Yotta Bank and the Problem with Fintech (Patrick Boyle) [video] | Hacker News Reader

Yotta Bank and the Problem with Fintech (Patrick Boyle) [video]

youtube.com

62 pointsmxschumacher61 comments

I've seen a few articles on the Yotta/Synapse situation that focus on the people that have lost money while completely ignoring any of the prize-linked type of setup. The people are quoted as being told it was FDIC insured, it was a normal bank, etc. Then the articles describing the prize drawings started to surface.

Was the prize-linked stuff part of the fine text or are people twisting the story as an attempt to lessen their shame? I don't trust any of the fintech apps at all, but I've never looked at any of their sites to see how blatant or how hidden their "oh yeah, we're not a real bank" details are.

The prize aspect of Yotta is irrelevant to the issue of missing funds. Theoretically this could happen with any fintech

It's not exactly irrelevant, as it does signal someone gamifying finance which just raises all sorts of red flags for me. At that point, I'd be much more suspicious of anything else they said. This isn't a free toaster. This is someone playing with money in a way that is just suspect.

After all of that to then find out that the company isn't a bank yet claims FDIC insured while using a 3rd party to handle to the money because they aren't actually licensed for that while still claiming to be a bank? It's so bewildering I'm typing run on sentences

It's literally just interest rate disguised as prizes. A real bank is handling the money behind the scene and that's where the money is insured.

Seriously? If it was insured, we wouldn't be in this place of customers losing all of their money. So whoever claimed they were insured lied.

The money is insured by the FDIC against bank failure. The actual banks holding the money didn't fail. The money is still there. The problem is its in a big unlabeled pile so they don't know whose money is whose and how much each person has.

Note that fail here has a very specific meaning - as in the banks doesn't have the funds to give you your deposit back. Not fail as is "something went horribly wrong".

Your fine parsing of the words does nothing at all about getting the customers access to their money.

I only superficially paid attention to this news but didn't Yotta end up going from "bank with sweepstakes" to "bank with a casino" quite quickly?

The prize stuff was front and center, the whole point of it. It functioned mostly like the interest from a savings account, but with a small chance of doing much better. The effective interest rate was quite good even without winning big.

It was quite clear that Yotta was not itself a bank. It was also quite clear that it used real banks to store your funds and your funds were as safe as they would be in a normal account. That last part just turned out to be a lie.

What “shame” would there be to lessen here?

The shame is the consumer putting savings into a space bank lottery scheme instead of t-bills or whatever. If Yotta passed the sniff test of being a real bank, people are less likely to shame the people who lost their savings.

Yotta claimed to be functionally equivalent to having a normal interest-bearing account with an excellent interest rate, and using a small portion of the interest to buy some lottery tickets. Buying lottery tickets might be dumb, perhaps even shameful (although I disagree as long as it’s not to excess), but it by no means implies that you deserve to lose your savings.

For what it's worth, some countries also offer "lottery bonds": https://en.wikipedia.org/wiki/Lottery_bond

In the UK, those are Premium Bonds backed by HM Government. The day that they can't be redeemed is the day you have significantly bigger problems.

Yotta’s funds were backed by the US government. The trouble is that the link between Yotta’s funds and Yotta’s customers’ funds was somewhat more tenuous than they implied.

Is a space bank lottery really worse than t-bills?

Like is the average utility gained from a depositor from their $1000 turning into $1001 for 1000 depositors greater than the utility gained from a single depositor turning $1000 into $2000 while the other 999 depositors utility remains flat?

Saving is disciplined, forward-thinking, and virtuous, in a sober, Puritanical way.

Gambling is degenerate, chaotic and immoral.

Yotta is a savings account for gamblers. The moral argument is "Gambling is bad, these people tried to bet their cake and eat it too, on some level they got what was coming to them".

It's a wrong argument. "what was coming to them" was not winning but still keeping their money. Gambling is different because you risk losing what you put in.

>Gambling is degenerate, chaotic and immoral.

The Mayflower called, they've lost a puritan again.

Hahaha. They irony in the gamble the puritans took to come to the US to start.

...First, when there is somewhere to go to get away from religious persecution, that is a more or less a rational gamble.

Second, are you really condescendingly equating compulsive gambling with escaping societal scale persecution or strife resulting from incompatibilities of religious belief with the State religion?

That's a bit of a stretch.

The general idea of Yotta at the time appears to be sound [1]. Research has shown that prize-linked savings accounts tend to result in people getting and using savings accounts who otherwise would not have done so.

Just make sure to get it from an actual bank or credit union where your account will be directly FDIC or whatever the equivalent for credit unions is insured, instead of going through some fintech company where you account is with the fintech company where they store your money (commingled with other people's money) in a (hopefully insured!) bank but as far as the bank is concerned its all the fintech's money and you have no relationship with the bank.

https://en.wikipedia.org/wiki/Prize-linked_savings_account

If it was fully disclosed that this was "gambling", then I might agree.

But it seems that it was more positioned as "a safe investment with okay returns and a lottery chance at winning above average returns". Gamblers don't need to know about FDIC insurance and the like.

There was shady goings on that wasn't clear to depositors -- what isn't clear is WHERE that shadiness was happening, but that doesn't mean they "got what was coming to them".

>> It was also quite clear that it used real banks to store your funds and your funds were as safe as they would be in a normal account. That last part just turned out to be a lie.

I dont understand how this would happen, how could a bank claim to be FDIC insured but not actually be FDIC insured? If false claims like this can happen, wouldnt that be fraud...in which case why arent the well capitalized backers and Directors of Yotta in legal trouble?

Also, what prevents any bank from claiming to be FDIC insured and not be FDIC insured? I went on the FDIC site and it isnt even clear how someone would verify they are FDIC insured. It seems customers would run from tiny banks if this were the case, because then nothing could be trusted.

Finally, the entire affair needs to be handled incredibly seriously by the regulators (though it doesnt seem to be the case). Because it makes me question the entire system -- and makes me wonder about any fintech. For example, i'm wondering now -- is Wealthfront actually SIPC insured as they claim (https://support.wealthfront.com/hc/en-us/articles/211004063-...)

My wording was ambiguous. They didn’t lie about storing your funds in real banks. That part was true. The lie was the implication that this made your funds safe.

It’s a subtle thing. It sounds like the money is safe. And it really is safe in the way that the FDIC handles: the depositor is protected in the event of a bank failure. It’s just that the depositor in this case is Yotta, not their customers, and there are potential problems beyond failures of the banks holding the money.

Note that this general scheme of “we’re not a bank but we’re as safe as a bank because we put your money in real banks” is not completely crazy and is sometimes used by serious financial institutions. For example, Fidelity offers a cash management account that works this way. So it’s not an immediate red flag on its own.

More to the point, FDIC insurance covers a BANK failure; but in this instance it wasn't the bank that failed. It doesn't even seem it was Yotta that had the issue, but rather their transaction company, Synapse.

Now if Synapse had created individual accounts for the Yotta depositors, we wouldn't be talking now. But what happened was Synapse had a few account(s) for Yotta and a bit of a records gap, which it seems is making it hard to tie Yotta depositors to their money. What's unclear is if this is a Synapse issue, a Yotta issue or something else.

But the fact that there is this accounting issue shows that there is a gap in how FinTechs are actually managing cash flows, to the risk and detriment of their customers/depositors.

It’s not just a matter of tying depositors to their money. There’s something like $100 million that’s actually missing. It’s not clear whether it’s just a matter of finding the accounts or whether it’s actually been stolen somehow. Synapse managed the money. They say it’s with Evolve Bank & Trust, but Evolve says they don’t have it. It seems likely that it was moved and they just lost track, but that doesn’t seem to be entirely known yet.

IIRC yota used evolve bank which is fdic insured. The problem it appears is that yota co-mingled funds so evolve doesn’t know who is owed the money. I read that a new reg has been put in place because of this issue.

>> IIRC yota used evolve bank which is fdic insured. The problem it appears is that yota co-mingled funds so evolve doesn’t know who is owed the money. I read that a new reg has been put in place because of this issue.

Thanks for the detail.

Co-mingled funds lose FDIC insurance pretty quickly (via the cap) since the FDIC limits are per depositor per bank, so commingling is the best way to lose protection -- hard to see how anyone in leadership wouldnt see this issue.

Prizes as interest aren't uncommon or scammy in themselves. My bank used to have a savings account like that https://www.westpac.co.nz/accounts-cards/savings-accounts/sa... . I inherited a UK government bond from my dad that had cost 1 pound many decades ago and would go into an annual prize draw. Turned out it never won a prize and the bank/government sent a cheque for 1 pound.

The prize-based thing is quite common in some countries, for instance https://en.wikipedia.org/wiki/Premium_Bonds (in countries which don't tax gambling winnings, it's a tax dodge; if you have a choice between a bank account that pays 4% taxable interest or a prize bond scheme which in the long term pays an average of 3.5% in untax-able winnings, you might take the prize bonds.)

I'm not sure that it should necessarily be seen, in _itself_, as a major red flag.

I don’t really understand how the company that’s supposed to be holding your money vaporized 99.8% of it. I watched that video, but I don’t really get it.

The overall recovery rate apparently is higher (like 70%?) and any shortfall at all is odd and requires an explanation. The reference to 99.8% shortfalls is related to Synapse being the record keeping system for deposits and failing to keep those records in a way that is reasonably accessible now that the company is in bankruptcy. So, anyone relying on missing records functionally has zero recovery because there are no records.

So you are saying that most people got 70% of their money but the school teacher that deposited 280k and was left with $500 is a unique case for some reason? This is what I don’t grasp, how do you signup for 0.2% interest and then 99.8% of her funds are missing? This seems like a Ponzi scheme not a bank failure with terrible interest rates.

>> I don’t really understand how the company that’s supposed to be holding your money vaporized 99.8% of it. I watched that video, but I don’t really get it.

Not only that, but the company has prominent executives and directors and none seem to be in trouble https://www.crunchbase.com/organization/yotta-saving

This hugely shakes my confidence in all emerging Fintech.

and the current president own them decisive-campaign-donation sized favors

What I gathered is that the answer is that nobody knows, since Yotta, Synapse and the actual bank are pointing fingers at each other and since Synapse outright collapsed they pay for an audit.

I'm too lazy to check it myself, but I assume there's some court documents with the judge trying to figure out what to do.

Weird that people are only focusing on whether or not the consumers justifiably lost their money.

What about the blatant fraud? Yotta was being fradulent by saying their funds were FDIC insured, and I have a really hard time believing that synapse wasn't involved in fraud/embezzlement. Keeping records was their only job and they didn't do it at all.

At the very minimum they told their customers (yotta ) they said they would keep track of the money and they didn't. That feels pretty clear to me.

People don't "deserve" to be lied to. No one "deserves" to have their money stolen. That's the kind of thing rapists say about people they rape.

Also

Fraud is bad. Technically not fraud doesn't buy you any good boy points, it just keeps you from losing lawsuits.

Whether or not the consumers "should have known" is pretty irrelevant to whether or not people got scammed. But if that makes everyone feel better about the high amount of scaming that goes on in SV, then do what you are going to do.

/rant

And to add, if any customer funds are gone that’s also theft on top of the fraud. It may be hard to figure out who is owed what, but the money should not be gone.

the difference between yotta and coinbase is the time it takes for users to lose their net worth. For Yotta it took over a year. For Coinbase, it will take over a decade.

Terrible video.

pretty impressive how Marc Andreessen gets so many basic facts wrong and how Rogan's platform then blasts this misinformation out to its tens and millions of followers

I mean it feels pretty obvious that he's lying since Joe has to ask him for specific examples like 5 times.

It seems Rogan lets his guests cook and sits back with amusement.

I didn't know rap channels were popular on HN

I feel like an old man, but what is the joke with Patrick Boyle and rap comments?

I think it started with Razzlekhan the Bitcoin launderer.

Patrick Boyle has a running joke about how his goal is for his channel to be the number one channel on you tube covering rap and related topics but he sometimes gets distracted by other things. I think it started because of him making fun of people like influencers and their attempts to do things like rap, and rappers who shill crypto schemes.

He basically covers what you might call popular finance topics but with an extremely dry sense of humour. You might say he’s a bit like a youtube version of Matt Levine but his jokes are perhaps more deadpan. To get a general idea of his usual schtick a good example is his coverage of neom the line https://youtu.be/Ak4on5uTaTg?si=OL3yP1yd-6nfO4bf

Gotcha. I like his coverage, just hadn’t gotten into his fandom enough to get all the rap references

Yeah, as mentioned by him here:

https://youtu.be/Ak4on5uTaTg?t=186

"...I don't usually cover topics like that on this channel.

As regular viewers know, my videos are mostly about rap and rapping, with my goal being to become the number one crypto-nerd gangster rap channel on YouTube. However, sometimes I do get distracted by other topics.

Anyhow, Bloomberg reported this week that Saudi Arabia is scaling back its medium-term ambitions."

23 minute video. If Patrick Boyle follows the hamburger rule of content, his video is mostly just bread.

I will wait for the Plain Bagel video.

That’s fine the rest of us will enjoy ourselves watching his content.

I'm with the GP here. Patrick Boyle isn't very interesting visually, he does some repetitive gesturing with one hand, and he rarely blinks, which I find unsettling. The presentation is slow relative to reading, as well.

Which are not very good qualities for an aspiring rapper.

Glad someone mentioned the true focus of the channel

Patrick Boyle is informative, amiable, self-deprecating, and witty. Even if he's not your cup of tea, he's a great YouTuber and I'm glad he's making videos.

This video in particular has some golden jokes delivered with perfect timing.

Perhaps cutting in some subway surfers footage and "satisfying" videos would make it easier to watch? It worked for Parenti.

Reply on news.ycombinator.com