Phone interview with Sam Bankman-Fried [audio]
youtube.com
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SBF keeps saying there was a liquidity crisis at FTX, which is 100% not true. A liquidity crisis implies that he took deposits, flipped them into good, but illiquid investments, and ran into trouble because people asked for more cash than FTX had on hand.
FTX actually had a solvency crisis, where he took deposits, put them in completely inappropriate investments (many of which are now worthless, all of which were speculative nonsense) and is now revealed to have done that.
He's using the concepts of "bank runs" and "liquidity crises" because that's sort of an "aww shucks, got caught in an unfortunate circumstance" situation when what he actually did was one of the stupidest and most malicious things anyone in "finance" has ever done.
Who was on the other side of these losing trades? People need to follow the money trail. Where did the money go?
There are people who called the Alameda / FTX scam from day one, before FTX was even created (Alameda already existed). Then there are others, like Marc Cohodes, who realized SBF / FTX was a fraud when they looked into it. It's these people we should listen to. They knew SBF was full of shit back then and he's still full of shit now.
I do not buy the "inappropriate investments" angle. To me it was defrauding both users and investors by any means possible and funneling the money into the Bahamian blackhole. While putting the blame on "leveraged trades without stop-losses gone wrong".
There are just way too many things that do not add up: SBF/FTX bought a bank which belonged to the owners of Deltec in the Bahamas (the bank behind the whole iFinex (tether+Bitfinex) fraud, except that one hasn't blown yet).
And the latest amazing development: the current Bahamas attorney general used to work for... Deltec.
There's only one thing to say: you cannot make that shit up.
I don't think any movie or book writer could ever come up with something that insane.
When I say investments, I don't mean VC investments, I mean Crypto trades.
There doesn’t have to be another side to the losses. If Alameda / FTX was holding assets that depreciate in value, they would book losses along with everyone else holding the same assets.
I'm not positive this whole thing was some kind of planned conspiracy, it just seems like idiocy and fraud catching up with them. I don't think any competent fraudster would get caught in such an embarrassing way.
Btw, I find this explanation compelling - I'm not challenging it necessarily.
And those addresses are potentially pseudonymous to boot, at least if the BTC is withdrawn. If it ISN'T withdrawn, it's entirely plausible that the transactions took place off chain in the first place -- simply moving numbers around in an internal database while staying right in the same, FTX owned wallet. What you'd call in the trad fi space "holding assets in street name."
This is different from imaginary value inflating and disappearing (i.e. tokens that never had liquidity - where mark to market never made sense, etc). In that case the whole thing is a mirage.
But if $8 billion dollars went into FTX, that money does not just "disappear" from depreciation - someone else's (or many people's) purchasing power increased in relative terms proportional to the losses suffered by FTX's creditors/depositors.
Value can be created and sent back to ether. It’s not a zero sum closed system.
Let’s look at NFTs, they weren’t ever worth anything but some people thought they were, and counted them like they were, and convinced dumb people to pay for them at these prices, but it was all imaginary. The ones that never sold are just as worthless as the ones that did. The entire market collapsed, the “value” is really just gone, no one “has it”.
It's not just that they were inappropriate, taking assets from FTX to prop up Alameda is fraudulent and should never have happened right? He claimed there was a firewall between the organizations.
I agree with your assessment that Alameda / FTX put customer deposits into “completely inappropriate investments” but there is a bit of a judgment call involved. Crypto fanatics could argue that the market will bounce back and those investments will be successful in the end.
[1]: https://en.wikipedia.org/wiki/Long-Term_Capital_Management
And what about customers deposits that ended up in $300m+ real-estate in the Bahamas (including some for SBF's parents, which they now said they'd be giving back to FTX: how generous once caught with the hand in the cookie jar)?
And what about the $100m or maybe more in political donation? ($40m from SBF to dems, now he says he gave the same account to reps but kept it shadow for it'd ruin his woke image and there's one of his accomplice who gave at least $12m to reps too)
That's already $400m right there that haven't been wiped out due to a market downturn.
And then the naming rights, insane ads, etc.
"Oops sorry we fucked up, we used your funds to gamble with 100x leverage like degens and lost it all (but don't pay too much attention to all the money we actually siphoned out of the system)".
I don't think you can compare LTCM to FTX/Alameda (I'm not saying you explicitely did but it's dubious). We're talking about SBF guy describing his magic ponzi box and Matt Levine answering him (april 2022 I think):
"I think of myself as like a fairly cynical person. And that was so much more cynical than how I would've described farming. You're just like, well, I'm in the Ponzi business and it's pretty good.".
FTX/Alameda is more Enron than LTCM.
FTX makes even Enron look like saints. FTX took money that wasn’t theirs and spent it. Theft on a massive scale. There’s not even a veneer of legality or deniability.
We'll have to wait for any verdicts and court rulings so to onow what exactly went down, this thing is far from having reaching the end of the beginning.
I doubt that his lawyers would be happy with him making public statements about his business dealings right now.
One question is what was in the agreement for FTX users? Can FTX use deposits for investments and to fund his other businesses?
In my view the path to prison for SBF is likely to come in the form of misleading investors rather than customers, but I dont know what the pitch deck told them at the time of funding. It might not even be against the law regarding what he did to customers despite the immense destruction.
I doubt you can just put that in the ToS and EULA.
> In my view the path to prison for SBF is likely to come in the form of misleading investors rather than customers
This isn't like Theranos, there is clear and provable monetary harm that was done.
I think it's naive to think this is the case. It's reasonable to assume he knows those tokens couldn't have been worth what he claims they're worth, before or after the FTX collapse. The tokens didn't suddenly drop in value. He has experience as a market maker and remaining delta-neutral. We must assume all of what he claims is deception and/or preparation for the court battle.
Remember that there was a pamphlet for Alameda investors that promised something like "15% return with no risk." FTX also had an "earn" product that was paid out from a marketing budget. These were deliberate actions. They knew what they were doing.
May I point you to a chart showing the price of Solana (SBF's preferred token)? Down 80% in four months is a pretty sudden drop in value. To be clear, I think the fraud started then, but that was after the damage had been done.
>He has experience as a market maker and remaining delta-neutral
Yeah, but market makers in unexpectedly lopsided markets lose all the time. It's the risk that enables them to 'earn' a take rate.
FTT $5.9B
SRM $5.4B
SOL $2.2B
MAPS $865M
Found here:
https://images.squarespace-cdn.com/content/v1/596a07c029687f...
>May I point you to a chart showing the price of Solana (SBF's preferred token)? Down 80% in four months is a pretty sudden drop in value.
FTT, SRM, and MAPS are the garbage tokens they claimed were worth more than they actually were. They each had major drawdowns more than 4 months ago. SOL even had a 60% drawdown by March. None of this was sudden. My point is they knew they were in trouble long before any of the solvency/liquidity issues.
It's thought that their trouble started in May during the Luna/Terra collapse. Alameda's loans were pulled when 3AC blew up. That's when they minted more FTT. SRM also had similar supply increases out of nowhere. They weren't investments as you said. They were tokens they could mint at any time to collateralize new loans.
Maybe they thought the same could be done with SOL? It is known to be highly centralized. There are also known issues with the Solana ecosystem where TVL for layer 2 tokens were double counted, making it seem more valuable.
Like sure, to make themselves feel better when they stared at Excel, they minted FTT to fill the gap, but so what?
To your point, just because I mint 1bn coins and sell one to my roommate for $1, it doesn't actually change the fact that I lost $700mn on $TSLA (the true problem).
EDIT: Maybe to make my point more clear - the one good thing about finance is that if I sell a Orange juice futures contract, I need to get the oranges from somewhere, or I can go to jail.
Crypto's innovation is eliminating the need for oranges, but turns out that's not an innovation at all
oh... I see what's happening here. Good luck on your crusade.
And please share crypto's use-case with me. I'd love to be the first to find one.
Can you explain how exactly they did this? I want to understand, on a technical level, how they "minted" more of these tokens.
Here's the code for the FTT Deployer contract:
https://etherscan.io/address/0x50d1c9771902476076ecfc8b2a83a...
I'm not familiar enough with the Ethereum's Solidity programming language to give you an explanation.
It looks like it's an OpenZeppelin template. I've seen these re-used elsewhere. You can look through their docs to understand it better.
If he was actually as skilled as he thought, his strategy could have made him unimaginably wealthy, but he wasn't.
I'd compare it to a magician throwing swords at an assistant on stage. You better be sure that you know what you're doing before you do it.
The thing I would push for today, would be an audit of all of his associates, including family, and yearly audits of his accounts by the IRS for the rest of his life. The risk that he has squirrelled away some crypto nest egg is too high, regulators should be vigilant to ensure not a penny of customer funds ever enrich SBF or his family.
His explanation and reasoning is that Democrat donations would be treated favorably by the media so those were done publicly, while "reporters would freak the fuck out" about Republican donations. So he made those in the dark.
Everyone seems to agree that Alameda is a hedge fund, but looking at the facts, FTX also appears to have been operated as one as well; but without the qualification of investors or others kinds of things. There's no just a really good correlate in traditional finance for "I'm going to act as a broker-dealer but actually I'm allowed to just invest your funds however the hell I like". Which is probably a good thing.
I'm not necessarily saying that everything in defi has to be regulated exactly like something in traditional finance, but there are some pretty deep unanswered questions on basic stuff like "did your customers know they were actually your investors?" and "what exactly was your business model?" and "what was your risk management approach?"
FTX made very clear promises about what it was - and that all customer deposits were safe, which we know is a lie because at the point SBF said that we knew the liabilities of Alameda and FTX was denominated in an imaginary currency.
I think everyone assumed Alameda were doing something clever. In reality, they were just idiots stealing from and front-running their customers. Lol.
These moments when you see the man behind the curtain, it is just ludicrous and shakes your faith in the "system" (I worked in finance, I remember meeting a fund manager, had made 9 digits selling his company...the guy was an idiot, he had got lucky with some distribution relationships and one stock pick, the company he was trying to hire me for has had absolutely terrible performance since I met him near on ten years ago now...life is really like this sometimes, people making billions doing work they have no business doing, everyone thinking they are genius despite that obviously not being the case).
That doesn't seem odd. They need people good at math and/or creative problem solvers. The platform they execute on doesn't need to be rebuilt for each new strategy.
> I think everyone assumed Alameda were doing something clever.
Everyone knew the strategy they ran was to list a perpeptual futures contract for a Solana shitcoin on FTX, and short it into the ground. Their initial capital was an arb between Japan and US exchanges. That arb later disappeared. There are some rumors that the initial profits were wasted long ago, and they got new capital from investors hearing about the Japan/US arb.
I will say this another way...back in the early 2000s, investment banks used to hire people to do index arbs, the strat was literally press sell/buy button on Excel that will execute basket cash trades against an index, call our broker up on the floor and sell/buy futures...that was it. The strong implication is that JS is hiring people to do that kind of thing...investment banks stopped hiring these guys by the mid-2000s. The idea of the "maverick trader" who is just very creative doesn't really exist...almost all of those people who do that at hedge funds spent decades at investment banks where they had access to flow...and most of those people never graduated to hedge funds in the 2000s and just became execution traders. Again, JS is hiring these people out of college...that is weird. That is exceptionally weird. No hedge fund does this. No investment bank does this. No-one does this. A few trading houses do this (not many, Optiver is the only one left afaik...there used to be more, most went bust) but it is counter to the image that JS presents. As someone who knows a little about trading, this struck me immediately as extremely odd. Looking at their job listings...yes, it is odd (they have a job listing for traders: it says you should know how to program in at least one language).
Okay, the guy from Wintermute (who presumably knows something about trading) said he assumed they were doing something clever and was shocked when they failed. Also, they did a YouTube video which explained what some of the stuff they were doing was, that wasn't exactly surprising but I think people assumed (reasonably) they had more edge than they did (the reason they didn't was because they were cheating, nothing else).
Right, I think the current view is: they probably went bust in June/July (or whenever the earlier crash was), and some of the numbers they told other people about how much they made may have been fictional (I have read that they were losing money before they went bust but other people have said, again the Wintermute CEO, that they assumed FTX were making money because of what they were seeing in markets...again though, they were doing things that were obviously illegal so they were clearly making money from other things after Japan).
I didn't say he was hired for his trading ability. I only suggested coding isn't a perquisite.
> random person from MIT
I didn't suggest that was the qualifier for them being hired. They do hire from universities like MIT, though, and I'm sure there are many alumni that stay connected to faculty for the purpose of finding candidates.
Only 23 of 123 open jobs for students/new grads on their site are for software engineers.
https://www.janestreet.com/join-jane-street/open-roles/?type...
They say on the site: "We look for smart people with curious minds from any background."
I will say this another way: I know fundamental hedge funds that have stopped hiring people who can't code into roles IF they have no trading experience. That is how important the skill set has become. I don't know you have any function at a QUANT hedge fund if you can't trade and can't code...like what do you all day?
Right, and click on quant trader. And look at Power Trading, Options Trading, "coding skills are a plus"...I am not saying they don't hire them, what I am saying is that this is odd when you consider anything else about JS and that the rules are probably different for someone like SBF.
For someone who many see as a business genius, he's made a very questionable bet, and it's a reminder a lot of these people are more lucky than good.
Or maybe I'll be using the TwitterPay in five years to buy a Feather tablet so I can watch Vines.
There's many many people like us quietly trying to bootstrap enough traction to maybe get into YC one day... But if SBF ever wants to start another company it will be another record setting a12z seed valuation.
Irrelevant if he goes to jail ofc.
Would prison time be too harsh a sentence for him?
Are you familiar with the adage: The easiest way to rob a bank is to own one?
Here is the thing, FTX may not ave been a registered bank, but it definitely functioned as a fractional reserve bank: and in the end that is what matters most! SBF is so screwed, and a part of me makes me think he wanted to implode all along: despite being born on 3rd base he is still an immense failure, furthermore his perverted notions of effective altruism were revealed to be just another misguided cult like any other used by your run of the mill conman to maximize is ROI from the woke-mob gatekeepers in SV.
SBF is bankrupt in every sense of te word, financially as well as morally. What I can’t tell if it's affluenza or suicidal ideation/depression making him do these interviews.
He’s not trying to convince the world he’s not a bad guy, just her.
I didn't bother listening to it, and honestly if it is the reason it goes to show just how inept he really is considering how incriminating this all is and will be used against him; honestly, if this goes long as Theranos trial I will be extremely upset.
He and his gf at Alameda should be thrown in prison as fast as Charlie Schrem was, but because he is an insider they will make a show of it and expensive lawyers will get them short sentences in a light security jail at worst.
Hell, they should already be sitting in a cell next to Razzlekhan and her BF while being interrogated to hand over the funds while they sort all this out, that's the State's MO when it comes to these matters-- for them to sign a plea deal under duress and indefinite detainment like they have done to so many others. The fact that he is doing this podcast from the Bahamas shows the hypocrisy of the legal system entirely.
Edit: I didn't know who she was so I looked at her playlist and this came up [0], she personally got scammed for 200k on Celsius with the yield farming rugpull. I think it's just another youtuber making content trying to get more traffic/ratings: it's totally transactional for her and it seems since he has the social graces of a lamp post doesn't realize he has no chance.
(Not legal advice)
-- commonly attributed to Napoleon
But of course it would take much longer than a month to extradite him anyhow, so the most likely explanation is that they haven't had time to decide if they have enough evidence to extradite him, let alone to do it.
(IANAL)
Let him keep his passport and there's every chance he'll just turn up of his own volition to speak at a conference, give an interview, or pitch a new venture.
I don't think a jury would look kindly on playing so dirty with someone who posed no clear threat and didn't even seem to be on the run. And I don't think it would be right to either, until there's enough evidence to bring charges, he's presumed to be an innocent man in the eyes of the law. (We are of course free to come to our own judgement as individuals.)
All he's doing is giving interviews. Even if he's lying through his teeth (as I believe he is) - it's still his 1A right to do so.
But it's not clear to me that donating to campaigns in a handful of election cycles buys you very much influence within the DoJ. Influencing politicians in order to impact the nomination of judges or other appointees, or to pass certain laws - those are clear mechanisms, but they take many election cycles to implement. It seems to me like SBF's influence campaign was successfully building good will for the crypto legislation he supported, but that FTX/Alameda blew up before that could come to fruition.
I expect his donations to be largely neutral to his potential prosecution but am open to reporting surfacing facts to the contrary.
For a), SBF has become a dirty name and politicians don't have cover to do anything blatantly favorable to him.
For b), any money he might have touched is under intense scrutiny, especially if it makes its way to a politician. Ironically, his best hope might be if he had untraceably moved money into cryptocurrency, especially stablecoins.
given how crypto attracts illegal activity i wonder if he cheated people who prefer to not get their justice through the legal system...