think this is ignorance? I know very little about finance or the technology of finance but this is pretty clearly fraud and criminal behavior.

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.

I don't think ignorance and fraud are mutually exclusive. I think he has put both on display to a pretty significant degree, personally.

I presume his walking around money was from loans from banks based on his equity in FTX. This seems to be like the standard thing that the super rich whose wealth is tied up in tech stock do these days.

He was handed billions in USD by VCs. I'm sure he stashed a lot of that in a Vanguard mutual fund while he made a show of operating his perpetual motion machine.

> I can't look at their balance sheet and conclude that they were anything but ignorant of traditional finance. He seemed completely unaware of duration

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...

The FTX disaster was not due to incompetence nor ignorance but to fraud.

I think SBF’s public and, AFAICT, honest belief in expected value optimization without regard to risk played a fairly central role in every step of the fraud, and that it constitutes a very specific form of incompetence.

That's an extremely charitable interpretation of the events, in my opinion. Misappropriating custodial funds is not ever acceptable when you are running an exchange, no matter how good your EV looks like.

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.

> That's an extremely charitable interpretation of the events, in my opinion.

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.

It seems I read too much in your comment. I can agree with labeling his method of decision-making as incompetent but I believe what happened at FTX goes beyond that and I just hope he doesn't get away with it by playing that card.

Perhaps not ignorant but maybe inexperienced for the roles and responsibilities they assumed at their new company? This is from a piece about Caroline Ellison the CEO at Alameda:

>"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...

You can’t make this stuff up. This would make an amazingly funny movie.

https://theankler.com/p/hwood-ftx-frenzy-as-michael-lewis?sd...

It's going to be one! https://theankler.com/p/hwood-ftx-frenzy-as-michael-lewis?sd...

It’s only a matter of time, Michael Lewis has been shadowing SBF for months now.

https://www.theguardian.com/books/2022/nov/14/ftx-crypto-kin...

We've somehow managed to recreate the 2000 and 2008 recessions simultaneously

Lewis supposedly compared SBF to Luke Skywalker fighting Darth Vader CZ. He was probably writing a Flash Boys style hagiography. He'll have to rework the material now.

Meanwhile, at Credit Suisse:

https://www.reuters.com/business/finance/spies-lies-chairman...

https://www.theguardian.com/news/2022/feb/21/tax-timeline-cr...

prop trading firm and a sell side firm or an exchange are not structured the same way. its like calling zebra and deer and giraffes the same animal.

do you mean they were knowingly manipulative of those who actually were ignorant of traditional finance, as a business plan of sorts?

Did you read comments Caroline made on her blog/tumblr?

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.

> read comments Caroline made on her blog/tumblr? Isn't that the Martingale strategy?

> 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.

>This worked while everything was going up

"Never confuse being long in a bull market with genius."

--John Bogle

Rookie mistake! The trick is to double your betting amount every time you lose the 50/50, until you win, and then return back to your regular bet. That’s how you turn a profit. (/s)

>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'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.

From one of the screenshots in that post, Ellison says:

> (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.

Mind pointing out what specifically what made you think the quote was outrageous/interesting?

Every phrase was fascinating and revealing:

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.

>1. "I'm not an expert on traditional finance"

>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.

FTX and crypto were background noise for me. Clearly you appear to know more about these things than I do.

I look forward to seeing how this plays out, especially for Lewis' book.

You are right, I misread. My apologies.

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).

Being an entry level staffer is not the same as running a n-Billion dollar business. The higher you rise, the more important the role of governance, compliance, and risk management becomes. If you shortcut this you will miss an important part of "job experience"

> worked at Jane Street or other big name financial firms. They weren't ignorant of traditional finance

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.

>It was no secret that SBF hated traditional finance.

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.

This is the great thing about this whole event.

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.

These fraudsters and others will get wiped out. That's the bummer about this whole event.

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...)

Sometimes, the best way to train children to avoid putting their hand in the fire is not to be overbearing and make certain they never get burned, but to let them make that mistake and get burned a little so they viscerally understand the consequences of doing such a dangerous thing. If you never let them get a little burned, then they might get terribly burned when you're not around to pull them out.

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.

There are a lot of people who already work at McDonalds or Walmart that watched FTX's super bowl commercial and knew about the "whole crypto thing" that, too, are wiped out.

I'm enjoying this shit as much as anybody but unsophisticated people are certainly feeling this right now.

>Unless you consider all of crypto to be a fraud

This seems to become clearer every day.

Canadian taxpayers will, one way or another, bail out the teacher's pension fund that invested in FTX

https://decrypt.co/114235/ontario-teachers-95m-ftx-pension-f...

It’s a pension fund with a lot of VC deals, and a rather profitable one at that. It can easily eat $95 million in losses.

Oh, don’t be a daft. First, they gambled a fraction of a percent of their portfolio into FTX. Second, the OTPF is one of the best-managed, most-successful funds: they will never be in a position to require bailing out. Your claim is, to be precise, horseshit.

> It was no secret that SBF hated traditional finance.

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.

> The guy worked in traditional finance for a few years and was pushing for more regulations on cryptocurrency.

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 often joke that crypto has been run by gold bugs

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 think you're debating a strawman, though. Sure, there are delusional / ignorant goldbugs who make stupid arguments, but you can find that in pretty much any domain. There are also reasonable people, including heterodox economists, who understand the history of currencies and monetary systems, and still advocate for a return to pegged currencies or for precious metals as a part of a diversified portfolio. You don't have to agree with them, but ad hominems are probably unnecessary.

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.

Most gold bugs I've interacted with are more interested in replicating commodity money (i.e. gold coins for trade) than gold standard (i.e. dollars backed by gold).

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.

FYI, Historically, it has been really common to debase currency by diluting or reducing the precious metal content of coins.

[https://en.m.wikipedia.org/wiki/Methods_of_coin_debasement]

Valid, although once the gold is in my hands it's kind of hard to debase it. Of course the weakness is that it may be impractical to check it is debased every time you receive it (although it is practical for large transactions).

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.

There is a reason why there has never existed a society in which the majority of transactions were done by people exchanging gold or silver coins kept in little leather pouches. It's just too impractical.

- 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.

What you describe has a lot of merit but it also explains the move from silver currency to gold. Gold has a lot of interesting properties from the point of view of coinage and an instrument of value:

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...

I've never stated commodity money should replace all other form of exchange. In fact per above, you list a system where both credit and commodity money exist in parallel with one another.

>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.

> I've never stated commodity money should replace all other form of exchange. In fact per above, you list a system where both credit and commodity money exist in parallel with one another.

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 US dollar was never 100% backed by gold reserves

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...

Regarding gold/silver backing - yes, if they let you actually do that redemption or exchange. Something that has historically been suspended or banned multiple times. Including by FDR in 1933, and Nixon when the US exited the gold standard entirely.

[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?

If I remember right Nixon's exit from the gold standard was at least pitched to the public as a temporary measure, and his team was slightly surprised at how little effect it had in terms of causing panic.

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]

[1]https://en.wikipedia.org/wiki/Nixon_shock

> It was no secret that SBF hated traditional finance.

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.

let me square it for you:

he is a fraud

I hope the years ahead and the investigations that fill them produce a picture of a cartoonish mustache twirling villain. It would, as you’ve pointed out, make it so easy to understand. I expect something more nuanced and layered filled with self deception and good intentions might emerge. The sort of thing which reminds us that risk is not just that if gleefully explored possibility but also the sort of risk to be managed and mitigated … a dull retrograde conservatism rendered gauche by decades of SV VC survivorship bias. Time may tell.

The HN rules stipulate I should give constructive feedback so let me give you some.

Please write less pompously and more to the point.

What does the expression "smoke the whole pack" mean?

I Googled but there are no real results. Thanks!

I assume this is a reference to catching a child smoking a cigarette, and to punish them, and put them off doing it again, the parent forces them to smoke the whole pack of cigarettes one after another.

This (in theory) makes them feel sick and develop an aversion to the cigarettes.

A father catches his young son sneaking a cigarette. To teach him a lesson, he says, "You want to be a smoker, huh? Well go ahead, smoke this whole pack!" He makes him smoke all of them, the boy gets horribly sick from it, and never wants to smoke again.

Essentially it's a metaphor for forcing someone to go all-in on something they wanted just a little taste of.

I think it refers to the old punishment for a kid caught smoking. You catch a kid smoking a cigarette and then sit there and force them to smoke one after another until the whole pack is done. They get really really sick.

So the analogy is take something you like and then force it on you 24x7x365 until you hate every moment of it.

here is the problem in the a nutshell, SBF hired fraud scammers, several bad actors from poker scams where part of SBFs crew...indicating that something other than skill level was the factor in hiring.

> In that way, "DeFi" feels the same about the finance industry.

How? DeFi protocols are behaving predictably and not pausing user withdrawals or hiding billion dollar black holes in their balances.

Yeah, the predictably get exploited, and lose everyone's money.

Sometimes they do.

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.

Depends where you look. Solend and Uniswap have different risks, to use comparison AAPL and some new hot unknown tech stock have different risks. Uniswap does not have code to pause withdrawals, does not have a DAO or governance structure to change the contract.

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.

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