FTX was registered with and licensed by the CFTC, which failed to regulate FTX
bettermarkets.org
bettermarkets.org
In this case, CFTC came at us with claims that we were breaking rules and then required us to prove that we were not. Just looking at our website it was very clear what we were doing and what we were selling (education content), and there was not a hint of anything to suggest that we were selling investments or commodities. Even still, we had to give our corp attorney annotated screenshots of our website, illustrating exactly what our business was, and have that sent back to CFTC.
After doing so, we heard nothing back from them. They should have been satisifed by what we sent (presumably they were), but they didn't even both to say, "Ok, you may go."
The whole thing felt really arbitrary and amateur.
Lots of “educational” crypto content is thinly-veiled sales.
> we had to give our corp attorney annotated screenshots of our website, illustrating exactly what our business was
An attorney signing to your business being bona fide informational, and not one that e.g. profits from affiliate sales or coin drops, is material. What looks irrelevant at first glance is germane, at least for a regulator doing a first pass.
> they didn't even both to say, "Ok, you may go."
Not sure about commodities and futures, but for securities you may never go. You are always under force of jurisdiction, a set-up intentionally more intrusive than most American regulation.
So while it takes some time for these things to unravel – it could be the next domino to fall! – there is at least a plausible story that the actual CFTC-licensed entity here (fka LedgerX) was spared the theft & bankruptcy.
That would be a credit to the CFTC's regime, rather than the knock portrayed here.
(I believe that this spin comes from a advocacy group for maximal regulations, firing a salvo to support its factions in DC, taking advantage of confusion about which related but legally-distinct entities are licensed.)
>Not sure about commodities and futures, but for securities you may never go.
Weird, the IRS didn't seem to have a problem notifying me when they were satisfied with my faxed explanation of a discrepancy they found. Maybe they're just unusually good at respecting their subjects as federal enforcement agencies go?
> The whole thing felt really arbitrary and amateur.
Lack of domain knowledge + corruption + a lack of incentives to improve (because they are part of the government, it is difficult to hold them accountable for their claims)
Obviously I don't know the full story, but there really should be more diligence than just reading your website and taking your word for it, so I can't fault them just for requesting more information.
Then they check on you and find you are a serial killer and arrest you.
Now, if you were smart and buried the bodies, is the police supposed to knock on your door and say: “Good job, keep doing what you are doing because you are obviously doing nothing wrong, as evidenced by the lack of bodies on your lawn.”
They don’t do that, they simply drive past and probably assume you’re honest but reserve judgement until later.
8.2.6 All Digital Assets are held in your Account on the following basis: (A) Title to your Digital Assets shall at all times remain with you and shall not transfer to FTX Trading ...
Excluding this stipulation, which they will be prosecuted for - what exactly the CFTC/SEC/NYSE/NASDAQ/Secret Service/DEA/Texas Rangers were meant to do about a company in the Bahamas is beyond me.
The point is to look tough on crypto, so they can garner support for expanding budgets to deal with a new mandate. It's pure show.
many people i know (most engineers, but not all) would say it's a symptom of "big government", the parts that exist and pay unmotivated employees as to their mission.
(i find myself wondering almost off topic how this might or might not be analogous with small kernels and big kernels in operating systems.)
seriously though, it's true, i realize, that the idea of refactoring doesn't happen well at government agency scale, does it?
Could it be that they were collecting data from you to build models for future analysis? Instead of paying people to research companies, and enter data into a system, force 20% of all companies to provide this data regardless of suspicions of wrongdoing?
There's that saying "looks like a duck, quacks like a duck." Maybe they start from the position "I don't know what a duck looks like, or what it sounds like. I think you're a duck. What do you look like? What do you sound like?"
That's just a guess. I have experience working elsewhere in the federal government. They often just throw darts at the wall to prove they are doing their job. New management will take over a department, and want to demonstrate change of some kind. Don't try to attach any rational thought to these actions.
The CFTC is mostly concerned about how things are traded. Not what the things are. Commodities are things like wheat and oil, which already exist. Not newly created things. There's nothing like an IPO in commodities. (The CFTC does regulate derivatives, which complicates this.) So the CFTC has no regulations which apply when someone issues a new crypto coin, NFT series, or whatever. The crypto issuers like that.
The SEC has two main areas of regulation - securities issued by companies, and markets. Most of the SEC's efforts are on the issuer side. The definition of a security is very broad. If you raise money by offering the potential for future profit, it's probably a security. See Howey Test.
There was litigation over whether the SEC had broad authority to regulate crypto issuers. So the SEC has been holding back on things that were not blatant fraud. On November 8, 2022, SEC vs LBRY was decided, which pretty much says crypto issues are securities, period.
Current thinking on the SEC side is that Bitcoin is probably a commodity, because the issuer is long gone and not profiting from it, but everything in crypto with a live issuer behind it is probably a security.
[1] https://www.reuters.com/markets/us/us-senators-unveil-bill-r...
Source - follow Gensler’s speeches and MIT classes, Hester Peirce’s speeches, and the SEC GitHub.
Basically, Bitcoin is likely not a sec because of how it works as a system, ethereum likely is not a sec but it gets opaque, clones of ethereum/EVM have similar treatments. From there, the ICO coins and similar tokens since then likely are secs, bunch of them are hazy as we veer into L1 and L2 and ….
The SEC has advocated for a “regulation beach” or whatever they call it to get companies to build a token within this beach, work with the SEC, and figure out the security vs commodity question. I don’t know if this has gotten traction though. There’s a SEC speech and GitHub repo somewhere for it.
The Supreme Court’s 1946 Howey Test, which was about orange groves, says that an investment contract exists when there is the investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.
My predecessor Jay Clayton said it, and I will reiterate it: Without prejudging any one token, most crypto tokens are investment contracts under the Howey Test. Even before the Howey test, in the first several years of our federal securities laws, some entrepreneurs were notified that they had to register their offerings of chinchillas, whiskey warehouse receipts, oyster beds, and live silver foxes as securities offerings, as “the purported sale of the…property was merely camouflage and not the substance of the transaction.”
Today, many entrepreneurs are raising money from the public by selling crypto tokens, with the expectation that the managers will build an ecosystem where the token is useful and which will draw more users to the project.
Thus, it is important that we work to get crypto tokens that are securities to be registered with the SEC. Issuers of crypto tokens that are securities must register their offers and sales of these assets with the SEC and comply with our disclosure requirements, or meet an exemption. Issuers of all kinds across a variety of markets successfully register and provide disclosures every day. If there are, in fact, forms or disclosure with which crypto assets truly cannot comply, our staff is here to discuss and evaluate those concerns. Any token that is a security must play by the same market integrity rulebook as other securities under our laws.
That's pretty clear. If there's an issuer raising money with it, it's a security. Note the line “the purported sale of the…property was merely camouflage and not the substance of the transaction.” That covers much of the NFT market.
[1] https://www.sec.gov/news/speech/gensler-remarks-crypto-marke...
You copy/pasted the types of speeches I’m referring to.
“everything in crypto with a live issuer behind it is probably a security.”… This claim is still a massive overstatement from a regulation-informed perspective. Everything in crypto extends beyond “much of the NFT” market.
In ‘18, SEC chairman says ETH and BTC aren’t securities. Pre-merge, eth wasn’t a security to Gensler. Post-merge, it was. So then what about the many ETH-clones that didn’t do PoS and stuck with PoW/not-a-security ETH design. Also, “eth might be a security” came up in Sept ‘22. SEC and the chairman have changed minds in significant ways within that time period many times over since ‘09 and the whitepaper.
It’s nowhere near cut and dry as you’re making it to be, but I won’t devolve into an argument about it and instead say there’s more info to this than your views indicate you’ve researched.
The original theory behind NFTs was that they were "collectable art". But then they started looking a lot like securities, with collections, series, "floor prices", fractional ownership, secondary markets, and such. See [1] The US test for whether something is a security is use, not form. If there's a billion dollar market in trading buttons, it becomes a security.
There are NFTs representing land in virtual worlds. Most of the sellers sold land before actually getting the virtual world working. That's a clearly a speculative investment which depends upon on the promoters finishing the project. This is exactly like selling real land in a not yet built subdivision, which is a security offering in the US. See "Swampland in Florida" in Wikipedia. (Although China allows this; there are people stuck paying mortgages on unbuilt buildings, which is not going well.)
There's the DAO concept, where the token holders own the thing and can vote on running it. That looks a lot like a stock IPO in the early stages. In the later stages, when all tokens have been sold, there's an unexpected kicker. Owners of the DAO may be personally liable for its losses.[2] Not just for the amount they paid. A DAO is a partnership or unincorporated association, and debts pass through to the members.
[1] https://www.pymnts.com/nfts/2022/pymnts-nft-series-can-nfts-...
[2] https://www.jdsupra.com/legalnews/voter-beware-personal-liab...
Unlike proof of work bitcoin, the control authority of the entity that is the Ethereum network is now entirely in the hands of the top stake owners, just like control authority of a company is entirely in the hands of top shareholders.
At the end of the day, the specs are defined by the community and implemented by the 10 independent client teams, compared to 1 with Bitcoin.
Besides, node operators still have the choice to update or not update their nodes, similar to Bitcoin.
Ethereum is not a security
There is not much difference between a traditional tech company and Ethereum.
Meanwhile Bitcoin has been code complete since the whitepaper was released. There is no roadmap.
Ethereum is a security, Bitcoin is a commodity.
So here's a private company that acts like a bank and like a commodity/securities exchange, but it's completely unregulated. Or else how can they simply lose 9 billion dollars without anyone noticing for months until a run on withdrawals makes it apparent that they're insolvent. In the past there were multiple other cases of such companies "losing" user funds or "getting hacked", as they often put it. And the guy running the biggest fraud of them all, SBF is all over Washington meeting with regulators and telling them crypto needs more regulation!
It's an absurd situation. They're going after decentralized finance apps and the EU wants to regulate wallets, all of which are on chain and transparent, while people like SBF have for years been allowed to run these exchanges with no oversight whatsoever. The worst part is most people do not understand any of it and will think this comes down to cryptocurrency being shady, while the actual use of blockchains fixes exactly this problem. It's the shady off-chain deals where the money disappeared and none of the users could have known what was going on, because SBF, FTX and Alameda (which are essentially all the same entity) lied about it. Regulation of financial institutions is a joke.
It's debatable whether you can pin some kind of blame on the CFTC for failing to regulate the entirety of FTX's international operations when they were 100% decoupled from the operations of the one entity that was actually licensed. This article, while surely well-intentioned, is still mostly just grandstanding by a political lobbyist.
The regulated company, couldnt share its funds with parent co, couldnt gamble them and is not going bankrupt.
https://www.nytimes.com/2022/11/14/technology/ftx-sam-bankma...
This is the title page of the article:
> How Sam Bankman-Fried’s Crypto Empire Collapsed
> Mr . Bankman-Fried said in an interview that he had expanded too fast and failed to see warning signs. But he shared few details about his handling of FTX customers’ funds."
And there's this:
"But he would offer only limited details about the central questions swirling around him: whether FTX improperly used billions of dollars of customer funds to prop up a trading firm that he also founded, Alameda Research. The Justice Department and the S.E.C. are examining that relationship."
Of course the New York Times can't accuse him of committing fraud. That hasn't been proven. But I don't see how anyone could miss the implication of this article that something shady may have happened.
Neither of them misused and lost billions of dollars of customer funds.
SBF unambiguously did.
He was even lying about it all the way up until last week, saying that a competitor was going after them with false rumors. Saying FTX is fine. Assets are fine. https://cointelegraph.com/news/ftx-founder-sam-bankman-fried...
Yet they are treating him with kid gloves and using a sympathetic lens.
"his ambitions exceeded his grasp"
Definitely agree that he is being treated nicely (likely due to being a democratic donor) compared to other crypto folks.
I think there are screenshots of his emails out there saying it much more explicitly though, don't have them offhand.
"This is far enough from my field that I would usually defer to expert consensus, but all the studies I can find which try to assess expert consensus seem crazy. A while ago, I freaked out upon finding a study that seemed to show most expert scientists in the field agreed with Murray's thesis in 1987 - about three times as many said the gap was due to a combination of genetics and environment as said it was just environment. Then I freaked out again when I found another study (here is the most recent version, from 2020) showing basically the same thing (about four times as many say it’s a combination of genetics and environment compared to just environment). I can't find any expert surveys giving the expected result that they all agree this is dumb and definitely 100% environment and we can move on (I'd be very relieved if anybody could find those, or if they could explain why the ones I found were fake studies or fake experts or a biased sample, or explain how I'm misreading them or that they otherwise shouldn't be trusted. If you have thoughts on this, please send me an email). I've vacillated back and forth on how to think about this question so many times, and right now my personal probability estimate is "I am still freaking out about this, go away go away go away". And I understand I have at least two potentially irresolveable biases on this question: one, I'm a white person in a country with a long history of promoting white supremacy; and two, if I lean in favor then everyone will hate me, and use it as a bludgeon against anyone I have ever associated with, and I will die alone in a ditch and maybe deserve it. So the best I can do is try to route around this issue when considering important questions. This is sometimes hard, but the basic principle is that I'm far less sure of any of it than I am sure that all human beings are morally equal and deserve to have a good life and get treated with respect regardless of academic achievement."
https://astralcodexten.substack.com/p/book-review-the-cult-o...
And yes, the second part of your comment was what my comment was alluding to. My guess is that they will treat someone who stole billions of dollars less poorly than they do someone espousing beliefs in the biological intellectual superiority of white people over black people.
You are reading a value judgement into my comment that I never made, my comment is entirely descriptive and non-normative.
The Justice Department and SEC are investigating FTX and Alameda Research for committing fraud. That's entirely true. You can say that. Deliberately not saying some variation of that is shady in and of itself.
In any case, I'm not really here to argue about whether The NY Times used exactly the right language in describing the situation. I'm reacting more to the claim that The NY Times is somehow covering for SBF here ("daddy and mommy's friends are hard at work") which strikes me as baseless.
"His management of FTX is now the subject of an inquiry by federal prosecutors in New York, who have begun contacting possible witnesses, according to a person familiar with the matter. Others associated with FTX have started reaching out to lawyers for potential representation, said several people briefed on the matter. FTX is being represented in the investigations and the bankruptcy by the law firm Sullivan & Cromwell, while lawyers from Paul Weiss are representing Mr. Bankman-Fried.
In the interview, Mr. Bankman-Fried declined to discuss the prospect of prison time."
I realize it's counter to your narrative so you won't be able to accept it, but there it is.
>"But in a wide-ranging interview on Sunday that stretched past midnight, he sounded surprisingly calm. “You would’ve thought that I’d be getting no sleep right now, and instead I’m getting some,” he said. “It could be worse."
For a self-professed "wide-ranging interview" it actually provides scant if any meaningful details to support the headline of "How Sam Bankman-Fried’s Crypto Empire Collapsed."
Of the few details the editor and author chose to include:
>“You would’ve thought that I’d be getting no sleep right now, and instead I’m getting some,” he said. “It could be worse.”
>“Had I been a bit more concentrated on what I was doing, I would have been able to be more thorough,” he said. “That would have allowed me to catch what was going on on the risk side.”
Had I been a bit more concentrated on what I was doing? This reads like "aw shucks, the phone rang and I got distracted." This can not be taken seriously. Is this meant to answer the "How" in the article's title?
>"Mr. Bankman-Fried’s circle of colleagues was bound by a commitment to effective altruism, a charitable movement that urges adherents to give away their wealth in efficient and logical ways."
So he was a charitable man? Just with other people's money?
And then of course this important bit:
>"He has also found other ways to occupy his time in recent days, playing the video game Storybook Brawl, though less than he usually does, he said. “It helps me unwind a bit,” he said. “It clears my mind.”
Yes the NYTimes included the line about DOJ and SEC, but it fails to mention why these two department are "examining" this man's now "crumbled empire."
Yes this is literally "just describing him" which is what makes the article so glaringly bad. Exactly none of these trite details have anything to do with the article's title of "How Sam Bankman-Fried’s Crypto Empire Collapsed."
I would argue that the amount of attention spent on such trivial details about "him" instead of actually talking about the "How" of his spectacular failure is quite generous indeed.
It's also worth nothing that this piece is in the Technology section of the NYTimes by a journalist who according to his byline "writes about the crypto markets and financial technology." Yet so much of this article would not be out of place in a profile in the Style section.
We both know you know this. And I didn't ad hom you. Get a grip.
"But he would offer only limited details about the central questions swirling around him: whether FTX improperly used billions of dollars of customer funds to prop up a trading firm that he also founded, Alameda Research. The Justice Department and the S.E.C. are examining that relationship. There are some who question this narrative of mistakes made and are calling it a fraud".
Some politicians like that wording a lot - "People are saying...", "I am hearing..."
It's not verifiable and doesn't belong in a news story.
That's first thing that jumps out. You have to list all the organizations willing to go on the record calling it fraud.
Your added statement doesn't provide any information about additional organizations that consider FTX-Alameda a fraud. It just puts out a nebulous implication that there exist some organizations, somewhere, that are calling it a fraud. In fact, your statement doesn't clarify whether or not these organizations are engaged in investigations. Nor does your statement even make mention of the evidence these organizations gave you to back up their assertions. Only that these, hopefully not totally hypothetical, organizations "question" a narrative.
I have to say, this addition by you is actually worse than the statement that NYTimes printed in terms of journalistic quality.
I actually hate NYTimes/FOX/CNN/BBC etc for reasons that should be obvious. But what you're doing is going in the opposite direction of where we need to be headed with responsible journalism.
Even in the space of crypto, the community, there are people openly calling this a fraud. That is news. To omit to mention that the crypto community itself is making these claims is to suppress information.
If you just read The New York Times on this topic, would you have a clue that there is a storm of controversy and very pointed questions regarding this affair and other 'important people' associated with this affair?
So who?
"Who?" "What?" "When?" "Where?" "How?"
Here's a thought, "Why?"
Who specifically? What evidence did they give you? How are they communicating that it's a fraud? Why do they think it's a fraud?
Journalistic quality requires you to answer questions. Some answers can be "it's under investigation", but you have to have an answer.
You've, again, made a vague reference to something as nebulous as a "community" and you want it to be taken as equally authoritative in nature to the NYTimes' reference to the SEC and the SEC's investigation.
It's just not.
You have to name the organizations, and layout the actions they're taking.
https://nitter.net/r2remeta/status/1592662692627877888#m
I really liked this one! SBF the Alpha-Male. Will there be Caroline & the rise of Alpha-Venus articles to come?
https://www.bloomberg.com/news/articles/2022-11-12/bankman-f...
https://decrypt.co/114826/ftx-lawsuit-takes-aim-larry-david-...
"sources familiar with the matter," obviously. this is the NYT after all.
Well, that's different, because in Trump's case it was obvious he did it all. After all, the NYT told us. Or at least, they heavily implied it, even though nothing was proven. Waaaait a minute.
In none of these incidents are any of these investigations complete. So even if it is obvious SBF is a crook, or Trump is a crook, it's not right to be out "heavily implying" guilt. Used to be we only did that kind of thing to street criminals on the local news, (and I had a problem with it then). Now we're doing it all the way up to people like DSK and the President of the US. This is bad. CNN/FOX/WSJ/NYTimes/BBC etc are so irresponsible that people have begun to believe this is appropriate journalistic behavior.
It's not.
It's a great injustice that they didn't apply even 1% of the scrutiny with FBX and SBF, an actual, literal fraud. That NYT piece even lets SBF plug the game that FBX acquired, in a sympathetic way no less.
> He has also found other ways to occupy his time in recent days, playing the video game Storybook Brawl, though less than he usually does, he said. “It helps me unwind a bit,” he said. “It clears my mind.”
Authorities publicly mooted Tornado Cash's complicity in money laundering January [1]. It was sanctioned in August after being used to launder millions in proceeds from hacks on 24 June and 2 August [2]. Two days later, Semenov was arrested [3].
Eight months is far from "nearly immediately."
[1] https://www.coindesk.com/business/2022/01/21/is-tornado-cash...
[2] https://home.treasury.gov/news/press-releases/jy0916
[3] https://www.fiod.nl/arrest-of-suspected-developer-of-tornado...
https://home.treasury.gov/news/press-releases/jy1087
Treasury acknowledges it is legal to access the website, view the source code, and none of the developers, DAO members, or users of the application are currently sanctioned by OFAC. The only thing that remains illegal is interacting as a US citizen with the deployed contracts on Ethereum since the time of the designation.
The developer was arrested by Dutch authorities and is currently on remand until December and has not been charged. It's incredible that you can be arrested and held without charge for 90 days by Dutch authorities, but hey that's Europe.
From the official Treasury FAQ:
> OFAC has not designated Tornado Cash’s individual founders, developers, members of the DAO, or users, or other persons involved in supporting Tornado Cash at this time. However, all Tornado Cash property and interests in property are blocked, and U.S. persons cannot transact with Tornado Cash or deal in its property and interests in property, absent authorization from OFAC.
https://home.treasury.gov/policy-issues/financial-sanctions/...
> While engaging in any transaction with Tornado Cash or its blocked property or interests in property is prohibited for U.S. persons, interacting with open-source code itself, in a way that does not involve a prohibited transaction with Tornado Cash, is not prohibited. For example, U.S. persons would not be prohibited by U.S. sanctions regulations from copying the open-source code and making it available online for others to view, as well as discussing, teaching about, or including open-source code in written publications, such as textbooks, absent additional facts. Similarly, U.S. persons would not be prohibited by U.S. sanctions regulations from visiting the Internet archives for the Tornado Cash historical website, nor would they be prohibited from visiting the Tornado Cash website if it again becomes active on the Internet.
https://home.treasury.gov/policy-issues/financial-sanctions/...
You're misreading an administrative action. The re-designation broadens Tornado Cash's alleged support for "North Korean hackers to the allegation that it supported the North Korean regime more generally" [1]. (Also, this entire discussion is a red herring.)
[1] https://www.reuters.com/business/finance/us-changes-sanction...
The interesting argument at play is if they even have the authority to do that. Encrypted communications are also used by North Koreans, but we do not ban that for US people because, 1) it's math, and 2) there are valid reasons for privacy even if it assists North Korea.
It is an open question for the courts if this is within the authority of Treasury to ban interacting with self-executing smart contracts.
This is false. The scope of the sanctions was untouched by the re-designation. Justification was broadened.
Treasury says that originally the website itself was OFAC sanctioned.
With the redesignation:
> Similarly, U.S. persons would not be prohibited by U.S. sanctions regulations from visiting the Internet archives for the Tornado Cash historical website, nor would they be prohibited from visiting the Tornado Cash website if it again becomes active on the Internet.
Now, it is not illegal to access the website.
https://home.treasury.gov/policy-issues/financial-sanctions/...
The scope was narrowed in overt ways as clearly stated above, and for those of us closely following this story, there was a lot of worry that various people involved in Tornado Cash would have serious legal liability. That has been radically reduced.
Sure, the website was originally sanctioned [1] and now isn't [2]. That wasn't part of the re-designation. It also wasn't the part of the sanctions anyone objected to, OFAC's authority to sanction websites being long established.
[1] https://home.treasury.gov/policy-issues/financial-sanctions/...
[2] https://sanctionssearch.ofac.treas.gov/Details.aspx?id=39796
And the article is hardly a defense of Fried.
(I think you're trying to find something in this article that isn't there.)
They have given SBF a chance to set the record straight - he went with the story as laid out in their piece - evidence supporting or contrary to these events will no doubt come out over time. I prefer to have the quotes (lies or truth) on record, and that is what they have delivered.
Even for the NYT, this is bad journalism.
A complete lack of regulatory oversight, and a government conducive to facilitating international monetary crimes.
What, like this about Celsius' collapse (by the same author as this piece):
Or this about the crypto soccer team?
Most of the negative coverage I see using your suggestion is very recent, or around specific events, or by op-ed contributors. But they have the "expert" David Yaffe-Bellany on staff to churn out feel-good crypto stories.
> This specific article is either grossly uninformed reporting or politically motivated.
I know people like to find conspiracies, but I think you can safely leave the politics out of it. To me it looks like they put a crypto bro in charge of reporting crucial crypto failures, rather than to default assuming that the entire space is full of fraudsters and crime and putting a real reporter on it.
Yeah. All the "Bitcoin Jesus" articles leading up to the collapse almost had me feeling sympathetic for the guy, too. Amazing the mental hoops you can jump through to justify pure greed.
https://www.op.gg/summoners/jp/TSMFTX%20SBF is his account and
https://twitter.com/SBF_FTX/status/1407924282865246215?ref_s... has evidence
It is a coping mechanism.
Remember that sociopaths don't think the same as the rest of us.
https://www.mollywhite.net/annotations/latecomers-guide-to-c...
It seems as if NYT have a couple of relatively pro-crypto (or just naive) writers.
FTX US was registered, licensed, and regulated by the CFTC as both a DCM (designated contract market) and a DCO (derivatives clearing organization).
FTX Intl bought LedgerX (the DCO and DCM) presumably as an entryway into the US marketplace and as an attempt to bypass the registration process for those types of entities, but FTX Intl was in no way registered, licensed, or regulated by the CFTC.
It's a shame LedgerX may go down with the ship, and their marketplace has a lot of opportunity.
At the end of the day FTX came apart too fast and didn’t impact enough people to generate a reason for them to spend their limited resources on them.
Generally, the issue is that regulators come down like a ton of bricks on the little guy but won't do anything when something is too big to regulate.
There is no easy solution to this because you will never be able to overcome the lack of critical thought at regulatory agencies. It is also worth considering the actual scope of protection that regulators offer: the premise of most regulation is that regulators can regulate...when they can't (this is less true outside financial regulation btw, in financial markets you seem the same people do the same scam over and over with no consequences because there are slight variations...and then come down heavily on other people who are innovating...it is really despairing).
There is no desire for a solution to this, therefore anyone showing critical thought at regulatory agencies is fired. Protect Lina Khan.
1825 K Street NW, Suite 1080, Washington DC 20006
> DeFi already exists, and have been existing for almost as long as FTX. Likes of FTX and Binance was created in the first place because decentralized, trustleas on chain transaction is slow and expensive, and people don't like slow and expensive. Just because FTX blew up doesn't mean DeFi is at a better place than it was in the past. "DeFi fixes this" is like saying "moving back to horse drawn carriages solves drunk driving fatalities!" Maybe, but no one wants to deal with horse shit.
So you get speed, low fees, and full transparency and safety. There's a reason both Brian Armstrong and CZ have said they see DeFi replacing their exchanges eventually.
Also, promising my half-assed project will be perfect by the time the finals roll around stopped working in the real world when I graduated from high school. Seems like only in crypto world it's acceptable to judge technology for not what it is but what it dreams to be.
From what I've seen it's basically at a point now where hacking a DeFi bridge essentially guarantees that you can keep 10% as that seems to be the standard for "bug bounties" now. That is, of course, unless you keep 100%...
It's very likely that if DeFi as a whole had the user base of FTX (or major centralized $EXCHANGE) the losses would be similar if not higher. The only thing that has stopped this from happening is the fact that the average centralized exchange user doesn't have a chance of figuring out how to do DeFi (see points above).
[0] - https://hacken.io/discover/top-defi-hacks-of-2022-and-how-to...
If someone has deployed a DeFi app that can't be changed and hasn't been hacked in a few months, I'm fairly confident it's safe. With an exchange it doesn't matter if it's been running 10 years, it could start stealing money tomorrow.
When an iOS zero day is discovered (as one example) exploiting it often still takes multiple steps, i.e. some action each individual target needs to take. In most cases (rarer and rarer with the exception of log4j, etc) this limits exposure until it can be discovered and patched. Even in the case of things like log4j you can patch your instance before someone gets around to exploiting your instance.
It's widely known that governments, people like the NSO, hacking groups, etc sit on zero days for as long as possible waiting for an opportune moment with the highest return and biggest impact. Hacking groups, governments, etc have been known to sit in compromised networks for years before striking. Point here is they can be remarkably patient and with smart contracts by the time the issue is discovered there's no point - the smart contract is now at $0 and the attackers have disappeared into the night.
When smart contracts are deployed they sit at an address. If an equivalent "zero day" is discovered it's just there there waiting for someone to exploit it with global/universal impact. No action on the part of any users, no need to deploy target by target. I'm sure I could phrase that better but early-morning HN is what I do between waking up and the caffeine kicking in for real work :).
Point here is, I don't quite understand your "it's been around growing for a few months and $10m (or whatever) is there so it's probably safe". Why strike a buggy contract when it's received some amount of traction and is still early stages? Why grab $10m when you can grab $100m (or more)? As I noted there have been several cases (arguably most) where I'm pretty sure the attackers did just this.
Or, in the case of Axie Infinity, you can steal $620m the "good old fashioned way" by targeting and manipulating one of the people behind it. So, in practice, in many cases, humans are still involved.
This also doesn't get to my other points involving the challenge of securing your own wallet, etc. If you peruse around Discord, Reddit, etc where crypto people of higher than average knowledge, skill, and sophistication are reporting daily wallet hacks you'll see just how hard this is. The equivalent being there's a reason why (for example) the United States keeps gold reserves in places like Fort Knox where there is a literal army of 26,0000 soldiers securing it. Most people don't have that ability and even though this comparison is a little tired I think it applies quite well to the difference between keeping gold in your house vs securing it in a bank vault (for example).
That said, you have a point about centralized exchanges but there's a reason why banks don't run off or gamble (FTX) with customer funds - regulation. I think it's clear from the FTX situation something closer to "bank-ish" regulations are coming to centralized exchanges which only tips the calculus further here towards centralization. So, as is often noted, crypto in general is marching closer and closer towards centralization and consolidation which history has demonstrated is almost always naturally the case.
I understand what you're saying but the result is the same and it's little consolation to the people who lose their money.
If you get mugged and someone steals your wallet (FTX, crypto wallet, or physical wallet) = money gone.
If you lose your wallet (physical or crypto) = money gone.
If you get handed a counterfeit bill (physical hack) and it's detected and confiscated later = money gone (best analogy I could come up with for a DeFi hack).
In any of these cases if those funds were needed to buy groceries for your kids or pay your rent the end result is the same. Whatever philosophical point you and the last commenter are trying to make means absolutely nothing to the very real people in the very real world who are significantly impacted by these events. People work for their money and the blase attitude and callousness shown towards victims in this space is very disturbing. We wouldn't remotely be having this discussion if someone gets robbed at gunpoint (victim of a crime) vs FTX (victim of a crime), DeFi hack (victim of a crime), wallet hack (victim of a crime), etc.
In the real world outside of crypto these events are exceedingly rare. I've been mugged once and I'm an outlier. I report credit card fraud and it just goes away. I've never had a bank fail. I've never lost access to a bank, trading, etc account. I've never had a negative experience with a wire transfer. I could go on and on while meanwhile all of these things and worse are a daily occurrence for an outsized portion of people involved in crypto.
The FTX failure alone is estimated to have impacted 1 million people. Celsius has 100,000 creditors. Who knows with DeFi, crypto wallets, etc but as I said originally I personally know an order of magnitude more people who have encountered these issues than the equivalents in the traditional financial system (real world).
We have a chance to make finance better with companies that are completely transparent. Where all funds are held by code which can be audited and proven that they can't steal funds.
Decentralized versions of what FTX did already exist:
- Exchanges: Uniswap, Balancer
- Lending Markets: Aave, Compound
- Options: Lyra, Ribbon
- Perps: GMX, Perpetual
We don't have to suffer through scammer after scammer until the end of time, and we don't need overbearing regulation to save us. We just need transparency.
Real finance is already being done in these platforms and I wish more people would take it seriously and realise this can be a much better future for everyone.
Plus because they're open source and composable we can innovate much faster but that's a thread for another time.
What we need is better, more equipped, and less corrupt regulators.
FTX (The entity) going bust and losing all customer funds and you buying a shitcoin and losing your funds.
One is FTX's fault, one is yours. If you are using a DEX, you understand that anyone can add their token to the list if they have enough liquidity.
2. More importantly, an email provider that doesn't make an effort to distinguish between 99% of spam emails and 1% of legit ones is definitely useless and worthless.
Because it's a protocol anyone can build a frontend on top of it to filter out any information they like, just like Email. Zapper, DeFi Saver and Zerion are examples of this. Element Finance runs using Balancer under the hood but you wouldn't know and aren't exposed to any tokens or pools they don't manage.
DeFi has no fiat gateway though, that's the biggest bottleneck. The gateway is the centralized exchanges, and I think people tend to park their money on them once they deposit/convert their dollars.
So that's how they did it!
This is why Coinbase’s Armstrong et al have been pushing for it, not the SEC, to regulate them [3]. Hopefully this puts a nail in that coffin.
[1] https://en.m.wikipedia.org/wiki/Commodity_Exchange_Act
[2] https://en.m.wikipedia.org/wiki/Securities_Act_of_1933
[3] https://decrypt.co/111106/coinbase-very-supportive-cftc-bitc...
This mess is fundamentally the fault of congress which has refused to address the question. And it is congress that should make this decision, not the courts, both in a legal and democratic sense.
As much as I'd like to see regulators dragged over the coals for talking big, and offering (or demanding) registration but actually doing nothing, it's politicians that have watched this grey legal space turn into a black hole and done nothing.
Ultimately the criminal is to blame for the crime. Law enforcement can’t be everywhere actively preventing people from sending money to shady actors, as much as we try to build systems to that effect. Hopefully the FTX collapse is a reminder to both American parties to beware “innovators” bearing gifts, and for SEC to better use the powers they have (for now anyway).
This is such an ironically motivated thing to say in a thread about FTX given that SBF was Democrats' second largest donor.
Bankman-Fried, the CEO of FTX, gave $35M to democrats. Ryan Salame, the "Co-CEO" of FTX, gave $18M to republicans, making him the 10th-largest republican donor (though this is slightly misleading as a comparison; republicans have more large donors than democrats, and Salame's donation would have been the 5th-largest if it had been for the latter).
FTX was playing both sides.
Are there some other donors who gave crypto money to Republicans?
> Are there some other donors who gave crypto money to Republicans?
I can only speculate as to the sources of wealth for many of these people and their motivations. That said, we do see Peter Thiel with a $32M donation to republicans, the same Peter Thiel who headlined the Bitcoin 2022 conference this year:
'Taking a break from throwing cash into the crowd, Thiel accused the three finance moguls of facilitating a system that harbors institutional and political biases against Bitcoin.'
'"The central banks are bankrupt. We are at the end of the fiat money regime," Thiel declared. Thiel believes Bitcoin is the ultimate alternative to the entire traditional financial system.'
https://decrypt.co/97251/peter-thiel-unleashes-ethereum-warr...
>A lot of crypto money has flowed to mostly Republican politicians who support turning the SEC and FTC into hollow shells Note SBF and FTX's donor list.
Regulation won't be a silver bullet, plenty of scams remain in regulated finance that they are supposed to fix as well.
No regulator in the world has successfully stopped a scam before people lost money (afaik). But if you establish some regulatory framework in which people have to disclose information, establishes capital rules, etc. then it makes that less likely.
Scams are a central component of financial innovation. But this specific kind of scam (stealing money from customers) is basically non-existent at scale today because of regulation.
It's impossible to prove anyone stopping anything before harms materialize because the prevented harms never happened. Regulators have definitely stopped scams early enough to reimburse victims. And where they couldn't (and where regulators were the ones to stop it) would have presumably kept going absent their interference. Americans are to a large degree shielded from FTX's collapse on account of regulation.
Just trade on chain. Smart contracts are transparent by default.
Too bad the press release here is also hot garbage. For one, it's heavily based on speculative notions of what happened. Secondly, the withdrawal notice IS regulatory, and LedgerX is the legal entity that made the request. Changing it would look far more suspicious than following procedure. Also, what sort of regulation could have stopped this is very much an open question, since the whole phenomenon of affiliates, subsidiaries, and everything that led to FTX and FTX.US offering different products to different customers is entirely a product of anticipating or compliance with regulations, keeping in mind that FTX doesn't only operate in the US and some amorphous world but actual countries with their own regulatory frameworks. And the revolving door is effectively inevitable - those who are engaged in the field with any expertise on specific regulations is going to be a very small pool, and this goes for a lot more industries than CEXes, especially in technical fields and it doesn't even need to be rocket science. Courts and attorneys are setting a lot of junk precedent that will never be relevant or end up counterproductive because they don't know how CDNs work and some of the opinions from DMCA suits against absentee defendants are entirely based on infringement arising out of Cloudflare IPs while defining incidental (non-purposeful) availment of service as insufficient. Without a revolving door, it'll become farcical because you'd end up the equivalent of asking a dentist to do brain surgery. Without competent counsel, and facing down regulatory pressure, you will just lose the industry all-together, which is the apotheosis of an unregulated market because all activity is either underground or out of jurisdiction. The US is a big market, but nobody wants to go through what Ripple is going through, and calling it a regulatory failure when undercollateralized derivatives were offered on ftx.com but not ftx.us wasn't some 4D chess move but self-preservation, like Binance eventually did. I also can't figure out the logic behind the rationale that can include both "CFTC failed to regulate" and "CFTC should regulate more". 100 x 0 = 0. CFTC has acted incompetently before - like treating all holders of a token as an active member of a DAO in an enforcement action, seemingly forgetting that I can send anyone a few tokens, or hell, an offensive NFT for that matter, and there's not much you can do to stop that even if you catch it.
Although reading bettermarkets I can't help but notice that its critiques are almost always on the regulators and their incompetence and the solution is... more regulation. They depict what can only be described as a fantasy world where crypto - that is all crypto, which is not a monolith - is the boogeyman while in reality, crypto is given the exact opposite of the too-big-to-fail treatment.
> The key to that influence campaign is to buy as many former public officials and regulators as possible to gain access to their expertise, inside knowledge, and networks developed when they were supposedly working in the public interest. The importance of those revolving door hires cannot be overstated because they not only enable ready access to current policymakers and regulators, but also to the inside knowledge that enables crypto to precisely tailor and target their strategies to be optimally successful.
Are they deliberately misleading the reader or genuinely talking out of their ass? You hire regulators for compliance, because the tech moves too quickly, and optimally successful strategy? Even MEV bots get salmonella. Not to mention that academia has much of that covered. Then, I checked out their CEO's litigation record on courtlistener and found that until last year he was at some big law defending predatory lenders. Well, there you go.
I bet all those political contributions that SBF made did not hurt his prospects in this regard:
https://fortune.com/2022/11/10/sam-bankman-fried-ftx-joe-bid... (https://archive.ph/BBpQN#selection-417.0-424.0)
> The 30-year-old Bankman-Fried has been a major force in Democratic politics, ranking as the party’s second-biggest individual donor in the 2021–2022 election cycle, according to Open Secrets, with donations totaling $39.8 million. That ranks only behind George Soros (about $128 million) but ahead of many other big names, including Michael Bloomberg ($28.3 million). What’s more, he had promised to spend far more on Democrats moving forward, predicting in May that he’d fund “north of $100 million” and had a “soft ceiling” of $1 billion for the 2024 elections.
> This mess is fundamentally the fault of congress which has refused to address the question. And it is congress that should make this decision, not the courts, both in a legal and democratic sense.
SBF was using congress as sock-puppets to ghost-write regulation:
https://prospect.org/power/sam-bankman-frieds-multimillion-d...
> Crypto’s supporters in Congress are determined to ignore the massive gap in capacity between the two agencies; in fact, they likely understand that its incapacity is part of its appeal to FTX. A bill proposed by Sens. Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) seeks to grant the CFTC “exclusive jurisdiction over any agreement, contract, or transaction involving a contract of sale of a digital asset that is offered, solicited, traded, executed, or otherwise dealt in interstate commerce, including market activities relating to ancillary assets.” Perhaps in anticipation of such a move, FTX has stocked up its ranks with former CFTC officials. Former CFTC commissioner and acting chair Mark Wetjen is FTX’s head of policy and regulatory strategy. Ryne Miller, who was legal counsel to Gensler when he led the CFTC, is FTX’s general counsel. The Tech Transparency Project has also identified 14 other cases of CFTC alumni revolving into the crypto industry.
Gensler initially didn't support the FTX bill, but was reportedly lobbying for it a few weeks before FTX collapsed (to be clear: this is a guy who was saying crypto should be regulated, SBF appears with a big chequebook, and he then says that his own regulator shouldn't be doing the regulating...not suspicious at all...).
A few years ago I became convinced that there would be a collapse in the crypto space triggered by the insolvency of Tether. I was looking into ways to build a short position.
I could only find three means that were legally available to me in the US (at the time at least); trading CME Bitcoin futures, shorting relevant equities (eg publicly traded Bitcoin miners), and trading options on LedgerX (which was purchased by FTX).
I couldn't trade futures or short stocks, because I couldn't handle infinite downside risk. So that only left put options at LedgerX. LedgerX was supposed to be fully collateralized, and so should have had all my funds on hand even in the event of a contagion in the crypto market.
But I could never shake the feeling in my gut that they'd get wiped out with everyone else. I let the idea go. Entire years passed and now the market is falling apart. Part of me wishes I'd been short somehow of course, but I know I couldn't have remained solvent this long.
And it's interesting how much hate it continues to get, especially from people in the US. It was released in 2014 and has maintained it peg since then, with trillions and trillions of dollars of value transacted in it. It's one of longest running and most successful crypto projects by far.
But the issue is that outlawing XYZ did absolutely nothing because there was still an economic rationale for that activity. So a lot of activity moved to PE funds, and other non-bank lenders.
The exact issue is that people think in the rear view mirror: we are in a cycle of "boom and bust" with banks...my guy, banks stopped being relevant years and years ago. But the problem now is: liquidity in markets has absolutely disappeared (current liquidity in USTs is as low as the depth of 2008, this is despite the market growing 5x since then), risk has moved to non-banks, etc. All these other side-effects have now been triggered.
Also, the financial instruments that "blew up" in 2008 were ones that investors were demanding. It is like blaming the guy who sells you a gun if you shoot someone, "why did you sell me this?". The reason why investors wanted these securities was because the demand for AAA securities in 03-04 was very high but the Fed drove rates down to 1% so large institutions were legally unable to meet liabilities. Obviously, there was other stuff going on but the underlying logic of things like CDO/CMOs is strong (almost every country in the world wishes they had a financial market like this, Denmark is the only other one, ironically the issue with not having securitization markets is that risk gets centralized in banks, people in the US think the 2008 bailout was crazy...countries like Germany, that have heavily centralized financial markets, have had to bail out banks three times since then). Unf, the lessons of 2008 largely haven't been learned (and this is despite the fact that the US had, by far, the best/least interventionist response).
Also no one sold me a CDO gun they sold someone else a gun and it threatened to sink the global economy riiiiight as I was going into college. Luckily software engineering weathered the period fairly well and I was able to get a job when I graduated in '13. These things don't just impact the buyers and sellers they incentivize and potentially warp the entire economy and when the sellers and buyers screw up they're not even left holding the bag.
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It is regulated but that has nothing to do with why it didn’t fail, its just managed better, fully collateralized, and maintained its separation in the ftx issue. for now.
Seems like nothing changed since 2009.
I give it about a year more.
Is this a real conspiracy theory?
FTX’s failings weren’t widely acknowledged. But critics weren’t dismissed as unbelievable, even absent strong evidence. Most of us just don’t give a shit.
Beyond Robinhood ramblings, there isn’t even circumstantial evidence of DTCC being corrupted in favour of Citadel, a claim which requires having the latter overpower every global bank plus every competing fund complex, from BlackRock to Bridgewater.
Did you forget the HN thread about the initial leak?
Funnily enough, I was approached by Citadel for an engineering role in their crypto team about a week before FTX blew up
The real hair on fire moment would be a Binance rug pull.
Michael Lewis is somehow already selling the rights [1].
[1] https://theankler.com/p/hwood-ftx-frenzy-as-michael-lewis?sd...
Doesn't matter if you're a regulator or am ICO tycoon, you're a dirtbag hoping to get rich quick.
"Cryptocurrency is full of scams, money laundering, gambling, and crime!"
"So you're saying it's a real currency?"
Meanwhile, the real economy of crypto seems to be coin issuers and early adopters and platform operators fleecing later entrants, with a generous helping of outright theft.
They complied with the regulations, They still do. My assets are liquid and I was able to wire everything out. Whoever made this story doesn't understand corporate structure, and also didn't bother to check their facts in even a superficial way.
https://twitter.com/LibertyBlitz/status/1591418251132932096
https://twitter.com/brucefenton/status/1591768410190655490
https://twitter.com/AKA_RealDirty/status/1591522972031852545
To me it seems obvious this was a government laundering operation. They were getting funds washed for what ever they wanted.
I bet if there was a run on brokers, the exact same thing would happen because lots of peoples shares are just IOUs.
How is this news? Answer, it's not.
It pointedly does not.
What happened to banks in 2008 demonstrates the value of the regulations and other systems we had in place. Some banks did fail, but depositors didn't lose money because of the FDIC insurance.