The Sam Bankman-Fried empire crumbled. What happened?

https://newsletter.mollywhite.net/p/ftx-explainer

by williamstein • 4 years ago

261 197 4 years ago

newsletter.mollywhite.net

natdempk• 4 years ago

There is a part two available here with more opinion/analysis: https://newsletter.mollywhite.net/p/ftx-analysis

williamstein• 4 years ago

With potential for discussion here: https://news.ycombinator.com/item?id=33547135

pvg• 4 years ago

That's a link to nowhere, not a 'potential discussion'. On HN it's better to keep the discussion of closely related things in one place otherwise it just gets repetitive. The splits, when they happen, are just more work for the moderators who end up having to merge this this stuff.

thakoppno• 4 years ago

I presume this individual cashed out at least some of his net worth in hard assets. Just curious how one could structure a vehicle for those assets that would be resilient to asset forfeiture? Also, what portion of the fortune would be most likely to have been squirreled away?

bpodgursky• 4 years ago

IF his goal was personal fraud and enrichment (and to be clear, I think this is VERY unproven) it would be far easier to stash some away in a mixed/clean bitcoin or monero account and memorize the mnemonic phrase. No paper evidence, no financial trail.

edf13• 4 years ago

I would of expected the vast majority of his net worth would of been the same FTT tokens which are now heading to 0.

How much he cashed out (And the timing of this) will be interesting to learn.

siftrics• 4 years ago

Michael Lewis, author of The Big Short, was in the process of writing a book about the success of FTX and SBF. He personally went to the Super Bowl with them and visited them in the Bahamas multiple times.

Someone on Twitter said, "he just got his perfect ending."

It's gonna be a fantastic book.

par• 4 years ago

He should call it The Big Short 2: Get Shorted.

indymike• 4 years ago

Maybe "Coming up Short".

chinathrow• 4 years ago

I'll pre-order it the day it's available. The big fry.

akgerber• 4 years ago

Reminds me of the documentary Weiner, which was supposed to be a comeback film about Anthony Weiner's run for NYC mayor but instead became an intimate portrait of a man's life (as well as that of his unfortunate wife) utterly collapsing.

seertaak• 4 years ago

True, only that Weiner was surprisingly endearing in that documentary. Despite at the time being a staunch republican, it's hard not to like the guy, and when the fall comes you're almost rooting for him.

But SBF? The last interview I saw him give was I think with Levine; it was shocking because SBF was describing whence crypto derives its value. And Levine remarked that SBF was describing a Ponzi scheme.

For me, that interview showed two things. First, that SBF quite obviously has no morals whatsoever. And second, he's not nearly as smart as he's portrayed to be.

His whole cred derives from his MIT degree combined with his experience at Jane Street. Jane Street is a great firm, but what they do is really specific, and not necessarily the "coolest" way to make money. It's a lot of tech and infrastructure, less finance and trading chops. (The real badasses are RenTech, for example.)

Anyway, I watched a few videos that he made while working at his crypto hedge fund, Alameda. He described the strategies, and they sounded like the typical market maker stuff - arbing exchange discrepancies yadda yadda. Not the most inspired stuff.

nickfromseattle• 4 years ago

There is also a documentary about a timeshare property mogul building the one of the biggest/most expensive personal home ever, I believe costs were over $100 million.

Filming was in 2007, the 2008 financial crisis hit, and the documentary devolves into watching this mogul go bankrupt.

I remember a quote from the mogul, something like "I have nothing but the business. I've re-invested nearly every dollar I've ever earned."

https://en.wikipedia.org/wiki/The_Queen_of_Versailles

latchkey2• 4 years ago

It is almost as if someone has a Twitter bot...

https://twitter.com/_mfrye/status/1590737441874288640

chubot• 4 years ago

Wow ... so I'm assuming Lewis could smell this a mile away, given his history? (Liar's Poker, etc.)

It's funny that they seemingly weren't in on it -- "No it's not at all like the other things you wrote about".

dilyevsky• 4 years ago

ML wrote very favorably about IEX team in flash boys so maybe they thought it was like that

loeg• 4 years ago

I don't understand why anyone takes Lewis seriously after Flash Boys. He seems to just make things up from thin air.

Firmwarrior• 4 years ago

That book was entertaining, but so frustrating to read

These big corporate traders are being paid millions to be the best at what they do (managing stock portfolios) and then it turns out they're actually awful at it and a bunch of genius math kids are running circles around them in the dark. And somehow I'm supposed to feel bad for the lazy, clueless, suit-wearing, trash-talking traders?

smcin• 4 years ago

Because he was superb since before then, for four decades now. I read Liar's Poker and was hooked from the first sentence.

Look, Michael Lewis is like the Stephen Gaghan of (semi-fictionalized) socioeconomic zeitgeist: he chronicles concepts paradigmatic of an entire generation, people and personalities that affect or transform an entire decade or generation (usually in or about the US, and often Wall Street). And he nods towards the societal implications with a sense of urgency and inevitability but also dark theater. Sure he Hollywoodizes people and quotes, not dissimilar to how the screen adaptation of Mark Bowden's superb 'Black Hawk Down' merged characters and their story arcs, or how loosely 'War Dogs' (2016) was based on Guy Lawson's 2011 Rolling Stone article [0] and 2015 book [1]. [As to 'War Dogs' and Lawson's writings, there's an obvious similar moral fable to three potheads from Miami Beach becoming in 2007 one of the Pentagon’s largest weapons suppliers, by reselling Chinese bullets to US-occupied Afghanistan, and noone at the Pentagon actually wanted to know where private contractors were getting their supply, as the scale of the contracts became increasingly insane.] If you want to more accurately label Lewis' genre "semi-fictionalized socioeconomic zeitgeist", then do.

To be blunt, people have short attention spans, people in the US only read average 15.6 books/yr or median 4 books/yr [2], and moral ambiguity seems to sell worse than clean-cut tales casting characters as good guys and bad guys, certainly on the big screen. But these writers are still fulfilling an important service. Noone actually sits down and reads Inspector-General reports, CSPAN is occasionally great but usually dull to watch, and what now passes for US mainstream media is hopelessly coopted and long ago abandoned investigative reporting [3]. Writers like Lewis, Bowden, Lawson(, Crichton, Grisham [4]) fill a very real cultural void in interpreting what's going on.

[0] https://www.rollingstone.com/feature/the-stoner-arms-dealers... [1]: https://www.rollingstone.com/culture/culture-news/the-comple... [2]: https://katiecouric.com/culture/book-guide/how-many-books-do... [3]: https://www.fastcompany.com/90646413/why-breaking-points-wit... [4]: https://news.ycombinator.com/item?id=33391995

SilasX• 4 years ago

Speaking of the Super Bowl, their ad aged really poorly. Someone posted a clip from it[1] that has Larry David being pitched on FTX as being a safe way to get into crypto, and he turns it down, saying he's never wrong about these things.

The joke is supposed to be that he's being comically clueless to do so, because it follows a series of shorts[2] of him not "getting" the point of advancements like the wheel, the fork, the toilet, the Walkman, etc. But now he just looks wise!

[1] https://twitter.com/DegenNFTs/status/1590451000523227136

[2] Full ad: https://www.youtube.com/watch?v=_-FQqo46CJQ

wigster• 4 years ago

is this nominative determinism kicking in?

itsdrewmiller• 4 years ago

Definitely a bit of "Crowley if you think I am holy, Crowley if you think of me foully" too.

ARandumGuy• 4 years ago

I think this should be a warning to anyone still invested in other crypto companies or exchanges. Everything seems like it's going well, until the music stops and the exchange is insolvent.

FTX is not unique. A lot of crypto exchanges are doing just as much shady stuff. When you put your money with these companies, you're betting that "no really, this one is above board!" That's an extremely risky game to play when the crypto space operates with no transparency and no consumer protections.

aniforprez• 4 years ago

While I could say banks are equally guilty of doing shady stuff, the truth is banking is hundreds of years old and as such, has regulations and insurance behind it. Not regulating is how we get messes like the Housing Bubble in the 2000s in the US culminating in the crash in 2011. Crypto being a completely new space has no regulation and no checks and balances which leads to messes like this with companies playing around with their assets and unable to repay their customers when they collapse. I suppose the draw of crypto is inherently that it is a wild, freeform space free from government interference for some people I guess

fred_is_fred2• 4 years ago

Unfortunaely the draw for many isn't that they want a libertarian dream society with no rules, but rather they think they can get rich quick. The "banks are bad" is part of the appeal also. I have a cousin who works in the food service industry (think something like managing a Chipotle) and has put all his liquid assets into crypto and still thinks they will "pay off so he can retire".

As for banks - as soon as these crypto scams fail, everyone will find out just why the SEC and FDIC are there. They were not created just because some politician had an idea for more bureaucracy.

lkrubner• 4 years ago

"US culminating in the crash in 2011"

The official date given by NBER says that the recession began in December of 2007, which put the economy into a fragile state, which was intelligently managed for another 9 months, before circumstances went beyond anything that could be managed. Then the financial meltdown began in September of 2008.

duvenaud2• 4 years ago

I mean, banking was already hundreds of years old in the 2000s. So recent bubbles and crashes in traditional markets seem like evidence that regulation, at least the kind that ends up being implemented, isn't doing much to prevent very bad outcomes.

saurik• 4 years ago

Centralized financial exchange markets are at least somewhat regulated and notably FTX.US is supposedly A-OK. Just because some stuff in crypto doesn't have regulations doesn't mean it is a free-for-all.

eftychis3• 4 years ago

a) They are similar products banks/certain financial institutions utilize right now, just with corporate debt -- oh what can go wrong in a recession, right?

b) Bank runs happened in 2008 (U.S.), 2010-12 etc. A lot of crypto companies buy insurance similar to what the government says, but lacking regulation and the government behind you makes it as you said problematic.

But: banks are years old and keep making the same mistakes and failures. Big banks (not your corner side community bank that acts as intermediate and its job is community welfare and good relations) haven't changed. I'd be surprised if we avoid another bank related incident, if we enter a recession.

ignoramous• 4 years ago

...has regulations and insurance behind it.

And billion dollar bailouts. With a few billions every decade or so, FTX probably survives such crises multiple times over.

antasvara• 4 years ago

In a lot of ways, crypto is just relearning the basic lessons of finance that banks and corporations learned decades ago.

Things like "don't allow customers to use your company's assets as collateral" and "using a bunch of leverage on volatile crypto" are much less frequent in traditional finance, specifically due to regulation or the fact that these strategies have tried and failed before.

This isn't to say that decentralized finance is exactly the same as traditional finance, because it isn't. But I think the lesson here is that when you're offering products similar to traditional finance, you should assume that many of the same rules/best practices of traditional finance should apply.

binkHN• 4 years ago

...crypto is just relearning the basic lessons of finance that banks and corporations learned decades ago.

To my way of thinking, they’re not relearning anything—they’re specifically using lessons learned from history as a playbook to make, well, illicit gains.

latchkey2• 4 years ago

Everyone keeps saying regulation is the key, however in todays thread about 'not getting rich trading options' [0], all I see is people talking about how they lost money or that the game is rigged by the biggest players... and that is in one of the most regulated and well known markets on the planet.

I don't see how regulation fixes anything.

[0] https://news.ycombinator.com/item?id=33547658

ETH_start• 4 years ago

>This isn't to say that decentralized finance is exactly the same as traditional finance, because it isn't.

This has nothing to do with decentralized finance. FTX was a traditional centralized financial institution catering to crypto.

The leading DeFi apps have had no problems this cycle, and that's because they're fully on-chain, with every transaction validated atomically/in-real-time to ensure its business logic integrity. DeFi's transparency and accountability is what the best CeFi firms strive for.

The big risk with DeFi is the possibility of a smart contract vulnerability, but this diminishes over time as these apps have their source code reviewed by more people and go through more real world battle-testing.

nickstinemates• 4 years ago

This is a common mantra - if it's not your keys it's not yours. Leaving your crypto in an exchange is a huge convenience but also a huge risk for exactly this reason.

It's completely the opposite thinking where cash is more dangerous than leaving your money in a checking account for normal people.

SilverBirch• 4 years ago

I think one thing to think about is that I'm sure someone with integrity is running a crypto exchange and they genuinely are just running a crypto exchange that works. But those guys aren't creating exponential valuations. We can ground this all in real expectations- the CME group is worth 62Bn market cap, Deutche Borse is worth ~30Bn.

Why, why, why would you think that a niche crypto exchange is worth more than the biggest European exchange? We know what the comparables are people!

simonw• 4 years ago

This is such an excellent write-up - showcases a veteran Wikipedia editor's ability to synthesize something comprehensive from a huge array of rapidly changing sources.

SanjayMehta• 4 years ago

SBF's Wikipedia page is being vandalized right now.

https://en.wikipedia.org/wiki/Sam_Bankman-Fried

https://archive.is/2022.11.10-162501/https://en.wikipedia.or...

whateveracct• 4 years ago

Seems like a tangent

dabeeeenster• 4 years ago

https://twitter.com/SBF_FTX/status/1590709172936798208

"5) The full story here is one I'm still fleshing out every detail of, but as a very high level, I fucked up twice.

The first time, a poor internal labeling of bank-related accounts meant that I was substantially off on my sense of users' margin. I thought it was way lower."

Amazing

rozap• 4 years ago

Blockchain solves this.

treis• 4 years ago

Can someone ELI5 what margin has to do with the bank run?

acgt23• 4 years ago

It doesn’t really, none of this is adding up. But he’s explicitly lied about this stuff in the past couple days (and since deleted the tweets) so that’s probably what’s happening here

nullc2• 4 years ago

Much of the assets traded on FTX were leveraged sidebets e.g. "perpetuals", the underlying assets didn't exist.

schemescape• 4 years ago

What does “poor internal labeling of bank-related accounts” mean? They didn’t know which of their accounts were fiat vs crypto? Asset vs liability? Something else?

skippyboxedhero• 4 years ago

My thoughts exactly. He managed to say precisely nothing in 27 (or whatever it was) tweets apart from the obvious...that he wasn't up to running the company.

WSJ is reporting that money was lent to Alameda based on a conversation that SBF had with an investor (saying that the gap was $10bn) but this isn't what he saying publicly...maybe this is obvious because, if this is true, then it is hard to see how he avoids jail.

jrmg• 4 years ago

At the end of the thread:

NOT ADVICE, OF ANY KIND, IN ANY WAY

I WAS NOT VERY CAREFUL WITH MY WORDS HERE, AND DO NOT MEAN ANY OF THEM IN A TECHNICAL OR LEGAL SENSE; I MAY WELL HAVE NOT DESCRIBED THINGS RIGHT though I'm trying to be transparent. I'M NOT A GOOD DEV AND PROBABLY MISDESCRIBED SOMETHING.

That’s quite the (ad-hoc) disclaimer…

ALittleLight• 4 years ago

"In the event anything I've said is used against me in a court of law I didn't mean whatever it is in that way."

mrguyorama2• 4 years ago

Lol I don't think that would hold up in court.

jjulius• 4 years ago

If you have to slap such a poorly-written disclaimer at the end, maybe you shouldn't have said anything...

chlodwig• 4 years ago

"4) FTX International currently has a total market value of assets/collateral higher than client deposits (moves with prices!). But that's different from liquidity for delivery--as you can tell from the state of withdrawals. The liquidity varies widely, from very to very little. 5) The full story here is one I'm still fleshing out every detail of, but as a very high level, I fucked up twice. The first time, a poor internal labeling of bank-related accounts meant that I was substantially off on my sense of users' margin. I thought it was way lower. 6) My sense before: Leverage: 0x USD liquidity ready to deliver: 24x average daily withdrawals Actual: Leverage: 1.7x Liquidity: 0.8x Sunday's withdrawals. Because, of course, when it rains, it pours. We saw roughly $5b of withdrawals on Sunday--the largest by a huge margin." https://twitter.com/SBF_FTX/status/1590709172936798208

I don't understand this. In FTX International terms of service ( https://help.ftx.com/hc/article_attachments/9719619779348/FT... ) they say that users have full title to digital assets, that they are the property of the user, and shall not be loaned to FTX trading and are treated as they belong to FTX trading, and that users control the assets in the account.

FTX was never claiming to run a bank where they loan out users deposits for interest. They were claiming to be running a 100% allocated, straight up custodial vault. Therefore they should be able to simply return whatever assets customers owned on their service, even if every customer wants their asset back at the same time.

If they were actually loaning out customer's assets and running a fractional-reserve bank, that is just straight up fraud, full-stop.

cuteboy19• 4 years ago

Understandable mistake. Many of us who have been bank tellers know how easy it is to accidentally empty a client's account and spend it all on gambling and hookers. It is an honest mistake for sure

moralestapia2• 4 years ago

Does he has absolute no good counselors? Does he get advice from his roomies in the Bahamas?

This twitter thread, plus some others tweets he has deleted now, could get him into some real trouble.

neural_thing• 4 years ago

His legal and compliance team quit

xrd• 4 years ago

The original dotcom implosion was caused by all these "new Internet" companies selling advertising to each other and recognizing that as revenue, even though it was just a swap of ad space that no else wanted. When people figured that out, we had the crash of 2000.

SBF maybe isn't the best quant, but he clearly knows his history.

ghaff• 4 years ago

And it went beyond the internet companies in no small part because those companies were loading up on hardware and software from all the big tech companies. (Oracle, EMC, Sun, Cisco were explicitly called out as the four horsemen of the internet but the effects were felt much more broadly.)

gregw2• 4 years ago

Alternate/additional explanation… the dotcom crash happened after the first quarter of 2000 when the quarterly financials of the big internet hardware/server vendors (Sun but also EMC, Cisco, Oracle, etc) came out and sales were way down because nobody had quite anticipated that their clients would take the servers used for y2k testing and repurpose them, rather than buying new stuff. Then the voice of skeptics had credence to raise other concerns (ad swap, etc) which snowballed.

hamiltonians• 4 years ago

ftt is still trading at $3. It's down but not out. this is the same price as late 2020.

rideontime3• 4 years ago

Should I buy some? What can I do with FTT?

twblalock• 4 years ago

You can turn $3 into $0 very quickly.

vishnugupta2• 4 years ago

What can I do with FTT?

Sell it to someone else.

nisegami• 4 years ago

Find some other sucker to hold the bag.

stusmall• 4 years ago

The crypto community is wild. Literally in a thread about how the wheels are coming off the cart, the project frozen withdraws and possibly mishandled user funds there is the question "Should I buy in?" Also I love that the question of "What value does this provide?" comes after the question about buying it. At least the question came at all.

dibt6• 4 years ago

No, you should not. It's an exchange token. It's meant to be used as collateral for your trading, instead of USD, BTC, etc. It incentivizes this by giving you reduced exchange fees based on how much FTT you own.

NotYourLawyer• 4 years ago

Subsidize the accounts that have lost everything, I guess.

ajkjk2• 4 years ago

I still don't get who is actually trading crypto on these exchanges. I have trouble believing it is not 99% wash trades.

bombcar• 4 years ago

That low?

polygamous_bat2• 4 years ago

The part that is not wash trading is what I would imagine "veteran" "crypto traders" just trading the same tokens back and forth looking for just one more hit.

TechBro8615• 4 years ago

The first time I ever even heard of SBF was when he testified at a Senate hearing as a "billionaire crypto exchange founder." I didn't think much of it, but it was a bit weird - I thought I was pretty familiar with the space and the people in it but apparently not.

jamesfmilne• 4 years ago

I was in the local Co-op supermarket in North London buying some bread & milk the other day. The staff in the shop were talking amongst themselves about how "they were into crypto". I doubt they were comparing their elliptic curve coefficients.

SBF, CZ and his ilk have taken money these people can ill afford to lose in this financial climate and spaffed it up the wall on sports stadiums and billboards of themselves all over the place.

BLKNSLVR2• 4 years ago

The fan-spread-shit hasn't splattered onto CZ yet.

Do Kwon, 3AC guys, Celsius guys, Voyager guys, yes. Binance / CZ no(t yet).

ajkjk2• 4 years ago

yeah but even if you're into crypto, you're not selling and buying stuff all day, trading between different coins. So what are all those transactions about?

acyou• 4 years ago

The name Sam Bankman-Fried came up quite a lot in Twitter v. Musk. I wonder if he ended up with a stake in the acquisition deal. If SBF was indeed a sizable backer of the Twitter buyout, this more than anything could take Twitter out at the knees.

seaal• 4 years ago

SBF passed on the Twitter deal[0]

CZ invested $500 million.

[0] https://mobile.twitter.com/sbf_ftx/status/158821335713146470...

moralestapia2• 4 years ago

Not a fan of Musk but a fan of truth.

Elon was the one who passed on them.

technotony• 4 years ago

Even if he did invest, why would that weaken Twitter at this point? The deal is done, SBF wouldn't be able to pull his money out of it if he wanted to.

emehex• 4 years ago

Naive question: % chance SBF goes to jail?

jefftk• 4 years ago

A prediction market on whether he's convicted of a felony in the next three years is at 47%: https://manifold.markets/mr22222222/sbf-convicted-of-a-felon...

rasz• 4 years ago

Good family with connections, good school, white, male, didnt directly scam anyone important.

rr8882• 4 years ago

To me its extraordinary that its just a few years old. Started in 2019, valued at $32 billion just a few years later. For an exchange?

eachro• 4 years ago

2019*

rr8882• 4 years ago

Thanks fixed. (I originally put 1999, I'm getting my bubbles crossed.)

codegeek• 4 years ago

Hence the Crypto bubble. Nothing should be valued at 32 billion in less than 3 years when all it produces is speculative stuff. Nothing screams more "get rich quick" than these things.

labrador• 4 years ago

I'm having a hard time understanding why organizations like the Ontario Teachers’ Pension Plan has money in uninsured crypto funds. Somebody has some explaining to do.

Sequoia Writes Off Entire $210MM FTX Investment; Here Are All The Other Funds That Are Losing Billions In FTX

https://www.zerohedge.com/markets/here-are-all-funds-are-abo...

Edit: 25 billion dollars up in smoke

Ontario Teachers’ Pension Plan faces a hit on investment in crypto trading platform FTX

https://archive.ph/V6Aw0

No mention of it on the website

https://www.otpp.com/en-ca/

wmf• 4 years ago

No good investments are insured and FTX isn't a fund.

diab0lic3• 4 years ago

Plenty of good investments are insured. There are whole classes of investment that simply would not be sane to do without insurance. Taking an example from every day life: People buy investment properties and most of the time they insure them.

mikeyouse2• 4 years ago

The Ontario Teachers Pension Plan invests in tons of things, it's like CALPERS. They're present on the cap table of nearly every company you've heard of because they have a hundreds of billions of assets and are chasing yield. They didn't have money on FTX, but had invested in FTX like they do with tons of other VC investments.

yborg• 4 years ago

Not particularly fond of Zero Hedge, but "Scam Bankrupt Fraud" is kind of catchy.

mewse-hn• 4 years ago

  He said the investment was part of Teachers’ strategy to learn about the crypto business and whether it gives the right balance of risks and returns. “I don’t think we have the answer to that question yet,” Mr. Taylor said.

Holy shit.. they were openly investing in something they don't understand??

snowwrestler2• 4 years ago

Nobody understands crypto from a financial perspective. That's why all the big crypto companies keep dying in new and interesting ways.

RC_ITR• 4 years ago

As others have said, those who understand crypto either chose to be conniving and make money off of the scam, or they avoid it.

Mr. Taylor wanted to test if he could be conniving enough to profit and he turned out not to be (very few will be in the long run).

iudqnolq2• 4 years ago

They have hundreds of billions, of which they set aside around 3% for risky bets. One of those risky bets failing isn't a big deal.

brycelarkin• 4 years ago

Investing a small amount in an industry to learn about it is pretty common with institutional investors.

iudqnolq2• 4 years ago

OTPP is surprisingly big and very successful overall. And they invested at a $25B valuation, which is very different from investing $25B

Teachers first bought its FTX stake in October, 2021, as part of a US$420-million funding round. It was one of 69 investors, but FTX listed it first in its announcement of the financing. Teachers has never disclosed exactly how much it invested.
The pension plan housed the investment ... a portion of the portfolio dedicated to high-growth, yet high-risk, investments. As of June 30, the $8.2-billion portfolio represented just 3 per cent of Teachers’ $242.5-billion in assets.

Teachers ... reported a 1.2-per-cent return for the six months ended June 30. By way of comparison, Royal Bank of Canada’s RBC I&TS All Plan Universe saw defined benefit pension plan assets ... shrink 14.7 per cent over that period.

moistly• 4 years ago

Because it's a tiny, infinitesimal part of their porfolio, a fraction of a percent, but one that has a many orders-of-magnitude potential gain.

When dealing with as much money as the OTPP has, you have to form a very broad risk profile: for every super-secure, government-guaranteed dollar, spend a fraction of a penny on a super-risky but absolutely humongous payoff.

raverbashing2• 4 years ago

How did it happen? Sequoia invested on a personality cult who thought he was too important to stop playing games while in an investor meeting https://twitter.com/firstadopter/status/1590453539813621761

zeroclip5• 4 years ago

Very informative and clearly written, kudos to Molly!

The irony is that DeFi and blockchain protocols fixes this.

brk2• 4 years ago

Blockchain may fix it, but couldn't we also argue that blockchain created these problems in the first place?

I will fully admit I have only casually followed the whole blockchain/crypto scheme, so maybe I'm wildly off on something, and would definitely appreciate informed responses.

Without blockchain, there is no "crypto", without crypto, there are no exchanges and related coins, and without those, none of this happens or exists.

How would blockchain be used to fix this?

dibt6• 4 years ago

How would blockchain be used to fix this?

All of the things that are being reported on this situation would not have been possible on a DEX.

Decentralized exchanges (DEX) exist on-chain. They incorporate automatic market making (AMM), not a third-party market maker with an association to the exchange. The DEX does not have custody of user funds, and it would be impossible to hide a multi-billion dollar hole in an exchange's balance sheet.

zeroclip5• 4 years ago

The birth of the stock market also created new avenues for fraud that did not exist prior. This is a new asset class, poorly understood and poorly regulated, and still ripe for abuse.

DeFi would solve some of these problems by shifting the counterparty risk from a man named Sam to an immutable protocol that we can all audit and verify. Look at aave, compound, Uniswap.

polygamous_bat2• 4 years ago

Unfortunately, it does not. Likes of FTX and Binance was created in the first place because on chain transaction is slow and expensive, and people don't like slow and expensive. Just because FTX blew up doesn't mean DeFi is at a better place than it was in the past.

"DeFi fixes this" is like saying "moving back to horse drawn carriages will solve drunk driving fatalities!" Maybe, but no one wants to deal with horse shit.

zeroclip5• 4 years ago

The lack of transparency in financial services - banks - was the whole reason Satoshi created Bitcoin. The people who choose to use FTX over a blockchain are either ignorant, not understanding their coins are insecure, or willing to take on additional risk to save a few dollars and trade a little faster. They are probably regretting it now that FTX is blowing up.

And speed and costs are already a solved problem - see L2 rollups.

vishnugupta2• 4 years ago

Sequoia did a profile on SBF/FTX less than 2 months ago [1], only to mark down their investment to 0 [2]

Some of the passage from that article reads so far removed from reality that I can't even know if it's coherent. Really wild stuff.

[1] https://www.sequoiacap.com/article/sam-bankman-fried-spotlig...

[2] https://twitter.com/sequoia/status/1590522718650499073

cma• 4 years ago

They seem to have replaced that page with a disclaimer about the failure. Here was the archived:

https://web.archive.org/web/20221027180943/https://www.sequo...

Something of the sort must happen eventually, as the current system, with its layers upon layers of intermediaries, is antiquated and prone to crashing—the global financial crisis of 2008 was just the latest in a long line of failures that occurred because banks didn’t actually know what was on their balance sheets. Crypto is money that can audit itself, no accountant or bookkeeper needed, and thus a financial system with the blockchain built in can, in theory, cut out most of the financial middlemen, to the advantage of all. Of course, that’s the pitch of every crypto company out there. The FTX competitive advantage? Ethical behavior. SBF is a Peter Singer–inspired utilitarian in a sea of Robert Nozick–inspired libertarians. He’s an ethical maximalist in an industry that’s overwhelmingly populated with ethical minimalists. I’m a Nozick man myself, but I know who I’d rather trust my money with: SBF, hands-down. And if he does end up saving the world as a side effect of being my banker, all the better.

oof

low_tech_love• 4 years ago

Matt Levine's talk with SBF is definitely the most bizarrely depressing (or funny, depending on your mood) thing you'll read today. Hell, this week? https://www.bloomberg.com/news/articles/2022-04-25/sam-bankm...

molsongolden• 4 years ago

This is a great quick read and it's interesting because it's an abstraction of many other markets (not just DeFi).

Reminds me of Damodaran's[0] focus on price vs. value when evaluating equities:

I have long drawn a distinction between price and value, two terms that get used interchangeably in both academia and practice, but with very different drivers and implications. As we watch stock indices around the world gain and lose trillions each day, it is worth remembering that markets are pricing mechanisms, not value mechanisms, or as Ben Graham would put it, they are voting machines, not weighting machines, at least in the short term.

[0](Well-respected finance/valuation professor at NYU for anyone not familiar) https://pages.stern.nyu.edu/~adamodar/

adamsmith143• 4 years ago

The same story as always, SBF thought he was smarter than everyone else but like everyone in 07-08' he misjudged his risk exposure and it turns out when the market stops going up the music stops.

woeirua• 4 years ago

SBF just made a tweet thread where he tried to apologize, while also distancing himself from FTX.US. Just more lies. Why anyone would believe him is beyond me. My guess, is he's desperately trying to avoid a run on FTX.US to keep the SEC from coming in like a bull in a china shop.

I feel bad for him, he's either going to jail for a very long time, or he'll have an "accident" after losing so many people so much money.

coolspot• 4 years ago

Don’t hold your breath.

Newman, Karpelès and others are alive and free.

nullc2• 4 years ago

"Users' margin" is now apparently code for "how fictional are the assets we're selling users". Could we say that "We don't invest client assets (even in Treasuries)" was technically true on the basis that there weren't any assets to invest? :P

I guess "internal labeling of bank-related accounts" is one of those "dumb" activities that they were counting on amphetamines to take care of for them: https://twitter.com/carolinecapital/status/13790363463003054...

EGreg• 4 years ago

What happened was Binance squeezed a competitor, by dumping their token. Then announced stuff on Twitter that made people suddenly withdraw $6B out of it.

This is an unregualated market — but even if it was regulated, what would the regular do after the fact to make it right for everyone inside an exchange or crypto that went to zero?

leganthropane• 4 years ago

Regulated fractional reserve banks are usually insured by the regulators.

If the bank goes bust, the government covers the customers' losses up to a predetermined amount (FDIC covers $250k per account in the US).

This helps to prevent bank runs, because people know that they'll get their money even if the bank collapses.

mrguyorama2• 4 years ago

I'm so tired of people who are lauded as geniuses because their lottery ticket bet paid off. Why are people so convinced that being rich means you're smart?

bergenty2• 4 years ago

Because getting rich is one of the hardest things to do in society. It’s getting power + stability in one fell swoop and is everything humans are biologically built to value.

codyb3• 4 years ago

Well... not really right? Cause lots of people are rich through inheriance. And lots through the lottery.

SBY appears to have gotten very rich through a simple arbitrage trade. Props to him for exploring the space and making the moves... but it doesn't take a genius to see that if you can buy something for cheap in one place and sell it in another for more that you can make a bunch of money if you do it over and over.

0x500x79• 4 years ago

I love the veritasium video on luck. I highly recommend anyone who is interested in this concept watch it.

kibwen• 4 years ago

The just-world hypothesis/fallacy: https://en.m.wikipedia.org/wiki/Just-world_hypothesis

pcthrowaway2• 4 years ago

Why does fucking up mean you're not smart? You have to be smart by some metric to get a job at Jane street.

Lots of smart people fuck up in finance, and "dumb" people even strike gold sometimes.

tracerbulletx• 4 years ago

In these discussions there usually isn't a consistent definition of what being smart means to everyone. People with high IQs, academic success, and even strong histories of successfully applying their intelligence can make one off major mistakes, and also engage in long term systematic error patterns.

hcks• 4 years ago

This comment came a few times but it really doesn’t make sense to me.

How many people actively try to become billionaires like he did in a systematic way?

And contrary to many entrepreneurs, I don’t see where he got especially lucky.

jjmorrison• 4 years ago

Can someone explain to me why they can't solve this by moving the money back from Alameda to FTX? Assuming Alameda is not that bad at investing money, most of the loan should still be there no?

mjaques• 4 years ago

This is exactly what I was wondering.

It's possible (likely) that Alameda has invested that money in iliquid assets or assets that have since lost value. Also, since the loans of FTX to Alameda were backed by FTT, which has since collapsed, even if FTX makes a margin call, the collateral has a fraction of the original value.

benjaminwootton• 4 years ago

The noise is that they used it for the summer bailouts. I suspect a lot of this $8 billion will turn out to be illiquidity rather than vanished into the ether.

AmericanOP• 4 years ago

Sounds like a guy with ADHD built two banks doing bad things made illegal in the early 1900s

jbverschoor• 4 years ago

He got busted with his hand in the cookiejar, that's what happened

proamdev1232• 4 years ago

Cghfhguyyrret rfxz z z yuyhtty

cheapliquor• 4 years ago

yeah

The Sam Bankman-Fried empire crumbled. What happened?

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