FTX held less than $1B in liquid assets against $9B in liabilities

https://www.ft.com/content/f05fe9f8-ca0a-48d5-8ef2-7a4d813af558

by VagueMag • 4 years ago

113 179 4 years ago

ft.com

irsagent• 4 years ago

https://archive.ph/hfvzw

eis• 4 years ago

https://archive.ph/hfvzw

guardiangod• 4 years ago

Is this normal? I would assume that no bank has 100% liquid assets against liabilities (same as stuffing all your money under your mattress.) So what is the "right" ratio for an exchange? Close to 100% since you are not supposed to invest an exchange's money?

ottumm• 4 years ago

Matt Levine has an excellent overview of the liquidity / solvency question: https://www.bloomberg.com/opinion/articles/2022-11-10/ftx-is...

greenyoda3• 4 years ago

Archived copy of Levine's article, with full text: https://archive.ph/q4Z1L

conorcleary2• 4 years ago

I think with cryptocurrencies we need to consider the sheer speed at which mass transactions can occur, and 24/7 to boot.

salawat2• 4 years ago

Technically, the problem you're restricting to cryptocurrencies is actually something finance as a whole just deal with.

Everyone could withdraw all their money at the same time. What happens then? The answer is bank run. There will literally not be enough cash to do it. The entire system is running on the fact that everyone has not done that yet.

Personally, I want to have it happen, just to force the system to come to terms with the fact that it isn't all just about numbers, and so that people can actually materially witness the sheer magnitude of monetary centralization created by our system.

Fuck the inconvenience. If Mammon is going to fucking rule, let everyone see it's rictus. Let everyone take in what it looks like.

VagueMag3• 4 years ago

Yes, exactly. The liabilities number includes all on-exchange customer deposits and funds, which it should be theoretically possible to redeem in full at any time.

nonstopdev• 4 years ago

Fractional reserves exist in finance and are held in various assets that can be hedged and also redeemed. Based on the liabilities that FTX revealed like funding Alameda for their investments in un-hegable bets like “Donald Trump losing” is not normal where they could never get those funds back if there was a bank run.

VagueMag3• 4 years ago

Setting aside arguments about whether it actually fixes the moral hazard issues with fractional reserve banking, banks also have FDIC deposit insurance and there is an understanding of the possibility of loss of funds which exceed the insurance limit.

mrkramer• 4 years ago

Is this normal? I would assume that no bank has 100% liquid assets against liabilities

Banks are required by law to have regulatory capital[1] and reserves[2] in order to stay liquid and solvent.

Longer explanation: "The reserves only provide liquidity to cover withdrawals within the normal pattern. Banks and the central bank expect that in normal circumstances only a proportion of deposits will be withdrawn at the same time, and that the reserves will be sufficient to meet the demand for cash. However, banks routinely find themselves in a shortfall situation or may experience an unexpected bank run, when depositors wish to withdraw more funds than the reserves held by the bank. In that event, the bank experiencing the liquidity shortfall may routinely borrow short-term funds in the interbank lending market from banks with a surplus. In exceptional situations, the central bank may provide funds to cover the short-term shortfall as lender of last resort. When the bank liquidity problem exceeds the central bank’s lender of last resort resources, as happened during the global financial crisis of 2007-2008, the government may try to restore confidence in the banking system, for example, by providing government guarantees[2]."

If commercial bank is in trouble other commercial banks will try to help but if they can not help, central bank will try to help and if that is not possible government will step in.

All in all, banking industry is tightly regulated and somewhat safe especially after 2007 fiasco.

In the case of FTX, Binance said they would step in but they gave up. If FTX is profitable they can gradually loan money from private sector(banks, investment funds etc.) then start to repay their liabilities and eventually return loans.

[1] https://en.wikipedia.org/wiki/Capital_requirement

[2] https://en.wikipedia.org/wiki/Reserve_requirement

stephc_int134• 4 years ago

It was all for charity. People are mean.

https://twitter.com/The_Prologuist/status/158967849854920704...

AmericanOP• 4 years ago

Look, I’m a savvy investor who builds marketing teams and would never fall for this, but I think other people will, so I’m going to invest.

stephc_int134• 4 years ago

The greater fool game is probably fun, but I am too dumb to play it.

bananapub3• 4 years ago

this is essentially why cryptoscams get VC money - sufficient clout and "reputation" amongst nerds is enough to make the scam work and let you get out before it's game over.

oliwary• 4 years ago

We should have trusted Larry David on FTX...

https://youtu.be/noekVG8XLQI?t=45

stephc_int134• 4 years ago

This is smart.

orangepurple• 4 years ago

Is this satire? I can't tell.

stephc_int134• 4 years ago

It is not.

Well, it depends on how you look at it.

Define satire?

ilikehurdles• 4 years ago

He earned $1b and gave away $9b. It’s not leverage, it’s philanthropy.

wwarner• 4 years ago

I think the consequentialist underpinnings of EA are part of the story. Consequentialism revisits our ideas of right and wrong by looking at outcomes. Any reasonable person can look at a law and conclude that there might be a reason to break it under certain circumstances. Certainly, one might argue, financial regulations are arbitrary and that the only way to succeed in your larger goal is to break the rules. EA specializes in this type of reframing, especially when the imagined benefits hugely outweigh the immediate costs, and in this case it's easy to see how self-serving it can be.

googlryas• 4 years ago

Agreed. There's also the question of the stopping point - or how do you balance earning vs giving. Some day SBF is still worth $900M. Is he giving that away? Probably not, because he thinks it's easier to make a ton of money with a half ton of money. So he'll hoard his money in the hopes of making more money, but from the perspective of the starving person, his behavior is the same as a greedy billionaire who keeps their money for their own personal use.

For all his talk of altruism, what has he actually done so far? Compared with, say, Mackenzie Scott, who is actually putting her money where her mouth is?

From what little I could find, perhaps he has written $160M worth of grants, and it is questionable if those will even be paid out, or who they went to, or over what time period. So that is 0.6% of his wealth at peak.

For reference, people who make less than $30-50k/yr(who generally have a negligible net worth and are sustained by their income) donate on average 5%[0] of their income to charity each year. An average Joe or Jane appears to be literally 10x more altruistic than SBF from what I can find.

[0]https://www.definefinancial.com/blog/charitable-giving-stati...

nullc2• 4 years ago

think the consequentialist underpinnings of EA are part of the story

I've thought before that EA is charity for sociopaths. Nothing recently has shaken that view. There are plenty of EA quotes that support the 're-framing' point you make, stuff ling Singer saying "take advantage of strategies other people are biased against using".

Fortunately, with FTX collapsed there is a little less risk that someone will actually fund them to move forward with the idea of genociding all the wild animals on earth (on the basis of it being the most efficient way to reduce total suffering because wild animals are suffering). So, I guess that's a little silver lining on the FTX implosion.

mertd• 4 years ago

In all, the spreadsheet says FTX Trading’s assets were $900mn of “liquid” assets, $5.5bn of “less liquid” assets consisting of crypto tokens

Aren't tokens supposed to be "liquid" or is this a different way of saying the tokens are worthless?

michaelbuckbee• 4 years ago

My understanding is that a lot of their assets were in their own cryptocoin that they borrowed against like:

1. Make million new coins called $mikecoin

2. Sell 1 $mikecoin to a friend for 1 USD

3. Claim that the "Total Market Cap" for $mikecoin is 1 million USD

4. Borrow Bitcoin or dollars against your $mikecoin reserve.

Geee• 4 years ago

This seems to be the trick. I think this same thing also explains the high market cap of many altcoins, such as Solana. Instead of selling and crashing the price, these are held onto and used as a collateral to borrow against.

rbultje• 4 years ago

Liquid doesn't just mean "can trade out of it at any time", but also "would typically be willing to trade out of it at any time". If a market is in a downswing, you're typically told to hold on to your stocks: buy low, sell high. The same rule would apply here. But that does mean they're not guaranteed to be liquid ("willing to trade") at all times, given that there's a risk of loss if you are forced to trade out of it at times of a market-low.

partloyaldemon2• 4 years ago

Not worthless! Just, you know, worthless right now.

SkipperCat• 4 years ago

Tokens are very liquid, until they are not. And sadly with both FTT, Luna and so many others, that transition seems to happen instantly and without any warning.

Well, I guess the warning would be that someone created something from nothing and said it was worth a few Billion dollars, but other than that, it's a surprise event to everyone - just ask Sequoia Capital and Forbes.

perfecthjrjth• 4 years ago

tokens are as liquid as worthless currency of many dying countries out there. Who are the takers for these tokens? For instance, the whole world loves to swap their real assets (commodities, etc) with US dollars. How many want to part with their US dollars for these tokens? Hardly any. So, worthless.

aeternum3• 4 years ago

"Currently, all U.S. banks are subject to a balance sheet leverage ratio, which requires them to maintain a ratio of tier 1 capital to balance sheet assets at a minimum level of 4%. In order to be well-capitalized, banks must achieve a 5% minimum leverage ratio"

So FTX had an 11% leverage ratio, pretty good.

VagueMag3• 4 years ago

FTX was not an FDIC-insured bank with the ability to borrow funds at the Fed discount window, and it did not tell its customers it would be lending out their funds.

puchatek• 4 years ago

The last sentence is crucial and probably what will get SBF in trouble.

aeternum3• 4 years ago

Yeah this is a key point, and not only did they not tell customers, their TOS was quite explicit about not loaning customer funds:

"You control the Digital Assets held in your Account," says Section 8.2 of the terms. "Title to your Digital Assets shall at all times remain with you and shall not transfer to FTX Trading."

The terms continue: "None of the Digital Assets in your Account are the property of, or shall or may be loaned to, FTX Trading; FTX Trading does not represent or treat Digital Assets in User’s Accounts as belonging to FTX Trading."

ttul3• 4 years ago

Ahh, but FTX is not supposed to be a bank.

tyre• 4 years ago

You must consider what the banks are lending with that ratio. It’s mostly mortgages, which are far less risky than what FTX was doing.

bitxbitxbitcoin• 4 years ago

Hard to quantify far less but a few orders of magnitude probably isn’t too “far off.”

csa• 4 years ago

So FTX had an 11% leverage ratio, pretty good.

A better comparison would be a stock brokerage that took your money to buy specific stocks on your behalf but then did something totally different, including “investing” in illiquid assets.

If they had just bought the stock you requested, then they could just liquidate your stock at market price when you said you want to sell.

This was not the situation that FTX was/is in.

Instead, the way FTX allocated money/assets was suspicious (at best) if not flat out irresponsible and deceptive.

Also, FTX was not and is not a bank, and the idea that this is levering in the same way regulated banks lever is laughable.

drexlspivey• 4 years ago

Stock brokerages also offer margin accounts. You send them $5k and you buy stock worth $20k. How do you suppose this happens?

bananapub3• 4 years ago

???

banks hold real life assets, that can be resold, like mortgages or loans to credit-worthy people.

they also have access to central banks, and other big banks who might recapitalise them if they have bad luck.

FTX had a bundle of funbacks, which it had also printed, and are of no intrinsic worth.

of course the liquidity and reserve requirements are different.

JonathanBeuys24• 4 years ago

There should be more discussion about how to store value without counterparty risk.

Most people think it is as easy as ordering a hardware wallet, following the process the wallet software suggests and - hurray! - your keys, your coins!

But it is not that easy. You also have to cut the wallet manufacturer and the software developer out of the loop.

I have yet to see a description on how to safely create a wallet that really does away with counterparty risk.

The way I understand Bitcoins signatures, there could be a way. But it would involve to somehow put your secret key into multiple air gapped, RFC-6979 compliant hardware wallets. And then create addresses and sign transactions with those hardware wallets without ever connecting them to a computer. And compare the addresses and signatures between these wallets to make sure they match. Because otherwise, the wallets could taint the output in a way that signals data back to the manufacturer.

I don't even know if there are fully operational air gapped hardware wallets on the market.

danielvf• 4 years ago

Ethereum multi-sig wallets do the trust side fantastically side very well.

In addition you get ways to handle lost keys, ownership changes, and the ability to require multiple people to sign off on any action.

JonathanBeuys24• 4 years ago

What is an "Ethereum multi-sig wallet"? Is that a piece of hardware? Multiple pieces of hardware? A piece of software?

zen214• 4 years ago

https://www.crowdsupply.com/sutajio-kosagi/precursor

This aims to address these issues. Verifiable hardware and open source OS and wallet.

JonathanBeuys24• 4 years ago

There is no way a user can verify hardware and software.

The only solution is to use multiple air gapped wallets from different manufacturers which use a deterministic algorithm for signatures.

smeej13• 4 years ago

Multisig, with hardware from different companies, no one of which could constitute a quorum of your keys.

If you have even just a 2-of-3 keyset with one Ledger, one Trezor, and a Coldcard, none of those companies can screw you by itself.

If you go up to 3-of-5, it's even more robust.

You can set it up yourself using FOSS like Electrum.

Or you can hire somebody like Casa[0] to get it all set up and set up the infrastructure to verify Casa App is doing exactly what it says it's doing.

[0] https://keys.casa

ETA: There are lots of airgapped wallets. Coldcard, Keystone, and Passport all work airgapped.

JonathanBeuys24• 4 years ago

How do you create the Multisig?

encryptluks2• 4 years ago

The issue with hardware wallets that make them significantly risky is if you are storing wallets that contain any substantial amount of assets then it as risky as storing large sums of money in your house. If you lose that, it gets corrupted or destroyed then you've just lost those assets.

There are pros and cons vs having a password-protected file that you can at least backup to whatever devices you decide.

partloyaldemon2• 4 years ago

I'd recommend a PNC checking account. Solves a lot of issues related to storing value without counterparty risk.

arcticbull2• 4 years ago

Ally is a great option, and Schwab too. Both are neobanks that have very limited fees. Schwab even rebates all ATM fees globally and has three free wire transfers per quarter. [1]

And uh, both are FDIC members.

[1] https://www.nerdwallet.com/reviews/banking/charles-schwab-ba...

brianvli3• 4 years ago

What if you’re not a US citizen?

salawat2• 4 years ago

But it is not that easy. You also have to cut the wallet manufacturer and the software developer out of the loop.

Better get computer literate, and better yet, cryptographically savvy. Oh, but wait, all those microprocessors have closed blob firmware, closed source designs, and you have no idea what type of higher level industry collusion (be it with regulators you disagree with, or just within themselves to ensure they maintain a niche) they have going on.

Guess you'll have to bootstrap your own hardware/firmware/software stack, and maintain it yourself.

...No, there is no /s. I'm dead serious. That's what you're proposing shakes out like.

Look, it ain't an unfamiliar sight to me. I've also seen it exploited in the other direction (industry doing everything they can to maintain their relevance to the detriment of everyone else) too many times.

What I guess I'm trying to say is: no one (in power, or to an extent abstractly) actually wants to empower people to be able to financially self-service.

3233• 4 years ago

It's about 200 lines of Python code to implement a Bitcoin HD (Hierarchical Deterministic) wallet using just the standard library and old-style addresses.

This will give you a 256-bit integer as the private key. You can process this further with whatever additional method you want (Shamir Secret Sharing, ...).

Obviously not for everybody, but the underlying cryptography is pretty simple.

lottin• 4 years ago

This method doesn't eliminate counter-party risk does it? You'd need to use open-source hardware, write your own C compiler in assembler, then write a Python interpreter, along with the standard library and cryptographic functions, and finally the actual wallet, while making sure your code isn't compromised during the entire process. I forgot the OS, which also needs to be written from scratch.

Majromax• 4 years ago

There should be more discussion about how to store value without counterparty risk.
Most people think it is as easy as ordering a hardware wallet, following the process the wallet software suggests and - hurray! - your keys, your coins!

What exactly is the threat model here?

To my knowledge, there's been no general compromise of truly air-gapped hardware that could only exfiltrate data by a back channel in an otherwise valid cryptographic transaction. This scenario seems to therefore imagine a targeted attack.

However, if you're storing enough value to be the subject of a targeted attack, then it would also be unwise to have the assets so concentrated in cryptocurrencies. Diversification reduces overall risk.

With cryptocurrencies as just one asset among many, the "storage" answer becomes obvious: use a law firm or financial institution that holds enough liability insurance to cover any losses arising from bad storage practices. Use the legal system, rather than evade it.

JonathanBeuys24• 4 years ago

Not targeted. The typical way of handling bitcoin is flawed in multiple ways.

Lets look at the simplest way a hardware manufacturer could get your private key: They make the hardware wallet create the private key in a way the manufacturer can guess.

But there are more elaborate ones. For another one, take a look at this discussion:

https://news.ycombinator.com/item?id=32181462

schlauerfox• 4 years ago

Actually secure uses for distributed decentralized databases (cryptocurrencies) like the world bank climate warehouse are going to use proper self custody solutions that aren't 'keep this paper safe' with clawback technologies and peer to peer (escrowless) methods of transfer. This one is being built by BitTorrent creator Bram Cohen. It's me shilling but I feel I'm a supporter for a technology reason, it's not been affected by the latest madness because it's business focused tech that works. https://www.chia.net/2022/10/29/a-new-home-for-the-prefarm/

bananapub3• 4 years ago

what?

as always, the biggest risk to your cryptocurrency at an exchange is ... the exchange actively or passively stealing all your money. this has been the case for the entire history of cryptocurrency exchanges.

grey-area3• 4 years ago

You’re ignoring the largest risk - that your coins become valueless because nobody wants them. This is entirely beyond your control.

JonathanBeuys24• 4 years ago

That's not counterparty risk.

wongarsu• 4 years ago

Any guide on how to do that would expose you to counterparty risk from the guide maker, so I'm afraid you have to figure it out on your own.

But code for making paper wallets is easy enough to validate or write on your own. Just bring your own air gapped computer, bought from a random supplier at least 20 miles away from your home.

idlewords• 4 years ago

Isn't an index card a fully operational air-gapped hardware wallet?

jmcqk6• 4 years ago

There should be more discussion about how to store value without counterparty risk.

Due to the social nature of money, this is impossible.

rasz2• 4 years ago

There should be more discussion about how to store value

What value? All crypto is people trading checksum numbers.

jasmer• 4 years ago

You cannot 'store value' without some counterparty risk because ultimately the value you store, has to be 'valuable' to some other person, likely many of them.

Money/Credit is a social construct; not objectively separate from the system in which it's 'useful'.

If you really want to - you can store Gold in safe. How hard is that? It's relatively easy. A bit annoying, but plausible.

Of course, you have to be sure that others will value Gold in the future. There's no formal 'counterparty' in the specific sense you're alluding to (if the gold is under your bed) but the inherent value of the stored good depends on a 'counterparty'.

You can buy Real Estate, a bit of a pain and dependent on a bunch of laws, but that's an option.

Or any other thing.

All of it ultimately depends on 'counter party' and 'contextual' issues.

I think that this is a serious problem among the 'Self Sovereign' thinking - in pragmatic reality - there is no such thing. At least not in the sense of things like 'currency' or even 'stores of value' to be deployed commercially.

(You can 'store' things like fuel for your own future consumption, but that's a different story)

landemva• 4 years ago

Most people think it is as easy as ordering a hardware wallet ...

I also don't understand why some folks are so attracted to a custom hardware device. It's straight-forward to grab Bitcoin software from Github, put it on an air-gapped laptop via USB stick, run it and generate a new pubkey, write down recovery info and bury in backyard, send btc to that pubkey, and done.

https://github.com/bitcoin

JonathanBeuys24• 4 years ago

The pubkey is only secure if the software you downloaded from GitHub, all its dependencies, GitHub itself and all its dependencies, your Browser and all its dependencies and your OS and all its dependencies were neither faulty or malicious at the time you created it.

Otherwise the pubkey might have been created in a way that makes it easy to guess for someone in your supply chain.

smeej13• 4 years ago

Kraken's proof-of-reserves audits are looking more and more attractive and important these days!

https://blog.kraken.com/post/15002/kraken-proof-of-reserves-...

Gwypaas2• 4 years ago

Reserves means nothing without also knowing the liabilities. Without that it is simply more smoke and mirrors.

smeej13• 4 years ago

First, it is absolutely better to hold your own keys.

That said, I don't think it's fair to say "nothing" in a situation where holding the keys means having control of the coins.

FTX's problem wasn't that they had liabilities. It was that they didn't have cryptographic custody of the assets they claimed to have. They don't have the ability to make a case in court that the funds they held belong to customers and, thus, should not be considered assets that could be given to their creditors, because they don't have the assets at all.

Kraken not only can prove that they have all the customer funds in the audited currencies, but also which account they belong to.

If individual accountholders can prove Kraken holds not just "all customer coins" but "my specific account's coins," Kraken can also make that case in court.

Whether it holds up is obviously not guaranteed, but that's not "nothing" compared to FTX's situation.

hi5eyes• 4 years ago

while kraken is one of the more reputable cex, at least from what ogs say, not your keys not your coins

the point of crypto is the ability to self custody without intermediary and verify funds are sound on-chain

non-custodial defi solves many of these issues

smeej13• 4 years ago

Noncustodial defi will solve this, but defi contracts have so far often been light on auditing and heavy on compromise risk.

I look forward to the day defi fixes this, but right now, and especially with the difficulty of fiat on-ramps to defi, I think the balance comes down in favor of trading on a reliable CEX and never holding funds on an exchange that you aren't actively trading.

mind-blight• 4 years ago

10% liquid doesn't necessarily concern me when considering a bank. But, they have many more routes to liquidity than FTX (Liam from the fed, loans from other banks, etc.). And even still, 10% isn't legal for a bank if their liquid assets are too volatile.

450 mil was in SBFs Robinhood investment, and FTX clearly didn't have any other avenues towards liquidity. 10% without an out was a predictably bad idea

sillysaurusx2• 4 years ago

FTX isn’t a bank. They aren’t supposed to operate as a fractional reserve. Coinbase would be crucified by the SEC if they did this.

SXX• 4 years ago

FTX US wasn't doing it either. They did it outside of SEC jurisdiction.

JamesianP• 4 years ago

Seems like they were offering leverage, which plenty financial businesses besides banks do (such as brokers) and has the same effect.

3233• 4 years ago

and a negative $8bn entry described as “hidden, poorly internally labled ‘fiat@’ account”.
Bankman-Fried told the Financial Times the $8bn related to funds “accidentally” extended to his trading firm, Alameda, but declined to comment further.

Oh look, $8bn just appeared on the balance sheet. Where did they come from? Doesn't matter, surely they are legit. I mean, I have so many billions, $8bn is pocket change. Lets use the $8bn for trading immediately.

Animats• 4 years ago

So now we see some numbers.

Notes:

Bankman-Fried personally seems to own, indirectly, about $472M (paid over $600M, so that was a loss) worth of Robinhood Financial.[1]

Other documents provided to investors say that FTX US, Bankman-Fried’s onshore exchange, held $115mn of cash. Of that sum, $48mn was listed as corresponding to customer US dollar balances of $60mn.

So there might be enough cash to pay off customer cash balances. Those belong to the customer, not FTX, and were supposed to be in a separate account.

Here's the bankruptcy filing.[2] Case #22-11066.

Money appears to be flowing out of FTX to "privileged accounts" and anonymous wallets.[3]

This is now well past simple speculating with customer funds and into major criminal enterprise territory.

Creditor litigation is being started up.[4] Of course.

[1] https://archive.ph/o/hfvzw/https://www.sec.gov/Archives/edga...

[2] https://pacer-documents.s3.amazonaws.com/33/188448/042120640...

[3] https://btc-pulse.com/2022/11/12/ftx-withdrawals-resume-but-...

[4] https://scott-scott.com/sec-investigation/ftx-trading-ltd/

pigtailgirl• 4 years ago

-- a 30 year old personally has $600MM to invest in a single company? - his startup was founded in 2019 - that was crazy comp structure he had? - he comes from money? - or..? --

ilrwbwrkhv2• 4 years ago

It's all fugazie. Just ask andreessen horowitz.

fullsend2• 4 years ago

Already the world of founders, funding, and venture capital is full of incestuous relationships and shady dealings. I can’t imagine what happens when you combine that kind of capital with the utter shamelessness and obtuse financial engineering of the cryptocurrency space.

nfcampos• 4 years ago

Even if I take the most charitable view, ie. that everything they did was above board etc, there’s still a lesson here about diversification -

a startup (ie. a private company which represents the majority of the founders assets) is already a massively concentrated, ie. not diversified, financial position -

no need to compound it by making a myriad bets (through Alameda or otherwise) in in other tokens/companies in the same market, which are ultimately incredibly correlated assets.

If there was no fraud, that will ultimately be the explanation for their downfall.

guywithahat• 4 years ago

Non-paywall link to zero hedge (which seems to be the same info) https://www.zerohedge.com/markets/ftx-held-just-900mm-liquid...

oldstrangers• 4 years ago

8 months ago I commented "Anyone else oddly skeptical of FTX? They seemingly came out of no where with ungodly amounts of money, and began slapping their name on anything and everything."

Glad my BS detector works I guess.

FerociousTimes4• 4 years ago

Just one glance at the founder's pics online, makes all my gut alarms go off like crazy. Sometimes, I wonder how people got easily scammed like this by these people but I just chalk to them not being hyper aware of these subconscious clues or worse not acting on their gut reaction when it fires incessantly.

cbHXBY1D• 4 years ago

I told my dad over a year ago that FTX buying stadium naming rights for a bunch of sports leagues (including one of our hometown teams) was like if there had been an Enron Stadium in 2000.

greenyoda3• 4 years ago

if there had been an Enron Stadium in 2000

There actually was an Enron Field in Houston in 2000:

Minute Maid Park, previously named The Ballpark at Union Station, Enron Field, and Astros Field, is a retractable roof stadium in Downtown Houston, Texas, United States. It opened in 2000 as the home ballpark of Major League Baseball's Houston Astros.[1]

(It was named "Enron Field" from 2000 to 2002.)

[1] https://en.wikipedia.org/wiki/Minute_Maid_Park

celestialcheese2• 4 years ago

How the fuck did all these high-profile investors miss this.

NEA, IVP, Iconiq Capital, Third Point Ventures, Tiger Global, Altimeter Capital Management, Lux Capital, Mayfield, Insight Partners, Sequoia Capital, SoftBank, Lightspeed Venture Partners, Ribbit Capital, Temasek Holdings, BlackRock and Thoma Bravo.

These aren't schleps in this list. Blackrock, Sequoia, Tiger, Lightspeed, the fucking NEA. Jesus. Did no one do _any_ due diligence?? Did they just trust the auditor Armanino and Prager Metis (who??)[1]??

At least Enron had Arthur Andersen and some cover of respectability in the audit space at the time.

Irrational exuberance is really something.

1- https://www.coindesk.com/business/2022/11/11/meet-the-metave...

ourmandave• 4 years ago

Makes you wonder who else in the crypto space is lying through their freakin' teeth, don't it?

ttul3• 4 years ago

Any time a company tells you you can’t have a board seat… it’s time to run.

cyanydeez• 4 years ago

Unless it's code, all of them

ttul3• 4 years ago

My guess is that either FTX did not furnish them with accurate or truthful information, or the information was correct at the time, but the lack of good governance allowed FTX to pursue some rotten strategies without the knowledge of their investors.

It would not be the first time that otherwise smart people have made a bad call.

celestialcheese2• 4 years ago

The timing of the big investments back in Oct '21 for their Series B and Jan '22 for Series C makes your guess seem likely.

Seems like most of the actual fraud started after the 3AC/TerraLuna blowup as SBF trying to trade out of the hole he was in.

dottrap• 4 years ago

Yeah, we see this time and time again. All those Theranos investors didn't do any diligence because they saw other rich and powerful people throw money at them.

A friend who tried to raise funds from VCs for his start up tech company in SV, tried for multiple years. He was happy to disclose his financials because he had actual customers and revenue. But nobody cared for multiple years. Then one day, well known VC in those circles finally wrote them a check. The moment that happened, all the VCs were throwing money at him. They didn't care about the financials or doing their due diligence, they just did it because some other reputable guy did it. FOMO.

belter• 4 years ago

"It's A BIG Club & You Ain't In It!" - https://youtu.be/Nyvxt1svxso

dralley• 4 years ago

SoftBank

Well, it's not like they have a great track record with risk management.

smt88• 4 years ago

We all asked the same quesrions after Theranos. Silicon Valley VC is a relationship business run by idiots who just follow the leader. They admitted they didn't do much diligence into Theranos, and they obviously didn't do it here either.

FerociousTimes4• 4 years ago

Yeah you're right, FOMO and the bandwagon effect are at play here.

rasz2• 4 years ago

Jesus. Did no one do _any_ due diligence??

They did, saw mommy, daddy, family connections and went all in.

Edit: forgot about girlfriend "Gary Gensler's boss at MIT Glenn Ellison is the father of the Co-CEO Caroline Ellison"

teg4n_• 4 years ago

Why do due diligence when the CEO plays League of Legends during meetings and that is supposed to make him a super genius.

airza• 4 years ago

I feel like making money when you can borrow money at near zero interest rates is a pretty easy thing that more or less anyone can do.

memish• 4 years ago

Appeal to authority is a hell of a drug.

"I'm a big advocate for Sam because he has two parents that are compliance lawyers. If there's ever a place I can be where I'm not going to get in trouble, it's gonna be FTX" https://twitter.com/Guruleaks1/status/1591086077489844224

lotsofpulp• 4 years ago

Or maybe that guy was spouting nonsense because he was betting he can pawn off his ownership stake onto someone else for a gain.

ilrwbwrkhv2• 4 years ago

Because they are all dumb and dumbers. Having spoken to a lot of high profile vc firms you would be amazed how low IQ most of them are. They have this outward show which they cultivate while they spend old people's pension funds.

factsarelolz• 4 years ago

It's fun to gamble and light money on fire. Sometimes that gambling pays off and you get to light even more on fire. Retail traders will always gladly sweep up the ashes and hold on to them.

fullsend2• 4 years ago

The words of Andrew Lahde (who closed his hedge fund up 800% after betting against investment banks in 2008) continue to be not just insightful but downright educational.

"I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America."

The lesson is that just because you work for a16z, or Goldman Sachs, or McKinsey, doesn’t mean anything. In fact you’re probably more dumb than average because you’ve been trained to see things a certain way. Not only are they not our best and brightest, they are in fact the “low hanging fruit”.

greenyoda3• 4 years ago

The rest of Lahde's goodbye letter is also interesting, and can be found here in its entirety: https://web.archive.org/web/20081019183111/http://ftalphavil...

superkuh• 4 years ago

So... about the same as a typical bank reserve ratio, 10%. https://en.wikipedia.org/wiki/Reserve_requirement#Reserve_re...

gameshot911• 4 years ago

Except FTX wasn't a bank, it was an exchange.

epistasis2• 4 years ago

This was always a Ponzi scheme, and SBF was incredibly open about it being a Ponzi scheme, and yet people still tried to beat out the Ponzi scheme. Here's SBF back in April (just a small excerpt, the full section is far more damning):

SBF: So, you know, X tokens [are] being given out each day, all these like sophisticated firms are like, huh, that's interesting. Like if the total amount of money in the box is a hundred million dollars, then it's going to yield $16 million this year in X tokens being given out for it. That's a 16% return. That's pretty good. We'll put a little bit more in, right? And maybe that happens until there are $200 million dollars in the box. So, you know, sophisticated traders and/or people on Crypto Twitter, or other sort of similar parties, go and put $200 million in the box collectively and they start getting these X tokens for it.
And now all of a sudden everyone's like, wow, people just decide to put $200 million in the box. This is a pretty cool box, right? Like this is a valuable box as demonstrated by all the money that people have apparently decided should be in the box. And who are we to say that they're wrong about that? Like, you know, this is, I mean boxes can be great. Look, I love boxes as much as the next guy. And so what happens now? All of a sudden people are kind of recalibrating like, well, $20 million, that's it? Like that market cap for this box? And it's been like 48 hours and it already is $200 million, including from like sophisticated players in it. They're like, come on, that's too low. And they look at these ratios, TVL, total value locked in the box, you know, as a ratio to market cap of the box’s token.
...
Matt Levine: I think of myself as like a fairly cynical person. And that was so much more cynical than how I would've described farming. You're just like, well, I'm in the Ponzi business and it's pretty good.

https://www.bloomberg.com/news/articles/2022-04-25/sam-bankm...

shawabawa3• 4 years ago

Except in that comment he's talking about yield farming, and he's 100% right about a lot of what yield farming products did

However he runs an exchange, not one of these magic boxes, and he was never saying or claiming that that was what ftx was doing

epistasis2• 4 years ago

You are right, and I was wrong. I wish I could edit to put a big red flag at the top of my incorrect comment...

Bubble_Pop_22• 4 years ago

People are looking at this thing too closely. When taking the 30000ft wide view then something like this is not extraordinary , and there I say it, not even bad.

Fedex was famously down to their last 5,000$ dollars and were facing bankruptcy, and the founder quite literally went to Vegas to play blackjack and won 27,000$ to save the company.

Companies and entrepreneurs are supposed to take on risk, that's why bankruptcy laws and LLCs exists in the first place. To give entrepreneurs some peace of mind that if the risk doesn't pay off they only lose what they put in.

The world and the US was growing much faster in the 1970s and 1980s when these sort of things happened daily. Not all donuts come out with a hole.

If for every Ponzis we get a Standard Oil then it's worth it.

If for every Enron we get a Microsoft then it's worth it.

If for every FTX we get a Moderna then it's for sure worth it.

And maybe all those positive examples were just inches away from being touted as negative examples, quite like Fedex was.

j7ake• 4 years ago

I think these exposures and bad practices are fine as long as the ones who broke laws get served justice.

The worst is seeing white collar crime get let off easy while the man who steals from a bank goes to jail for long time.

FTX held less than $1B in liquid assets against $9B in liabilities

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