[HN Gopher] Crypto trading firm Alameda Research might be insolvent
___________________________________________________________________
Crypto trading firm Alameda Research might be insolvent
Author : janmo
Score : 238 points
Date : 2022-11-04 10:44 UTC (12 hours ago)
(HTM) web link (dirtybubblemedia.substack.com)
(TXT) w3m dump (dirtybubblemedia.substack.com)
| cryptoanon wrote:
| I really do not like this article and the discourse here for
| several reasons:
|
| 1. The entire Coindesk article lacks meaningful substance. For
| instance, we have zero idea about what those $7.4 billion of
| "loans" are. It's really irresponsible to say that they're
| insolvent. If you believe, so, you are applying no more rigor to
| your understanding of the space than the idiots who say HODL YOLO
| HFSP. If the liabilities are collateralized by assets on their
| balance sheet, then the financial risk is not to Alameda but the
| lender!
|
| 2. The entire article paints a dire picture based off of their
| appraisal of the assets. Again, nobody has any idea of what the
| liabilities truly are, so to speculate that Alameda is insolvent
| is making an unfounded leap. But the author of the article tries
| to lead us to believe that it's an OK leap to make, because their
| assets are trash! Wrong. It's lazy, it's pandering to a certain
| crowd, and it's dishonest.
|
| 3. Before reflecting on their extremely, extremely short handed
| analysis, they take their unfounded conclusions further and spin
| it through a prior framework that they made for Celsius, which is
| a totally different type of company with a totally different set
| of liabilities. Alameda does not lend money to retail. The author
| pulls a sleight of hand by taking one misleading statement, and
| transforming it before the reader can apply any skepticism to the
| original misleading statement.
|
| 4. Recently there have cropped up a set of anonymous people
| (otteroooo on Twitter, this guy) who purport themselves as
| insiders only to reveal themselves to be complete completely
| ignorant about the topic at hand. A lot of unsavory people have
| recognized there's a cottage industry in endlessly pounding the
| table saying that the world is falling and that everything is a
| scam based off of extremely little public information and no
| access to any private sources. They are ambulance chasers.
|
| 5. We have a large contingent of people who just read the
| headline here, and assume, scam! And apply the pre-existing
| biases to the entire thing, with nothing insightful to add.
|
| *edited some dictation/autocorrect errors
| jerf wrote:
| This is a popular idea, but it's not just wrong, it's both
| systematically and personally dangerous. I am entitled to come
| to conclusions based on the partial information I have. If
| someone doesn't like those conclusions, it's on them to
| increase my access to information.
|
| The alternative means that anyone and everyone can hide
| anything they like behind partial information, then declare any
| suspicions baseless and groundless based on their own hiding of
| information.
|
| I speak only to this. Whether the linked article did a _good
| job_ of their analysis I don 't know. I'm just saying, the idea
| that people are not entitled to come to conclusions based on
| partial information is not valid. The conclusions come to
| should be hedged and made with the understanding that
| information is partial, but there is no obligation to not come
| to them. Otherwise you're obligating yourself to walk naked
| into almost any old scam you can imagine. This idea doesn't
| scale out into the real world where people happily abuse this.
| cryptoanon wrote:
| > I'm just saying, the idea that people are not entitled to
| come to conclusions based on partial information is not
| valid.
|
| It's possible to get scammed by a person that's telling you
| that something is a scam. That's an affinity scam.
|
| I'm not trying to tell you what to think. I'm saying that
| there are material flaws in the analysis.
| tucnak wrote:
| Don't worry, your critique is fair and square, what you
| have to understand is that you probably piss a fair amount
| of people here already by virtue of your username alone!
| Cue takes on how "affinity scam" somehow doesn't apply &
| even more contrarian moaning re: crypto bad.
| FoomFries wrote:
| What we are entitled to do, what is polite to do and what we
| can do for clickthroughs are three different things. Coming
| to conclusions on partial information may as well be jumping
| to them in many circumstances. The ideal approach would be to
| add a disclaimer of where the fact to supposition
| transitions, and if the conclusion is sensible at least
| source similar cases.
|
| If it walks like a duck and quacks like a duck it's probably
| a duck. Or a duck robot, or my kid running around with my
| phone again imitating a duck while watching duck YouTube
| videos.
|
| Whatever the conclusion, state facts but don't state
| conclusions as facts.
| asdajksah2123 wrote:
| Except in the real world if people are actually putting
| their money down based on what those conclusions might be,
| you have to jump to something.
|
| And the right thing to do is to jump to the most likely one
| based on the information available to you (adjusted for the
| consequences if you're wrong).
|
| In this case, the most likely conclusion appears to be
| based on the info presented that it may be insolvent, and
| further, acting as if it is insolvent means you lose on
| limited upside if you're wrong, but avoid significant
| downside if you're right.
|
| If Alameda is not a fan of this conclusion and if it's
| gaining traction in the community they can refute whatever
| might be wrong in the analysis and if nothing is wrong,
| provide the additional missing information that will
| correct the conclusion.
|
| This is what CEOs and CFOs for public companies do
| everyday. Present their company's thesis to the public and
| refute analysts' theses where they think they're either
| wrong and/or don't have sufficient information. Why do you
| think they take so much time out of their schedules to do
| interviews on Bloomberg, CNBC, etc.
|
| Alameda doesn't need to go down that route, but that
| doesn't mean independent analysis with conclusions based on
| incomplete information is a faulty process.
| aabhay wrote:
| The loans are outstanding loans given to Alameda. This article
| is assessing the balance sheet, so assets (various junk coins)
| and liabilities (loans)
| bhouston wrote:
| I think that Alameda should release its actual numbers, rather
| than to keep them private. Sunlight is the best disinfectant to
| these types of rumours.
|
| Right now I think that your response isn't any more credible
| than these other posts.
| HelloNurse wrote:
| > If the liabilities are collateralized by assets on their
| balance sheet, then the financial risk is not to Alameda but
| the lender!
|
| Fair point, but why do you seem to think you are defending
| Alameda? Collateralizing loans from fools with your own brand
| of worthless bullshit is the very definition of a Ponzi scheme.
| cryptoanon wrote:
| What if the loans are minted DAI? How is that a Ponzi?
| HelloNurse wrote:
| _Loans_ are money. _Collaterals_ can be "minted DAI",
| whatever it is, or anything else that a fool can be
| convinced is valuable: that is the opportunity for Ponzi
| schemes.
| mring33621 wrote:
| Please explain further what this means and how it helps.
| polygamous_bat wrote:
| The current circulating supply of DAI is slightly above 6B,
| so what you claimed is literally impossible.
|
| The average case scenario is some of it is ponzi mixed in
| with other non ponzi, and in my book I'll call even a "10%
| ponzi", a ponzi scheme. Maybe you have a different bar to
| calling something a ponzi, so knock yourself out.
| paulusthe wrote:
| It's not a fair point. If Alameda goes down, then ftx goes
| down, and if ftx goes down and is clearly wash trading (the
| most interesting finding in the article imo), then prices
| will plummet.
|
| It's not just a problem for the bank, it's threatening to the
| crypto ecosystem. Just as it would be if the binance tether
| thing ever implodes
| [deleted]
| SilverBirch wrote:
| >If the liabilities are collateralized by assets on their
| balance sheet, then the financial risk is not to Alameda but
| the lender!
|
| Ok, this is kind of a fair point, if these loans are
| collateralized by the assets, then it's the lenders who have a
| problem. But that does actually mean there's someone out there
| who is going to get absolutely mugged. It's also a bit of a
| question who, other than some other SBF entity, would make
| these loans - who is accepting FTT as collateral? It also means
| that you need to apply that logic to their assets, meaning
| their supposed $14.6Bn you probably need to regard around $12Bn
| minimum to be absolutely worthless.
|
| I would absolutely not say they for sure insolvent, but these
| numbers do clearly look very worrying.
| JohnJamesRambo wrote:
| The guy that wrote it, Dirty Bubble, was big on the Celsius
| expose train and he is trying to strike gold again. Idk how
| accurate any of it is though but that's Dirty Bubble's history
| and backstory. Kind of like FatMan and Luna. They want to stay
| relevant and get the next "big scoop".
| [deleted]
| cryptoanon wrote:
| They gladly and unapologetically have posted fake material
| for engagement
| https://twitter.com/otteroooo/status/1548010114136715264
| vgatherps wrote:
| Is this otteroooo trying to get famous again under a new
| name?
| PragmaticPulp wrote:
| > 4. Recently they have cropped up a set of anonymous people
| who purport themselves to be insiders only to reveal complete
| ignorance about the topic at hand (otteroo on Twitter, for
| instance).
|
| Can you clarify this? By "they" do you mean this Substack? I
| didn't see anything about "otteroo" or Twitter insiders in a
| quick search of the Substack, but I didn't exhaustively search
| the entire backlog.
| cryptoanon wrote:
| I mean this guy as well as a bunch of people on Twitter who
| have been clout chasing ambulance chasers, running over the
| truth to chase a story.
|
| The formula is this: 1. Create an helpful explainer thread to
| explain some crisis (ex-post)
|
| 2. Start to make vague predictions about relatively easy to
| predict things (like that Celsius is going to go down, a
| couple days before it technically goes down).
|
| 3. Refer your readers back to your foresightedness
|
| 4. Get extremely excited as you receive DMs from people to
| check out x or y.
|
| 5. Lock your eyes on a juicy new company and start to make
| unfounded claims about said company, referring to a sole
| rando as a "source" (eg Nexo is insolvent!)
|
| 6. Create an expose on your new target, run shoddy analysis
| based on no actual data, and throw it into a larger
| conspiratorial framework that starts to implicate other
| actors.
|
| 7. All the while, build a captive audience who doesn't know
| the better and eventually use that audience to run ads or to
| pay for your newsletter.
|
| 8. They can run this affinity scam because 1. What they say
| is not falsifiable, 2. you have an infinite timescale for
| which to be correct about any one company going bankrupt, 3.
| there are people out there who are earnestly trying to learn
| about the market and don't know who to turn to, and 4. if
| you're wrong, you're not accountable to your actions because
| there was never any actual money on the line.
|
| There are serious issues in the industry, do not get me
| wrong. It's kind of messed up that people who have no
| connections have to look into the void and decide whether
| they're going to trust an internet rando or nobody at all.
| Disclosures need to be better. But the people writing these
| sensationalist pieces are part of the problem and not the
| solution.
| wokwokwok wrote:
| > if you're wrong, you're not accountable to your actions
| because there was never any actual money on the line.
|
| I mean, that's the risk you run right?
|
| Either you're a regulated system where you can avoid this
| kind of thing, or you're an unregulated system where you go
| 'screw the man', but you don't get the protections that are
| associated with the traditional financial system.
|
| There's some deep irony about complaining about it; isn't
| the 'good' thing about crypto?
|
| That's what people keep telling me anyway.
| tender_euler wrote:
| >> if you're wrong, you're not accountable to your
| actions because there was never any actual money on the
| line.
|
| > I mean, that's the risk you run right?
|
| > Either you're a regulated system where you can avoid
| this kind of thing, or you're an unregulated system where
| you go 'screw the man', but you don't get the protections
| that are associated with the traditional financial
| system.
|
| He does not mean companies operating in the unregulated
| crypto space. He means the author of articles like this
| one.
| guelo wrote:
| > What they say is not falsifiable
|
| It's easily falsifiable by Alameda
| adamsmith143 wrote:
| Dude you sound like the saddest most desperate FTT bag
| holder of all time. Did you lose your house and did your
| wife leave you or what...
| cryptoanon wrote:
| I have no interest in Sam, Sam coins, or the cult of Sam.
| adamsmith143 wrote:
| Well for having 0 interest you seem to be spending non 0
| time defending him, his coins and his former hedge fund.
| bhouston wrote:
| "If it wasn't for these damn twitter personalities messing
| up the plans, they would have gotten away with it."
|
| You sound like a Scooby Doo villain. If these companies are
| not run well, they can be brought down by mere twitter
| personalities. This is a stress test. Those who are run
| well, will survive this.
|
| Another analogy: If you build a house out of straw (because
| you cut corners) should you blame the big bad wolf who can
| just blow it down?
| cryptoanon wrote:
| Sure you can say this is a stress test - I'm just saying
| it's misinformation. I am annoyed by people who spread
| misinformation for clout. Applies to both the bullish
| credit and the bearish crowd.
| polygamous_bat wrote:
| You cannot complain something is misinformation without
| offering information to counter it. That never works,
| will never work. The only reason an article like this,
| speculative or not, has wind to it's sails because crypto
| is not regulated like equity and companies like Alameda
| does not have to publish regular financial reports that
| classic market participants moving billions of "dollars"
| have to publish.
| cryptoanon wrote:
| What if I saw military helicopters flying above and told
| others "war has broken out!" I see how you can say that's
| not misinformation, but wild speculation. For me, it's
| both.
| polygamous_bat wrote:
| Turn on a TV. No news about a war? No war. Unless you
| think there is a deeper conspiracy to keeping a war
| secret.
|
| There you go, some really simple sources of information
| to counter your misinformation.
| boc wrote:
| You have no evidence that this post is misinformation.
| You're just choosing to believe it's untrue.
| cryptoanon wrote:
| I do not have the burden of proof.
| polygamous_bat wrote:
| No, Alameda/SBF does. And they haven't said anything
| about it. People are free to draw their conclusions from
| that.
| [deleted]
| adamsmith143 wrote:
| >1. The entire Coindesk article lacks meaningful substance. For
| instance, we have zero idea about what those $7.4 billion of
| "loans" are. It's really irresponsible to say that they're
| insolvent. If you believe, so, you are applying no more rigor
| to your understanding of the space than the idiots who say HODL
| YOLO HFSP. If the liabilities are collateralized by assets on
| their balance sheet, then the financial risk is not to Alameda
| but the lender!
|
| Doesn't take a genius to figure out why a hedge fund needs 7B
| in loans. They aren't a tech giant expanding in a new direction
| or acquiring competitors. It's pretty clear why a hedge fund
| needs a massive cash infusion. Also interesting that they
| collateralize the loans with Tokens majority owned by Alameda
| and FTX so it's unlikely were they forced to liquidate to pay
| off their loans that they could get any where near the quoted
| value of the tokens.
| vgatherps wrote:
| I'm assuming you are implying that alameda is taking loans to
| cover insolvency?
|
| There are plenty of reasons why a trading firm takes loans
| (it's also possible the FTT is structured as a long,
| inflating said number)
|
| 1. I want to short X, but don't actually have X. I borrow X
| and sell it.
|
| 2. I want to sell X and buy a derivative paying people who
| are long the derivative. Goto step 2.
|
| 3. I want to trade X but don't know how ahead of time, so i
| need inventory of X in case I want to sell RIGHT NOW. I don't
| want to actually have exposure to a ton of X, so I borrow it
| instead. Very common for a market maker like alameda,
| although there's no way they actually need billions of
| collateral for market making purposes.
|
| 4. I can borrow X, and put it in a defi yield farm for a
| better rate than what I borrowed it for.
|
| 5. I have a ton of Y, and I don't have any plans to use it
| soon. I put Y up as collateral to borrow X which I can
| meaningfully trade. This gets you in a lot of trouble when Y
| values goes down and X doesn't. Say "Four Bullets
| Investments" has some BTC, they post BTC as collateral to
| borrow dollars, and use that to buy more BTC. Then BTC goes
| down a lot - oops!
|
| Not making value judgements on what risks are and aren't
| entailed here, just pointing out that there are reasons aside
| from covering losses. 1-3+5 equally apply in tradfi as well.
|
| The really interesting thing, which you touched upon, is to
| what extent are they collateralising loans with FTT.
| COllateralising loans with a coin you hold isn't unusual at
| all, but what's unusual is that the potential FTT collateral
| size is monstrous compared to realistic available liquidity
| minus alameda.
|
| Posting BTC is one thing since there are liquid spot markets
| trading billions a day, not to mention derivatives. But FTT?
| Good luck liquidation even 10-20MM without moving markets a
| lot.
| NotYourLawyer wrote:
| > If the liabilities are collateralized by assets on their
| balance sheet, then the financial risk is not to Alameda but
| the lender!
|
| No, the risk is to both Alameda _and_ the lender. An
| undercollateralized loan doesn't just go away. It's partially
| secured and partially unsecured debt.
| [deleted]
| zby wrote:
| > If the liabilities are collateralized by assets on their
| balance sheet, then the financial risk is not to Alameda but
| the lender!
|
| What does that mean? How collateralization changes Alameda
| risk?
|
| It reduces the lender risk a bit - but it does not touch the
| borrower risk at all:
|
| https://www.investopedia.com/terms/c/collateral.asp
|
| "In the event that the borrower does default, the lender can
| seize the collateral and sell it, applying the money it gets to
| the unpaid portion of the loan. The lender can choose to pursue
| legal action against the borrower to recoup any balance
| remaining."
| guelo wrote:
| That depends on the terms of the loans. Can be recourse or
| non-recourse.
| zby wrote:
| Right - but it looks like an exception not the standard
| way:
| https://www.investopedia.com/terms/n/nonrecoursedebt.asp
| Would you expect the Alameda loans to be non-recourse?
| moomin wrote:
| I think OP is assuming things work the way US mortgages work,
| where you can walk away from the house. I think OP is
| labouring under a misapprehension here.
| standeven wrote:
| The title of the article is not "Alameda Research is
| Insolvent!". Instead it poses the question, "Is Alameda
| Research Insolvent?". Depending on the unknown liabilities, it
| very well could be.
| ikeboy wrote:
| ZachXBT has repeatedly accused people with little to no
| evidence, he's a step up from most of the anon FUD accounts but
| by no means perfect.
| cryptoanon wrote:
| You're right. I edited that in later but I'm going to take it
| out. He's made some pretty damning accusations based on
| circumstantial evidence.
| phphphphp wrote:
| Alameda's story has many parallels with Celcius (and 3AC): if
| something happens that proves Alameda is insolvent, will you
| return to this analysis and hold the same viewpoint, that it's
| unhelpful to consider that their solvency may well hinge on
| value of illiquid nonsense assets? The problem Celcius had was
| not that they were lending to retail, it's that their entire
| investment thesis was based on insane bets with capital
| borrowed from retail investors. Celcius, Hodlnaut etc. were
| "lending" and "investing" with "credible" players like 3AC (who
| had a mythology much like Alameda's before they imploded).
|
| Yes, some skepticism is required when considering whether or
| not Alameda is insolvent (or at risk of becoming insolvent) but
| the analysis is helpful in highlighting why Alameda might be at
| risk.
| cryptoanon wrote:
| 3AC had been packed to the gills with uncollateralized loans.
| Since then, most lenders have recalled loans and cleaned up
| their toxic balance sheet.
| RuggedPineapple wrote:
| When it's collateralized with crypto it's uncollateralized.
| 3AC learned this. Like half the exchanges have learned this
| over the last year. There is no inherent value in any of
| them, there is no hard floor of assets, as the market
| continues to tank that 'collateral' becomes/remains
| worthless. It's turtles all the way down.
| vgatherps wrote:
| The 3AC saga wasn't because crypto collateralisation
| turned out to be bogus, it was just that lenders gave
| them un/undercollateralized loans. Their downbringing was
| taking cash liabilities, on leverage (the
| un/ndercollateralized part), and using that to make risky
| bets. They took a ton of leverage to bet that the
| GBTC/BTC spread would close (but it widened, a friend of
| mine called this killing them over a year in advance),
| iirc positions in stETH/ETH spreads, illiquid (but very
| profitable...) vc investments, as well as just going long
| crypto.
| phphphphp wrote:
| 3AC was a prop trading firm flush with cash... until the
| curtain was lifted and it turns out it was just a big
| fraud. Alameda is a prop firm flush with cash...
|
| Why do you assume that Alameda isn't "packed to the gills"
| with financial gremlins?
|
| If you asked anybody in the space about 3AC or Alameda 12
| months ago, you'd have heard the same thing about them:
| prop trading firms that have been hugely successful
| investing their own money and thus have billions upon
| billions of self-generated money to invest. Today, 3AC is
| gone and we are now discovering Alameda has huge
| liabilities and (potentially) mostly junk assets.
|
| What's a bigger leap: Alameda is like 3AC, or that the
| information we've seen so far isn't representative and
| actually alameda are doing great?
| JohnJamesRambo wrote:
| Alameda is helmed by quants from Jane Street etc., they
| are supposed to do better with regard to risk management,
| forecasting, bet sizing. Their whole M.O. is that they
| are smarter and actually do math and that is the source
| of their success.
|
| https://www.alameda-research.com/our-team
|
| Whether that is true or not, I don't know. But from their
| tweets and podcasts it does seem they approach things
| very differently and in a way that makes sense.
| nradov wrote:
| LTCM was also helmed by some smart guys who did a lot of
| math and understood risk management...
| adamsmith143 wrote:
| Sounds like Enron, turned out great for them too.
| CyberDildonics wrote:
| _they are supposed to do better with regard to risk
| management, forecasting, bet sizing._
|
| According to who? Themselves?
| neilc wrote:
| > Alameda is helmed by quants from Jane Street etc.,
|
| The CEO worked at Jane Street for less than 18 months and
| appears to have had a fairly junior role there. I'm sure
| they are smart folks but there's a limit to how much you
| can learn in 18 months, in your first job after college.
| blitzar wrote:
| Nobody is leaving Jane Street after 18 months - straight
| out of college, of their own accord.
| eldenwrong wrote:
| What are you implying?
| blitzar wrote:
| My statement is clear with no implications at all.
| tough wrote:
| He was fired
| shorthistory wrote:
| Is that a fact, or are you stating that is the
| implication of the parent comment?
| tough wrote:
| The latter, I didn't even read TFA.
|
| Sorry if my prior message was confusing, but why would a
| top tier company let go one of their best performers
| after just a half and a year out fresh of college?
| jefftk wrote:
| Huh? Leaving Jane Street to start crypto trading isn't
| what I would do, but it seems to have worked out well for
| them. Why does that suggest they didn't choose to leave?
| shorthistory wrote:
| Was it only 18 months?
|
| Wikipedia states: ...he returned there full-time after
| graduating [in 2014]. In September 2017, Bankman-Fried
| quit Jane Street...
|
| Seems closer to 3 years, but it doesn't state whether he
| started there immediately after graduating or not.
|
| What do you suggest are the reasons for his leaving?
| FabHK wrote:
| GP was talking about the CEO of Alameda, who, according
| to page linked by GGP, is
|
| > Caroline Ellison, CEO > Before joining Alameda in 2018,
| Caroline worked at Jane Street as a trader on the
| equities desk.
|
| You seem to be talking about SBF.
| cryptoanon wrote:
| I'm not saying alameda is not insolvent. Im saying that
| the burden of proof is on the author to prove that they
| are insolvent.
| polygamous_bat wrote:
| That is the craziest proposition that I have heard today.
| The author posited a hypothesis based on whatever public
| information they could gather. Either Alameda comes out
| to refute it, or they don't (they haven't yet, as far as
| I know), in which case people can draw their own
| conclusion. The fact that SBF, one of the most outspoken
| mouthpieces of the crypto boom, has chosen to remain
| silent, provides some circumstantial evidence at best.
| But this is not a court of law, it's investigative
| journalism, which I think is the part you're missing.
| vgatherps wrote:
| A point that is getting missed is that nobody knows what
| the liabilities are. At one extreme, if the liabilities
| are all cash, alameda is in a dire place. At the other,
| if the liabilities are just the tokens on their balance
| sheet, there's nothing particularly interesting.
|
| Any statement a bout their insolvency is a statement
| about their liabilities, which is just speculation.
| ethanbond wrote:
| Good news for crypto world that there are still people
| like yourself, I suppose. It's quite the strategy to
| assume everything with Entity X is above board based on
| the (intentional) lack of information and then when it
| turns out to be a scam, there's Entity Y where you can
| place the same assumption of legitimacy based on the same
| intentional lack of transparency.
| kibwen wrote:
| _" There's a sucker minted every ten minutes."_
|
| ~ P.T. Nakamoto
| Analemma_ wrote:
| "This time is different [even though all the publicly-
| available evidence thus far indicates it's exactly the
| same]" is the calling card of the crypto booster who
| desperately needs the music to keep playing so they're
| not holding the bag.
| xwolfi wrote:
| How ?
| ecommerceguy wrote:
| I'm curious, does a definitive list of crypto scams exist?
| paulgb wrote:
| Although the name is about web3, https://web3isgoinggreat.com/
| is pretty comprehensive in covering all areas of crypto.
| acc_297 wrote:
| scam is hard to define and people have different definitions
| subject to some bias but here is maybe what you're after
|
| https://web3isgoinggreat.com/
| HelloNurse wrote:
| > Total liabilities: $8 billion, of which $7.4 billion is
| "loans,"
|
| $7.4 billion's worth of fools. What a large market!
| janmo wrote:
| They only had $154m in cash equivalent, the rest of their
| assets was in illiquid crap.
| HelloNurse wrote:
| Of course. The problem is lending genuine money to an
| organization designed around turning money (in the best case)
| into illiquid crap.
| dcolkitt wrote:
| As someone in the industry, it's almost certainly _not_.
|
| First very simple point, to become insolvent you have to actually
| take a loss somewhere. They may have a lot of junk tokens on
| their balance sheet, and these tokens may be overmarked, but
| Alameda's cost basis (most of them were from seed rounds) is
| still _way_ below their current value.
|
| With Three Arrows it was very obvious where the loss was from,
| they were hyper-bullish and doubling down on BTC all the way from
| $69,000 to $18,000 using leverage. By contrast Alameda is
| notorious for being dollar maxis, constantly taking money off the
| table, and very rarely having any sort of long-term major beta
| exposure. (A big reason they have a reputation as mercenaries in
| the space.)
|
| The second point is that the bulk of their liabilities are in the
| same tokens on their balance sheet. This is particularly true for
| the FTT token, almost certainly the FTT on their balance sheet is
| simply a loan from FTX (which is essentially the same org) to
| Alameda to make a market on FTT on FTX. Regardless if FTT
| collapses, it wouldn't matter cause insolvency both the asset and
| liability side of the balance sheet would go down.
|
| Most likely this is true for much of the rest of their
| liabilities. Crypto trading firms like Alameda make a huge
| proportion of their revenue from being "paid market makers" for
| specific token projects. It's very hard for new tokens to
| bootstrap liquidity. So the typical arrangement is a token
| project will "lend" Alameda something like 5% of the supply,
| which Alameda will use to be a market maker in that token at all
| of the major venues. Most of the liabilities on their balance
| sheet are probably these token deals, rather than loans made in
| hard currency.
| wyxuan wrote:
| There are FTT denominated loan(s), to MIM for instance, but I'm
| not sure there are that many others willing to accept FTT given
| the thin liquidity
| tom-thistime wrote:
| On 2022 11/4 7:50 am Pacific, this was the top-ranked comment
| on this article on HN.
| dekervin wrote:
| Why do you timestamp it ?
| tough wrote:
| Fear of manual moderation bringing it down?
| forgotmypw17 wrote:
| I think it is because the comment ranking changes over
| time, and there is no way (without access to the raw data)
| to see what comment was ranked where at a given time.
| tom-thistime wrote:
| I'm attempting to preserve a record of when the views
| expressed in the comment seemed popular. Opinions can
| change over time.
| paulusthe wrote:
| Sure, but at some point real dollars enter the financial
| equation, backed by these coins, none of which are probably
| priced correctly to serve as collateral.
|
| The ftt coin is shady as hell though. A 40% trading rebate for
| holding $1m is insane; that's nothing. And it's not open to
| anybody touching the US - a blatant attempt to prevent US
| regulations, which would catch this stuff.
|
| It's very weird for exchange owners to get rich overnight. That
| doesn't happen in real markets, and it seems to only happen in
| crypto when the exchange is using customer deposits as leverage
| (Celsius) or trading on their own account, which means against
| their customers (binance, probably ftx)
| [deleted]
| dcolkitt wrote:
| Why would it be shady? Traditional exchanges like the CME
| have "seats" that entitle holders to discounts and are sold
| at hefty prices. FTT is simply a tokenized version of an
| exchange membership. It makes perfect sense, and is really no
| different than a Costco membership where paying up front
| allows you to buy in bulk at a discount.
| dcist wrote:
| The trading fees for crypto exchanges are also insane, which
| enriches the exchange operators.
| timmaxw wrote:
| > First very simple point, to become insolvent you have to
| actually take a loss somewhere. They may have a lot of junk
| tokens on their balance sheet, and these tokens may be
| overmarked, but Alameda's cost basis (most of them were from
| seed rounds) is still way below their current value.
|
| Hypothetical scenario: Alice invests $100M in seed rounds for a
| bunch of tokens. The token values go way up, and the holdings
| are nominally worth $14B. Alice borrows $7B in real dollars.
| Alice loses those real dollars on other bets. The nominal value
| of the tokens is still $14B, but Alice can't actually liquidate
| them for $7B in real dollars. So Alice is functionally unable
| to pay back the loans.
|
| So Alice took a loss somewhere (on the other bets) and is
| effectively insolvent, but you can't assess that just by
| looking at the cost basis of the tokens that Alice still holds.
|
| (I don't know if this actually describes Alameda; it's entirely
| possible that Alameda's loans are token-denominated as you're
| saying, in which case Alameda would be solvent. I'm just
| pointing out that it's more complicated than just looking at
| the cost basis.)
| JumpCrisscross wrote:
| > _the bulk of their liabilities are in the same tokens on
| their balance sheet_
|
| Do we have evidence of this?
|
| The article says $292mm are FTT-denominated, with the rest
| unknown. Absent further information, it's fair to assume some
| of that is dollar denominated. With less than 2% cash to cover
| liabilities, even a small amount of normal borrowing could
| render Alameda insolvent.
|
| Moreover, if the losses _are_ entirely passed through, whose
| are they? That's over $7bn of losses sitting on someone's
| balance sheets. Are they distributed? Is it FTX's?
| janmo wrote:
| Alameda has taken loans from Voyager and BlockFi, those are
| in hard currencies, USD or bluechip crypto such as BTC/ETH.
|
| From Voyager's bankruptcy filing we know Alameda owes them
| $650m in USD, and hasn't repaid them yet, instead SBF is
| trying to push forward a shady deal that would allow FTX to
| take over Voyager's asset.
|
| Deal to which state regulators have filed and objection in
| bankruptcy court by the way.
| stephc_int13 wrote:
| "Market Maker"
|
| How is that even legal?
| renewiltord wrote:
| Their job is to make sure that when you go to a market to buy
| or sell, there's some trade available for you to take. No
| reason for illegality.
| drexlspivey wrote:
| Why would it be illegal .. ?
| kennend3 wrote:
| > First very simple point, to become insolvent you have to
| actually take a loss somewhere.
|
| This has absolutely NOTHING to do with being insolvent.
|
| "Insolvency
|
| In accounting, insolvency is the state of being unable to pay
| the debts, by a person or company, at maturity; those in a
| state of insolvency are said to be insolvent. There are two
| forms: cash-flow insolvency and balance-sheet insolvency. "
|
| Insolvency deals with the inability to repay your debts
| (insufficient cash flow is the most common).
| deetsb wrote:
| I'd argue balance sheet insolvency is really the most
| colloquial definition insolvency. You can always sell assets
| (at a haircut of course) to evade cash flow insolvency
| (arguably that's closer to illiquidity really), but you can't
| do anything to get out of balance sheet insolvency except
| restructure your liabilities.
|
| Alameda being in balance sheet insolvency would depend on
| their assets taking enough of a hit to wipe out the equity
| buffer.
|
| To Doug's point the junk tokens are likely at book value on
| their balance sheet
| DebtDeflation wrote:
| >You can always sell assets (at a haircut of course) to
| evade cash flow insolvency
|
| If the assets in question are marketable securities (stocks
| and bonds), traded commodities, or real estate, then that's
| generally true. If the asset is some shitcoin for which no
| real market exists, not so much.
| JumpCrisscross wrote:
| > _can always sell assets (at a haircut of course) to evade
| cash flow insolvency (arguably that 's closer to
| illiquidity really)_
|
| For financial institutions, particularly those with short-
| term liabilities, illiquidity is insolvency. The initial
| liquidity depresses prices which marks down the balance
| sheet.
| dcolkitt wrote:
| Alice is a trading firm. Alice borrows $1 billion, Alice then
| uses $1 billion to go out and buy $1 billion of assets. To
| become insolvent, the value of Alice's assets has to fall
| below the value of her liabilities. Otherwise, Alice can
| simply liquidate her assets to repay her debts.
|
| The only way this can happen is if the value of Alice's
| assets falls below the cost basis in which she purchased
| those assets (plus some relatively minor short-term secured
| interested rate). For a trading firm engaged in mark-to-
| market accounting that condition represents a loss in the
| income statement. This isn't strange voodoo, this is just
| simple accounting identities.
| gamblor956 wrote:
| To put it bluntly: Alice becomes legally and technically
| insolvent if the market value of the acquired assets falls
| below $1 billion: the value of the assets is no longer
| sufficient to pay off the $1 billion loan.
| dcolkitt wrote:
| So you agree with me? For Alice to become insolvent the
| price of her assets has to fall below her cost basis.
|
| Alameda's cost basis on Solana is the seed round at
| approximately ten cents, and it's currently trading at
| $30. Similar story for all the Solana protocol tokens. I
| don't know what Alameda's cost basis is on FTT (if it's
| even holding a significant amount financed with hard
| currency), but we can almost certainly say it's close to
| the seed round price because the founder of Alameda is
| literally the founder of FTX.
|
| To make this story make sense Alameda at one point must
| have bought some asset that has fallen significantly from
| its cost basis. What exactly is this supposed asset?
| Because Alameda certainly isn't known for going out and
| taken levered long exposure on BTC, ETH or other post-
| seed liquid tokens.
| NotYourLawyer wrote:
| Cost basis has nothing to do with insolvency. If a
| company is mismanaged badly enough, it can easily become
| insolvent even if its investments are doing fine.
| gamblor956 wrote:
| No, I don't agree with you.
|
| Solana is only worth $33 right now at the current spot
| rate, but at the volume that would need to be liquidated
| to pay off Alameda's debts, the price would crash to
| pennies because the amount would represent over half of
| the daily trading volume in Solana for the past month.
| (For comparison, in the stock market, selling the
| equivalent a single-digit % of the daily volume of a
| stock can tank the stock.)
|
| Similarly, Alameda owns 80% of FTT, which has a 24h
| trading volume of less than 20% of Alameda's debts, and
| fewer than 250 active daily traders. It would be
| literally worthless if Alameda tried to liquidate enough
| to pay off its debts. And as the linked blog points out,
| FTT is just a shitcoin exchanged between two related
| entities on their accounting books, meaning that at least
| $5.8 billion of the value of FTT, i.e., 80% of the
| putative value, is purely made-up.
|
| OTOH, as the Voyager debt was collateralized entirely
| with shitcoins, it's possible that the other $7+ billion
| in Alameda debt was also collateralized in shitcoins. If
| that's the case, than Alameda should be solvent because
| it appears they actually have about $100m in cash assets.
| But if not, they are legally insolvent.
| shorthistory wrote:
| Still doesn't explain why they are holding $5.8B FTT
| dchftcs wrote:
| Given the assumption that their balance sheet is liquid
| enough or they have the cash flow to pay the debts, it's
| reasonable to say that they have take losses as a trading
| firm to be potentially insolvent.
|
| In fact you could turn your argument around to critize the
| article too, as they are based on the assumption that some of
| the assets should marked to zero, rather than examining
| empirically whether those assets could be either collateral
| or be used to pay the debt.
| the_mitsuhiko wrote:
| More importantly in some jurisdictions (eg: Germany)
| insolvency is not just a fun little accounting definition but
| comes with criminal charges if a company doesn't immediately
| file for insolvency.
| toyg wrote:
| _- internet person says he works in the crypto space_
|
| _- is actually financially illiterate_
|
| Checks out, sadly.
| shorthistory wrote:
| Why would a market maker hold so much of an asset.
|
| Market makers do not typically hold $B of anything.
|
| Alameda does not need to borrow so much FTT to make
| markets.
| amluto wrote:
| In conventional markets, market makers need the ability
| to sell that which they make a market in. This can be
| done by actually owning the asset, by having a credit
| relationship enabling sales without owning the asset, by
| naked shorting, etc.
|
| If you can't naked short, and if sales settle effectively
| immediately (cryptocurrency confirmation may well be
| _slow_ , but you can't usefully sell something and buy it
| back using the sale proceeds without confirming or at
| least generating and signing the transactions), then you
| need access to the actual token so you can sell it.
|
| In contrast, one can make a market in EUR/USD without
| actually sitting on a big pile of EUR and USD. In fact,
| market makers are likely to target an average position of
| zero in every currency except their home currency unless
| they are also trying to make some sort of long term bet.
| Similarly, I doubt you'll find that most market makers
| in, say, grain futures have warehouses full of grain.
| (Grain wants to be eaten, not hoarded for the life of a
| business. Also, making commodity markets is an entirely
| different business than growing, storing, transporting,
| and using commodities.)
|
| (This is not trading or market advice, obviously.)
| dcolkitt wrote:
| I graduated with a degree in finance from Wharton, worked
| as a quant at Citadel Securities, and have been a high-
| frequency trader for more than a decade. But I'm more than
| sure that your credentials at finance or trading are more
| qualified. :)
| surewhatever1 wrote:
| > As someone in the industry, ...
|
| It's so delightful that the finance people are coming out all
| salty!
|
| The number is going down. If you organize your life around this
| number going up, and it goes down, everyone is going to laugh.
|
| You chose this life!
|
| There is _sometimes some_ meaning in finance _somewhere_. Like
| _some_ VCs can get some meaning from, a biotech investment
| makes a great drug that helps people.
|
| But what you chose, there is none. There will be many stages of
| grief, they do not happen in order or one at a time.
|
| > First very simple point, to become insolvent you have to
| actually take a loss somewhere.
|
| C'mon dude. Listen to yourself. It's over. This isn't peak
| cringe but it's getting there.
| shorthistory wrote:
| FTT 24h volume is ~$100M according to coinmarketcap.com
|
| Alameda hold $5.8B FTT according to the article.
|
| Any market makers able to advise how much is normally held
| relative to daily volume/mean transaction size?
| JumpCrisscross wrote:
| This looks more like a dealer book than a classic MM. If
| they're long $5.8bn and short $5.79bn, their net position is
| fine. That said, they'd be carrying major counterparty risk.
| shorthistory wrote:
| 1. They are understood to be classic MM [source?]
|
| 2. Balance sheet shows they are not classic MM
|
| 3. Counterparty is FTX
|
| 4. ...
| janmo wrote:
| "Most of the liabilities on their balance sheet are probably
| these token deals, rather than loans made in hard currency."
|
| No... We know that they owe $650m USD to Voyager Digital and
| they haven't repaid it yet, instead after failing to bail out
| Voyager, SBF is trying to acquire its assets with a VERY shady
| scheme through FTX.
|
| We also know that SBF has spent a lot of effort to bail out
| BlockFi, and I am confident they are one of Alameda's biggest
| creditor, we know that BlockFi only lends stables, BTC, ETH and
| a few other bluechip coins, no FTT, MAPS etc...
|
| So everything is indicating that Alameda's liabilities are in
| USD/BTC/ETH, while their assets are FTT, MAPS, a few SOL and
| other low liquidity "shitcoins".
|
| Seems like what Alameda was doing is to take out loans to pump
| some shitcoins and mainly its own (FTT).
| dcolkitt wrote:
| No. The Voyager loan was denominated in crypto and at current
| prices represents only $200 million of liabilities (assuming
| they haven't already repaid).
|
| https://cointelegraph.com/news/alameda-research-happy-to-
| ret...
| janmo wrote:
| We know that on Jun 30th Alameda had $134m in liquid assets, at
| the same time it came out that they owe the bankrupt Voyager
| Digital around $650m USD.
|
| On Jul 8th Alameda research tweeted: "happy to return the
| Voyager loan and get our collateral back whenever works for
| voyager".
|
| Simple question here, how do they return $650m USD, if they
| only have $134m in liquid assets (cash) and the rest is in
| illiquid tokens such as FTT, MAPS and other tokens with fancy
| names and inflated marketcaps?
| lm28469 wrote:
| Crypto bros caught once again speed running the invention money
| and its associated scams/schemes
| jwmoz wrote:
| Alameda completely rinsed retail with their systems and FTX. I've
| seen their deck and their equity curve is basically a steep
| linear line upwards.
| vgatherps wrote:
| EDIT:
|
| Should preface all of this by being very, very, clear that we
| don't know what the liabilities are so can't judge too much. It's
| fun to assume their liabilities are cash, but if they've borrowed
| 2.5bn of "unspecified crypto" as in the report and still have the
| same "unspecified crypto" borrow is healthy whether or not the
| price changes. I this it's extremely unlikely all their
| liabilities are cash.
|
| Surprise surprise, who would have guessed that the trading firm
| running an exchange might have some special relationship?
|
| It's possible that the FTT is also a liability, loaned from FTX.
| The book still isn't great but is much healthier in that case.
|
| It's also possible that many of the unspecified crypto collateral
| is directly borrowed, instead of bought with borrowed cash.
|
| It still leaves a few questions:
|
| * Are they taking delta risks with borrowing funds or not?
| Borrowing to send into defi/basis has a very different risk
| profile than taking bets on price.
|
| * is tether cash, or "unspecified crypto held"? Is USDC/BUSD
| crypto held? Is DAI?
|
| * What lender would bother with the whole FTT song-and-dance
| instead of just admitting they're giving out effectively
| uncollateralized loans
|
| * Are lenders in a situation where they know the collateral is no
| good, but they also know that calling the loans/selling will
| force the worst case, so they hold on hoping for a way out?
|
| * I doubt any lenders are taking significant maps/oxy/fida
| collateral. Mega shitcoins from day1
|
| * Is this an arrangement that "made more sense" back in the bull
| market and now lenders want to call loans and avoid pissing off
| sbf?
|
| * is sbf so interested in rescuing underwater lenders since he
| doesn't want them to potentially liquidate giant ftt holdings?
|
| It's hard to come to any serious conclusions here without knowing
| the nature of their liabilities and the assets backing those (if
| any).
|
| But then again what's the risk? If you made the coin and
| basically get to chose the price, why not transmute that into
| cash? Lending to someone is an implicit OTC bid, and alameda
| surely gets a better deal in the lending markets than they would
| selling on exchange. You don't even get the price impact unless
| the lenders try to liquidate.
| janmo wrote:
| We know from the Voyager Digital CH11 filing that Alameda owes
| them $650m USD, and has not repaid them so far, instead FTX the
| exchange affiliated to Alameda is trying to acquire Voyager
| digital assets.
|
| I presume that a lot is also owed to BlockFi, which explains
| why SBF is trying to bail them out so that he doesn't have to
| repay them.
| boeingUH60 wrote:
| "Only when the tide goes out do you discover who has been
| swimming naked." - Warren Buffett.
| gitfan86 wrote:
| So BTC has been wash traded at 20k for several months now. It is
| very possible because below 15k loans automatically get called
| in. Which causes a cascade of defaults and then liquidation of
| assets.
| jqpabc123 wrote:
| Who needs government regulation? Crypto investors do if they
| don't want to get swindled.
|
| Laws don't prevent crime and regulation is no guarantee either
| but it does act as a deterrent to the most blatant scams.
| cryptoanon wrote:
| How is that related to this article?
| jqpabc123 wrote:
| They chose the crypto market for their "flywheel" scheme.
| Why?
|
| Crypto attracts scammers like flies to crap.
|
| And a big part of the reason is the lack of regulation and
| transparency.
| xch wrote:
| Good
| LatteLazy wrote:
| The title is contradicted by the article itself: if 88% of the
| firms equity were suddenly worthless (the worst car scenario),
| that would mean 12% remained. So they're not insolvent...
| rippercushions wrote:
| The definition of insolvency is not being able to pay your
| debts. Alameda claims $14.6B in assets vs $8B debts, which
| means they're solvent. If they actually only have 12% of $14.6
| = $1.8B, they're way mucho insolvent.
| LatteLazy wrote:
| Only the 5.8bn in FTT is being claimed to be worthless. Not
| the full 14.6bn in assets.
|
| If that's true (and the article itself lists reasons it isn't
| true!?), that still leaves 8.8bn in other assets, vs 8.0bn in
| debts.
|
| The article itself says the same when it says 88% of equity.
| Equity is assets less debts. So as long as they have any
| equity left at all, they're not insolvent.
| adamsmith143 wrote:
| You assume that during a firesale they would actually get
| value approaching what they claim is worth 14.6B. Since FTX
| and Alamaeda are by far the largest holders of FTT and
| significant holders of Solana they will destroy the market
| for both if they had to sell. It's likely the real value of
| their assets is far lower, as the other commenter
| suggested.
| LatteLazy wrote:
| I'm just taking the numbers from the article itself and
| the assumption that FTT specifically is worthless
| (extreme enough on it's own).
|
| If you assume a fire-sale on everything, then everyone is
| insolvent all the time...
| rippercushions wrote:
| A fire-sale of (say) a skyscraper in Manhattan is a very
| different proposition to a fire-sale of random shitcoins.
| LatteLazy wrote:
| That really depends. Most buildings are financed with
| mortgages, so if there is a real estate crash then they
| can actually have negative values, even after only a
| small price drop. Even FTT coins can only be worth zero.
| This is one of the unexpected dangers of "safe" assets:
| people will lend on safe assets, so fund managers
| leverage up until they're not safe anymore and you get
| 2008 type issues.
|
| Ultimately all of this is pretty standard for
| Hedge/Investment funds. If you want safe, diversified,
| limited downside investments, get an few index funds. The
| minute you go to a hedge fund you're asking for risk
| whether the underlying is questionable crypto or US
| Treasuries...
| mytmpaccount wrote:
| This makes sense to me in the sense that as far as I can tell SBF
| and Alameda's claims for the origin of their wealth is obviously
| false: He claims he made billions of dollars on an arbitrage with
| Korean exchanges and the rest of the world. Price differences
| existed, but with extremely small volume. If he claimed to have
| made millions from it I would have been highly skeptical, but
| billions? And during a major crypto down market to boot-- not a
| time when any idiot in the space could accidentally make a
| fortune just by having exposure.
|
| But if that trade wasn't real where did the money come from? One
| possible answer is that the money never was: maybe it was always
| just marked up balance sheets holding multiple times the
| circulating market of illiquid and close traded tokens-- all a
| great big fake it until you make it.
|
| [Apologies for the throwaway account, but I don't want to risk
| taking more retaliation from crypto scammers]
| [deleted]
| JohnJamesRambo wrote:
| This might explain why Sam Trabucco the former co-CEO abruptly
| left out of the blue a few months ago...
|
| https://fortune.com/crypto/2022/08/25/sam-trabucco-quits-co-...
|
| For those not in the know, Alameda is THE trading firm in crypto
| that everyone always assumes is causing liquidations. For them to
| be insolvent would be a huge deal.
|
| It's crazy to watch greed pollute the minds of crypto trading
| firms like Three Arrows Capital and Alameda. Zhu Su put it best
| in his own tweet long ago before the greed set in and he needed
| more and more gains.
|
| https://twitter.com/zhusu/status/1092305648904065024
|
| "Bad TA (technical analysis) is not just marginally bad--it can
| mean being net down trading an asset that has gone 1,500x and is
| still 250x from start date."
|
| "For much of 2017, Buy and Hold was actually the best performing
| strategy since Jan1 2013 of ALL TA strategies possible. This can
| easily become the case again if we go on a bull run at some
| point."
|
| Crypto gains are so large that there is no need to go crazy with
| trading and leverage and the crashes every four years are
| actually a great boon as long as you realize they will never go
| away.
| polygamous_bat wrote:
| Am I correct in understanding your argument that "so long as
| numbers keep going up, all will be fine"? Because there is a
| possibility that crypto never gains back the hype as late 2020,
| and Bitcoin never reaches the high of $69K ever again, in which
| case people who "bought and hold" at that time (including those
| who were encouraged to be "brave" by Matt Damon in a crypto.com
| ad) will never see (a portion of) their money again.
| JohnJamesRambo wrote:
| If you are anticipating human greed evaporating, then yes,
| crypto will go to zero. My experiences so far in life have
| shown that to not be likely.
|
| People holding stocks may never see ATH either, it's the risk
| we take for the mental construct we believe in.
|
| History says they probably will, as long as they hold a
| diverse portfolio.
|
| Unfortunately crypto has become just a leveraged bet on the
| stock market and has lost much of its uncorrelated asset
| status. If the stock market recovers, crypto recovers even
| harder. Ethereum price is like a higher leverage TQQQ if you
| check the charts. I liked it better when it was uncorrelated.
| jefftk wrote:
| _> I liked it better when it was uncorrelated._
|
| Is there a theorem that says returns never stay
| uncorrelated, because everyone want to diversify?
| FabHK wrote:
| Well, everyone wants to diversify, so everyone is willing
| to pay a premium for assets that are uncorrelated to the
| market, thus depressing their expected return. That's one
| of the basic insights of the CAPM. But that effect should
| not affect the correlation.
| polygamous_bat wrote:
| > If you are anticipating human greed evaporating, then
| yes, crypto will go to zero.
|
| Your assumption does not only rely on human greed but also
| on an upper limit on human creativity.
|
| You are also making a (strong, imo) assumption that humans
| will not find a new and more creative outlet for their
| greed (aka pump and dump schemes) that is not crypto.
| Crypto is already associated in the public minds with many
| grifts and scams, and it may be much simpler at some point
| to create a new scheme rather than recycling old ones.
| reidjs wrote:
| The solution to that is to not invest (or gamble) more than
| you are willing to lose and not to take financial advice from
| movie stars.
| polygamous_bat wrote:
| Your response reads the same as "the solution to global
| warming is stopping fossil fuel use". Sure, you aren't
| technically wrong, but there are billion dollar
| corporations out there whose sole existence relies on your
| "solution" not catching on.
| stephc_int13 wrote:
| Being an avid HN reader, I've been loosely following the
| crypto/NFT market with various sentiments oscillating between
| disbelief and facepalm.
|
| The real question would be: is there anything that is not a scam
| in this market?
| Aaronstotle wrote:
| I've been in the crypto-sphere for a bit, a majority of
| projects are scams.
|
| I personally believe in the large projects, and few niche ones.
|
| My buy and hold coins are BTC, ETH, Monero (XMR), MATIC (ETH
| L2), and Sol. Monero is the truest "crypto-currency" in my
| view, and I believe there should be a digital cash equivalent
| if we're moving to a digital world.
|
| ETH has smart contracts and lots of companies are using ETH L2s
| like Matic to run smart contracts (Instagram is using Matic for
| NFTs).
|
| Solana looks like a promising ETH alternative, the risk for Sol
| is that it's tied up to SBF/Alameda, but their chain is very
| fast (albeit it goes down too frequently, still in beta though)
|
| Please do not take a stranger's advice and do your own research
| on projects before investing, and don't invest more than you
| can afford to lose.
|
| I prefer bear markets for crypto, it acts like a forest fire
| and clears the grift away.
| rufusroflpunch wrote:
| Owning and holding Bitcoin is not a scam. That's about it.
| kayamon wrote:
| Not your keys not your coins.
|
| If you put your money in someone else's bank then they'll
| loan that money out against your will.
| mritchie712 wrote:
| It'd be pretty easy to create a "defi credit union" that's
| not a scam, it'd just be hard to cut thru all the noise. Give
| 3% to 5% yields on saving, lend at 8% to 12%. The problem is
| people see "230% yields" (which are scams) and wouldn't know
| your legit 5% yield is for real.
| shawabawa3 wrote:
| There are tons of legit projects that do exactly that
|
| The most well known is probably Maker
| https://makerdao.com/en/
|
| But there's also Aave, Benqi, and a bunch of others.
| mritchie712 wrote:
| yeah, I'm with you, it's just hard to tell which ones are
| reputable
| JumpCrisscross wrote:
| > _be pretty easy to create a "defi credit union" that's
| not a scam, it'd just be hard to cut thru all the noise.
| Give 3% to 5% yields on saving, lend at 8% to 12%_
|
| This is a bank. Running a bank is not easy.
| aaroninsf wrote:
| Analysis in this thread supports the conclusion that as in the
| headline, they MIGHT be insolvent; and it is not irrational to
| believe that they are.
|
| IMO the important thing is that unwinding the specifics to answer
| this, e.g. guessing what liquidation of their collateralized debt
| would mean, and running the numbers of what dogfooded assets are
| actually worth on the market (specifically should they as the dog
| not be certain to be able to support valuation...), etc ad
| nauseum,
|
| is itself so murky (and typical of "difi") as to make a more
| important assertion,
|
| this industry continues to a clown show grift and bad faith, and
| even well-intended good-faith participants have little to no
| chance of ever knowing where they stand or having any security.
|
| One of the few satisfactions of the looming economic apocalypse
| is going to watch this particular wing of the house of cards fold
| instantly.
| SevenNation wrote:
| What a lot of people don't understand is that the last cycle
| isn't over until idiotic enterprises like this self-destruct.
| michael_j_ward wrote:
| What the argument misses / why FTT is different than Terra
|
| 1) Alameda Research owns FTX, one of the largest and arguably
| most important crypto exchanges.
|
| 2) FTX offers fee discounts to FTT-stakers and additional
| discounts if you _pay_ in FTT. [0]
|
| 3) Trading volume on FTX thus creates an organic demand cycle for
| FTT. The large firms will buy, stake, and then continuously
| refresh their supply.
|
| 4) The vast majority of the volume at FTT will be in margined
| accounts at FTX. I am uncertain if the volume analysis would
| capture FTT movements in (3).
|
| Now, there's clearly financial alchemy going (giving away real
| economic value to boost an asset that you can then get leverage
| on) but that'd be better for Matt Levine or someone to flesh out.
|
| [0] https://help.ftx.com/hc/en-us/articles/360024479432-Fees
| gus_massa wrote:
| The problem with Terra was that the stakers got a guaranteed*
| 20% anual interest in dollars*. You can take a look at all the
| fine print and implementation details, or be a naysayer like me
| and read the 20% and claim it will collapse.
|
| I can't find the details about FTT/FTX. How high is the
| guaranteed* anual interest in dollars*?
|
| * With some mild assumptions, like the coins doesn't crash
| miserably. Past performance does not guarantee future results.
| YMMV.
|
| Note: This year with a 7% inflation rate perhaps a 20% is not
| too unrealistic as in usual years with a 2% inflation.
| michael_j_ward wrote:
| heh - you're obviously correct and now I'm kicking myself for
| forgetting the #1 difference.
|
| FTT does not offer any sort of interest like Terra did. The
| benefits of holding are strictly discounted use of the FTX
| platform [0]
|
| [0] https://help.ftx.com/hc/en-us/articles/360052410392-FTT-
| Stak...
| pixelpoet wrote:
| I'm continually surprised by how many "major" crypto firms I've
| never heard of before (being familiar with the space) suddenly
| are regarded as big names when they go under.
|
| Wake me up when it's Kraken or something, i.e. a company someone
| may actually have heard of.
| paulgb wrote:
| Alameda is closely tied to FTX, which is big enough to have an
| arena in Miami named after it.
|
| > This purported leak of Alameda's financials demonstrates that
| the firm's largest asset is its holdings of "FTX Token (FTT),"
| issued by none other than SBF's FTX Exchange.
| phphphphp wrote:
| I'm not sure if this is sarcasm or not, but just in case it's
| sincere: Alameda are considered a lynch-pin of the crypto
| industry, they're holding up pretty much everything... and by
| extension, FTX is far more important than Kraken. If Alameda
| implode, it'll be far worse than 3AC's implosion. I don't think
| it's possible to kill the crypto industry, but Alameda's
| implosion would be the most likely event to cause it.
| x1ph0z wrote:
| The whole point of crypto was to be decentralized. For one
| company to go down and cause the industry to implode means
| the industry is on the wrong path and needs to be reset.
| Finnucane wrote:
| Or it could be that the idea that it could actually work
| that way was just wrong. The creators of bitcoin adopted
| the delusions of goldbugs, tried to replicate it in a
| digital form. Adapting 19th century ideas about money to
| 21st century technology, and expected it to work.
| xiphias2 wrote:
| Bitcoin is still the same as ever, it has survived and
| recovered from lots of exchange collapses after a few
| years.
|
| But there are tens of millions of new people (or even more)
| since the MtGox collapse in 2014 who haven't learned the
| lesson and ,,chasing yields'' or lending against their
| crypto tokens / leveraging their positions (the new forms
| of financializing BTC, aka not holding your own keys).
|
| I personally know somebody who lost all his BTC / ETH by
| lending against it and buying more when BTC price was over
| $50k.
| threeseed wrote:
| Once the investors got in the whole point became making it
| more centralised just with the dominant players being ones
| they control.
| NickM wrote:
| A decentralized system can still die if nobody wants to use
| it anymore. If prices continue to fall as a result of more
| and more flywheels and ponzi schemes coming to light, and
| more and more people keep losing their shirts as a result
| of companies getting hacked/going backrupt/etc., then we
| may start seeing negative feedback loops as more and more
| people give up and leave.
|
| Arguably this has already started happening.
| CyberDildonics wrote:
| I don't think anyone, even proponents of cryptocurrencies
| think that the industry as a whole is 'on the right path'.
| chinathrow wrote:
| > I don't think it's possible to kill the crypto industry,
| but Alameda's implosion would be the most likely event to
| cause it.
|
| As a bystander, it's hard to grasp the likeliness of this
| happenning, can someone elaborate on what would be able to
| trigger it?
| phphphphp wrote:
| Hard to say, because we can only speculate on the true
| state of Alameda. Sam Bankman-Fried owns both Alameda and
| FTX and so while they're separate entities, they are co-
| mingled in many ways.
|
| Assuming FTX is a profitable enterprise (a big question in
| the current market) then any problems Alameda faces could
| be addressed by SBF leveraging FTX in some way to bail
| Alameda out... but it's also plausible that FTX is
| dependent upon Alameda and that Alameda's faltering could
| take down FTX.
|
| My guess is that an Alameda implosion is unlikely because,
| as far as I can tell, they're not engaging in fraudulent
| behaviour, just crypto hubris... and so, worst case, they
| have to scale back their activity... but if they are
| reliant on third-party capital, and the current economic
| trend continues... it seems plausible that could trigger
| major problems in the crypto world.
| pcthrowaway wrote:
| I work for another (much smaller) crypto market maker.
|
| Alameda imploding would definitely cause a lot of specific
| assets to nosedive in the short-term, and a lot of
| volatility, but I think it'd be impossible for it to destroy
| crypto (perhaps the Solana blockchain, since they're heavily
| invested, but even that seems like a stretch).
|
| That volatility would also be a ton of opportunity (for other
| market makers).
|
| Things that could conceivably _destroy crypto_ are more along
| the lines of coordinated regulation from an influential,
| multinational group, like the entirety of the G7
| FabHK wrote:
| > Things that could conceivably destroy crypto are more
| along the lines of coordinated regulation from an
| influential, multinational group, like the entirety of the
| G7
|
| Sounds like a plan.
| hucker wrote:
| Not to be that guy, but this is probably the biggest and most
| well known of all crypto trading firms, and the source of SBFs
| fortune initially.
| HelloNurse wrote:
| I consider remembering the names of "crypto firms" and their
| products an index of contamination: I might not be ignoring
| them well enough to protect my savings.
| [deleted]
| StevigeHoning wrote:
| Just because you didn't heard of it, doesn't mean its not a big
| name. Also Kraken is a Exchange not a trading firm.
| pixelpoet wrote:
| Of course my awareness isn't what decides if a firm is a
| major one, and I did refer to crypto firms in general.
|
| In any case, apparently these guys are a big deal and I
| hadn't heard of them. Maybe it's European bias, and I'm not a
| crypto expert or anything, just interested.
| shawabawa3 wrote:
| The wallstreet equivalent would be Blackrock being
| insolvent
|
| Most laypeople haven't heard of blackrock either
| velavar wrote:
| The reason that a lot of retail investors may not have heard of
| Alameda Research is that they are an institutional investor and
| don't lend directly to customers (afaik?). However, they do
| pack the monetary heft to make a lot of the interest payouts by
| companies such as Celsius possible.
|
| It's as if Jane street failed, a company that an normal BofA
| user may not be familiar with.
| pixelpoet wrote:
| Thanks, that makes sense.
| adam_arthur wrote:
| Huh, you don't say
| aljungberg wrote:
| If those loans are no-recourse loans with this FTT token as
| collateral, then should the token crash the liability just
| "disappears". The collateral will be sold to cover the loan. If
| the collateral is now worthless that was the risk the lender
| agreed to take on when issuing a no-recourse loan.
|
| If they are Defi loans for example, they're pretty much
| automatically no-recourse loans.
| jevgeni wrote:
| that kind of a dynamic is not unique to crypto.
| cryptoanon wrote:
| Exactly. It seems like the author has very limited insight in
| the space. It makes you curious how they could come to such a
| headline/conclusion, when they spend the entire article,
| talking about the assets instead of the liabilities!
| automatic6131 wrote:
| >It seems like the author has very limited insight in the
| space.
|
| lol. Lmao, even.
| gjvc wrote:
| You ought to know by now that HN readers are experts on
| everything.
| NotYourLawyer wrote:
| Are no-recourse loans typical in this space? Seems insane.
| josu wrote:
| Unless their liabilities are also in FTT.
| tiku wrote:
| Might be. Since when do we allow such posts with bold claims
| only?
| FortiDude wrote:
| Why is it so difficult for trading companies to simply keep the
| money in the reserve and never touch it unless your client wants
| to liquidate his share?
|
| I know, having that huge pile of cash and not doing anything with
| it can lead to huuuuuge temptations, but that's what I'm paying
| the company to do. If I wanted to invest my funds into something
| I would move my money to a separate investment account that the
| institution can play with as they please (with some client-
| defined risk restrictions) and give me a percentage of profits
| thr0wawayf00 wrote:
| Because they don't make as much money that way. History has
| repeatedly shown us that asking companies to voluntarily forgo
| profit-earning opportunities does not work. Companies exist to
| make money and this why regulators like the FDIC exist, to
| ensure that financial institutions are liquid enough when
| things go south.
|
| This is simply not something that financial institutions are
| capable of doing themselves.
| boeingUH60 wrote:
| "Huuuuge temptations" is the answer. At that level, the
| temptation is too much to bear except enforced by an external
| hand.
|
| That's why there are regulations against playing with
| customer's deposits in the traditional banking sector, or else
| greed will make banking executives do similar things as the
| crypto companies.
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