FTX’s financial black hole leaves Binance balking at rescue plan

https://www.bloomberg.com/news/articles/2022-11-09/binance-seen-likely-to-balk-at-ftx-deal-after-spotting-deep-hole

by ahmedalsudani • 4 years ago

167 419 4 years ago

Alex3917• 4 years ago

Obviously. The only reason for them sending that tweet yesterday is if they were never seriously considering going through with the deal in the first place.

janmo2• 4 years ago

No surprise to me, we are talking about a hole of probably over $6b. That's a lot of money for an exchange whose reputation has now been destroyed.

alphabetting• 4 years ago

Probably good for Binance they're not taking on those toxic books but impact on overall crypto market could be severe.

gjvc• 4 years ago

background on the FTX leadership here https://www.youtube.com/watch?v=VbDiWXFxqr8&t=2144s

zeven73• 4 years ago

Translation: CZ (Binance CEO) has had enough time to liquidate volatile assets and set up shorts.

mamonster3• 4 years ago

Why is this being downvoted, shorting the book of an entity you are supposed to be bailing out / in talks with has multiple historical precedents. Amaranth and JPM off the top of my head for the last time it happened.

unmole2• 4 years ago

Which counterparty would be willing to take the other side of that trade?

yborg• 4 years ago

This is crypto, there are plenty of retail 'to the moon' speculators that would be thrilled at the prospect of more sick gains. It's tulips all the way down.

firekvz6• 4 years ago

Noone taking the other side of that short.

Is entirely fallacy/fantasy when people talks about shorting on crypto market.

You can't win shorting actual crashes in unregulated markets, the only way u win shorting in crypto is that you were lucky to guess what a whale/org was doing at the same time so pretty much a russian roulette

Marketmakers are not legit and all the movements are pretty much fabricated, its just not regulated and its obvious

mamonster3• 4 years ago

Is it any better if he is able to liquidate longs based on the balance sheet that he would not have liquidated had he not seen the balance sheet?

adrr6• 4 years ago

If you have enough capital couldn’t you weather the artificial movements to be able to capture the natural downward movement. VTT is going to zero if VTX liquidated in bankruptcy.

matheusmoreira5• 4 years ago

Noone taking the other side of that short.
Is entirely fallacy/fantasy when people talks about shorting on crypto market.

What do you mean by this? I shorted FTT the second I saw the tweet, and then I shorted the entire cryptocurrency market. I successfully made money, so how could it be a fantasy?

treis• 4 years ago

It's not just FTT/FTX, though. They're probably taking down others with them. Looking at the books gives you an idea of who the "others" are and how screwed they are.

simple-thoughts• 4 years ago

SBF was the “model citizen” to USA regulators. It’s hilarious how some USA loved this known ponzi schemer while actively fighting legitimate projects like LBRY.

JumpCrisscross2• 4 years ago

SBF was the “model citizen” to USA regulators

He very much wasn't. Probes had been ongoing for months [1].

[1] https://www.bloomberg.com/news/articles/2022-11-09/us-probes...

eddsh19942• 4 years ago

Makes sense, FTX are crumbling now and will move to Binance regardless

pearjuice• 4 years ago

Why would they even consider taking them over? They killed a competitor by declaring them as insolvent. The damage has been done. The user funds SBF siphoned out of FTX aren't coming back and doubt CZ is going to refund them out of pocket IF they take them over. The tech behind FTX is probably the same or worse than what Binance has. Customer acquisition happens anyway as the people still wanting to stay active in crypto will probably go to Binance.

johnvanommen2• 4 years ago

I was thinking the same thing.

This reminds me of 2008, when companies were trying to get "rescued", such as Lehman, but Lehman couldn't make a compelling argument why they were worth acquiring, once the accounting books were opened.

new2this• 4 years ago

"Fools Gold" does a great job of documenting this contagion effect (among other things) during the 2008 crash. Highly recommend

firekvz6• 4 years ago

They are the biggest exchange now, they gotta look like they care and tried to help so they can attract all the ones who need a new home

You still dont get crypto dinamics, is not about the tech, is about how much money you can extract from people trusting you

ddorian43• 4 years ago

Pretty expensive PR. Just run some superbowl ads and name some stadiums.

colinmhayes2• 4 years ago

"Even the largest crypto exchanges are scams" is bad for the crypto space as a whole.

mamonster3• 4 years ago

Prevent contagion in crypto most likely. If FTX is forced to go into liquidation, it's hard to estimate the systemic effect in crypto.

When you are the biggest shop at the fair you wanna keep the festival going as well.

rdtwo3• 4 years ago

Yeah but how do you liquidate it would take years

seydor4• 4 years ago

If they buy them isn't that a bigger risk of contagion? Current Binance customers would be concerned

nprateem• 4 years ago

Nice way to look at a competitor's books.

ahtihn• 4 years ago

They killed a competitor by declaring them as insolvent.

Worded like that you make it sound like that's a lie.

CZ didn't declare them insolvent. He just made the fact public.

314• 4 years ago

Until the box was opened the cat was neither alive nor dead.

WeylandYutani3• 4 years ago

https://en.m.wikipedia.org/wiki/The_Emperor%27s_New_Clothes

Binance was the little boy.

miohtama5• 4 years ago

As Matt Levine put it in his newsletter regarding 2008:

”The survival is not a zero sum games. For banks to survive it is beneficial to other banks to survive as well.”

unicornmama2• 4 years ago

Speculation, but consider that plausible scenario that SBF went nuclear and then CZ retaliated in what will turn into crypto mutually assured destruction.

djaouen2• 4 years ago

This would (probably) be a mistake on CZ's part. Taking on FTX's customers would undoubtedly bring him more goodwill than letting its customers go down with the ship.

DistantCl3ric• 4 years ago

FTX customers have likely fled (those that can / could withdraw) to Binance already.

dodgerdan• 4 years ago

Transfers of cryptocurrency from FTX have been frozen since yesterday.

adrr6• 4 years ago

Is there information what FTX was doing with their customers crypto assets that would cause a liquidity crunch? Did they lend it out? Staked?

coffeebeqn• 4 years ago

I mean there’s goodwill but there’s also the terrible-and-getting-worse crypto industry trend. He might need to keep that cash on hand.

djaouen2• 4 years ago

I mean, unless the whole thing is FUBARed, in which case, he should probably get out of crypto entirely before the whole thing crashes. But I tend to lean on the optimist side of things. :)

colinmhayes2• 4 years ago

Binance has already taken on FTX's customers/

dibt2• 4 years ago

We (the public) don't yet know how bad it is. CEO of Coinbase, Brian Armstrong said he was also not interested in an acquisition after a small amount of DD. He said we will likely find out how bad it is eventually.

Scoundreller• 4 years ago

not interested in an acquisition after a small amount of DD

Sounds like liabilities exceeded assets

potatototoo99• 4 years ago

6bn$ is a steep price for goodwill.

seydor4• 4 years ago

Why? Maybe it's a different subset of crypto users who did not want to go with binance in the first place, and are not likely to stay in binance for whatever reasons. And it's not like binance is running out of customers

paulusthe7• 4 years ago

I'm not sure they have a choice. Binance is leveraged to the max with tether already; they likely can't afford to pay FTX real-world currency for the purchase. They'd have to offer tether or other vaporcoins as payment, at which point FTX might as well just keep its vaporcoins instead

LegitShady4• 4 years ago

maybe they'd rather keep $6b on the balance sheet rather than burn it to goodwill that won't keep them solvent?

moralestapia5• 4 years ago

Wtf, why? Binance is not liable for FTX's customers.

partiallypro2• 4 years ago

Not if the liabilities taken on would cause financial stress on FTX with FTX itself is not doing as hot due to the collapse in crypto assets.

boojums• 4 years ago

Interesting to see how heavily Sam Bankman-Fried dontated in the recent midterm elections in the USA. He might run out of runway before those investments pay off.

https://www.washingtonpost.com/politics/interactive/2022/top...

memish• 4 years ago

He was trying to get in on the Twitter deal too, for up to $5b. Elon was skeptical.

Michael: Sam Bankman Fried is why I'm calling https://twitter.com/sbf_ftx/status/1514588820641128452 https://www.vox.com/platform/amp/recode/2021/3/20/22335209/s... https://ftx.us

Elon: ??

Elon: I'm backlogged with a mountain of critical work matters. ls this urgent?

Michael: Wants 1-Sb. Serious about partner w/you. Same security you own

Michael: Not urgent unless you want him to fly tomorrow. He has a window tomorrow then he's wed-Friday booked

Michael: Could do $5bn if everything vision lock. Would do the engineering for social media blockchain integration. Founded FTX crypto exchange. Believes in your mission. Major Democratic donor. So thought it was potentially worth an hour tomorrow a la the Orlando meeting and he said he could shake hands on 5 if you like him and I think you will. Can talk when you have more time not urgent but if tomorrow works it could get us $5bn equity in an hour

Elon: Blockchain twitter isn't possible, as the bandwidth and latency requirements cannot be supported by a peer to peer network, unless those "peers" are absolutely gigantic, thus defeating the purpose of a decentralized network.

Elon: ["disliked" "Could do $5bn ..."]

Elon: So long as I don't have to have a laborious blockchain debate

Elon: Strange that Orlando declined

Elon: Please let him know that I would like to talk and understand why he declined

Elon: Does Sam actually have $38 liquid?

Michael: I think Sam has it yes. He actually said up to 10 at one point but in writing he said up to 5. He's into you. And he specifically said the blockchain piece is only if you liked it and not gonna push it. Orlando referred Sams interest to us and will be texting you to speak to say why he (Orlando) declined. We agree orlando needs to call you and explain given everything he said to us and you. Will make that happen We can push Sam to next week but I do believe you will like him. Ultra Genius and doer builder like your formula. Built FTX from scratch after MIT physics. Second to Bloomberg in donations to Biden campaign.

https://danluu.com/elon-twitter-texts/#62

moralestapia5• 4 years ago

Nice find.

MichaelZuo2• 4 years ago

Thanks for the link, definitely does not sound like someone with $38B liquid.

hmate93• 4 years ago

The only likely outcome I can see is binance taking on just a part of the rumoured $6bn hole. For example covering deposits up to $100k (or whatever number)

Earns goodwill and users while the size of the bill is smaller.

Not sure how it would work from a legal standpoint but unfortunately 6 billion is too much (and I had a majority of my net worth in FTX as a trader)

isthisthingon993• 4 years ago

I had a majority of my net worth in FTX as a trader

As a trader myself, this lesson is part of your risk management. I have multiple accounts with amounts that I wouldn't cry if they went to zero. I trade them together, and if AMP decides they hate me because I am too tall, it doesn't change my ability to trade until that issue is resolved.

Edit: flagged??? huh...

SkyMarshal2• 4 years ago

What's AMP?

jacquesc• 4 years ago

Sorry to hear about your losses. Can I ask, what was the reason you favored FTX for crypto investment?

xwolfi3• 4 years ago

He enjoyed SBF personnal guarantees that the funds were "safu".

miohtama5• 4 years ago

FTX offers one of the best exchange engines and trading experience. High quality UI, APIs, etc.

hmate93• 4 years ago

They had the best API offering so that’s where I started with small funds. Ramped it up to a great significant amount. Didn’t see any early signs that I should withdraw. They’ve raised billions, they’re making millions daily from fees, CEO is looking to donate a billion dollars to politicians etc.

I truly underestimated human greed where making 7 figures of profit A DAY is not enough and you still gamble with user funds.

Luckily I’m still young enough and don’t have a family and I am confident I can rebuild but man, it definitely stings.

FormerBandmate3• 4 years ago

This shows exactly why financial regulations helps tbh. If there was a crypto FDIC or SIPC, almost all funds would have been covered

xxpor• 4 years ago

But if there were, no one would get away with fractional reserves (at least anywhere near the reserve requirements banks that deal with dollars have). A huge reason why the FDIC works is that the fed can always bail them out in the worst case (see also: 2008). Can't do that with crypto for obvious reasons.

matheusmoreira5• 4 years ago

This regulation is only necessary because these exchanges are actually banks in disguise. They're leveraging customer deposits and taking on the risk of fractional reserve banking with none of the backstops to protect them.

Cryptocurrencies were meant to be used in a decentralized manner. These centralized pseudobanks are everything that's wrong with this space and I hope they do get regulated.

voidmain0001• 4 years ago

I have to admit that I like Erik Voorhees' opinion stated here, https://open.spotify.com/episode/5a0pw6MQCOOGxjSrYTPrGj, which is don't use an opaque centralized exchange but use DeFi which is transparent as it's all code that's readily available.

paulusthe7• 4 years ago

True. But getting FDIC coverage is a privilege which certain entities have earned as a result of compliance with an extensive regulatory apparatus whose goal is the stability of the financial system.

Crypto entities haven't earned that privilege yet, and are quite commonly openly antagonistic to any regulation at all.

SkyMarshal2• 4 years ago

We really don't need taxpayer money insuring speculative crypto operations. It's also bad for crypto in the long run, as it makes it more dependent on centralized, govt-backed intermediaries. Decentralized trust-less/minimized exchanges are the ultimate goal, but they're hard to do. Removing incentive to continue innovating on that front is harmful to crypto in the long run.

JumpCrisscross2• 4 years ago

covering deposits up to $100k

Unless Binance does this as a unilateral act of goodwill, it would be difficult for them to acquire FTX in a way that pays out to customers while stiffing lenders and shareholders.

basch• 4 years ago

buy a copy of their books.

gift humans credits on new exchange.

adrr6• 4 years ago

You can stiff shareholders. They know the risk. They are getting near zero in all scenarios including buyout and liquidation. Buyout they may get some cents on the dollar and liquidation they get zero.

janmo2• 4 years ago

This would pose a huge legal and regulatory risk for Binance.

There is a reason why no one is acquiring ponzi schemes.

paulusthe7• 4 years ago

This is why they're only trying to buy non-US operations. Binance is a fraud too; they invented the "I can use my exchange to create infinite long leverage" business model of apparently every crypto exchange.

paulusthe7• 4 years ago

The question is if binance has the $$. They're doing the same exact thing FTX did, but using tether instead. They truly might not have the money to plug that hole.

My guess is that binance just wants to take down a competitor. They publicly started the FTX bank run by announcing they were going to dump FTT, after all.

bastiantower• 4 years ago

I think you're confusing Binance, which is not directly related to Tether, with Bitfinex, which is.

Binance has its own dollar based stablecoin, BUSD.

rich_sasha2• 4 years ago

This would expose them to legal action from the bigger, more sophisticated and deep pocketed entities.

They may be exterritorial to the US. So was Silk Road.

The reason partial deposit insurance works in commercial banks is that the ground rules are set from the start.

miohtama5• 4 years ago

All US users were driven to FTX.us that is a separate entity and never had withdrawal issues.

zeven73• 4 years ago

It won't happen. They have nothing to gain from doing that.

datalopers3• 4 years ago

SBF is no longer a member of the three-comma club. I can finally rest.

AznHisoka• 4 years ago

Maybe he cashed out a lot before this?

firekvz6• 4 years ago

he definetly did, where do you think the insolvency comes from ?

CPLX• 4 years ago

A lot of people lost a whole lot of money.

Where do you think it went?

datalopers3• 4 years ago

Same place a number goes when you press backspace in your editor.

klyrs• 4 years ago

From what I read, CZ liquidated his holdings of FTX's primary currency, which crashed its value. If that's the case, the "value" was due to scarcity. This "money" isn't gold-backed; it didn't "go" anywhere. It was a balloon. It deflated.

WoahNoun2• 4 years ago

There was no real money to begin with. If I create 1,000 tokens out of thin air and sell one to a friend for $1,000, I don't suddenly have $999,000 in net worth despite what crypto people try to claim.

paulusthe7• 4 years ago

It went to the exchanges.

They pumped the coins on the way up - Google willybot - which sucked retail money in. The smart exchange fraudsters cashed out on the way up. The uber-greedy exchange fraudsters held on thinking they could get more $$ if the price goes up, only to see that the price didn't go up, causing balance sheet holes which result in their demise a la ftx

pgporada• 4 years ago

Dos commas, Richard

toomuchtodo• 4 years ago

Assuming 6% returns on his remaining $900 million invested in index funds, he’d be a billionaire again in two years doing nothing.

Not as fun admittedly as gambling, but commas are commas. Wealth is sticky is this comment’s thesis.

FormerBandmate3• 4 years ago

It's invested in Robinhood lmao. Check out their 1 year

adammarples• 4 years ago

Nobody I know is assuming 6% returns over the next two years! Hope I'm wrong.

cactusplant7374• 4 years ago

My suggestion is for Mr. SBF to check out /r/fatFIRE to get some tips from people who are in the know.

WoahNoun2• 4 years ago

Not if the DoJ makes him forfeit his money for fraud:

https://www.bloomberg.com/news/articles/2022-11-09/us-probes...

adrr6• 4 years ago

You don't think he sold his shares in some of the investment rounds? Adam Neumann of WeWork is still billionaire even though WeWork went bust. These scams won't stop till someone is prosecuted. SBF stated that VTX didn't trade customer assets and that VTX was just a custodian, he committed textbook wire fraud.

dang3• 4 years ago

Please don't post like this to HN. You may not owe billionaires or former billionaires better, but you owe this community better if you're participating in it.

https://news.ycombinator.com/newsguidelines.html

chasd00• 4 years ago

I'm just a fly on the wall with all the crypto drama but i thought Binance bailing out FTX was mainly to protect Binance and not just good will. I guess Binance figures they can survive without them.

adastra22• 4 years ago

I thought it was just so they could get due diligence info on their chief competitor and then back out.

cuteboy194• 4 years ago

The exposed their main competitors lies about solvency without spending anything.

I fully expect CZ to say that the hole was too big and that customers are now suffering due to FTXs recklessness

make3• 4 years ago

yeah didn't they precipitate the crash by posting that they were doing thing similar to Luna, and then once the thing is crashing they say they'll buy it, and now they might not even buy it, I'm sure there's a lot of shit going on lol

soperj• 4 years ago

or they can't survive with them...

ackbar032• 4 years ago

I think cz basically has sbf trapped. I don't even think anyone else can come and save them even if they wanted to cause binance has so much ftt. The moment whoever leaked to coindesk that Alameda was propped up entirely by ftt they were screwed

noelsusman• 4 years ago

As far as I know, Binance is doing just fine (for now). The bailout was an attempt to take over a large competitor for pennies on the dollar.

paulusthe7• 4 years ago

Binance is almost certainly facing the same situation as FTX, just without the bank run. They're leveraged to the teeth with tether, which they similarly treat as a crypto leverage flywheel.

Binance just has first mover advantage; as a result of inventing this "my coin can just be printed forever" crypto exchange model, they have more use and $$ which gives them a better cushion. But it's still only a cushion.

partiallypro2• 4 years ago

As far as everyone knew FTX was doing fine until a few days ago. Binance is inevitably going to follow a similar path. If you're using a currency/holding as leverage that can go to $0 overnight, you're far from in a good position.

LegitShady4• 4 years ago

how does assuming billions in your insolvent competitor's liability protect you? what's the upside?

yieldcrv6• 4 years ago

Reminder, what we like about crypto is no bailouts

Just pure Machiavellian outcomes

chrischattin• 4 years ago

Bailouts ARE a Machiavellian outcome.

yieldcrv6• 4 years ago

Ok I’m looking for a word or idiom where mismanaged businesses without money fail, no matter how big they are or how many other businesses that failure will pull down

Leaving only more resilient ones in their wake

Let me know if you know a word for that

matheusmoreira5• 4 years ago

Yes. What happened here is a business took on risk, lost and failed. Let it fail.

yieldcrv6• 4 years ago

No circuit breakers, no trading halts, just pure price discovery primarily based on the amount of supply moving, 24/7/364.99

spamizbad2• 4 years ago

Bailouts are bad when the government does it.

Bailouts are good when a private company does it (with money slurped up from sovereign wealth funds and pension plans)

seydor4• 4 years ago

Yes? Taxes aren't for bailouts. pension fund risk is up to pensioners

cbtacy2• 4 years ago

This would like result in a 5 year "nuclear winter" for crypto VC FYI.

danrocks3• 4 years ago

Let's make it 100 years.

pjc503• 4 years ago

Huge losses haven't stopped anyone investing in crypto so far.

piva00• 4 years ago

When money was cheap and easy dumb investors could throw it around. Not the case anymore...

ssnistfajen2• 4 years ago

A winter for sure, but likely shorter than 5 assuming overall economy isn't going to be stuck in a depression. Crypto winters have been getting shorter and shorter thanks to increased awareness and increased participation.

danrocks3• 4 years ago

1) Big assumption there about the economy not getting stuck in a depression. We're still raising interest rates. It's just the beginning. 2) Crypto winters have become shorter? Sure. But have also become more extreme, with deeper and more sudden losses.

Cryptos seem to be: 1) a tech stock 2) a "fair weather" asset.

tittiebitty• 4 years ago

best move now is for coinbase to pick up the rest of FTX US operations

jonpurdy• 4 years ago

Question from someone who hasn't been involved in crypto since baby was born in 2021:

We all know that this can happen to centralized exchanges and using a DEX will protect your assets (the ones that don't go to $0 on their own like LUNA and FTT).

In the past, trading was always much more expensive due to the blockchain overhead compared to trading on a CEX, not to mention liquidity problems with smaller alts and DEXs.

Is this still the case? Do folks day trade using DEXs for small amounts or are they still limited to longer-term trading due to the overhead?

wmf2• 4 years ago

AFAIK faster and cheaper DEXes keep coming out every few months but not on Ethereum; they're either on L2s or faster chains like Avalanche.

unicornmama2• 4 years ago

AFAIK based on the data from coinmarketcap virtually all trading happens on CEX. Someone prove me wrong.

pa7x1• 4 years ago

https://medium.com/@Ignas_defi_research/2022-state-of-defi-p...

DEX volume seems to be around 10-20% of CEX volume. But CEX is easier to overstate as it's cheap, sometimes commission-less. While DEX volume always carries a cost.

miohtama5• 4 years ago

DEX market share as a volume was 25% - 33% of spot market during the peak. It might have taken a hit since Terra went down, though.

For some trading pair likes ETH/USD it is actually cheaper to trade on DEXes (Uniswap v3) where you get 0.05% fee as opposite to Coinbase that charges you 0.6%.

The events like FTX should prod the markets more towards DEXes. Also now there are futures DEXes available like dYdX, Perp.fi and others making it possible for more professinal trades to utilise DEXes.

lottin2• 4 years ago

Do these trades involve synthetic USD crypto-coins that are issued by some central party (so 100% not decentralised)?

no_butterscotch• 4 years ago

Is this still the case? Do folks day trade using DEXs for small amounts or are they still limited to longer-term trading due to the overhead?

I'd like an answer to this too.

I've been dollar cost averaging into BTC and ETH since the prices are low. But at the same time every exchange I see has fees that eat a large percentage. I know Coinbase allows you lower fees if you're trading big money each month, but I'm not doing that.

yieldcrv6• 4 years ago

blockspace is plentiful and on every chain that isn't Ethereum mainnet, small amounts are traded, a lot of financial activity occurs on Solana at extremely high volume - with the predictable consensus, security and uptime compromises necessary to do that

it also occurs on Ethereum Layer2's and other EVMs

redox99• 4 years ago

Generally DEX will be more expensive. However big part of DEXes costs, which are gas fees, are a flat fee, so if you move large amounts of money it's fairly cheap as a percentage.

noxer5• 4 years ago

DEXes do not have to be expensive at all. This is just a side effect of most people building the wrong stuff on the wrong "blockchain". It seem quite obvious to me that a DEX should be somewhere where there are cheap and fast transactions.

noxer5• 4 years ago

You can trade on the XRPL DEX[1] (The oldest DEX) essentially for free* since it went online. The DEX works like a central limit order book which limits the way you can trade. There are also liquidity problems for many currency pairs as well as counter-party risk if you trade/hold IOUs with a counterpart like for example Gatehub USD stable coins (Counter-party here would be Gatehub so if they go bust Gatehub USD is likely going to be stable at zero).

For a more advanced use of the XRPL DEX there is Sologenic[2] which is build on top of the XRPL DEX.

[1] https://xrpl.org/decentralized-exchange.html [2] https://sologenic.org/trade

*Free as in no one earns money from your usage. There is a tiny fee burnt to prevent spam for each offer/transaction. A typical fee is under $0.0001.

spaceman_202020• 4 years ago

I traded my way to 500k from a 7k initial investment and I did not trade even a dollar of that on a cex.

Even leveraged trades are very efficient on a decentralized platform like GMX.

Animats2• 4 years ago

So due diligence showed how big a hole FTX is in. No surprise. As I said yesterday, about 50% of announce M&A deals fall through. This deal looked unlikely to succeed. If FTX was out of cash but had a lot of money tied up in things that are slow to sell, like factories or real estate, a merger would make sense. But this is crypto. No big tangible assets. If FTX is well into negative territory, there's no hope.

Next stop for FTX is bankruptcy.

Does FTX.us have any exposure to FTX.intl? They're not supposed to. But do they? The SEC and CFTC are now investigating to find out.[1] Bloomberg: "US financial regulators are investigating whether beleaguered crypto-exchange FTX.com properly handled customer funds, as well as its relationship with other parts of Sam Bankman-Fried’s crypto empire..." In other crypto collapses, we've seen "assets" that were actually loans to affiliated parties. Loans that became worthless.

At FTX's web site, "https://ftx.com/intl", there is no mention of any problems. Typical.

[1] https://www.bloomberg.com/news/articles/2022-11-09/us-probes...

eddsh19942• 4 years ago

How can DD find a hole within a day of announcing? It seems too fast. To me, I assume it's CZ getting FTX to explode and then be the firm everyone comes to without having to acquire them.

Edit: Fair enough, thanks for the input repliers! I thought DD was a much slower event to prepare this information and get legal stuff set up with NDAs etc..

sottol2• 4 years ago

We'll see, but I think you can ask for some topline numbers and evaluate if it's even worth digging deeper. I'm sure this is not about accounting for a million, or two, or even a hundred.

jerf• 4 years ago

"So, step one, let's see your top-level balance sheet, you know, assets and liabilities."

"Sure, we have a notional $1 billion in a combination of junk bonds that have already crashed to a market value of $25 million and other cryptocurrencies worth another nominally $15 million as long as we never try to actually sell them, and we have $1.4 billion in concrete dollar liabilities."

Numbers completely made up, just to be clear.

You can investigate that until you're blue in your face and apply all the nuance in the world to it, that's never going to make any sense.

Also, I'd say Binance is well aware of the message the speed is sending. I don't think that's a mistake. This sort of signalling in "the metadata" of a message happens all the time. You can decide whether or not you believe it.

ceejayoz• 4 years ago

"How much do you have, and how much do you owe? Oh, really? Oooof. See ya."

moralestapia5• 4 years ago

A billion dollar assets/liabilities mismatch? I'd bet that's quite easy to find.

Honestly, with all the market info. that Binance has on their hands, I'm sure they already knew where to look at, LOL. They were just having fun with SBF.

shapefrog3• 4 years ago

These guys are not actually rocket scientists, what they are doing is not complicated.

It would take minutes to hours to figure out the state of things at FTX.

quickthrowman2• 4 years ago

How can DD find a hole within a day of announcing? It seems too fast.

CZ: “Can I see your balance sheet? Oh, it says here you have $10B in assets and $16B in liabilities. Welp, good luck finding a buyer, I withdraw my LOI to purchase FTX”

WeylandYutani3• 4 years ago

Healthy companies don't go kaput overnight unless it's 1929 again.

Workaccount2• 4 years ago

With a special shout out to Bear Stearns and Lehman Brothers.

swarnie2• 4 years ago

Scams often do mind.

At least 80% of the (lets charitably call it a) market is now concentrated in one place.

bhk• 4 years ago

Do you have a "healthy company" in mind?

pjc503• 4 years ago

Crypto companies tend to be very unhealthy.

tootie• 4 years ago

It's still shocking because aside from anything else, CZ must know that FTX dying is going to be massive blow to the whole industry. Like Lehman and Bear Stern's but with no Fed or Treasury bailout.

kadoban• 4 years ago

Is it going to be any more impactful than any of a dozen other big crypto deaths?

moralestapia5• 4 years ago

Does FTX.us have any exposure to FTX.intl?

I'd guess the geniuses at Alameda made sure to accomplish that already.

2OEH8eoCRo02• 4 years ago

Where is our due diligence on Binance? Pride goeth before destruction. I wonder if Binance has even worse financials than FTX.

orbz• 4 years ago

It should be noted that Binance is planning on offering proof-of-reserves[1], which supposedly would be a signed Merkle tree of liquidity proofs.

---

1: https://twitter.com/cz_binance/status/1590055819416330240?s=...

ahmedalsudani• 4 years ago

Oops, should have checked new.

There's a previous submission from a different source: https://news.ycombinator.com/item?id=33535015

dang3• 4 years ago

The main discussion was at https://news.ycombinator.com/item?id=33533088 but since the bloomberg.com article has more background, I think we can merge those comments hither. Thanks!

nowherebeen• 4 years ago

https://archive.is/yXMXm

yashg3• 4 years ago

When numbers in billions of $ are mentioned with regards to these crypto exchanges, is there really that much actual money at stake or is that the imagined value of all the magic tokens that are supposedly traded on these exchanges?

Lionga7• 4 years ago

It is all just magic tokens valued at a 10 to 100 times inflated value of crypto internal leverage.

mumbisChungo15• 4 years ago

volume is disproportionately in 1:1 USD stablecoins, bitcoin, and ethereum.

you can sort the landing page here by 24H volume for a quick glance, or you can check the exchanges tab for more detail: https://www.coingecko.com/

londons_explore2• 4 years ago

But there are large questions over how 1:1 those stablecoins really are...

Lionga7• 4 years ago

If just 10% of the "1:1 USD stablecoins" where cashed out today their price would fall 99%. And bitcoin and ethereum are also just at a "value" that's inflated 10 to 100 times due to crypto internal leverage.

londons_explore2• 4 years ago

Tends to be imagined value...

But imagined value that, if you play your cards right, you might be able to convert into real dollars. Leaving someone else with the imagined value instead.

mumbisChungo15• 4 years ago

yes, much like the stock market

dragonelite• 4 years ago

Pretty much NFT might have been an interesting thing to developed further if it didn't went the way of selling stoned ape jpegs.

shapefrog3• 4 years ago

There is a 5-10 billion dollar hole in their balance sheet. 5-10 billion has vanished so yes that is the actual money at stake.

benjaminwootton• 4 years ago

Say I buy some Bitcoin or ETH and send it to FTX.

Do we now know that:

A) FTX were not segregating those client funds;

B) They were speculating with them after SBF said “not even invested in treasuries”;

C) Seperately, they were leveraging up FTT on their balance sheet.

FTT price fall seems to be the catalyst, but this shouldn’t impact segregated client funds unless they are also being used in funky ways, right?

Surely one of the above is bad enough, but all 3 is an astounding abuse of trust no?

I have defended Crypto and even dabbled in the industry for a while, but this is shocking to find one of the blue chip names losing client funds.

kikokikokiko• 4 years ago

Does anybody really find it surprising that a company that engaged in schemes that promised to "monetize" the deposits of clients, at rates 5 to 10 times larger than the current interest rates you can find in traditional vehicles, was a scam down to the core? The owner of said company was even boasting about how his products were PONZI SCHEMES. Anybody that "invested" in those stupid Defi magic beans deserve to lose it all, unfortunately.

sgt1012• 4 years ago

I have defended Crypto and even dabbled in the industry for a while, but this is shocking to find one of the blue chip names losing client funds.

Steel yourself for future challenges.

Animats2• 4 years ago

There's FTX.intl and FTX.us. They're supposed to be separate. The SEC and the CFTC just started investigating how separate.

FTX.us is either OK or some people are going to jail. Too soon to tell which.

darkteflon• 4 years ago

There’s also an FTX Japan, although as far as I know it was wholly sold to a local buyer earlier this year. I had assumed they remained related only by brand. The FTX.intl insolvency makes me wonder whether they’ll be affected.

Edit: FTX Japan has halted withdrawals too.

NotYourLawyer3• 4 years ago

I have defended Crypto and even dabbled in the industry for a while, but this is shocking to find one of the blue chip names losing client funds.

Entertaining? Absolutely.

Shocking? Not to anyone who’s been paying attention.

sottol2• 4 years ago

I assume interest rate climate and losses will start an outflow of money from crypto. I wonder how Tether will handle this. They seemed too big to fail but this is looking serious.

Denniz• 4 years ago

Good point. That is true for all Stablecoins. The question is, do they have the liquidity?

Right now it is very very profitable for them. They can earn interest rates for free, without a high risk.

strangattractor• 4 years ago

This is like strapping yourself to a boat anchor as the boat sinks.

vasco• 4 years ago

So not long ago FTX was going to save Celsius, then balked. Now Binance was going to save FTX, then balked. When Binance needs saving, is that the end, or is there another turtle under these three turtles?

jwmoz• 4 years ago

When the feds catch CZ which they inevitably will it will be truly over.

jcpham24• 4 years ago

Pretty sure Binance was the first exchange to socialize the losses of a hack into an aidropped token to all users - which then allowed users of the exchange to gamble on the future on whether or not they’d be made whole.

Feels like the origin story of BNB chain to me

low_tech_love8• 4 years ago

Given the amount of people who are willing to put their money into a fairy tale, I guess it will never end, just shift. After all, why should they stop taking if others won’t stop giving?

john_alan• 4 years ago

the only fairy tale around here is the US CDS curve.

wmf2• 4 years ago

Maybe Tether can print money to save Binance.

AlexandrB• 4 years ago

Interestingly Tether started wobbling at just below $1.00 again today. I wonder if it's connected to this news, the drop in BTC price, or something else.

TedDoesntTalk• 4 years ago

Coin base?

thetli8• 4 years ago

My understanding is that Binance can step in as a potential savior because Binance is safe themselves and the company doesn't fear a liquidity crisis themselves. But, their whole premise of consumer confidence is based off of SAFU[1] which seems to hold quite a bit of their own BNB coin[2].

Maybe I'm missing something but isn't Binance just insuring funds... with their own coins? (ie. what Alameda basically did with FTT tokens)

1. Couldn't Binance be subject to the same rundown FTX just experienced? / How could Binance realistically rescue FTX at all?

2. Was this offer ever serious?

[1] https://academy.binance.com/en/glossary/secure-asset-fund-fo...

[2] https://bscscan.com/address/0x4B16c5dE96EB2117bBE5fd171E4d20...

kikowi• 4 years ago

Their premise is that they are not doing fractional reserves and actually have all user funds available at all times. SAFU is just an additional safeguard and was primarily created to compensate for hacks (it was used one time when Binance was hacked for $50M).

IMO Binance has billions of their own cash reserves (not user funds), based on their activity in the last year (acquision of coinmarketcap for 0.4B, commiting $1B to boost crypto projects and companies etc.. this must be a fraction of their overall worth and in that case, $6B should also not be a huge issue, especially since they can get a lot of goodwill and millions of FTX users).

Binance collects billions of dollars from fees every year and also get money from their external investments (e.g. Binance invested in FTX and sold their shares last year for $2B ($1.5B and $0.5B FTT)).

Lionga7• 4 years ago

Your funds are SAFU, if not CZ will personally print even more BNB so he has enough funds, don't worry. Trust him bro.

cuteboy194• 4 years ago

And if there is a hack he can just turn off the chain. It's foolproof

yieldcrv6• 4 years ago

Brian Armstrong low key based in that interview: "We aren't engaged in complex financial arrangements with counterparties... that we own"

low_tech_love8• 4 years ago

Whenever news like these are discussed here in HN I get flabbergasted by the amount of technical mumbo-jumbo you guys are able to throw around in the comments. It is genuinely impressive how much deep technical knowledge you have about this. I wonder if there is really no other place you could apply this? Like, what is the point of having all this deep technical knowledge about two hundred different fake coins (and their complex economic-engineering interplay) when there isn’t place in the real world even for the largest one?

ouid• 4 years ago

Put a pigeon in a box and hook up a lever to give a reward after a random amount of time has passed, and the pigeon will go absolutely fucking insane trying to figure it out.

GaryNumanVevo• 4 years ago

Also, despite people having deep knowledge of these coins / cryptocurrencies, absolutely zero awareness of timeless financial scams.

TomSwirly2• 4 years ago

People memorize the Bible and the Quran.

deanCommie• 4 years ago

I mean what you're describing is the central core of the grift.

Complex sounding technical mumbo-jumbo delivered with supreme confidence and seeming internal consistency is how you convince the plebs to invest their life savings in various forms of crypto.

0.1% understand the original underlying technology 0.9% understands the applications possible to be built on top of it 99% are following the 1% and writing governmental and financial policy, and voting with their wallets.

I wish I could say we will look back and shake our heads at it like we do today at Tulip Mania, but I suspect we're watching the birth and childhood of a new religion. Crypto isn't going anywhere for the rest of our lives, and just as we have to keep vigilantly fighting against Scientology permeating tax policy, or religion in general always attempting to undermine secular society, Crypto will continue to be a thorn in society for a long time.

cbtacy2• 4 years ago

ding ding ding! we have a winner!!!

asdajksah2123• 4 years ago

Usual disclaimers: Blockchain is a real technology and crypto currencies have uses, both of which are a tiny fraction of what their backers claim.

Take away the hyperbole and technical mumbo jumbo interlaced with the financial mumbo jumbo, and cryptocurrencies and blockchain are less interesting than the latest PostgreSQL update.

But it's that mumbo jumbo that separates ordinary people from their dollars.

spaceman_202020• 4 years ago

Edit: Deleting this comment because way too many people attacking me who have clearly never actually used any decentralized app.

Good luck to you all!

Lionga7• 4 years ago

I gamble in the lottery and won! You just need to gamble a bit more to also win the lottery. Never give up!

kylehotchkiss• 4 years ago

Did you at least buy a house with your winnings? that's what i've always wondered... when people make hundreds of thousands, do they go buy/pay off a house?

chinathrow3• 4 years ago

So really, for me at least, it was a net positive.

I am sure you're aware that your $$ come from somewhere. Net positive for them? Not so much.

RC_ITR7• 4 years ago

I mean to play Devil's Advocate, many people have the same opinion on MLM's (e.g., "you just have to really understand the leggings market and how to run a business, all these new people who got burnt thought they could get rich quick without working" etc.) because the nature of Ponzi Schemes is that the early investors often do cash out.

In fact, the reason Madoff got so large was b/c he was one of the few who convinced most early investors not to cash out.

Implying that smart money is 'being early to the Ponzi Scheme' is certainly an outlook on life, IDK if it's a particularly good one though.

traeregan• 4 years ago

I entered the market
I managed to cash out
I avoided all centralized exchanges
Almost all my trades were on decentralized exchanges

Only the entry and the exit trades were on centralized exchanges then right?

Are there any examples of safe and legal decentralized fiat on/off-ramps? I've heard of "Bitcoin ATMs" (I suppose that would count as centralized though), and I've read stories of people getting into trouble for using P2P services like "Local Bitcoin". It all seems a bit sketchy.

low_tech_love8• 4 years ago

Think about it: if the HN crowd has never used any dapp, what does that say about the rest of the world? I mean, this is the place where people think rsync should replace Dropbox.

chinathrow3• 4 years ago

Edit: Deleting this comment because way too many people attacking me who have clearly never actually used any decentralized app.

Wow, that was unexpected. Taking criticism for boasting about gaining money in a gamble (you said luck was involved) and then weaseling out....

twelve40• 4 years ago

Both of these organizations (FTX and Binance) are/were making billions flipping useless bits and feeding on people's greed. If both of them are gone tomorrow, the world would not even notice. When the FTX dude's face was plastered on every bus stop in San Francisco (in a wildly narcissistic PR attempt I guess?) I was shocked at how idiotic this cheap money wave has become, someone who's enriching themselves by letting people trade one "token" for another is hailed as the next Einstein. Well, turns out he couldn't even scam people properly and somehow has managed to blow through it all.

laserlight• 4 years ago

someone who's enriching themselves by letting people trade one "token" for another is hailed as the next Einstein

This is the sad part IMHO. A guy who should be regarded as enemy of the people is instead regarded highly just because they happened to win a lottery.

oldgradstudent3• 4 years ago

Both of these organizations (FTX and Binance) are/were making billions flipping useless bits and feeding on people's greed.

Turns out FTX wasn't making billions. It was losing billions while pretending to be making billions.

jkepler• 4 years ago

... when there isn’t place in the real world even for the largest one?

Uh, go visit El Salvador. Every MacDonalds, every Starbucks, and tons of local businesses accept "the largest one." That's because bitcoin stands apart, in terms of its real decentralization, and therefore its independence and utility. Give it time, and it will become far more useful than it already is. The dollar may eventually refer not to a specific weight of gold (that's what the term 'dollar' originally meant), but to a specific number of satoshis.

MrRadar2• 4 years ago

Business in El Salvador do not accept Bitcoin because it is superior (or even equivalent) to fiat, but because they are forced to by the government. I do not see how that is a point in favor of Bitcoin having a place in this world.

czhu12• 4 years ago

Uninformed on this, but if thats true does that mean that a $3 starbucks coffee paid for in bitcoin would incur a $1 bitcoin network fee?

So likes 33% more expensive?

Or is there some system that el salvador developed that acts as a clearinghouse?

anderskaseorg• 4 years ago

https://www.cnbc.com/2022/10/13/el-salvadors-bitcoin-holding... shows a pretty different picture of both the prevalence and the usefulness of Bitcoin in El Salvador.

seydor4• 4 years ago

Mumbo jumbo opaqueness helps to sustain the bubble. You can paint all the technicals of the world on crypto, in reality it is an emotional rollercoaster that hinges on the sociology and demographics of genz

squokko• 4 years ago

1) A lot of people learned about this stuff to make money with it, which many of them did

2) A lot of people learned about this stuff because it is a very meme-able concept: mathematicians will upend the entire global system of power with... math. The kids who got their lunch money stolen in elementary school really gravitated to it

itronitron• 4 years ago

It's either that or Pokemon.

HyperSane• 4 years ago

all this Web3 with thousands of different cryptocoins/tokens and DAOs feels like an attempt to intentionally obfuscate finance.

EVa5I7bHFq9mnYK• 4 years ago

I once played a very sophisticated online mmporg ... the amount of information I possessed about all the skills and equipments dwarfs that of cryptobros) Let them play)

peterweyand• 4 years ago

What are the risks for generalized financial contagion in the traditional sector? I understand that crypto has been a way for wealthy individuals to hide funds from taxation, so if a bunch of wealthy dweebs lose their shirts I don't particularly care. On the other hand, I don't want to see this sparking another housing crisis or currency/FX crisis.

UncleEntity3• 4 years ago

Back in the dotcom bust pretty much everyone said “yeah, they knew the risks” and generally didn’t care about the losses.

When the housing bubble collapsed you had millions of people who probably didn’t know the risks (because everyone with a voice was saying housing prices never go down) and politicians cared a whole lot.

I’d say even if the whole crypto craze went bust overnight all you’d get is a collective shrug.

adrr6• 4 years ago

Depends if Alameda goes down. They have billions of debt and we don't know who provided the capital. It could be traditional finance or it could be VTX. We just don't know yet.

Railsify2• 4 years ago

How does this happen? Were they just stealing funds?

kayamon• 4 years ago

Yes. All banks do this. If everyone went to their bank tomorrow and asked for their money back you’d see the same thing.

Railsify2• 4 years ago

Was FTX within their rights to do this?

SilverBirch• 4 years ago

This is good news. The obvious suspicion was that Binance would bail out FTX to cover for the fact that Binance aren’t truly solvent themselves- in exactly the same way FTX did with other crypto projects earlier this year. We all know at this point FTX was underwater, so Binance stepping to take a big loss on it would’ve been a strong red flag.

shapefrog3• 4 years ago

You might throw a years profit at it to restore confidence in the system and buy up market share. But making losers whole to the tune of 5/6/7/10 years of profits would be a massive red flag ...

dang3• 4 years ago

A newer thread now has the top of the stack:

We will not pursue the potential acquisition of FTX - https://news.ycombinator.com/item?id=33537821 - Nov 2022 (15 comments)

FTX’s financial black hole leaves Binance balking at rescue plan

Related Stories