FTX balance sheet, revealed

https://www.ft.com/content/0c2a55b6-d34c-4685-8a8d-3c9628f1f185

by parenthesis • 4 years ago

238 298 4 years ago

ft.com

neonate• 4 years ago

https://archive.ph/OcWsC

TotoHorner2• 4 years ago

So... is this guy just a complete sociopath or something?

Telling everyone what regulations should be (and buying politicans) to ensure consumer protection while simultaneously sifting away 90% of consumer funds?

How does a person lie that much?

missedthecue• 4 years ago

Well it seemed to have worked. The scam kept going until the math stopped working, it wasn't regulators or investigative journalists that brought it down.

Advising congress and buying formula 1 ads and sponsoring stadium names gave his scheme a certain unearned legitimacy.

zarzavat• 4 years ago

The media is also culpable, because his face was always on it. I never used FTX, but I assumed that it was legit and regulated based upon his appearances on Bloomberg etc.

This seems to have been a case of XKCD 978, i.e. lazy journalists. https://xkcd.com/978/

AmericanOP4• 4 years ago

He ran the inverse Theranos playbook.

Instead of a supremely polished persona, he hard-committed to the sweaty geek.

Confidence, man.

Miserlou572• 4 years ago

I once played poker in a Reno poker room. It was structured betting, not all in madness like on TV. I was probably 21 and sitting down with a mixed group, but mostly old timers. I was not new to poker, but I occasionally got the allowed bets wrong. I did really well that night. It could have been luck but I like to think I gamed them with my behavior, by pretending to be stupid. Like in a Guy-Ritchie movie plot twist kind of way.

pigtailgirl3• 4 years ago

-- apparently he was jacked to the hilt on adderall 24/7 --

b0b10101• 4 years ago

it's still the theranos playbook, it's just a different image projected. and it still serves the same role - tapping into SV narratives and preconceptions to create an image that is super appealing to investors, the media and employees in order to spin up the hype flywheel, and excuse inconsistencies and misbehaviour. fundamentally both still took advantage of contrasting their traditionally inscrutable fields to contrast their highly visible images and paper over any skepticism.

either way the failing is the same - investors failed to preform adequate due diligence and lent their credibility to things they didn't fully understand because they were distracted by the charisma of the founder and were worried that they would miss potentially outsized gains. as long as large amounts of capital keep flowing to private markets (especially VCs) this will continue happening

astrange• 4 years ago

He just wants to impress his girlfriend, who seems to have turned herself into a monster by doing enough amphetamines to replace the contents of her brain with Slate Star Codex.

https://twitter.com/0xhonky/status/1591630071915483136

https://twitter.com/autismcapital/status/1591601671943393280

(From the first tweet, it doesn’t seem like anyone in the conversation has read https://en.wikipedia.org/wiki/Martingale_(probability_theory...)

paganel• 4 years ago

Hopefully out of all this debacle that rationalist community will be brought down a peg or two (including kumbaya pie in the sky stuff like Effective Altruism).

It was all funny when these people were portrayed in TV shows, not so funny when that mindset is behind billions of dollars of people's money getting defrauded.

collaborative3• 4 years ago

Was he managing funds with a 10% fractional banking policy?

TotoHorner2• 4 years ago

Nope. Was constantly telling users that funds were 100% backed.

collaborative3• 4 years ago

Backed by liquidity or by assets? I thought the article said that 90% of the funds were liabilities

stephen_g• 4 years ago

Bank deposits, of course, are >100% backed (by a mix of assets), the 10% reserve ratio is just specifying a minimum amount of one kind of asset (central bank reserves). Most countries don’t have the same kind of explicit reserve requirement and most have plenty stable banking systems.

oldgradstudent4• 4 years ago

Bank deposits, of course, are >100% backed (by a mix of assets),

The reserves are there to provide liquidity for people who want to withdraw their funds in normal times.

The assets are mostly loans. The lenders sometimes fail to repay the loan, and the collateral may not be worth as much as initially estimated.

The bank has capital requirements, so that if loans are not replayed, the bank shareholders take the hit.

If the capital is depleted beyond a certain point, the regulators (and the FDIC in the US) take over the bank, wipe out the shareholders, and install new management. Depositors are repayed up to the insured amount and if there are remaining funds they go to the insured depositors, creditors, and shareholders in that order.

That's of course how thing are supposed to be done. In reality, large connected banks are often bailed out.

celestialcheese4• 4 years ago

Incredible.

To call all those "Less Liquid" tokens not "Illiquid" is a mastery in self-delusion.

$2.1B SRM $981M SOL

and then all the shitcoins built on those "technologies" where the tokens are their "shares" in those investments.

But to call those tokens valuable assumes there's value in MAPS/OXY etc.

But MAPS has a total market cap of $3.9m today - the forced liquidations in these positions will 100% crush these coins. Even SOL and SRC. Hell - other than their Robinhood position and the fiat and fiat-tokens, there's almost nothing of real value once these liquidations happen.

My guess is less than $700m recoverable, so if you get an offer for >$0.10/dollar on your deposits from a vulture bankruptcy fund, I'd take it.

celestialcheese4• 4 years ago

Oh, and completely forgot about the "hack" https://twitter.com/SlowMist_Team/status/1591429649430519810

So even the less-shit coins SOL are just getting siphoned off.

I'd take $0.05/dollar now.

rippercushions2• 4 years ago

MtGox went bust in 2014, and it took them seven years of legal wrangling to come up with an acceptable valuation of the tokens. But MtGox was also based in a single country (Japan) and the vast majority of its funds were in a single crypto (BTC), whose value today remains far higher than it was back in 2014 ($300 or so), which is a big incentive for everybody to come to an agreement fast. FTX will be exponentially more complex on all counts: more jurisdictions, more tokens and almost certainly severely marked down valuations.

BTC

celestialcheese4• 4 years ago

Yup - i'm a party in the Mt. Gox and it's just an endless stream of weird japanese legalese. Didn't have much so never got approached for a buyout, but if offered I would have taken it.

fallingknife3• 4 years ago

SOL trades $100s of millions per day, which is actually extremely liquid in investment terms. "Less than liquid" is actually quite accurate for lesser known crypto. It's how assets like syndicated debt, that trade much less often, would be described on a balance sheet. "Illiquid" would be more like equity in a private company, where there is no active secondary market at all.

CPLX2• 4 years ago

Who are the people “trading” it all day? Unless you feel pretty confident you have a window into what exactly is going on there then I wouldn’t make much of a bet on liquidity.

Wash trading and market manipulation is basically the defining feature of all these markets.

SilasX2• 4 years ago

Thank you! That’s been a big pet peeve of mine in this discussion, where people casually throw around “illiquid” when the currency is really “liquid but collapsed in value”, which is what was going on with FTT and SOL. Earlier comment:

https://news.ycombinator.com/item?id=33539326

grey-area8• 4 years ago

The story is the same for all these other giants of crypto.

Binance, Tether, Bitfinex are all basing their purported asset value on holdings of multiple worthless currencies, many of which they mint and price themselves.

bboygravity• 4 years ago

Interesting to see that you and many others think that "the real financial world" works significantly differently.

Countries, (central) banks, family funds and hedge funds are about to fail (or are already failing) in a very similar way but on a much much grander scale.

lupire6• 4 years ago

Is Binance really in that group?

CZ alleged that FTX tried to crash Binance's market a few years ago like Binance did you FTX last week, but failed because they actually hold reserves.

trophycase• 4 years ago

SRM market cap isn't even 2.1B. There's more to this story as usual. The corruption runs deep.

rippercushions2• 4 years ago

What the fresh hell? This isn't even an actual accounting balance sheet. He was trying to convince investors to put billions of dollars of actual money into FTX, and the best he could do is the sketchiest one-page Excel ever, complete with comments like "Hidden, poorly internally labled fiat@ account" (sic) worth 8 billion and warnings about typos! No wonder CZ got cold feet.

pavlov• 4 years ago

Somehow this same level of sloppiness, disorganization and disrespect was a mark of a great disruptive innovator just two months ago.

In the Sequoia profile they greatly admire how Bankman-Fried plays League of Legends while pitching to investors, and takes naps in his office when he’s supposed to be in meetings. How surprised can they realistically act that their genius lost 8 billion dollars in a “hidden, poorly internally labeled account”.

The investment industry needs to face their role in this debacle. The Ontario teachers’ pension fund sent tens of millions to FTX with apparently no due diligence. That money ended up in the pockets of crypto insiders and also funded promotion like Super Bowl ads that sucked more retail dollars into FTX. Some of those poor FTX customers who are facing a 100% loss on their crypto “investment” may have been teachers from Ontario.

Pension funds and VCs don’t generally invest in gambling and drugs. Why do they invest in crypto?

fallingknife3• 4 years ago

Remember how the immaculately organized and professional appearing Wall St. firms did the exact same shit back in 2008? The only difference is really that they had the political clout to get a government bailout.

lordnacho5• 4 years ago

I worked for a fund that lost a lot of money once. It was all legit, nothing shady, just dumb investments gone wrong.

We phoned one of these well known investors to tell them what had happened. By that of course I mean the person in charge of the little piece of the massive fund that was allocated to us.

On the call the guy goes "when I tell my boss in 5 minutes, I'm going to get fired for investing in you". He wasn't wrong.

The thing that shocks me is the due diligence. There's a heck of a lot of things you have to do to get Ontario to invest in your fund. All sorts of documents, double signature statements from banks, meetings where you wear a suit. We'd have lost the investments if we were playing video games, there's no doubt about that. Maybe culture changed but it seems really odd, because part of due diligence is qualitative: does this team seem like serious people?

popcorncowboy• 4 years ago

Because this is what FOMO looks like. Real FOMO. The kind where even people who are finance sharks end up looking at the wild hair and the unfiltered disrespect oozing out of bros like SBF, and figure there must be magic in those beans even if they don't quite get it and it doesn't quite add up. MAGIC. THE MOON. DIAMONDS. Can't fake those billions, or the blatant fuck-you signalling. Means the emperor is surely clothed. And a genius. The deep abasement and sloppy sucking sound coming from smart, distinguished people helps complete the picture.

laichzeit0• 4 years ago

Hey man, move fast and break things. Professional accounting practices are nothing but “gatekeeping”. Hack the fucking plaaaanet.

nieve• 4 years ago

The protagonists of Hackers were way more competent than this crew.

naijaboiler3• 4 years ago

they try to bring that silly mindset to healthcare too. And they are surprised that doctors are refusing to embrace it, and they are facing roadblocks at every step. move fast, break things work if you are building photo-sharing networks, or messaging platforms, or optimizing ad-delivery. It doesn't work for healthcare or finance or even hardcore engineering. Rules and regs in those areas are written in blood or recessions.

mayankkaizen2• 4 years ago

You are implying that CZ is doing something more legit and transparent. I belive both were on the same boat and playing the same game. It is just that FTX lost the game first.

cypress66• 4 years ago

Binance definitely seems to have a better ratio of assets to liabilities.

AmericanOP4• 4 years ago

My mental model of the blockchain industry is akin to FTXs balance sheet.

I see an endless string of branded code servicing similar technologies, but where are the customer inputs putting in the billions needed to support the industry? Is blockchain liquidating crypto valuations into developer salaries with a VC subsidy?

collaborative3• 4 years ago

Is banking liquidating bank account funds into banker salaries? Sry for being the advocate of the devil and I am by no means a crypto fan

AmericanOP4• 4 years ago

Banks are the medium for money created by the government to reach the economy. So perhaps one can say banker salaries are the vig on inflation.

imtringued5• 4 years ago

They take a cut on every loan that is successful, they don't take those fees from bank account balances, the borrower is ultimately paying for it.

kumarvvr• 4 years ago

Unable to open the archived link, any alternative sources for the actual document?

JoachimSchipper• 4 years ago

The article links to https://d1e00ek4ebabms.cloudfront.net/production/7ab64a3b-6c...

Shank• 4 years ago

The "before this week" column seems to be attempting to draw sympathy by saying "but everything was fine before, seriously!" when in reality it just proved that, even in the best of worlds, they had an extremely optimistic view of the entire crypto ecosystem, including its liquidity.

I can't believe they seriously held that much of their total value in their own issued token. That's just preposterous. Imagine if JP Morgan Chase's entire value was in JP Morgan Chase stock, and they just reported that as their value in cash. It's like recursive valuation.

wumpus• 4 years ago

Remember the Wirecard collapse, where there was a fake bank account in the Phillipines that allegedly had $2.1 billion USD in it?

This is the crypto equivalent.

KirillPanov• 4 years ago

Garnished with a dash of Bernie Madoff.

wyclif• 4 years ago

Yes, it was actually two accounts: BDO Unibank and Bank of the Philippine Islands.

odiroot• 4 years ago

I wonder if (some of) SEC will play the same role in this story as BaFin played in Wirecard's.

_fat_santa• 4 years ago

The hole in Wirecard's balance sheet almost doesn't seem that bad when you see what kind of hole FTX has.

everybodyknows3• 4 years ago

Has there been any attempt at reform of BaFin in the aftermath -- or has bureaucratic inertia absorbed all such impulses?

kypro• 4 years ago

Imagine if JP Morgan Chase's entire value was in JP Morgan Chase stock

The value of JP Morgan Case is the total value of their stock, almost by definition.

Buy backs are also basically a transfer of a company's cash to company stock and are regularly done by US corporates.

The difference here is that they secured debt against their own company assets so that when the value of the company went down, they went into more debt relative to their asset value.

They were also leveraging an asset which was highly volatile and which could be easily targeted by bad actors. Anyone with any experience in risk management understands that your leverage should be proportional to the volatility of the asset you're leveraging. This is why you get large loans backed assets like real estate, but not stocks. Stocks drop 20-30% every few years where as real estate is far more stable.

If they were leveraging dogecoin instead of their own token the result would have been the same.

andreareina• 4 years ago

book value. Companies don't get to count the value of stock owned by other people as assets.

wolpoli• 4 years ago

Imagine if JP Morgan Chase's entire value was in JP Morgan Chase stock, and they just reported that as their value in cash. It's like recursive valuation.

While I think real world finance is on much more stable ground than crypto, I thought it'll be funny to point out that many of the world's central banks back their liabilities (the currency they issue) with own government's bonds. Luckily, the bonds are denominated in the same currency. There is no chance of the central bank going broke, as long as they hold the bonds to maturity.

igorkraw• 4 years ago

I wrote a whole post because I misread your first line as "while some people think" and set out to "tell people on the internet they are wrong", but since we seem to actually agree with another, I'll post the below as an agreeing addendum to make the point just how much more stable real economics and finance are than crypto BS. And also because I wrote it already.

---

This is not "luckily", it's by design, and there's a couple of other key differences as well.

1.Modern central banking implements an artificial separation between government and CB (an imperfect one), that attempts to make this less recursive...

2. ...but the key difference here is that the value of the dollar ultimately derives from the fact you need to pay US taxes with it. If you want to do business in the US, you need to get some USD to pay taxes in which are then used to keep the US a place to do business in. It is exactly the same model as FTT except that instead of paying "taxes" to trade on one of many market places, the US is a giant nonfungible place, with lots of difficult to move assets and people, serving a fucknormous circular economy with a staggering amount of real world consumption - i.e., a place you want to or have to do business in even if there's shock...

3. ...and has a monopoly on the violence (in the form of laws, courts, police and military) that actually enables the notions private property that enables this all. If the US government collapses your dollars are worthless whether they are backed by a bond or not.

4. Finally, neither the CB nor the government are up for sale or needs to generate profits or shareholder value. All they need to care about is continuing the system in a way that its constituents want (I'm not specifying the aggregation method, oligarchs are still constituents)

So overall, and with the fact that this is a system which has been iterated on for hundreds of years(thousands if you count legal code), yeah, it's a lot more stable

bjornsing3• 4 years ago

If my understanding is correct the Swedish central bank, Riksbanken (which happens to be the oldest in the world), has said that whey do not want to hold their QE assets to maturity and that they are essentially bankrupt. They will be bailed out by the tax payers of course.

lottin9• 4 years ago

This is incorrect. Currency issued by a central bank is not a real liability, since its issuance does not entail a future payment obligation. It's a liability only for accounting purposes. The government bonds on a central bank's balance sheet are used to conduct (or the result of) open market operations. They aren't "backing" anything.

vkou4• 4 years ago

Unlike FTX, central banks have the power to create money out of thin air, while the governments that operate them have the power to create demand for money out of thin air, through taxation.

Governments thus, control both the demand for, and the supply of money.

bernawil2• 4 years ago

Anything that prints its own money can be "like a central bank". If FTX had all its assets AND liabilities denominated in FTT they'd be like a strong one. But their assets are in their token and their liabilities are in real money so they're weak one. We've just seen the exchange rate of the FT-peso/USD go to nothing.

pakitan• 4 years ago

He's also being purposefully obtuse about his 2 largest regrets - the "poorly labeled" account and underestimating the size of the withdrawals.

He's still behaving as if having billions of liabilities in real money backed by funny money "assets" is somehow acceptable and everything would have been fine if it wasn't for the "last week".

bjornsing3• 4 years ago

But maybe it could have been?

I’m a complete crypto skeptic who would never touch anything like FTT, but it’s not an obvious Ponzi scheme. I think one of the troubles with crypto is that it’s very easy to operate what is effective a Ponzi scheme, without fully realizing it yourself.

paulusthe2• 4 years ago

As if poor labeling results in $8bn of customer funds being lent to the CEO's hedge fund

DebtDeflation• 4 years ago

It's like recursive valuation.

Exactly correct. Most of these crypto companies hold assets that are nothing but tokens they or an affiliated entity print on demand. Just like how most of Tether's assets are commercial paper yet they refuse to name whose commercial paper and no one who makes a market in that space has ever dealt with them - it's obvious the commercial paper was issued by other crypto companies and likely secured only by crypto. And how exactly do people think all of those staking/farming operations are generating those ridiculous levels of "yield"?

funstuff0073• 4 years ago

Imagine if JP Morgan Chase's entire value was in JP Morgan Chase stock,

It's way worse. JPM stock pays dividends in dollars. The yield on FTT is more FTT.

nroets• 4 years ago

A predetermined percentage of FTX fees is used to buy back FTT which is then "burnt". Open market buy backs are equivalent to dividends. So FTT has a yield measured in dollars.

HDThoreaun3• 4 years ago

FTT did buybacks which are much more popular than dividends because of their tax advantage.

doorman2• 4 years ago

I mean they do that. Companies issue, hold, and buy back stock all the time. The difference is that JPM stock is a thing that people want and has intrinsic value as it confers ownership over the company.

lysecret• 4 years ago

Wait will the forced liquidation crush a large part of crypto ?

donavanm• 4 years ago

Well… your anchors of eth and btc are down about 25% in the last few days. And their reported “assets” are huge chunks of the total market value for a lot of these tiny sketch coins. So yeah, I expect its going to be rough when this get liquidated or it simply turns out your counterparties are actually the sketchy exchanges who dont have anything to back it up.

Aramgutang• 4 years ago

There isn't much there to liquidate that still has any worth. They didn't have significant holdings of any of the major assets. That's kind of the main reason they were insolvent.

coffeebeqn• 4 years ago

They also had this “hack” a day or two ago so it’s unclear what is left

Marazan3• 4 years ago

Im genuinely intrigued by the $2.2 billion in SRM

The peak market capitalisation of SRM was less than 1.5 billion (according to coinmarketcap.com ) . So how could FTX's holdings every be valued at 2.2 billion?

Marazan3• 4 years ago

Ah, I think FT story made a mistake, it isn't 2.2 billion dollars of SRM, it is 2.2 billion tokens. Biiiiiiiiig difference.

clarkeni• 4 years ago

It’s 2.2 billion dollars - but it’s using fully diluted value rather than circulating supply market cap.

bagels• 4 years ago

Direct link to the image of sheet itself: https://d1e00ek4ebabms.cloudfront.net/production/7ab64a3b-6c...

password43213• 4 years ago

The stories so far (HN items with >100 comments):

Tuesday 11/08

129 https://news.ycombinator.com/item?id=33518961 FTX Appears to Have Stopped Processing Withdrawals, On-Chain Data Show (theblock.co)

747 https://news.ycombinator.com/item?id=33520585 Binance to acquire FTX (bloomberg.com)

110 https://news.ycombinator.com/item?id=33523274 FTX Token, FTT down by more than 80% in less than 24 hours (ftx.com)

Wednesday 11/09

430 https://news.ycombinator.com/item?id=33535161 FTX’s financial black hole leaves Binance balking at rescue plan (bloomberg.com)

420 https://news.ycombinator.com/item?id=33537821 We will not pursue the potential acquisition of FTX (twitter.com/binance)

Thursday 11/10

189 https://news.ycombinator.com/item?id=33541790 Ftx.com Has Probably Collapsed (effectivealtruism.org)

197 https://news.ycombinator.com/item?id=33547102 The Sam Bankman-Fried empire crumbled. What happened? (mollywhite.net)

516 https://news.ycombinator.com/item?id=33547863 FTX tapped into customer accounts to fund risky bets, setting up its downfall (wsj.com)

Friday 11/11

108 https://news.ycombinator.com/item?id=33558225 FTX Yikes (rekt.news)

1168 https://news.ycombinator.com/item?id=33561234 FTX to file for U.S. bankruptcy, CEO resigns (reuters.com)

Saturday 11/12

800 https://news.ycombinator.com/item?id=33570274 FTX faces potential hack, sees mysterious outflows totaling more than $600M (coindesk.com)

174 https://news.ycombinator.com/item?id=33571734 FTX investor Sequoia removed its glowing profile of Sam Bankman-Fried (businessinsider.com)

174 https://news.ycombinator.com/item?id=33575281 FTX held less than $1B in liquid assets against $9B in liabilities (ft.com)

139 https://news.ycombinator.com/item?id=33577311 FTX hacker identity discovered by Kraken Exchange team? (cryptoslate.com)

> https://news.ycombinator.com/item?id=33577437 FTX balance sheet, revealed (ft.com)

^^ You are here ^^

password43213• 4 years ago

And if you had an "FTX" alert on HN/Twitter, you'd have seen:

Sunday 11/06

1 https://news.ycombinator.com/item?id=33494404 Due to “recent revelation” Binance is liquidating their FTX Token holdings (twitter.com/cz_binance)

Context:

Friday 11/04

254 https://news.ycombinator.com/item?id=33464494 Crypto trading firm Alameda Research might be insolvent (dirtybubblemedia.substack.com)

All in time for:

Tuesday 11/07 -> Monday 11/06 ("yesterday")

https://news.ycombinator.com/item?id=33518961#33520094

I admit I did panic and tried to withdraw my funds yesterday. They just processed it today. A bit delayed but still processing.

"Get Out" vibes for sure.

oldgradstudent4• 4 years ago

"Get Out" vibes for sure.

At that point it was too late.

If a significant number of customers tried to withdraw a few days earlier, FTX would have collapsed a few days earlier.

The mistake was made when giving FTX the money.

celestialcheese4• 4 years ago

Good tweet on decoding the illiquid assets

https://mobile.twitter.com/metavestor/status/159120025903564...

thebeastie• 4 years ago

FTX violated ancient banker wisdom: don’t get high on your own supply.

pigtailgirl3• 4 years ago

"What are President tokens? President tokens are ERC-20 tokens that will be redeemable for either $1 or $0 based on if Trump wins or loses the Presidential election. These markets act as tradeable prediction markets where the market price of TRUMPWIN should be roughly equal to the probability that Trump will win the election and the market price of TRUMPLOSE should be roughly equal to 1 minus that probability. TRUMPWIN and TRUMPLOSE are based on the President 2020 Futures Contracts on FTX."

jfc...

libraryatnight• 4 years ago

Someone just mint the Camacho coins already

RantyDave• 4 years ago

Camacho was a good president. He knew he was out of his depth, sought the best advice he could and was willing to take politically difficult risks for the good of his people. Unlike, say....

SnowHill9902• 4 years ago

That’s actually very useful. It’d allow one to hedge risks with new synthetic derivatives instead of creating weird proxies with stocks.

UncleMeat2• 4 years ago

I, for one, do not like the trend of the financialization of everything. It is surveillance capitalism times 1000. Where all human behavior becomes an object to bet on.

pigtailgirl3• 4 years ago

-- dont have issue with the coin - "jfc smh" FTX was holding it - such a strange bet --

mudrockbestgirl3• 4 years ago

Okay, but... how? How did they manage to lose so much money by running a popular exchange that should bring in tons of fees? Even if they were gambling with part of the deposits, how can they lose 90% of all assets? You'd have to be actively trying to lose money to be this bad...

Also, where does Alameda fit into the picture?

mym19903• 4 years ago

They were probably leveraging heavily in some sectors, on top of siphoning those incoming fees to line pockets. Once you leverage, it is extremely easy to lose everything in a span…but also easy to gain!

lordnacho5• 4 years ago

Seems like Alameda was critical to the how of it.

What's not clear to me is what they gambled on that lost money.

Business model ought to be simple, the exchange earns loads of fees, and Alameda makes markets on it, earning spreads.

Just putting a lid on the risk there should be enough to keep people occupied, no need to print your own money for extra leverage.

grey-area8• 4 years ago

SBF is a con artist. There is no point looking for a legitimate business because there wasn’t one.

emilsedgh• 4 years ago

What's not clear to me is what they gambled on that lost money.

My guess would be other crypto ventures. All these crypto companies pumped each other with no products/assets (Stadium names and soccer team sponsorships with no products to sell!) and invested in each other. The economy had so much excess money and they got pumped and they thought this is what "investing" is. Economy's bubble burst and suddenly their valuations goes to 0.

When economy goes bad everyone is hurt but these companies had nothing but vaporware and are vaporizing as a result.

Just a guess though.

mudrockbestgirl3• 4 years ago

Exactly. With the perfect order flow information and ability to front-run other MMs and takers Alameda should've been highly profitable just making markets on FTX. How could they lose so much money...

miked85• 4 years ago

Just watching a video of the Alameda CEO explains a lot.

vgatherps2• 4 years ago

In addition to earning a spread you lose from toxic trades, i.e. someone trading when your quote is stale.

Alameda has a strong incentive to knowingly do bad trades on ftx, i.e. stale quotes + spreads too small, since it increases legitimate volume numbers and generates ftx fees (gains in ftx fees offset trade loss). It's unknown if this happened or to what extent, but it can be very costly to do this in large size.

ackbar03• 4 years ago

I think it was mentioned that one of the reasons was they tried to bailout voyager but voyager went under anyways. They extended a 500mio loan from alameda, which would explain a good chunk of it.

Also, having listened to the FTX podcast a few times just to get some idea of what their magic was, there was one episode where Caroline came on, and the gist of it seemed to be that the host Tristan and a lot of the heavy blockchain cool-aid drinkers managed to convince Caroline to toss out good old risk management principles and Yolo it on defi and nft projects. They referred it in Their podcast as "the summer of defi". I guess that might have been a reason as well

djbebs2• 4 years ago

They stole clients assets and used them to:

1- Gamble with them

2- pay themselves

3- lobby the government

4- bailout other failing crypto companies.

Everything here could have been done with any non-crypto exchange.

331c8c712• 4 years ago

How would a regulated exchange gamble with clients money? It's even technically impossible for all they do is managing a place where participants trade.

smileysteve• 4 years ago

Kind of sounds like Chase / Washington mutual when you put it like that

blue_light_man4• 4 years ago

My vague guess is they need money to spend on advertising and investments made by Alameda and FTX.

For that, they can't use FTX. They need USD or a stable coin like USDC.

They can't convert hundreds of millions of dollars of FTT to USDC since demand for FTT is relatively small. And a transaction like that might cause a huge decline in the price of FTT.

So they must have used ETH, BTC etc deposited by customers for swapping to USD or USDC.

I guess their theory must have been the surbowl ads, celebrity endorsemens and all would result in demand of FTT going up after some time. And they can later swap them back to customer funds when required.

But then crypto crashed.

Now customers want to withdraw the funds and they don't have it to give back. And nobody wants FTT.

seanhunter2• 4 years ago

Well firstly they were offering perps[1] which are a margined product. If you want to trade with margin on a regular exchange (like say you want to trade commod futures on CBOE or ICE or whatever) you contact a broker/dealer and put up collateral[2] to get margin. FTX was seemingly both acting as an exchange and as a broker/dealer so they were providing the margin and standing risk on the other side of certain trades either as FTX themselves or as Alameda (I'm not sure about this).

Margin has the effect of magnifying the effect of volatility in the value of a product on profit and loss. And of course crypto is extremely volatile to begin with (by comparison to other assets).

Since they were acting as a dealer they could lose a lot if their book of business was imbalanced (ie on net a lot of their customers have the same position) and the market moved against them.

Secondly they seem to have had very little equity as a reserve against losses and what equity they had seems to have been in this FTT token which was only backed by the exchange itself. So if the FTT token lost value they would lose all their equity and have no reserves to protect against losses. This happened when Binance tweeted that they were selling their (very substantial) FTT holdings. In normal finance your equity reserves are there for if you have a bad day and lose some money - you can dust yourself off and try again the next day. If you have no equity then your business is insolvent. Trading when insolvent is no bueno and if there are rumours that you are insolvent of course people pull funds, won't trade with you so you have effectively a "run on the bank" and all the problems you had before get worse because now you can't find anyone to trade with as you try to wind down positions to refund customers etc.

Thirdly there seems to have been shenanigans afoot regarding Alameda (the affiliated hedge fund) which seems also to have primarily been long FTT and a bunch of other similar tokens backed by not very much. It may be exchange funds were being used by Alameda for trading - certainly they don't seem to have been kept at arm's length as they should have.

Fourthly there have been allegations that customer funds from the exchange were somehow inappropriately used to cover losses either at alameda or at FTX itself. If this is not true, it's hard to understand why refunds are taking any time at all so make of that what you will.

[1] Essentially a leveraged swap on the price of a particular crypto. So one party will pay say 10x the difference between some reference price and the current price of the crypto and the other side will receive it.

[2] Assets with a certain value as security against losses. Generally you will be required to have collateral which is liquid (ie can be easily sold if need be without affecting the value of the collateral) and relatively risk-free (like treasury bonds). For collateral that is risky, the dealer will take a "haircut" off the face value of the collateral to account for the fact that they may not be able to sell the things for the market value. The market itself (and Alameda) had collateral (FTT and similar) that was on the whole neither liquid nor risk-free.

lupire6• 4 years ago

perp

It's incredible that 1) crypto "finance" is full of products whose name screams scam, and 3) a perp(etuity) is like a fixed-term annuity except it's supposed to lay out forever, but no crypto perpetuity has been existence (and most have already failed) for longer than any annuity term.

dbancajas• 4 years ago

usiness model ought to be simple, the exchang

They were greedy and counted on a bull market. Basically used money that's not theirs to speculate on shitty coins. Shitty coins went down in value along with their customer's deposit. Think about borrowing money at the bank to buy BTC at 60K. You'd be on the same spot.

blue_light_man4• 4 years ago

The only lesson I learend from this whole debacle is never trust people and organisations you know from the Internet no matter how famous or humble or good they are. Trust the tech. But never the people. Especially for financial advices.

Be it Sequoia. Or Yc. PG, Chamath, Mark Cuban ,Balaji or the Collision brothers. Tom Brady or SBF or CZ. Never fucking trust people or organisations.

They are all here for their financial upsides.

Only trust the tech. The maths. If you can't do the work you would be fucked by them.

That's all.

I am not saying PG did something shady. I am saying even a well regarded figure like him in this community should not be taken for granted unless they back their claims by sold evidence.

aaronbrethorst• 4 years ago

you definitely shouldn't trust NFL quarterbacks. https://people.com/sports/former-packers-quarterback-brett-f...

throwaway0asd• 4 years ago

What I learned from this mess: nothing new. If anything this just reinforces what should already be painfully obvious: invest in real world value that you understand. I have not seen the real world value of crypto or understand how that makes makes outside of itself. Even before crypto currency markets were a thing and were like setting money on fire.

I apply that reasoning to all investments. Sure, I miss out on all the easy money hype trains, but the investment decisions are almost always safe and still better than market average.

naijaboiler3• 4 years ago

the Warren Buffet mantra to investing. Been working now for 70+ years.

mym19903• 4 years ago

Why trust the tech if it is built by the same untrustworthy people?

The truth is that for something to be truly spectacular in moving humanity along, you need both tech AND people. You named a bunch of celebrities…OF COURSE you shouldn’t trust those people, you don’t even know them.

Not trusting anyone is just a good way to grow old and bitter about the social state of the world.

blue_light_man4• 4 years ago

I should have clarified. By don't trust people I mostly meant people you know from Internet and have never had a meaningful relationships with.

throwaway2902• 4 years ago

Funny how my takeaway (as someone completely removed from the action) has been the opposite: don't trust the tech, filter for trustworthy people. Time and time again we are shown that tech is not solving the human problem of greed and malice, and some kinds of tech rather amplify it.

laserlight• 4 years ago

How do you tell that people are trustworthy in the first place?

Miserlou572• 4 years ago

A dishonest man you can always trust to be dishonest. It’s the honest ones you should watch out for

dgudkov• 4 years ago

That sounds techno-utopian to me. You can't get around trust to people. Technology is run by people using rules and abstractions people agreed to adhere to.

grey-area8• 4 years ago

Yes avoiding trust and attempting to construct something trustless is the biggest flaw in the bitcoin whitepaper.

Trust and identity are fundamental in financial transactions.

shapefrog• 4 years ago

All these people are saying "not your keys not your coins".

Should we not do that because, with one voice they are all saying that you should do that?

blue_light_man4• 4 years ago

That is a statement one can easily verify through tech and from first principles. For example you can go through the wallet source code and verify the algorithms used.

Trust me we have the funds backed 1 to 1 in our exchange is not unless proven cryptographically.

ilrwbwrkhv3• 4 years ago

If there comes a day pg makes his twitter handle pg.eth or whatever nonsense a bunch of these guys were doing, I would lose all respect for him. But without that what PG and YC have provided is incredible value. Real world tangible value. Do you remember what snakes VCs used to be before YC came to the scene? Now my only fear is that Garry Tan on the other hand is indeed deep inside these scams whether knowingly or unknowingly. I hope better heads around him keep him and YC safe.

jasonwatkinspdx3• 4 years ago

If you think YC somehow provides protection against rat duck games by VCs I have some very bad news to share with you.

jjallen• 4 years ago

The thing that I always wondered about with FTX (and Binance frankly) is how did they get so big so quickly. What did they have that caused so many people to use _their_ exchange. This is still unexplained and was a major red flag. Usually to grow that big takes many years. Just look at Coinbase.

mudrockbestgirl3• 4 years ago

I don't know about FTX, but Binance has been shady from the very beginning. They got large quickly because they listed all kinds of **coins, had negative trading fee promotions, and in general did lots of shady growth hacking marketing tactics and partnerships. If you wanted to gamble altcoins, those would be on Binance, but not listed on Coinbase. That was many years ago when they started out of course. I'm curious where they are today. In my mind, the shady image of Binance hasn't changed, but maybe they got lucky with their investments and are actually fully backed and profitable now. Who knows...

Coinbase used to be US-only, and is still very US-centric. Binance and FTX are international. They only opened US exchanges later, but they are separate, and tiny compared to their international footprint.

I'm also curious how FTX got so big. When they started, the market seemed saturated with exchanges already, and they didn't really have differentation.

password43213• 4 years ago

Still get emails from Binance constantly: "Earn 3.6%/3.9%/4.1% when you stake ... FTM/ONE/ROSE". Just scrolling down, they offered 15% on DOT back in August!

rkagerer• 4 years ago

I guess it goes to show even in the face of all the scams there remains a massive appetite for [seemingly] legit markets to buy/sell coins. Boggles my mind these idiots can't simply be satisfied to run a profitable, lawful operation.

usrusr3• 4 years ago

An interesting observation: first people get used to trusting e.g. Coinbase, in the slow, organic way of trust to grow, then they see a similar company, the brain does that category drawer game and suddenly the new company gets trust by similarity. Certainly not the full amount but a much better start than the first one had. I wonder if there's already a term for that? What's even the field where these observations would be collected?

rxyz• 4 years ago

FTX splashed money on sponsorships and ads. It either had a lot of investor money or was a ponzi from the beginning

theCrowing• 4 years ago

Marketing with enough money you can make every fraud legitamite for some time especially now in the world of influencers.

lend0002• 4 years ago

Binance was publishing fake volume numbers (basically a sine wave chart) up until ~2018. They faked it until they made it.

The only reputable exchanges are KYC/western based Coinbase, Kraken, Gemini, and perhaps some of the smaller US based companies.

Honorable mention to Bitmex, which was truly financially innovative (basically what FTX and other crypto futures exchanges tried to copy) and admitted exactly what it was (a place to trade with irresponsible leverage). Their only mistake was not trying that hard to prevent US nationals from yoloing on their site.

largepeepee2• 4 years ago

And a week ago you would have included FTX in that KYC "western" list esp since they had so many big "western" investors and Washington's ears including the SEC.

Not to mention Bitcoin and crypto were created out of the failures of the trusted KYC "western" banking standards of 2008.

You are literally repeating blind trust mantra based on region bias that has just failed again this week.

Crypto is about avoiding the need to trust any of these entities, if it still hasn't enabled that maybe it isn't mature yet as an industry. CeFi or not.

slawwwc• 4 years ago

I would also add Bitstamp to the reputable exchanges list. It's operating since 2011 and holds many operating licences across EU and US.

lordnacho5• 4 years ago

My guess is they managed to get market makers in there due to connections. This creates liquidity which is a virtuous cycle. They also had early attention from being a top trader on bitmex iirc.

Fair bit of luck needed as well since there's hundreds of exchanges launched at around that time.

There's no explanation that doesn't require luck, but there's also no explanation that doesn't require having the prerequisites of liquidity and marketing.

tossawayone232• 4 years ago

Close ties to the Biden admin. Sams parents are very close and worked in both the Obama and Clinton admins. Question is will the DNC return the 40 plus million given to them from San Bankman?

habosa• 4 years ago

Back in 2017 when there was an new coin spiking every day Binance was by far the easiest place to sign up and trade. Everywhere else had either much stricter KYC or a much worse reputation.

It’s likely Binance was so much easier because they were ignoring KYC laws, but I’m not a lawyer.

ratg13• 4 years ago

I think this is it.

Low bar of entry, largest marketplace, and a decent API

grey-area8• 4 years ago

FTX likely printed SRM token out of thin air to prop up their balance sheet.

https://mobile.twitter.com/LucasNuzzi/status/159159590823988...

bmitc4• 4 years ago

Does he really expect anyone to believe his “poorly labeled internal ... account” story? How can you have $8 BILLION mislabeled? As in, if he transferred or loaned it to Alameda, literally no one was asking: wait, where did this sum of money, so large that it is a massive percentage of our value and could crash the company, come from? Despite all the idiocies that we’re learning about, it is still hard to believe.

Another thing is, it seems like this spreadsheet was hand-crafted by Sam Bankman-Fried just before their emergency meetings this past week. Why wasn’t this something that already existed for all top executives to see? How was it not just a printable document or report but was instead something he just typed up? Because no, it is not obvious that a balance sheet of a supposedly multi-billion dollar company would contain typos. Typos!? I mean, come on.

Then again, I have worked with people similar to how Sam Bankman-Fried seems to operate. Not the possible sociopathic tendencies he appears to have but the sort of twitchy smarts he does seem to have. People like that can sometimes think so fast with a lot of confidence that they create this wake of stuff behind them as they work. They “solve” (i.e., move through) problems so fast, that everyone gets lost in the wake and can’t catch up to find all the mistakes left behind or tie the loose ends together. They consider a problem solved if it’s essentially solved but doesn’t have details thought out or if there are possible mistakes that can be “easily” solved in ways not apparent to anyone else. If there’s no one around to slow these types of workers down, it can be complete chaos where you have one person spearheading away through the bushes, while everyone else is getting slapped in the face with the branches snapping back and thorns. At some point everyone gives up trying to follow. Then the person is off on their own where they lose sight of whatever actual problem they were solving and lose track of the bigger picture.

It is entirely possible that that is a component of what has happened here, coupled with some sociopathy, megalomania, and billions of dollars of funding in Sam Bankman-Fried’s case.

jiggawatts• 4 years ago

you have one person spearheading away through the bushes, while everyone else is getting slapped in the face with the branches snapping back and thorns.

You just described me about 15 years ago. I've learned my lesson and avoid "unsupportable solutions" these days like the plague, but I still get pulled aside occasionally and get told quietly that nobody understands why I'm talking about solutions to problems that haven't even come up yet.

irusensei• 4 years ago

The whole thing that is bugging me is that they made big political donations to both D and R. They use the money they conjured out of thin air and backed politicians with it. They probably backed the politicians who were most friendly to them. Those politicians might have won and that dirty money might have done a difference.

Does that sound moral to you? I think it’s absolutely terrifying. Every candidate that received that money should have their relation to Scam Bankman-Fraud investigated. It gets worse when you realize his mother and business partner are either related to certain political parties and the SEC chairman.

recuter4• 4 years ago

Sounds like plain old moral hazard to me: https://en.wikipedia.org/wiki/Moral_hazard

Why people think that such things are limited to any one political party or that progressive liberals are somehow immune from it is beyond me.

Used to be a time, about a decade ago, where these very same folks would lose their collective minds when Mitt Romney said stuff like "corporations are people my friend" and "money is speech".

I guess if you can't beat them, join them. Heck, SBF even donated to Mitt: https://en.wikipedia.org/wiki/Sam_Bankman-Fried#Political_do...

Instead of fighting to get money out of politics they decided they can just play this game better and their ends justify the means with very predictable results.

The only surprising thing is they got caught. Although it remains to be seen whether anybody actually admits fault, goes to jail, or any actual changes are made.

tossawayone232• 4 years ago

The whole thing stinks to high heaven. https://cdn.discordapp.com/attachments/430493835265835021/10...

recuter4• 4 years ago

I don't know which discord the reply to me is supposed to be linking to but here it is in text form.

  A true scandal is opening for the Biden administration. April 25, 2019: Biden announces his presidential campaign. 13 days later, Sam Bankman-Fried, son of Barbara Fried ( Stanford Professor and co-founder of political fundraising organization "Mind-the-Gap), launches #FTX crypto exchange. The exchange is magically an overnight success. SBF becomes biggest donor to Biden. Election day, FTX implodes completely. If you think this scandal is done, it goes even deeper. Gabe Bankman-Fried, brother to Sam (also a former Jane Street trader), is founder of "Guarding Against Pandemics" He was a Legislative Correspondent for the US House of Representatives and an advisor to large political donors in the Democrat party. The family Aunt Linda Fried is a WEF member on the Global Agenda Council on Aging.

  The father, Joseph Bankman is a Stanford professor who has lobbied on behalf of Hedge Fund managers before Congress before (film records exist). FTX' Head of Ventures & Commercial at FTX Ventures Amy Wu, started with the Clinton Foundation years ago.

  Nishad Singh FTX Director of Engineering has spent over 8 million for Dem candidates. And finally Obama's Commodity Futures Trading Commissioner, Mark Wetien was literally the head of FTX Policy & Regulation. Reports were the organization wanted to spend over a billion dollars on the Democratic party for 2024. A massive, massive money laundering operation has just been broken open.

The tone is a bit conspiratorial and had this been posted before the FTX collapse my eyes would have glazed over. I happen to think guarding against pandemics is a good thing. Financing none-profits with crypto scams and donating to politicians who subsequently are reluctant to regulate you, less so.

Regardless of who is in charge and their political affiliations, it simply should not work this way.

arminiusreturns• 4 years ago

Banksters have been doing it for much longer and people hardly bat an eye at it.

Edit to add more substance and thought:

I know it's uncomfortable to address but it's true. On top of the money pulled out of "thin air" via electronic means by the central bank (US Treasury asks for a billion, fed manifests it in exchange for bonds, w/ the US fed at a 6% profit rake scheme, not sure about BoE, etc), the normal everyday banks as part of the fractional reserve system pull money out of "thin air" by loaning out more than they have on deposit. Furthermore, the fractional reserve rate which used to be 10% has been busted down to 0 afaik currently. Literally they can loan out money they don't have and the regional fed will bail them out with liquidity if it gets too bad.

I've known this for a while but in 2016 when I was considering running for congress and started digging into the funding sources of the incumbent, I started noticing a lot of NY banks donating to this random congressman, and pivoting out found that vast swaths of politicians have banks themselves donating money.

bmitc4• 4 years ago

I think all political donations above a certain level should be scrutinized and audited and then banned at higher levels. But I don’t think the politicians care. They removed the limits to political donations and haven’t looked back, and it has been chaos ever since.

I was disturbed by Robert Mercer’s dastardly part in the 2016 election, both his donations, his people placing, and his technical consulting. The guy is basically a real life Bond villain. When you look into the other top donors of the Republican Party, you start seeing some real Machiavellian characters. The Democratic donors are not far behind in terms of greed and power, but it sure seems like some of the Republican donors just want the world to burn if it means they can keep their wealth.

everybodyknows3• 4 years ago

I don’t think the politicians care ...

Of course they don't, taken collectively. Investigative journalists are our slender hope. They and those few politicos who didn't get a share of the loot, and may now see pushing for tighter regulation as a career opportunity.

raverbashing• 4 years ago

Oh so maybe that's what "effective altruism" really means.

naijaboiler3• 4 years ago

Scam Bankman-Fraud

no. Scam Bankrupt-Fraud

philippejara• 4 years ago

How is that any different from every other company/individual making political donations?

brchn• 4 years ago

Yes the US gov is corrupt, if that’s what you’re implying. Anonymous political donations from special interests are the primary driver of public policy.

macrolime• 4 years ago

I haven't verified this for veracity, but supposedly a screenshot from tumblr blog of the CEO of Alameda Research

"this blog endorses double-or-nothing coin flips and high leverage"

https://pbs.twimg.com/media/FhaKXhRXwAEfvKD?format=jpg&name=...

ealexhudson2• 4 years ago

I believe it is true, and there was a good thread on twitter about Kelly optimal bets. It seems clear that SBF, and maybe therefore Alameda, didn't really understand the right hand side of the Kelly optimum.

im3w1l• 4 years ago

It's kind of an interesting puzzle though. It obviously doesn't work but breaking down exactly why it doesn't is a bit nuanced.

The simplest model we can make is that the market will instantly jump either up or down. Why does the strategy not work in this case? If it jumps up you win. But if it jumps down you lose not just your stake, but you actually go into debt because of slippage. However if you add the possibility of call bankrupcy to discharge the debt, then it actually does work.

On the other hand if you use a more realistic (but not fully, of course) continous model, then it doesn't work. Why? Because there are such a high proportion of paths the price can take where it reaches your stopout before it reaches your payout. It could go down (game over) up up up, or it could go up up down up down down up down down (game over). I believe you can use martingale theory to prove that it doesn't work.

Dowwie• 4 years ago

To what extent were responsible members of the financial industry hired to try to turn FTX into a legitimate financial company? Was everyone a "brilliant outsider", irreverent to hundreds of years of industry wisdom?

PYTHONDJANGO• 4 years ago

Please post an URL to the excel file, thanks!

vasco• 4 years ago

Martin Shkreli (pharma bro) did a livestream on youtube[0] going over it a few days ago. Yes, he is out of jail.

[0] https://youtu.be/XnwRMaW-Kdc

tasubotadas• 4 years ago

I am quite surprised that nobody is talking about VCs (Sequoia) that happily poured money into this.

What was their plan? Were they blind? Were they hoping to cash out before it crashed?

Major investors usually get full visibility into the company.

mayankkaizen2• 4 years ago

This is the most important thing I was wondering about. If crypto businesses are shady and Ponzi schemes and these crypto guys are working mostly behind the scene, why would a VC like Sequoia invest in such firms?

I somehow feel firms like Sequoia gave these crypto stuff some credibility and positive exposure. It was like, "don't worry, their business is legit and booming.'

hiq2• 4 years ago

why would a VC like Sequoia invest in such firms?

I thought the rationale was already widely known by now: https://en.wikipedia.org/wiki/Greater_fool_theory

Or in more charitable terms: if an investment has a positive expected return according to their model (meaning that they think they can sell their shares / tokens in the case of some VCs), they do it.

ilrwbwrkhv3• 4 years ago

Some kaching on the side. ;)

Seriously though, a lot of influencers promoting this stuff have been getting paid in cold hard US dollars to promote these scams.

How do I know? I spoke to influencers to talk about my portfolio companies and many of them told me the crazy amount of cash they were getting paid from these scammers. Think 25,000 for a channel with hardly 100k followers.

That's why I feel like Sequoia partners should be investigated thoroughly. If a terrorist organization gets investments, don't we investigate those investors as well?

If you drop morals, like a16z did, by supporting another scammer and gritting on crypto, it's a very lucrative business.

jasonwatkinspdx3• 4 years ago

SBF invested heavily in Sequoia as a limited partner. Him raising money from Sequoia in return was a way of adding legitimacy to his empire. Sequoia's motivation was simply to make money. Even famous VC firms aren't immune to making dumb decisions or falling for some fantasy hype rationale. Sequoia had a very fawning blog piece on SBF up that paints a very unfavorable picture of the decision making here, and hilariously enough they were proud of it until the bubble popped.

SilverBirch2• 4 years ago

If you listen to the All-In podcast, or the Pivot podcast there have definitely been some rumblings about certain VC firms doing extremely questionable things with regards to crypto. They don't name names because... well, they don't want to burn bridges/get sued. But it's not difficult to guess which firms will be under scrutiny, Chris Dixon obviously is the most outspoken crypto guy. The question over the next few years is - how have his funds performed. If they've performed anything like crypto he's going to give terrible returns, if they haven't performed anything like crypto I think people would like to know how he managed to create a crypto investment strategy that had a positive ROI, given that the only way money has been made in the cyrpto space so far is pump and dump.

tootie• 4 years ago

Sequoia must be utterly humiliated by this. They didn't just give him a ton of money, they promoted him like he was messiah of finance.

https://twitter.com/philbak1/status/1591409852957732864?s=20...

thiscatis• 4 years ago

Not just Sequoia but also Temasek, the Singapore gov’t fund and they’re keeping quiet about it since the binance bailout fell apart.

World177• 4 years ago

They definitely lost money with Luna/UST. [1] I wonder if we'll ever find out how much they lost

[1] https://twitter.com/AlamedaTrabucco/status/15233819532395233...

jmyeet• 4 years ago

This is wild. My first question was: who is the CFO who signed off on this?

FTX literally has no CFO [1]. How is this possible for a billion dollar company and billions in client assets? How did the investors not insist on an adult to manage the their investment?

The CFO, and the credibility they bring to the table based on their track record and reputation, is part of the system that helps prevents situations like this.

[1] https://www.ledgerinsights.com/ftx-warning-signs-no-cfo/

SkipperCat• 4 years ago

That is literally jaw dropping. I'm almost amazed that the WSJ never picked that up. I just did a quick search on the wsj.com site and saw several articles from this past summer and none even mentioned that.

WSJ nailed it with Theranos, missed it with FTX.

d3vmax• 4 years ago

Remember at the peak how many pro-crypto HN commenters would give all kinds of tech/politics/economic pros of crypto. It was all a sham. Anyone who knows tech and seen the progress from the 90s could smell the shit that is crypto. Unnecessarily difficult than it had to be, to obfuscate the fact it was bullocks through and through.

ekpyrotic• 4 years ago

Even these accounts are deceiving.

The current holdings are valued at today / yesterday's spot rate.

Given that many of these holdings are in (comparatively) thinly traded alt-coins, as soon as you try to dispose of these levels of coins / tokens, the price will fall as supply overwhelms demand.

Of course, this is represented by the fact that many of the alt-coins are marked as relatively illiquid -- and SBF has put a lackadaisical disclaimer at the top about the shifting price.

But the reality is that regardless of how long you wait -- or how much you try to spread the disposals -- you will only ever get a percentage of the current spot rate, given the impact that the sales will always have on the price itself.

I can't shake the feeling that SBF might say... "Yes, but once we have reassured the market, etc, etc, these alt-coins might recover in value -- and then we can dispose at this level."

And, of course, the merry-go-round starts again.

SilverBirch2• 4 years ago

Using the word "Liquid" in the context of these accounts is... I don't know? Fraudulent? I understand that in the context of real finances things might be illiquid - it might take time to sell your house, or if you're a particularly big holder of stock in a company you founded you might have liquidity problems divesting over time. But it's really just taking the piss describing a lot of this stuff as "illiquid". FTT is a coin that they have made up themselves, which they themselves own the vast majority of, and which only had value in connection to the exchange that they just bankrupted. So no, it isn't "illiquid" its "worthless". It's not just that they'll take a hair cut if they liquidate it quickly, they could never liquidate even a significant portion of this. This whole thing started when CZ tried to liquidate 500m in FTT and the whole of FTX collapsed, they're now claiming their remaining FTT tokens are worth $600m (down from $6Bn). It's just so absurd to suggest you can mark to market like that.

recuter4• 4 years ago

When the people who print the real currency are your friends, the people who are supposed to regulate who can print currency are your friends, and the people who lend you massive amounts of real currency are your friends - it is easy to delude yourself into believing that on a long enough time scale some of the plebs will buy your funny money and you will become more liquid and everything will sort of work out somehow.

Money creates more money, so if can can create money that creates more money, we're broadening the economy, expanding it all the time.. (https://www.youtube.com/watch?v=M_3T-Af57Pg)

Sort of similar to how Trump said his own net worth fluctuates day to day sometimes based on his feelings since it is tied to perceptions of the Trump name as a brand.

Or how George Costanza said it's not a lie if you believe it.

Or how a gambler who is down is sure he can make it back.

In other words, yeah, as fraudulent as can be. Lets see if anybody actually goes to jail.

migueloller• 4 years ago

Matt Levine’s writing on this is right along this line. It delineates between liquidity and solvency problems. Worth a read. https://www.bloomberg.com/opinion/articles/2022-11-10/ftx-is...

w1nst0nsm1th2• 4 years ago

There should be a newcomer financial book titled "How to get rich quick if you don't mind being a crook".

The very first book to read before any other on finance and investment.

It would be the like of telling your kid "Beware of the wolf before sending her through the wood to pay a visit to Granny"...

zajio1am• 4 years ago

Perhaps crypto-exchange could be transparent to third-parties through blockchain(s)? It should not be hard to declare all account numbers, so whole crypto-balance could be online validated.

nullc• 4 years ago

Short bitcoin, long shitcoin... that's been a slow road to insolvency for most of a decade.

guy_c• 4 years ago

Based off the balance sheet FTX may have peaked (September 2021) with more than $100 billion of paper gains in "less liquid" assets.

  Token   Last wks  Last wks  Estimated   Peak     Peak         Peak
           value     price     holding    price    date         value
  FTT     $5.9bn    $24.00       246m      $77.69  09-Sep-2021  $19bn
  SRM     $5.4bn     $0.75     7,240m      $12.50  13-Sep-2021  $90bn
  SOL     $2.2bn    $32.00        70m     $258.78  07-Nov-2021  $18bn

Just speculation, but once you've "made" $130bn you feel like a genius. You might want to start acting like a hundred billionare. Time to start throwing money around. Especially spending it on anything that helps you realise those gains.

But FTT/SOL/SRM is not very liquid. So you use your liquid assets (i.e. your customers' USD, USDT, BTC and ETH). People might wonder where you get all this cash. You don't want to admit you are using customer funds and you only have gains on tokens you printed. So pretend you're genius trader and run a highly profitable exchange.

FTX balance sheet, revealed

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