BlockFi files for bankruptcy as FTX fallout spreads
cnbc.com
cnbc.com
They've raised about a billion dollars of VC - https://www.crunchbase.com/organization/blockfi-inc/investor...
(note, CB lists $1.4b, of which 400M is debt from FTX, which I imagine they never got)
Unbelievable the amount of destruction of value here... it's just total carnage.
She also said the money movements on the blockchain facilitated by BlockFi were done manually by blockfi employees. The software was a facade and wasnt trusted for large sums of money
1) some people are rich and want to get richer
2) Ivy educated VCs invest money for group (1) in start-up companies, while paying themselves handsomely with that same pool of money
3) Ivy educated kids start companies using money from group (2), while paying themselves handsomely with that same pool of money
4) sometimes, through a combo of hard work, skill and luck, things work out and everyone makes more money than was spent
5) sometimes, because they are mostly, actually a bunch of yahoos and/or scammers, things don't work out and group (1) loses their money
There are some oversimplifications here, but in general, this seems to be the way.
As a naive and younger outsider I always thought these people were all very competent. Clearly there is something very different going on here.
This. I’m getting annoyed with my jQuery/Spring app with ~million of revenue that I can’t get sexy for employees nor for funding; sometimes I want to throw away ethics and say we’re building “a blockchain of solar-powered AI european-central-bank ledgers”. It would be so much easier. Nah, we’re just storied field data in 7 tables, and customers love it.
But the tide is turning. I have a friend who mentioned the blockchain on his funding papers and he can’t even get an office in my city (France). I’m happy the tide finally turns for the blockchain, to value it for what it’s worth: A good idea for 1% of the present usecases, and bad idea for everything else. Even though not being able to sign an office lease for insurance reasons is quite comical.
Here’s a true story: a friend and former startup coworker got verbal agreement on funding a startup. His business pitch consisted only of a list of names of people he’d worked with in the past who could execute well.
On that basis, the FTX thing is kind of baffling because the financial controls would seem to be core to the thesis. Having read some of the things sequoia said about their original meetings with SBF it seems they were dazzled by him personally and allowed their greed to overcome basic prudence.
[1] So for example for SVF I had to go through all the transitive dependencies of all our software (which for JS and python is generally a lot), check the licenses and actually track down authors of a few packages in the node ecosystem and ask the authors to explicitly license their software so we knew we had a right to “depend” on it.
This model of yours suggests that rich people played with fire and rich people got burned.
Is that what is happening? That doesn't seem to be a complete model.
The Fed has been on a money-printing spree since 2008 [0]. The idea was that it would create jobs and stimulate economic activity. In reality, it lowered the bar for things considered investable, so the Ivy-educated VCs were trying to tap into that stream of cheap money, while paying themselves handsomely. Either get acquired (using cheap debt that will also be used to pay the acquiring execs) or IPOed (using the excess money from the public). Profitability was out of question for at least a decade.
[0] https://tradingeconomics.com/united-states/money-supply-m0
It'll be interesting to see how VC changes in the modern environment - will they still be all-in on founders willing to unsustainably burn money just to incrementally boost the probability of growth, or will they begin looking more for experienced operating teams who reach and maintain profitability (or a rapid path to get there at all times)?
That's pretty documented in the history of Uber :-)
Option A- you task some employees with buying office furniture and equipment and then waste everyone's time by having some extra meetings and emails and bureaucracy where someone asks "is that a good price for 50 desks? Did you get multiple quotes?" and the employee says "yes" and then they approve the expense.
Option B- the same employees make the same decisions, but without the extra meetings and emails and paperwork.
Being more efficient, giving employees more autonomy and focusing on what actually matters is why startups displace incumbents. These are good things.
From some previous experience, outside of crypto - which was DIFFERENT™ - this already started changing in 2019 or so. Softbank was one of the most infamous players, and when they started to pull back, so did some others.
Not that there aren't still some "huh"-inducing things - like the new thing from the WeWork guy - but it seems a bit saner-paced on the ground, and now even crypto will get its reckoning.
I don't expect anything to change because it never does.
> talked to an employee that left last spring. She said they had literally no idea what they were doing. The founders are just ivy educated 30 year olds
So was SBF (MIT) and raised from Sequoia and Blackrok and his GF was a Stanford'ite with a Math degree and is responsible for the largest loss of funds from that cluster**.
Can we finally admit the biggest scammers in this space are those from Ivy League, and connections with SV insiders traditional VC/Banking/Finance without out a clue of what they are doing or how this tech actually works; as a fintech boot strapped founder with over a decade in the Bitcoin community its been fairly obvious for at least 7 years since Blythe Masters and all her cronies from traditional finance got involved this was the case.
Maybe now the rest of you vocal sideliners can finally see that is the case and that most of you are part of the problem more than most of us who have built startuprs using this tech without any of those things and did it the hard way outside of the VC/SV Ivy League World.
What? Why are we the problem?
This may just be me because I from CA and was inspired to work in tech as kid in the 90s and saw the drastic and detrimental culture changes that have come over the years/decades: many of you keep attributing these scamming events to us when in reality you FAANG/SV/VC insider types likely went to school or worked with them and turned a blind eye to this very obvious behavior that bred this culture; if you worked for or with them you likely even enabled this behavior in order to clout/status chase for a 'disrupter's' reference or network connections for funding. I've seen it far too often, and somehow for calling it out we become 'persona non-grata' in our homes because trnsplants who only came to SV for the money and status rather than make remarkable tools and disrupt legacy gate-keepers 'want to get theirs' all while all playing some odd cosplay to the contrary.
The truth is that the tech that underlies cryptocurrency's like Bitcoin have it's roots in SV and has been advocated by Cypherpunks from the late 80s-90s and many of it's most notable people in this space were around in that time (eg Hal Finney worked for Phil Zimmerman during the Crypto wars and took on the US Government and risked prison). And it's a slap in the face to be told how we're not wanted or just scamming people with our focus and pursuits in tech because of this gross over-generalization that is based on an immense blind spot that who you are talking about is within your side more often than amongst out own--I admit we have had scams but the most notable are due to incompetence and ignorance in dealing with new tech (MTGOX) in real-time rather than an outright desire to scam.
Bad players have existed in Bitcoin, I've seen it plenty of times, but as is the case with the biggest ones like FTX and BlockFi it tends to be from your ilk, not ours.
I guess I have to quote myself here, and re-emphasize that they are all part of the same group of insiders:
>>Can we finally admit the biggest scammers in this space are those from Ivy League, and connections with SV insiders traditional VC/Banking/Finance without out a clue of what they are doing or how this tech actually works
I worked at a megacorp pushing 'blockchian not bitcoin' BS and it was only because they realized they couldn't co-op it and instead ran with alts that ended up getting investigated by the SEC.
Let me makes this very clear: I've been on both sides of this equation and I can assure you even though we didn't have much if any money on the BTC side until very recently (most traditional and VC money went to these insiders) those of us that built companies had to knew how this tech worked and often had to built the infrastructure from the ground up.
I personally couldn't even code until I got into BTC despite having several opportunities to do so, because this space demands that you do since it moves so fast and the pace of innovation requires you to know how it all works otherwise you get left behind. And because of this it becomes very clear who knows what they're talking about and who doesn't when you start to hear the merits of a 'private blockchain' and realize what they're describing is essentially just a SQL database with different branding but totally not that bitcoin thing or why the Byzantine General's problem was thought to be unsolvable by Computer Science prior to Bitcoin, let alone how the mempool works or what a UTXO is.
It's much, much harder to make millions at the poker table than it is to get a degree from an Ivy.
There have been 141 people that have made over a million in 2022 from poker (https://pokerdb.thehendonmob.com/ranking/7339/2) and that doesn't count all of their losses, staking, etc.
The eight Ivies collectively graduate roughly 75,000 people a year.
So I'm not really sure what information the statistic that there are about 140 Poker millionaires in a year vs 75k Ivy grads conveys.
... Although given how frequently the Ontario Teachers' Pension fund has made the 'Pension funds invests into an incredibly dumb startup' news cycle, I suppose grifters, thieves, and conmen might consider them to be an easy mark.
(You can imagine batshit pension funds that invest directly in crypto/defi stuff; that's extremely problematic.)
Leadership decided it was useful to have as something to prove we knew had great tech. But really wanted to do manual sales of other services. They were only looking at next quarter profits. Not seizing the industry.
Finally left in disgust. They gradually faded as manual wasn’t scalable. Was years before I saw comparable competitors.
BlockFi is just incompetence without the SBF-like malice.
BlockFi is just your typical blockchain company, a complete waste of money if not a scam, see FTX, Terra, BitConnect, MtGox and so on. An exception to the rule would be a company that's not a complete disaster run by ignorant, arrogant scammers.
Isn’t true for 80% of white collar industries?
Twitter ran one of the world's largest social media networks with around 7000 people; what in the world is Kraken doing with ~3400[1]?
Kraken is one of the OG cryptocurrencies exchange. Maybe the oldest still around. They're in the business since 2013 or so.
Since then the Crypsy, Quadriga, Mt Gox, FTX, etc. have all come and gone (with their customers' money) but Kraken is still there. If they are on a scam, it's a really long con: a decade and a half of a con?
They're not "Binance big" but they do nearly as much volume as Coinbase, so 3 400 employees doesn't feel that surprising.
I don't think BlockFi did anywhere near the volume of trades Kraken is doing. As I understand it BlockFi was some kind of a "fire and forget" thing where you'd loan your crypto and get some yield in return. So very little things actually happening there compared to Kraken.
Yes, 900 employees was insanely huge for BlockFi. But I don't think 3 400 employees for Kraken looks that crazy.
What do (did) 7000 people do at Twitter? I hate to ask the question because it aligns me with Elon whom I despise right now. But what do all the employees do at tech companies? I thought the beauty of tech and why the valuations were so high is that it scales quite easily since it is all code. What do 32,500 employees at Uber do?
When I tell you my lemonade stand is worth a billion, and you believe it for a while, and then you realize it isn’t really, no value was destroyed.
For the uninitiated: https://www.bloomberg.com/news/articles/2022-04-25/sam-bankm...
We as a society accept large scale fraud all the time and normalize it.
All the US banking crises since the 1920s have involved some form of deregulation.[1]
Like a cult brainwashing, they have attached their identities to those worthless pictures and now are trapped in greedy stupidity.
I mean, buying a $1M ape NFT with real money makes no sense - but if you were Sam Bankman-Fried and you had an unlimited supply of coins you knew to be worthless, you're just swapping something worthless for something maybe-worthless, which is much easier to explain.
So, the NFT did really cost Y dollars and if it's trading at Z, you have lost Y-Z dollars
No, I don't collect that crap :)
> As a result creating and destroying money doesn't create or destroy wealth.
I'll give you a MacBook, which is a durable good you can use to produce goods and services, if you go to the bank, withdraw all of your money, and then set it on fire. This is a good deal for you. Your wealth will not change from setting the money on fire, as destroying money does not destroy wealth, and you will have a capital good that will increase the amount of wealth you have.
If I gave you dollars in return for magic beans that turned out to be imaginary, that value is destroyed.
As you may notice, this also describes the tech VC bubble of the last decade, too. However, where normal tech has already found its use cases and does real things for real people in the real economy, downside is a little more capped. If you want to be generous to crypto, it's currently tech in 2000, where almost everyone has a total nonsense business model, but that a lot of the vague ideas will eventually find some variant with product-market fit. If you want to be less generous, it's all a house of cards.
EDIT: I'll also add that, of course, thinking very carefully about which narrative is true here and being right is the stuff fortunes and careers are made of. The people that weren't dissuaded by the tech crash in 2000 profited handsomely by thinking carefully for themselves about what was actually true and what information was actually latent in the financial crash. Of course, the tulip true believers in 1638 didn't fare nearly as well.
For all the problems with gig economy companies, they're not crypto. Uber fell from its high, but it's still facilitating rides and deliveries.
Ironic, given that the narrative during its rise was that the "Best and Brightest" were working in crypto and everyone else was fighting over the "B" level people.
Bitcoins scalability issue should have killed off al notions that it could ever gain widespread usage as an alternative to traditional currency for regular payments and after that it became yet another speculative derivative without any real backing in real world assets.
It was never actually going to replace fiat currencies for most people and the industry is absolutely dominated by exotic financial instruments(mostly of the ponzi variant), run by a mixture of fools and scammers.
Lightning is not viable, because it requires "watchtowers" to check for early state commit attacks. Not everyone will be able to run such a server.
But, for instance, Bitcoin Cash has larger blocks (the reason for the first fork of Bitcoin). However, in spite of its technical advantages, adoption severely lagged compared to Bitcoin. I wonder why that is.
And at the bottom of it all, one of the first dominos to tumble, was a company called 3 Arrows Capital, which promised to generate revenue by buying crypto-dickbutt NFTS... and then went on the run. I'm not even kidding.
They lost borrowed funds in a ponzi scheme called Luna. I get that you wanted to poke at nfts, but the last remark may make someone think this is how it actually went down.
The blockchain, being a public ledger, ensures that transactions are accurately recorded and can be publicly verified as such.
But it’s been centuries since the actual accurate recording of transactions has been an issue. The real problems are far removed from this. When was the last time you heard about people complaining that they paid off their Visa but it did not credit them for the payment?
Meanwhile, real problems that people do face, such as a vendor not providing you the goods or services that you paid for, are still a problem with blockchain.
The fundamental problem with cryptocurrencies are that they add a whole lot of complexity to solve a problem which is a trivial issue in practice at best, without providing any tools to solve the actual problems people face and in many cases making it harder to find solutions for those problems.
These institutions can also screw you over by massively inflating the crypto bubble and then crashing spectacularly, tanking your value and poisoning the public perception of cryptocurrency.
The 'point' of cryptocurrency may well be to avoid dependence on centralized institutions, but the effect of cryptocurrency has been to enable all this nonsense. At this point in time you can't say "well it's not crypto's fault!" because it absolutely is. You don't just look at intent when assessing outcomes.
How can one tell that with a straight-face when the poster-boys of crypto (like Coinbase, FTX, ConsenSys, Circle, Uniswap, Binance etc) depend on centralized actors like VCs and Stock Exchanges?
I don't see any other replies hypothesizing this in terms that rhyme with the dot com "bust" of 2000.
In late 90s, in addition to whatever product-market-fit from their "blue ocean strategies", the dot coms generally invested in and bought services from each other.
Wall St didn't look at where the dollars came from or went to the second or third step, they treated every company as if its revenue came from the customer marketplace.
Instead, a given VC dollar (or customer dollar) would get spent from that tech firm to its providers, who would give it to their providers, and then their providers, in turn. This way, the same single dollar would show up across a dozen balance sheets, each at 14x growing to 40x and eventually 100x multiples. So the 1 dollar instead of being, say, $40 of "value" for the one firm that got the dollar in from outside the ecosystem, that dollar would show up 12 x 40x or $480 of imagined uncorrelated "value".
By 1999, the public companies had caught on to where they could just give cash from public markets to dot com providers to turn around and purchase the public company's goods or services at a discount ( "strategic relationships"), with their own dollars then driving a 40x - 100x market value boost, generating more public dollars they could use to create more "customers".
Even if all these companies had legitimate products, when you looked under the hood, relatively few dollars were coming in from outside the private and public markets revenue multiple game. If some of these folks misstepped, and folks started having to unwind expected revenues, and in turn unwind their own spend, and letting the air out happens faster than they can keep their footing .... boom, you have a bust.
Today there are multiple sites tracing the actual flow of digital "currency" and seeing the same loops happening, where every agent in the loop is nominally valued as if generating revenue from outside, when instead, they're lock step in a circular flow.
Any interruption and ... dot com Y2K 2.0.
So less value destruction, more a glitch in the illusion big enough for non-experts to notice absence of outside value.
This isn't just crypto, this is a fundamental strategy for most VC funds. The most valuable VC funds select portfolio companies based on whether they will succeed at selling to each other. This shows a growth multiple that is used to position the company for raising funding from the next sucker VC. That VC then "introduces" their portfolio company to their other portfolio companies, in continuum, until exit. Eventually the public market understands that the growth multiple is a house of cards and the stock tanks. But the VC is happy because they took their exit, the government is happy because these companies collectively employ hundreds of thousands if not millions of people who pay above-average tax rates, and even institutional investors are happy so long as the stocks tank individually and not in concert, making little difference to their overall portfolio. So the practice continues.
Your example has been happening too.
Destruction of value or destruction of paper wealth? I'm pretty cynical of the whole crypto* space, mainly because I think the people making any money in it are themselves cynical and predatory.
I suppose that billion dollars of investment was actual cash lost.
* Using the new definition, not cryptography, which is what the term really means and will again soon.
Those people could have been doing useful things. And it sounds like their activities were worse than nonsense, they actually destroyed money they were given.
Impressive to see that both VC money AND customer money is burnt at immense ammounts. How can these founders sleep at night?
Bless the cryptocurrency community, involuntary Robin Hoods that sucker in both users and VC to redistribute it all when it inevitably fails
Prominent venture capital firms like A16Z, Sequoia, etc have discovered a new get rich quick scheme: they raise a fund and invest it in a some shitcoin like FTX, SOL, etc. the shitcoin founders use the cash to market and shill the coin, hiring public figures like famous NFL players. Retail investors FOMO into these tokens, boosting prices and attracting more retail investors. Once the market cap of the shitcoin exceeds the VC/investor cost basis, they cash out and let the rest ride. Eventually the shitcoin implodes, but by this time the firms are already onto their next fund and another token. A16Z is on their 4th fund now and it’s $4.5B[0]. There’s an entire political strategy at play as well, where shitcoins are employing folks in DC and lining pockets to further the scam.
All of this is possible because there is no regulation on crypto tokens. In reality these are unregulated securities and these large VC firms are exploiting a loop hole for profit. This goes for literally every token starting at ETH and below.
They are investors in these web3 shitcoins, so it’s complicated to prosecute them for anything when the law sees them as the victims.
In reality these VCs are co-conspirators in creating these unregulated securities, and hopefully the SEC will eventually make an example out of someone like a16z. Their Coinbase pipeline has been an absolute sham because they’ve had board-level influence on Coinbase which they’ve used to make the crypto exchange list all the shitcoins that a16z just happened to buy six months earlier. This shouldn’t be legal.
The VCs need to be thoroughly investigated. It is clear.
E.g.: Chia coin is down -98% since its inception, -76% just this year and heading downwards. What does it do other than soak up excessive hard drive inventory? I dunno! I doubt anyone has a use for it.
To not be the one stuck holding the bag.
99.9% of all "advances" and developments in the space hasn't moved us towards the endgame, if anything it's taking us further away.
This seems to be contradicted by the deflationary design of Bitcoin. The fact that Bitcoin is deflationary probably also exacerbates the speculative interest from investors that makes Bitcoin more volatile and less useful as a currency. It's possible that Bitcoin was technological sound, but economically destined to fail at its stated goals.
BCH allows more transactions. BTC would take 18 years for 4B people to perform a single transaction each. And it costs ridiculous amounts of resources for a ridiculous amount of constant security.
The emergence of crypto coincided with the final snuffing of bearer bonds and certificates and most anonymous bank accounts. The death of crypto will coincide with something else. The regulators of the world continue to pick and choose where to place their fingers in the cracks of the dam. Money that cannot efficiently or legally pass through KYC/AML will find a way.
That exchanges don't need help with that
I think that's what was meant when calling it digital currency.
But now it's heading down a different path.
Saying "centralised exchanges bad, DeFi good" misses the point that the main use case of centralised exchanges is not covered by DeFi.
Of course you can, both ways.
> On a private chat, Bob tells Alice how to send him fiat.
https://learn.robosats.com/docs/payment-methods/
> You can pay with any method that both you and your peer agree on. This includes the higher risk method such as PayPal, Venmo, and Cash apps.
C'mon, that's not trading fiat for crypto. That's "PayPal me some money".
Whenever a big exchange fails, we see a lot of people say "of course, this is why decentralization is better." But I'm not convinced people are less likely to lose money in decentralized exchanges. It seems like it would actually be easier, it's just that a bunch of small scale scams aren't going to get the same attention as a huge exchange collapsing.
[1] https://bitcoinmagazine.com/business/robosats-private-bitcoi...
Then it turns out that the promised future involves trusting someone to honour a paypal and pray you're not being scammed.
They're currently a little short on manpower. If you're a Java dev, you might consider giving a hand.
The last time I looked into this it required a security deposit in BTC.
Tether's audit has been promised since 2016. Still hasn't happened yet.
Still today, we get lured by the same businesses (because all these lenders were just banks/financial operators) but without any of the safety nets we have in place when we work with "old school" banks.
https://www.wsj.com/articles/blockfi-files-for-bankruptcy-as...
So FTX lent money to BlockFi, and BlockFi lent money to Alameda, and Alameda owed money back to FTX? And BlockFi's money was stored on FTX and denominated in a "currency" that relied on FTX's performance for value?
This all lends credence to the theory that we instinctively knew was true: SBF was just doling out money to crypto firms in the spring to prop up the system a little longer, but ultimately it all relied on users injecting new money into the system.
Is there any hope of individual creditors getting any of their money back? I'm unfamiliar with how bankruptcy works.
I say this without an ounce of judgement, explicit or implied: can you speak to some of your motivations for putting your life savings into these kinds of vehicles?
To the OP: Why is losing 10% of your investments a pretty big blow? Almost everyone's 401K plunged by more than that this year. If you're young this won't be the last time.
For sure. My rationale was that keeping crypto in cold storage was effectively currency speculation and didn't really do anything to add value to the world. By instead keeping it in an interest-earning account it could be earning interest independent of the exchange rate with USD and providing some value to the world in the form of liquidity and loans.
It's the same rationale I use to justify keeping money in VTSAX instead of under my mattress.
There is a decent chance you'll get a small fraction back in several years, but it all depends on how many assets they have remaining. Keep an eye out for communications from the bankrupcy trustee once there is one - will probably go to the email you used to register your account.
Here's my rationale: https://news.ycombinator.com/item?id=33779052
Honestly anybody who only lost 10% in the last year looks like a genius (crypto included).
Voyager had only 3 creditors so they weren’t well diversified. When one of their creditors eventually went belly-up, they predictably lost about a third of their holdings.
I'm not a specialist in the area, but here's my explanation as a financial professional.
When a company goes bankrupt, it's assets and liabilities are summarized by an administrator who is hired. Typically a well known firm with lots of experience, and they will do things like find out where the assets are, possibly liquidating some of them. You may have seen that FTX has a new CEO. They are in fact empowered to run the company.
There's then something called the capital structure, basically an order in which liabilities are paid to creditors.
First of all, you want the admin to want to bother doing the work. So they come first in the queue of people.
There's then the tax man (actually, which comes first, admin or tax? Might depend on where you are).
Then there are secured creditors. For instance you might have a factory with equipment, and some loan was made against the equipment. Or you have property and a mortgage against it.
Then there are unsecured creditors, like employees owed final payments.
Depending on how complicated the firm is, the whole credit part of the capital can get super complicated, basically tranches where each junior tranche is only paid if senior tranches are fully paid.
It's unusual, but if somehow the assets exceed the liabilities, the equity holders will get the rest. Don't count on that, because it's unusual for such a firm to go bankrupt.
Now with high profile bankruptcies there are sometimes investors who will buy your position in the queue. If you get an offer the gamble is basically that it's worth your while to get out immediately and let the bankruptcy speculator deal with all the BS as well as the waiting time to get the money eventually. A friend of mine got offered this from Lehman, turned it down, got paid pretty reasonably, eventually.
It sounds like as long as there's enough money to pay the admin, the government, secured creditors, and unsecured creditors, anything left over would get split amongst individual investors like me. Is that right?
My not-a-lawyer interpretation is I didn't 'give' the money to Blockfi and thus Blockfi doesn't owe me any money. Am I understanding this wrong?
Because the exchanges have been promising sky-high interest rates to get you to do that.
It seems like silicon valley VCs completely missed the boat on crypto by dumping money on any huckster with a Stanford degree. Instead of asking "is this the end of crypto", maybe we should ask "is this the end of silicon valley".
While I share your enthusiasm, even after countless rugpulls/exitscams/fraud proving centraization is the bane of why this tech was created; I don't share your conclusion as it doesn't reflect reality at all. The 'crypto' market is rife with this and has been sine the Ico mania (and alt boom before that really) so things like NFTs and DeFi are at it's core rely possible of this ignorance which is what most profit from and do so to the detriment to actual viable projects: Bitoin, Monero.
In short, all I'm seeing is a price correction, but real projects keep building muh needed infrastructure and 95% of the 'crypto Industry' are the hype tokens exchanges like FTX, Binance fleece the masses with with promises of short lived DeFi yield farming like scams.
> It seems like silicon valley VCs completely missed the boat on crypto by dumping money on any huckster with a Stanford degree. Instead of asking "is this the end of crypto", maybe we should ask "is this the end of silicon valley".
Agreed, we have been persona non grata in SV for some time; in 2014 I went to the bitcoin job fair in Sunnyvale when I was launching my startup and despite having Standford heavy weights and Vc (like Balaji, Chamath, Dorsey and later Musk) soon realized just how poorly we were received outside of our circles; we represented the uncouth gate-crashers who were supposed to be kept at arm's distance, and only when fortunes were made only then would they even listen to us and even then they hose their own ilk who turn out to be the biggest scammers of all and then blamed us for their failures.
There is still time for a correction, but there is a reason as a Californian with a CSU STEM degree and wit family/roots in SV area I went to Boulder instead and never regretted it.
With that said SBF went to MIT, and his parents are Stanford professors, it was his GF who headed Alameda that is a Stanford grad.
I feel like you're arguing against your own thesis here. If it had turned out that the CEO of Robinhood had YOLO'ed all the customer deposits on GameStop options, would we ask "is this the end of the stock market"?
I remember looking at all of these now defunct businesses wondering just how they could have such high interest rates on your coins. In what should be a surprise to no one it was too good to be true.
EDIT: sorry, got confused. Ignore me.
Unless:
A) The money never leaves the platform such as with collateralized margin lending for shorting / leveraging.
B) The money is collateralized such as on DeFi with AAVE.
BTCJam gave small, well-diversified loans based on credit scores, reputations, business ideas, and identity verifications. They iterated and tried almost everything but they couldn’t get enough money that left the platform to ever return to the platform.
Scamming the banks seemed to be way more profitable and lucrative than using borrowed money for economic activities more productive than the borrowed interest costs.
I feel like the term "exposure" was intended as a euphemism, but it is now so thoroughly overused that I am developing a more negative reaction to the term than the words it was intended to hide from. "We had exposure to X" is starting to sound worse to me than "We invested in X and X lost a lot of our money"! The latter sounds like a reasonable thing that happens even to reasonable people but I'm starting to associate the former with more insane things happening to careless people.
But maybe that's just because of the sort of things I tend to read.
And it turned out that that cost was something that would give the illusion of security, and hide away the technical minutiae that would prevent the system from sucking in those non-technical users.
The bitcoin and other crypto communities don't get to have it both ways. You can't pull in average folks with these mechanisms, to increase the value of your holdings, while simultaneously admonishing them for using and trusting the systems set up to bring them into the fold.
But let's take the cynical viewpoint. If I, as a hypothetical Bitcoin holder, want the dollar value of my Bitcoin to go and stay up, then the last outcome I desire is for massive volumes of Bitcoin to end up centralized into a few pockets where they will be gambled on and sold when those bets fail. The most cynical Bitcoin holder has it in their interest for all retail holders to custody their own supply.
Considering the educated base of Bitcoiners have been screaming and citing examples of what happened with FTX since the protocol's inception, "Not your keys, not your coins," it's rather dubious to try and blame them. The reason people get into the space and trust their coins to some third party is that those people are chasing the end of a market cycle and never even come across or seek out the wisdom of the people that were they in the beginning.
'Bitcoiners' at large, judging by the on chain metrics for holders through negative price action, would much rather the volatile market cycles played out as a smoothed average with each new user coming in educated rather than speculators rushing in at the end by any means necessary.
Without the exchanges, the USD->cryptocurrency onramp/offramp is a lot more difficult to do, I don't think most people want to only shop at places that do actual on-chain settlement.
I predict we will continue to see large numbers of scams involving cryptocurrency as long as there are essentially unregulated banks and investment firms. Expecting lots of people to be sufficiently interested and educated enough to only use 'cold wallets' or use good secops on their systems is a bit too hopeful. Even after reading about it for years, the overhead of using cryptocurrency vs a debit or credit card just doesn't seem worth it to me, and I have a tech background.
Why would any non-techie ever want to deal with safely storing keys to a wallet. Or without having access to a trusted third party to help when issues arise.
This is such a non-starter and one of the many reasons why there will NEVER EVER be mass adoption of Bitcoin outside of speculation.
Just because an unholy alliance of utopian nerds and fraudsters wish this to be true doesn't make it happen.
But, taking your point and rolling with it, there is nothing necessarily wrong or futile about using a properly set up and insured bank with crypto if the hardware wallet is still too intimidating. It could even be set up with certain multi-sig schemes such that a fourth party + the client could withdraw without the bank's permission.
The point is that even when custodied, Bitcoin has arguable benefits over normal currency. I'm sure you will disagree with those benefits, but at this point that would be a Red Herring.
People won't run their own mail exchange, because it's too much work and too complicated.
People won't run their own blog, because it's too much work and too complicated.
The downside to doing either of these things poorly is that you can't send email / become a spam email relay / get hacked and lose your blog content.
Now tell those people that they can take on all the downside risk of losing all their money and the only thing they have to do to make sure that doesn't happen is practice perfect operational security, perfect transaction discipline, stay up to date on all known exploits and patches, constantly be on guard for irreversible scams and exploits, and the big benefit is, "you don't have to trust the bank."
Some huge percent of those people are going to look at you like you are crazy. Do all this work, take on this massive risk, and for what, a problem that most people in the western world have never faced. Most people have not faced any issue with transacting with the traditional finance system, definitely not enough to take on all the labor and risk of being their own bank.
If people won't run their own email, they aren't going to run their own financial institution.
If you lose your device (which should NEVER happen, it's a safe, not a purse), your keys are still encrypted with your PIN code and the device will self erase after 3 unsuccessful attempts.
You can retrieve your private key from a 24 word sequence (seed key), which you will usually store on a fire proof and water proof medium like a like a billfodl or stamped washers. For added security, the private key will be derived from the seed plus an additional passphrase only known to you (kind of like a salt), so your key doesn't get compromised if someone gets his hands on your seed.
Cold wallets didn't exist by the time of the incident you mention.
https://steemit.com/cryptocurrency/@angelol/cryptocurrency-h...
But yeah, this whole debacle with FTX has finally made me realize that if I were to ever keep meaningful quantities of crypto, I would need to do so in a cold wallet.
They also were handed an amazing deal that no one else was offering without taking a second to wonder why?
They asked for some basic info on FTXs internal controls and were told to piss off. They asked for some oversight power and we're refused. Then they choose to invest anyway and help this fraud grow. To me, this is like reloading the gun of an armed robber during the robbery.
"He seemed like a nice guy" isn't going to cut it here morally even if they're legally in the clear.
The crypto community's truest Scotsman proved to be just as terrible as everyone outside perceives the crypto space to be. Benefit of the doubt simply can't be given for what "reasonable crypto people" say at this point.
SBF was far from an adult in the room. He got zero policy to even a serious discussion phase. To the degree we see meaningful calls for regulation, it comes from Banking and Financial Services committee members who not involved with crypto pushing draconian rules.
It's a "damned if you do, damned if you don't" situation. Mainly because of the outsized lobbying power of the wealthy folks backing VC's backing crypto.
Clamp down on crypto with regulations and many, many wealthy political contributors are going to be pissed off by stifling growth. Don't clamp down and you get the situation we're in now where everyone is losing their shirts.
What about the middle ground? I think we can only now talk about it because enough wealthy people also lost big chunks of their investment in these last few months.
BTW, despite whatever implied connections to FTX Gary Gensler has, his series of talks at MIT on blockchain[0] technologies leads me to believe that there are few people better equipped to navigate this from a political perspective.
We have successfully regulated those.
I'd be very keen to learn what kind of regulation, exactly, anyone is seriously proposing for these crypto products? Namely, the problem I see is that the products in the crypto lending space in my understanding simply can't exist in anything that has any resemblance of current financial regulations. To be honest, I am not sure how they can exist in any regulatory scheme that tries to penalize scamming people. Now, if the regulation said that it is okay to scam people in crypto industry, that might be interesting. But i am not sure if anyone has been proposing that.
With direct regulation can come normalization and a misplaced trust on something that ignores (but doesn't replace) trust.
Perhaps rather than regulate crypto itself, instead we should regulate the regular economy's exposure to it.
If SBF sees the inside of a prison cell that won't be the free market at work but rather the government.
Government regulations can help limit the blast radius or avoid them altogether.
In 1929 the free market punished the banks for their bad behavior and everyone suffered a decade long depression because of it.
Right now crypto is a closed ecosystem with no practical use cases beyond gambling or ponzi. Crypto failed as anti-inflation hedge. If real businesses or people start using crypto for something useful then regulations will be needed but this time is not now.
I've had the long unfortunate history of being burned several times (Mt Gox, Pirate@40, Friedcat/ASICMiner...). BlockFi of course had a significantly lower interest rate, but Unchained designed their product and messaging around trust (primarily using multisig wallets and promise that they don't rehypothecate)--which, after my experiences, sold me. It was a little painful to go with the higher interest rate, but damn am I now glad that I did.
contagion will spread more after this, so expect more centralized services to fall.
disclaimer: i am former BlockFi depositor.
Are there any "self custody" or "decentralized exchanges" that offer 8% interest on deposits? I think you are comparing apples and oranges here.
disclaimer: I am a current 3-figure BlockFi depositor
Criminals have lists of everyone with crypto on coinbase. They're cross-referencing this list with people with T-Mobile (usually), then pulling off SIM-hacks by buying off a store manager, or just grabbing the manager's laptop and running out of the store with it. At that point they have 10-15 minutes to take over as many SIMs as they can.
A better question to ask is: what are you trying to protect yourself against, and what risks are you willing to take? Without insurance (whether that's government provided through a regulatory scheme (which does not exist in crypto), or personally through an insurance provider) you're exposed to a bunch of risks that can be minimised but not removed.
I don't own any cryptocurrency but if I did, I'd either use a specialist custody service or an exchange I trusted. If I was going to self-custody, it would involve multiple hardware wallets across multiple safe deposit boxes.
Well I am sure the "representative from BlockFi" made out just fine working for BlockFi. I wonder if all these failures will finally tag these crypto companies as ponzi schemes ? Then these people will face real consequences.
Crypto, as a whole, is about early adopters trying to convince newcomers that crypto has value. If the early adopters can't convince anyone that crypto has value, it's just a bunch of math and wasted electricity.
Early adopters try to convince laymen to 'invest' in crypto (i.e. buy crypto from the early adopters). Then the second generation crypto adopters have to find new marks to buy their crypto. Ad infinitum, until someone is left holding the bag. Then you sprinkle in some jpgs that people purchase despite anyone being able to right click and save it, rug pulls, and overall idiocy that happens when you give people billions of dollars without checking to see if they're observing basic organizational principles (i.e. are they running payroll out of a Slack room?).
Mingle it all together and you get a house of cards that's remarkably similar to a Ponzi scheme, yet doesn't exactly fit the bill. Sort of like how MLMs are legally distinct from Ponzi schemes for... reasons, I guess.
Saying that crypto shouldn't be considered a Ponzi scheme is a bit pedantic when the outcome is the same (i.e. the last person is always holding the bag, so you have to keep trying to convince someone to buy into your idea).
https://www.irs.gov/newsroom/help-for-victims-of-ponzi-inves...
People conflate ponzi schemes and pyramid schemes as well.
However, I'm having trouble finding where it is not. Money paid out must come from new investors. If I buy crypto for $1, I need someone willing to buy it for $2 to make money. My returns come not from any utility, but from more people investing in it.
Whatever thrives in the rubble will definitely be neat.
There's multiple layers to the bigger picture: the protocol itself, and the systems that use the protocol to provide value to users.
Customers don't actually care about the protocol, they care about receiving value. A protocol is only as valuable as the systems that use it to add value to consumers.
I remain unconvinced that any currently existing decentralized crypto system has a net-positive long-term value proposition, regardless of the underlying protocol.
https://www.bloomberg.com/opinion/articles/2022-11-28/ftx-s-...
BlockFiles
One lesson of traditional finance that crypto is learning these days is: “If you’ve got a bazooka, and people know you’ve got it, you may not have to take it out.” For instance:
1. There is a small opaque crypto lending platform that is rumored to be in trouble.
2. Its depositors want their money back.
3. It doesn’t have their money, either because the money is locked up in long-term loans or because it lost the money or some combination or otherwise.
4. There is a “run on the bank.”
5. To solve the problem, the lending platform agrees to take a desperation bailout from some bigger, more stable, better-known crypto exchange. The big exchange agrees to guarantee the lending platform’s customer deposits, or at least gives it an ample line of credit to pay out depositors. In exchange, the exchange gets to take over the lending platform, and its existing owners get more or less nothing.
6. The run on the bank stops. The depositors don’t want their money back, because now instead of being depositors at the small lending platform, they are depositors of the large stable crypto exchange. Their money is safe, backed by the deep pockets of the large exchange, and they can go back to earning crypto interest or whatever.
If you can get a big enough line of credit, you never need to draw on it, because your depositors were worried about your liquidity, and the line of credit resolves those worries.
In some rough sense this describes the bailouts this summer of BlockFi Inc. and Voyager Digital Ltd. by Sam Bankman-Fried’s crypto exchange FTX and its affiliated trading firm Alameda Research. 1 BlockFi and Voyager looked risky after some of their borrowers collapsed, so customers rushed to withdraw their money, and BlockFi and Voyager didn’t have enough to give them.
And then FTX/Alameda showed up and said, well, we’ll take over your customers. In the case of BlockFi, FTX gave it a line of credit to cash out customers, and got an option to buy the company for some nominal amount of money. In the case of Voyager, it filed for bankruptcy, and FTX offered to come in, move Voyager’s customers to FTX, and cash out anyone who wanted out. In either case the basic point was that FTX had enough money to cash out everyone, so no one needed to cash out. These small rickety crypto firms were rescued by a big safe crypto firm, so the customers could let their money ride.
Oops! That was all wrong; FTX had been misplacing tons of its customers money, and did not in fact have enough to bail out everyone else; FTX filed for bankruptcy earlier this month. And today:
BlockFi Inc. filed for bankruptcy, the latest crypto firm to collapse in the wake of crypto exchange FTX’s rapid downfall.
BlockFi said in a statement that it will use the Chapter 11 process to “focus on recovering all obligations owed to BlockFi by its counterparties, including FTX and associated corporate entities,” adding that recoveries are likely to be delayed by FTX’s own bankruptcy. Chapter 11 bankruptcy allows a company to continue operating while working out a plan to repay creditors. …
Citing “a lack of clarity” over the status of bankrupt FTX and Alameda Research, the Jersey City, New Jersey-based company earlier halted withdrawals and said it was exploring “all options” with outside advisers.
FTX US is listed in the company’s petition as one of its top unsecured creditors, with a $275 million loan.
The company’s largest unsecured creditor, Ankura Trust Company, is owed about $729 million, according to the petition. Ankura acts as a trustee for BlockFi’s interest-bearing crypto accounts, according to its website.
BlockFi in July received a capital injection from a now-collapsed FTX US, and also had collateralized loans to Sam Bankman-Fried’s trading firm Alameda Research.
Here is the bankruptcy docket, and the bankruptcy petition with the list of top creditors. At the top is Ankura, which is the trustee for BlockFi’s crypto interest accounts; if you put your crypto at BlockFi to earn interest, what you have is an unsecured claim on whatever BlockFi has left. In fourth place, owed $30 million, is the US Securities and Exchange Commission, for what’s left of a $100 million securities settlement from happier times this February. In February, BlockFi thought that it was such a good idea to offer interest-bearing crypto accounts that it agreed to a $100 million settlement with the SEC to find a path to legalizing those accounts. In February, the biggest problem with BlockFi’s interest-bearing crypto accounts was that they were not, technically, legal in the US. Now there are much bigger problems! And yet that problem was not small?
Meanwhile BlockFi owes FTX $275 million, presumably having drawn that much on its line of credit (and being unable to draw the rest). The details are a little unclear, but one weird little detail is that in FTX’s bankruptcy pleadings it has said that FTX US loaned BlockFi $250 million worth of its own FTT token.
We talked about the FTT token a few weeks ago, in tones of horror. Basically the FTT token is a cryptocurrency that is kind of like stock in FTX, a claim on the future cash flows of the exchange. When FTX was a good crypto exchange with a promising future, that claim was very valuable; FTT traded above $50 in March 2022, and was mostly above $25 this summer as BlockFi and Voyager were running into trouble. When FTX was bankrupt, that claim was not worth much; FTT was trading at about $1.29 at noon today.
It turned out that FTX’s balance sheet consisted largely of FTT and other, similar tokens that it had made up and that represented bets on the future of FTX’s businesses. Basically FTX took in a lot of real money and … lost it somehow … and convinced itself that the money was still there because it still had a lot of tokens that it had made up? And those tokens did have a market value; they traded in cryptocurrency markets, and so you could calculate how much FTX’s stash of those tokens were worth at their market prices. Of course if FTX had actually tried to sell all those tokens the price would have cratered, so that market value was not real, and now it has collapsed. FTX is not going to sell its stash of FTT and SRM and MAPS tokens for billions of dollars to make all of its customers whole; those tokens were worth billions of dollars when people had confidence in FTX, and now that confidence is shattered and so are the tokens.
But back over the summer, FTT was totally a thing! And so it is possible that when FTX extended a loan to BlockFi to shore up its customers’ confidence, it loaned BlockFi tokens. “Here, have some magic beans we made up, people really believe in them,” FTX could have said to BlockFi, and over the summer that would have been enough. “Ah, BlockFi has some FTX magic beans, everything is fine,” customers could have said, and the bank run would have halted. Now the beans no longer work, and BlockFi is bankrupt.