[HN Gopher] The Sam Bankman-Fried empire crumbled. What happened?
___________________________________________________________________
The Sam Bankman-Fried empire crumbled. What happened?
Author : williamstein
Score : 228 points
Date : 2022-11-10 14:40 UTC (8 hours ago)
(HTM) web link (newsletter.mollywhite.net)
(TXT) w3m dump (newsletter.mollywhite.net)
| natdempk wrote:
| There is a part two available here with more opinion/analysis:
| https://newsletter.mollywhite.net/p/ftx-analysis
| williamstein wrote:
| With potential for discussion here:
| https://news.ycombinator.com/item?id=33547135
| pvg wrote:
| That's a link to nowhere, not a 'potential discussion'. On HN
| it's better to keep the discussion of closely related things
| in one place otherwise it just gets repetitive. The splits,
| when they happen, are just more work for the moderators who
| end up having to merge this this stuff.
| hamiltonians wrote:
| ftt is still trading at $3. It's down but not out. this is the
| same price as late 2020.
| rideontime wrote:
| Should I buy some? What can I do with FTT?
| dibt wrote:
| No, you should not. It's an exchange token. It's meant to be
| used as collateral for your trading, instead of USD, BTC,
| etc. It incentivizes this by giving you reduced exchange fees
| based on how much FTT you own.
| NotYourLawyer wrote:
| Subsidize the accounts that have lost everything, I guess.
| nisegami wrote:
| Find some other sucker to hold the bag.
| stusmall wrote:
| The crypto community is wild. Literally in a thread about how
| the wheels are coming off the cart, the project frozen
| withdraws and possibly mishandled user funds there is the
| question "Should I buy in?" Also I love that the question of
| "What value does this provide?" comes after the question
| about buying it. At least the question came at all.
| lovehashbrowns wrote:
| It's all from that buy the dip meme. I saw something
| similar where people were asking if they should buy that
| LUNA coin thing during its meteoric collapse. I think that
| coin is still in the dumpster so..
| stickfigure wrote:
| Warren Buffet puts it this way: "be fearful when others are
| greedy and to be greedy only when others are fearful". So,
| honestly, it's a very reasonable question.
|
| I personally wouldn't touch it, but I'm at least curious to
| hear the heterodox argument. _Somebody_ out there is still
| buying it at $3, I wonder why.
| dibt wrote:
| There's still an opportunity IF you know what you're
| doing. I wouldn't recommend it.
|
| It's traded elsewhere, and there are derivatives that pay
| premium. There's also the chance that Binance, Tron, or
| someone else accept conversions of FTT at some rate that
| makes the trade profitable. Facts are still coming out.
| We can only say it's not yet worth $0.
| pcthrowaway wrote:
| The question people have to ask is, "If I'm considering
| buying now that it's low, how many people will I be having
| that thought ahead of?"
|
| It's not dumb or even irrational. Or no more than any
| thought involving crypto is irrational.
|
| Lots of people have made money catching a falling knife
| right before a big bounce.
| twblalock wrote:
| You can turn $3 into $0 very quickly.
| vishnugupta wrote:
| > What can I do with FTT?
|
| Sell it to someone else.
| jbverschoor wrote:
| He got busted with his hand in the cookiejar, that's what
| happened
| labrador wrote:
| I'm having a hard time understanding why organizations like the
| Ontario Teachers' Pension Plan has money in uninsured crypto
| funds. Somebody has some explaining to do.
|
| Sequoia Writes Off Entire $210MM FTX Investment; Here Are All The
| Other Funds That Are Losing Billions In FTX
|
| https://www.zerohedge.com/markets/here-are-all-funds-are-abo...
|
| Edit: 25 billion dollars up in smoke
|
| Ontario Teachers' Pension Plan faces a hit on investment in
| crypto trading platform FTX
|
| https://archive.ph/V6Aw0
|
| No mention of it on the website
|
| https://www.otpp.com/en-ca/
| mewse-hn wrote:
| He said the investment was part of Teachers' strategy to learn
| about the crypto business and whether it gives the right
| balance of risks and returns. "I don't think we have the answer
| to that question yet," Mr. Taylor said.
|
| Holy shit.. they were openly investing in something they don't
| understand??
| RC_ITR wrote:
| As others have said, those who understand crypto either chose
| to be conniving and make money off of the scam, or they avoid
| it.
|
| Mr. Taylor wanted to test if he could be conniving enough to
| profit and he turned out not to be (very few will be in the
| long run).
| snowwrestler wrote:
| Nobody understands crypto from a financial perspective.
| That's why all the big crypto companies keep dying in new and
| interesting ways.
| BLKNSLVR wrote:
| Recently they seem to be dying in the exact same way:
| reinvesting customer funds.
| snowwrestler wrote:
| Sure, but lots of other kinds of financial institutions
| reinvest customer funds and don't die.
| iudqnolq wrote:
| They have hundreds of billions, of which they set aside
| around 3% for risky bets. One of those risky bets failing
| isn't a big deal.
| yborg wrote:
| Not particularly fond of Zero Hedge, but "Scam Bankrupt Fraud"
| is kind of catchy.
| wmf wrote:
| No good investments are insured and FTX isn't a fund.
| diab0lic wrote:
| Plenty of good investments are insured. There are whole
| classes of investment that simply would not be sane to do
| without insurance. Taking an example from every day life:
| People buy investment properties and most of the time they
| insure them.
| jrochkind1 wrote:
| Investment properties not generally insured against loss in
| market value, no matter how drastic.
| diab0lic wrote:
| Nobody ever claimed they did, but it is an investment,
| with insurance.
|
| If you want something more financial a short vertical
| spread [0] is a strategy in which you are purchasing
| insurance on the risk (investment) you just took (made).
| There are many such investments of this form.
|
| [0] https://www.optionsplaybook.com/option-
| strategies/short-call...
| [deleted]
| mikeyouse wrote:
| The Ontario Teachers Pension Plan invests in tons of things,
| it's like CALPERS. They're present on the cap table of nearly
| every company you've heard of because they have a hundreds of
| billions of assets and are chasing yield. They didn't have
| money _on_ FTX, but had invested _in_ FTX like they do with
| tons of other VC investments.
| iudqnolq wrote:
| OTPP is surprisingly big and very successful overall. And they
| invested at a $25B valuation, which is very different from
| investing $25B
|
| > Teachers first bought its FTX stake in October, 2021, as part
| of a US$420-million funding round. It was one of 69 investors,
| but FTX listed it first in its announcement of the financing.
| Teachers has never disclosed exactly how much it invested.
|
| > The pension plan housed the investment ... a portion of the
| portfolio dedicated to high-growth, yet high-risk, investments.
| As of June 30, the $8.2-billion portfolio represented just 3
| per cent of Teachers' $242.5-billion in assets.
|
| Teachers ... reported a 1.2-per-cent return for the six months
| ended June 30. By way of comparison, Royal Bank of Canada's RBC
| I&TS All Plan Universe saw defined benefit pension plan assets
| ... shrink 14.7 per cent over that period.
| rr888 wrote:
| To me its extraordinary that its just a few years old. Started in
| 2019, valued at $32 billion just a few years later. For an
| exchange?
| codegeek wrote:
| Hence the Crypto bubble. Nothing should be valued at 32 billion
| in less than 3 years when all it produces is speculative stuff.
| Nothing screams more "get rich quick" than these things.
| eachro wrote:
| 2019*
| rr888 wrote:
| Thanks fixed. (I originally put 1999, I'm getting my bubbles
| crossed.)
| [deleted]
| newaccount2021 wrote:
| low_tech_love wrote:
| Matt Levine's talk with SBF is definitely the most bizarrely
| depressing (or funny, depending on your mood) thing you'll read
| today. Hell, this week?
| https://www.bloomberg.com/news/articles/2022-04-25/sam-bankm...
| molsongolden wrote:
| This is a great quick read and it's interesting because it's an
| abstraction of many other markets (not just DeFi).
|
| Reminds me of Damodaran's[0] focus on price vs. value when
| evaluating equities:
|
| >I have long drawn a distinction between price and value, two
| terms that get used interchangeably in both academia and
| practice, but with very different drivers and implications. As
| we watch stock indices around the world gain and lose trillions
| each day, it is worth remembering that markets are pricing
| mechanisms, not value mechanisms, or as Ben Graham would put
| it, they are voting machines, not weighting machines, at least
| in the short term.
|
| [0](Well-respected finance/valuation professor at NYU for
| anyone not familiar) https://pages.stern.nyu.edu/~adamodar/
| ajkjk wrote:
| I still don't get who is actually trading crypto on these
| exchanges. I have trouble believing it is not 99% wash trades.
| bombcar wrote:
| That low?
| jamesfmilne wrote:
| I was in the local Co-op supermarket in North London buying
| some bread & milk the other day. The staff in the shop were
| talking amongst themselves about how "they were into crypto". I
| doubt they were comparing their elliptic curve coefficients.
|
| SBF, CZ and his ilk have taken money these people can ill
| afford to lose in this financial climate and spaffed it up the
| wall on sports stadiums and billboards of themselves all over
| the place.
| BLKNSLVR wrote:
| The fan-spread-shit hasn't splattered onto CZ yet.
|
| Do Kwon, 3AC guys, Celsius guys, Voyager guys, yes. Binance /
| CZ no(t yet).
| polygamous_bat wrote:
| The part that is not wash trading is what I would imagine
| "veteran" "crypto traders" just trading the same tokens back
| and forth looking for just one more hit.
| TechBro8615 wrote:
| The first time I ever even _heard_ of SBF was when he testified
| at a Senate hearing as a "billionaire crypto exchange
| founder." I didn't think much of it, but it was a bit weird - I
| thought I was pretty familiar with the space and the people in
| it but apparently not.
| itintheory wrote:
| I'm looking forward to seeing the responses from the people who
| trash-talked the Dirty Bubble Media article on HN a couple weeks
| ago. Is it time to eat crow?
| raverbashing wrote:
| How did it happen? Sequoia invested on a personality cult who
| thought he was too important to stop playing games while in an
| investor meeting
| https://twitter.com/firstadopter/status/1590453539813621761
| wigster wrote:
| is this nominative determinism kicking in?
| jjmorrison wrote:
| Can someone explain to me why they can't solve this by moving the
| money back from Alameda to FTX? Assuming Alameda is not that bad
| at investing money, most of the loan should still be there no?
| [deleted]
| mjaques wrote:
| This is exactly what I was wondering.
|
| It's possible (likely) that Alameda has invested that money in
| iliquid assets or assets that have since lost value. Also,
| since the loans of FTX to Alameda were backed by FTT, which has
| since collapsed, even if FTX makes a margin call, the
| collateral has a fraction of the original value.
| ARandumGuy wrote:
| I think this should be a warning to anyone still invested in
| other crypto companies or exchanges. Everything seems like it's
| going well, until the music stops and the exchange is insolvent.
|
| FTX is not unique. A lot of crypto exchanges are doing just as
| much shady stuff. When you put your money with these companies,
| you're betting that "no really, this one is above board!" That's
| an extremely risky game to play when the crypto space operates
| with no transparency and no consumer protections.
| nickstinemates wrote:
| This is a common mantra - if it's not your keys it's not yours.
| Leaving your crypto in an exchange is a huge convenience but
| also a huge risk for exactly this reason.
|
| It's completely the opposite thinking where cash is more
| dangerous than leaving your money in a checking account for
| normal people.
| SilverBirch wrote:
| I think one thing to think about is that I'm sure someone with
| integrity is running a crypto exchange and they genuinely are
| just running a crypto exchange that works. But those guys
| aren't creating exponential valuations. We can ground this all
| in real expectations- the CME group is worth 62Bn market cap,
| Deutche Borse is worth ~30Bn.
|
| Why, why, why would you think that a niche crypto exchange is
| worth more than the biggest European exchange? We know what the
| comparables are people!
| antasvara wrote:
| In a lot of ways, crypto is just relearning the basic lessons
| of finance that banks and corporations learned decades ago.
|
| Things like "don't allow customers to use your company's assets
| as collateral" and "using a bunch of leverage on volatile
| crypto" are much less frequent in traditional finance,
| specifically due to regulation or the fact that these
| strategies have tried and failed before.
|
| This isn't to say that decentralized finance is exactly the
| same as traditional finance, because it isn't. But I think the
| lesson here is that when you're offering products similar to
| traditional finance, you should assume that many of the same
| rules/best practices of traditional finance should apply.
| latchkey wrote:
| Everyone keeps saying regulation is the key, however in
| todays thread about 'not getting rich trading options' [0],
| all I see is people talking about how they lost money or that
| the game is rigged by the biggest players... and that is in
| one of the most regulated and well known markets on the
| planet.
|
| I don't see how regulation fixes anything.
|
| [0] https://news.ycombinator.com/item?id=33547658
| binkHN wrote:
| > ...crypto is just relearning the basic lessons of finance
| that banks and corporations learned decades ago.
|
| To my way of thinking, they're not relearning anything--
| they're specifically using lessons learned from history as a
| playbook to make, well, illicit gains.
| aniforprez wrote:
| While I could say banks are equally guilty of doing shady
| stuff, the truth is banking is hundreds of years old and as
| such, has regulations and insurance behind it. Not regulating
| is how we get messes like the Housing Bubble in the 2000s in
| the US culminating in the crash in 2011. Crypto being a
| completely new space has no regulation and no checks and
| balances which leads to messes like this with companies playing
| around with their assets and unable to repay their customers
| when they collapse. I suppose the draw of crypto is inherently
| that it is a wild, freeform space free from government
| interference for some people I guess
| fred_is_fred wrote:
| Unfortunaely the draw for many isn't that they want a
| libertarian dream society with no rules, but rather they
| think they can get rich quick. The "banks are bad" is part of
| the appeal also. I have a cousin who works in the food
| service industry (think something like managing a Chipotle)
| and has put all his liquid assets into crypto and still
| thinks they will "pay off so he can retire".
|
| As for banks - as soon as these crypto scams fail, everyone
| will find out just why the SEC and FDIC are there. They were
| not created just because some politician had an idea for more
| bureaucracy.
| no_wizard wrote:
| My "hot take" if you will:
|
| SEC and FDIC aren't usually, to the general public,
| negatively seen due to their mission. Its the fact they
| don't prevent criminal / unethical behaviors beforehand,
| and banks get away with alot before anyone intervenes.
|
| I actually don't think the average US citizen is "anti
| regulation" with this. I think - and I include myself in
| this - that we see agencies like the SEC (more so than the
| FDIC) don't act fast enough or often enough, and when they
| do, the fines are a slap on the wrist vs the profit made by
| the bad behavior.
|
| In a nutshell, they just aren't acting effectively, and
| thats why they get a bad wrap.
| tl wrote:
| > Its the fact they don't prevent criminal / unethical
| behaviors beforehand, and banks get away with alot before
| anyone intervenes.
|
| A better example is the IRS with a double standard of
| overzealous enforcement against individuals and small
| business who cannot defend themselves and complete non-
| enforcement against higher tiers of wealthy.
|
| In the case of the SEC or FDIC, this has resulted in the
| near elimination of smaller fish aside from protective
| carveouts like the Durbin Exempt Interchange.
| sooheon wrote:
| Yeah, people like effective regulation, it's just
| regulatory capture is worse than no regulation.
| codyb wrote:
| Unfortunately for your cousin, he's the bag holder that the
| people getting rich quick are going to take for a ride.
|
| As far as I can tell.
| fred_is_fred wrote:
| yes - he absolutely is. I'm not sure he knows that
| though.
| lkrubner wrote:
| "US culminating in the crash in 2011"
|
| The official date given by NBER says that the recession began
| in December of 2007, which put the economy into a fragile
| state, which was intelligently managed for another 9 months,
| before circumstances went beyond anything that could be
| managed. Then the financial meltdown began in September of
| 2008.
| eftychis wrote:
| And to amend a bit, to give the whole perspective: And one
| of the triggers started when around 2005 the FED started
| raising interest rates.
|
| Which it had lowered more dramatically due to 9/11.
|
| https://www.bankrate.com/banking/federal-reserve/history-
| of-...
|
| Let that sync in, is my 2c.
|
| (Extra:The FED interest rates takes 2 years to kick in to
| Adjustable Rate Mortgages which where the first to fall.)
| somuchfordonor wrote:
| > And one of the triggers started when around 2005 the
| FED started raising interest rates
|
| The fed did not cause the crypto crash. It didn't force
| people to gamble on cryptocurrencies. It didn't force
| them to not sell, at the top of the naked ponzi schemes
| they participated in.
| AnimalMuppet wrote:
| Interesting.
|
| Question, though, and coming back on topic: Did the
| rising interest rates trigger this (FXT)? There might be
| a path here, and it would _not_ have the two-year delay
| of adjustable rate mortgages.
| steveBK123 wrote:
| Rising rates usually ends up showing us who was swimming
| naked.
|
| The business models that relied on a perpetual supply of
| new capital, & other overly risky gambles become less
| attractive to investors when you can go get 5-7% on some
| boring bond with no risk.
|
| You also have liquidation spirals as speculative
| investors need to sell asset X because of margin calls on
| asset Y. Which then causes a margin call on customer2 who
| owns asset X which has now gone down so they go sell some
| asset Z.. and so on.
| eftychis wrote:
| Cause, no. Make it more likely, along with the world
| situation we are in and the supply dysrhythmia, yes.
|
| Recall FTX used a bunch of cash to save failing companies
| which would create systemic shock (ironic), acquire and
| invest lately, including in the Silicon Valley. My guess
| here: "1-2/3-4 Billion" is enough for liquidity, nobody
| is going to run on us, we are trusted, especially after
| us saving the world.
|
| There was "bad event rolls" in the system and when they
| came, nobody can/will/would give them that amount of
| money.
|
| I am sure in great times, they would also find
| liquidity/loans more easily -- which is what they are
| still trying to do. ("Everyone" is keeping cash to the
| chest, waiting to see what happens right now.)
| KptMarchewa wrote:
| Back then large percent of mortgages were adjustable
| rate, the amount of those now is a single digit.
|
| https://i2.wp.com/financialsamurai.com/wp-
| content/uploads/20...
| jasonwatkinspdx wrote:
| It was even worse than that. I worked for Wells Fargo
| doing credit checks at the time. The entire system was
| set up to rubber stamp loans without looking too closely.
| That'd be a problem for whatever downstream sucker bought
| it. At the time I had a bit of a robin hood attitude
| about it: if it's not illegal and follows policy that
| these subprime folks historically discriminated against
| get a bigger loan so be it. Now I have a more complex
| view on it, and see it as much more brazenly predatory.
| duvenaud wrote:
| I mean, banking was already hundreds of years old in the
| 2000s. So recent bubbles and crashes in traditional markets
| seem like evidence that regulation, at least the kind that
| ends up being implemented, isn't doing much to prevent very
| bad outcomes.
| pjc50 wrote:
| There are two kinds of risk that are fundamentally
| unavoidable in being a "bank" - that is, any institution
| that borrows short and lends long. One is liquidity as a
| result of that duration mismatch: you _have_ enough money
| owed to you that you 've lent out, but it's not due yet.
| The other is loan writeoffs: you've lent money that you
| cannot get back, often because it's secured against an
| asset whose value has fallen significantly.
|
| These can be reduced but not entirely eliminated by setting
| reserve requirements, LTV ratios, etc., which is what
| https://www.bis.org/bcbs/basel3.htm is all about.
|
| You can't really eliminate the duration mismatch without
| eliminating anything recognisable as a "bank", and it
| becomes much more expensive to get credit _and_ to do basic
| financial operations.
| saurik wrote:
| Centralized financial exchange markets are at least somewhat
| regulated and notably FTX.US is supposedly A-OK. Just because
| some stuff in crypto doesn't have regulations doesn't mean it
| is a free-for-all.
| LeafGuild wrote:
| >Just because some stuff in crypto doesn't have regulations
| doesn't mean it is a free-for-all.
|
| It pretty much does. The free-for-all disregarding of laws
| (including laws against fraud) is the stated purpose of
| crypto. They've been pitching this as Fight Club For
| Finance since the very beginning. The exchanges with a
| legitimate appearance are just fronts to get you to the
| back room with all the unregulated tokens offering insane
| interest rates. If you didn't come for a scam-or-be-scammed
| fight to the death, there isn't any reason to use crypto.
| The crypto bros just missed the part where Fight Club falls
| apart if you tell everyone about it. Or maybe they got too
| excited and forgot about that rule.
| zen21 wrote:
| What does A-OK mean? No exposure at all?
| idkyall wrote:
| As I understand it, FTX outside the US offered many
| exotic financial products: e.g. 24/7 traded Tesla stock
| tokens[1], leverage, etc., which I don't believe US based
| crypto exchanges are allowed to offer(Coinbase stopped
| offering leverage in 2020, for example). The acquisition
| offer yesterday did not include FTX.us[2]
|
| This may mean that the US part of the exchange and the
| associated customer funds were not lent out, but we shall
| find out.
|
| [1]https://coinmarketcap.com/currencies/tesla-tokenized-
| stock-f... [2]https://www.cnbc.com/2022/11/08/binance-
| offers-to-buy-ftxs-n...
| ignoramous wrote:
| > _...has regulations and insurance behind it._
|
| And billion dollar bailouts. With a few billions every decade
| or so, FTX probably survives such crises multiple times over.
| eftychis wrote:
| a) They are similar products banks/certain financial
| institutions utilize right now, just with corporate debt --
| oh what can go wrong in a recession, right?
|
| b) Bank runs happened in 2008 (U.S.), 2010-12 etc. A lot of
| crypto companies buy insurance similar to what the government
| says, but lacking regulation and the government behind you
| makes it as you said problematic.
|
| But: banks are years old and keep making the same mistakes
| and failures. Big banks (not your corner side community bank
| that acts as intermediate and its job is community welfare
| and good relations) haven't changed. I'd be surprised if we
| avoid another bank related incident, if we enter a recession.
| pjc50 wrote:
| > your corner side community bank that acts as intermediate
| and its job is community welfare and good relations
|
| Spain used to have a lot of these, and the financial crisis
| blew almost all of them up:
| https://en.wikipedia.org/wiki/Savings_bank_(Spain)
| zelias wrote:
| What kind of sunscreen does CZ wear at the beach?
|
| SBF 69
|
| I'll see myself out
| friend_and_foe wrote:
| Please do. This type of low effort crap seeping in from Reddit
| is starting to get annoying. Take it back there, save your
| words here for when you actually have something substantial to
| say.
| simonw wrote:
| This is such an excellent write-up - showcases a veteran
| Wikipedia editor's ability to synthesize something comprehensive
| from a huge array of rapidly changing sources.
| SanjayMehta wrote:
| SBF's Wikipedia page is being vandalized right now.
|
| https://en.wikipedia.org/wiki/Sam_Bankman-Fried
|
| https://archive.is/2022.11.10-162501/https://en.wikipedia.or...
| whateveracct wrote:
| Seems like a tangent
| adamsmith143 wrote:
| The same story as always, SBF thought he was smarter than
| everyone else but like everyone in 07-08' he misjudged his risk
| exposure and it turns out when the market stops going up the
| music stops.
| mrguyorama wrote:
| I'm so tired of people who are lauded as geniuses because their
| lottery ticket bet paid off. Why are people so convinced that
| being rich means you're smart?
| kibwen wrote:
| The just-world hypothesis/fallacy:
| https://en.m.wikipedia.org/wiki/Just-world_hypothesis
| bergenty wrote:
| Because getting rich is one of the hardest things to do in
| society. It's getting power + stability in one fell swoop and
| is everything humans are biologically built to value.
| codyb wrote:
| Well... not really right? Cause lots of people are rich
| through inheriance. And lots through the lottery.
|
| SBY appears to have gotten very rich through a simple
| arbitrage trade. Props to him for exploring the space and
| making the moves... but it doesn't take a genius to see that
| if you can buy something for cheap in one place and sell it
| in another for more that you can make a bunch of money if you
| do it over and over.
| bergenty wrote:
| So a handful of people. I think that pretty much aligns
| with what I was saying.
| 0x500x79 wrote:
| I love the veritasium video on luck. I highly recommend anyone
| who is interested in this concept watch it.
| hcks wrote:
| This comment came a few times but it really doesn't make sense
| to me.
|
| How many people actively try to become billionaires like he did
| in a systematic way?
|
| And contrary to many entrepreneurs, I don't see where he got
| especially lucky.
| pcthrowaway wrote:
| Why does fucking up mean you're _not_ smart? You have to be
| smart by some metric to get a job at Jane street.
|
| Lots of smart people fuck up in finance, and "dumb" people even
| strike gold sometimes.
| woeirua wrote:
| SBF just made a tweet thread where he tried to apologize, while
| also distancing himself from FTX.US. Just more lies. Why anyone
| would believe him is beyond me. My guess, is he's desperately
| trying to avoid a run on FTX.US to keep the SEC from coming in
| like a bull in a china shop.
|
| I feel bad for him, he's either going to jail for a very long
| time, or he'll have an "accident" after losing so many people so
| much money.
| coolspot wrote:
| Don't hold your breath.
|
| Newman, Karpeles and others are alive and free.
| zeroclip wrote:
| Very informative and clearly written, kudos to Molly!
|
| The irony is that DeFi and blockchain protocols fixes this.
| brk wrote:
| Blockchain may fix it, but couldn't we also argue that
| blockchain created these problems in the first place?
|
| I will fully admit I have only casually followed the whole
| blockchain/crypto scheme, so maybe I'm wildly off on something,
| and would definitely appreciate informed responses.
|
| Without blockchain, there is no "crypto", without crypto, there
| are no exchanges and related coins, and without those, none of
| this happens or exists.
|
| How would blockchain be used to fix this?
| dibt wrote:
| >How would blockchain be used to fix this?
|
| All of the things that are being reported on this situation
| would not have been possible on a DEX.
|
| Decentralized exchanges (DEX) exist on-chain. They
| incorporate automatic market making (AMM), not a third-party
| market maker with an association to the exchange. The DEX
| does not have custody of user funds, and it would be
| impossible to hide a multi-billion dollar hole in an
| exchange's balance sheet.
| kzzzznot wrote:
| Do they work in practice?
| dibt wrote:
| Yes.
|
| https://uniswap.org/ and https://curve.fi/ are the most
| popular, and have similar 24 hour volume to established
| exchanges like Coinbase.
| mikeyouse wrote:
| Kind of..
|
| Solend is a major one that's currently falling over.. and
| apparently just disappeared $6M worth of users' assets;
|
| https://twitter.com/patio11/status/1590725993324777472
| dibt wrote:
| Solend is not a DEX. It is for borrowing against assets.
| https://aave.com/ is a better lending protocol. Solend
| has a questionable history, and is closely associated
| with FTX, which is why the SOL token is down so much.
|
| Patrick gives a good description of the problems in that
| tweet thread, and why it is affected.
| zeroclip wrote:
| The birth of the stock market also created new avenues for
| fraud that did not exist prior. This is a new asset class,
| poorly understood and poorly regulated, and still ripe for
| abuse.
|
| DeFi would solve some of these problems by shifting the
| counterparty risk from a man named Sam to an immutable
| protocol that we can all audit and verify. Look at aave,
| compound, Uniswap.
| brk wrote:
| _The birth of the stock market also created new avenues for
| fraud that did not exist prior._
|
| Right, but I've never heard anyone say in response to stock
| market fraud, "You know what would fix this? A stock
| market!"
|
| The logic path on fixing what is ultimately a blockchain-
| related problem with more blockchain just seemed a bit
| circular to me. The blockchain/crypto portion does not
| really seem to be solving any real-life problems, or if it
| has, anything it has solved is being outstripped by the
| problems/losses.
| zeroclip wrote:
| Did the blockchain fail here? Blockchain and DeFi was
| created to solve these very problems of centralized trust
| and human financial fraud. Uniswap and Aave withdrawals
| are working just fine.
|
| Leaving your coins on a centralized exchange kills the
| reason for a blockchain and DeFi. It's crypto by name
| only.
| polygamous_bat wrote:
| Unfortunately, it does not. Likes of FTX and Binance was
| created in the first place because on chain transaction is slow
| and expensive, and people don't like slow and expensive. Just
| because FTX blew up doesn't mean DeFi is at a better place than
| it was in the past.
|
| "DeFi fixes this" is like saying "moving back to horse drawn
| carriages will solve drunk driving fatalities!" Maybe, but no
| one wants to deal with horse shit.
| zeroclip wrote:
| The lack of transparency in financial services - banks - was
| the whole reason Satoshi created Bitcoin. The people who
| choose to use FTX over a blockchain are either ignorant, not
| understanding their coins are insecure, or willing to take on
| additional risk to save a few dollars and trade a little
| faster. They are probably regretting it now that FTX is
| blowing up.
|
| And speed and costs are already a solved problem - see L2
| rollups.
| acyou wrote:
| The name Sam Bankman-Fried came up quite a lot in Twitter v.
| Musk. I wonder if he ended up with a stake in the acquisition
| deal. If SBF was indeed a sizable backer of the Twitter buyout,
| this more than anything could take Twitter out at the knees.
| seaal wrote:
| SBF passed on the Twitter deal[0]
|
| CZ invested $500 million.
|
| [0]
| https://mobile.twitter.com/sbf_ftx/status/158821335713146470...
| moralestapia wrote:
| Not a fan of Musk but a fan of truth.
|
| Elon was the one who passed on them.
| technotony wrote:
| Even if he did invest, why would that weaken Twitter at this
| point? The deal is done, SBF wouldn't be able to pull his money
| out of it if he wanted to.
| thakoppno wrote:
| I presume this individual cashed out at least some of his net
| worth in hard assets. Just curious how one could structure a
| vehicle for those assets that would be resilient to asset
| forfeiture? Also, what portion of the fortune would be most
| likely to have been squirreled away?
| bpodgursky wrote:
| IF his goal was personal fraud and enrichment (and to be clear,
| I think this is VERY unproven) it would be far easier to stash
| some away in a mixed/clean bitcoin or monero account and
| memorize the mnemonic phrase. No paper evidence, no financial
| trail.
| edf13 wrote:
| I would of expected the vast majority of his net worth would of
| been the same FTT tokens which are now heading to 0.
|
| How much he cashed out (And the timing of this) will be
| interesting to learn.
| [deleted]
| dabeeeenster wrote:
| https://twitter.com/SBF_FTX/status/1590709172936798208
|
| "5) The full story here is one I'm still fleshing out every
| detail of, but as a very high level, I fucked up twice.
|
| The first time, a poor internal labeling of bank-related accounts
| meant that I was substantially off on my sense of users' margin.
| I thought it was way lower."
|
| Amazing
| moralestapia wrote:
| Does he has absolute no good counselors? Does he get advice
| from his roomies in the Bahamas?
|
| This twitter thread, plus some others tweets he has deleted
| now, could get him into some real trouble.
| rozap wrote:
| Blockchain solves this.
| treis wrote:
| Can someone ELI5 what margin has to do with the bank run?
| [deleted]
| acgt23 wrote:
| It doesn't really, none of this is adding up. But he's
| explicitly lied about this stuff in the past couple days (and
| since deleted the tweets) so that's probably what's happening
| here
| nullc wrote:
| Much of the assets traded on FTX were leveraged sidebets e.g.
| "perpetuals", the underlying assets didn't exist.
| jrmg wrote:
| At the end of the thread:
|
| _NOT ADVICE, OF ANY KIND, IN ANY WAY
|
| I WAS NOT VERY CAREFUL WITH MY WORDS HERE, AND DO NOT MEAN ANY
| OF THEM IN A TECHNICAL OR LEGAL SENSE; I MAY WELL HAVE NOT
| DESCRIBED THINGS RIGHT though I'm trying to be transparent. I'M
| NOT A GOOD DEV AND PROBABLY MISDESCRIBED SOMETHING._
|
| That's quite the (ad-hoc) disclaimer...
| jjulius wrote:
| If you have to slap such a poorly-written disclaimer at the
| end, maybe you shouldn't have said anything...
| ALittleLight wrote:
| "In the event anything I've said is used against me in a
| court of law I didn't mean whatever it is in that way."
| mrguyorama wrote:
| Lol I don't think that would hold up in court.
| schemescape wrote:
| What does "poor internal labeling of bank-related accounts"
| mean? They didn't know which of their accounts were fiat vs
| crypto? Asset vs liability? Something else?
| skippyboxedhero wrote:
| My thoughts exactly. He managed to say precisely nothing in
| 27 (or whatever it was) tweets apart from the obvious...that
| he wasn't up to running the company.
|
| WSJ is reporting that money was lent to Alameda based on a
| conversation that SBF had with an investor (saying that the
| gap was $10bn) but this isn't what he saying publicly...maybe
| this is obvious because, if this is true, then it is hard to
| see how he avoids jail.
| chlodwig wrote:
| " _4) FTX International currently has a total market value of
| assets /collateral higher than client deposits (moves with
| prices!). But that's different from liquidity for delivery--as
| you can tell from the state of withdrawals. The liquidity
| varies widely, from very to very little. 5) The full story here
| is one I'm still fleshing out every detail of, but as a very
| high level, I fucked up twice. The first time, a poor internal
| labeling of bank-related accounts meant that I was
| substantially off on my sense of users' margin. I thought it
| was way lower. 6) My sense before: Leverage: 0x USD liquidity
| ready to deliver: 24x average daily withdrawals Actual:
| Leverage: 1.7x Liquidity: 0.8x Sunday's withdrawals. Because,
| of course, when it rains, it pours. We saw roughly $5b of
| withdrawals on Sunday--the largest by a huge margin._"
| https://twitter.com/SBF_FTX/status/1590709172936798208
|
| I don't understand this. In FTX International terms of service
| (
| https://help.ftx.com/hc/article_attachments/9719619779348/FT...
| ) they say that users have full title to digital assets, that
| they are the property of the user, and shall not be loaned to
| FTX trading and are treated as they belong to FTX trading, and
| that users control the assets in the account.
|
| FTX was never claiming to run a bank where they loan out users
| deposits for interest. They were claiming to be running a 100%
| allocated, straight up custodial vault. Therefore they should
| be able to simply return whatever assets customers owned on
| their service, even if every customer wants their asset back at
| the same time.
|
| If they were actually loaning out customer's assets and running
| a fractional-reserve bank, that is just straight up fraud,
| full-stop.
| cuteboy19 wrote:
| Understandable mistake. Many of us who have been bank tellers
| know how easy it is to accidentally empty a client's account
| and spend it all on gambling and hookers. It is an honest
| mistake for sure
| xrd wrote:
| The original dotcom implosion was caused by all these "new
| Internet" companies selling advertising to each other and
| recognizing that as revenue, even though it was just a swap of ad
| space that no else wanted. When people figured that out, we had
| the crash of 2000.
|
| SBF maybe isn't the best quant, but he clearly knows his history.
| ghaff wrote:
| And it went beyond the internet companies in no small part
| because those companies were loading up on hardware and
| software from all the big tech companies. (Oracle, EMC, Sun,
| Cisco were explicitly called out as the four horsemen of the
| internet but the effects were felt much more broadly.)
| siftrics wrote:
| Michael Lewis, author of The Big Short, was in the process of
| writing a book about the success of FTX and SBF. He personally
| went to the Super Bowl with them and visited them in the Bahamas
| multiple times.
|
| Someone on Twitter said, "he just got his perfect ending."
|
| It's gonna be a fantastic book.
| akgerber wrote:
| Reminds me of the documentary Weiner, which was supposed to be
| a comeback film about Anthony Weiner's run for NYC mayor but
| instead became an intimate portrait of a man's life (as well as
| that of his unfortunate wife) utterly collapsing.
| seertaak wrote:
| True, only that Weiner was surprisingly endearing in that
| documentary. Despite at the time being a staunch republican,
| it's hard not to like the guy, and when the fall comes you're
| almost rooting for him.
|
| But SBF? The last interview I saw him give was I think with
| Levine; it was shocking because SBF was describing whence
| crypto derives its value. And Levine remarked that SBF was
| describing a Ponzi scheme.
|
| For me, that interview showed two things. First, that SBF
| quite obviously has no morals whatsoever. And second, he's
| not nearly as smart as he's portrayed to be.
|
| His whole cred derives from his MIT degree combined with his
| experience at Jane Street. Jane Street is a great firm, but
| what they do is really specific, and not necessarily the
| "coolest" way to make money. It's a lot of tech and
| infrastructure, less finance and trading chops. (The real
| badasses are RenTech, for example.)
|
| Anyway, I watched a few videos that he made while working at
| his crypto hedge fund, Alameda. He described the strategies,
| and they sounded like the typical market maker stuff - arbing
| exchange discrepancies yadda yadda. Not the most inspired
| stuff.
| PaywallBuster wrote:
| Evidently he wasn't a "true believer"
|
| he's just one player in the ecosystem, trying milking as
| much as possible
|
| good job building FTX into one of the largest CEX but....
| :)
| acjohnson55 wrote:
| I don't think he lacks morals, but he seems to have a Lex
| Luthor "ends justify the means" way of thinking. If you're
| whole moral framework is effective altruism, then as long
| as the good you do with the money you accumulate is greater
| than the harm caused in its accumulation by a ratio that
| exceeds your alternatives, you're all good.
| adamisom wrote:
| One remark I have on anti-"ends justify the means" is
| they always ignore the ends. The "ends" might literally
| be saving real people's lives, whose lives have value.
| I'm sure there are good arguments against the idea, but
| you must engage with the ends that you propose we
| forsake, or you're just not serious.
| splitstud wrote:
| ahepp wrote:
| Isn't this a fundamental problem with consequentialism?
| If you can convince yourself of a serious enough
| consequence, you can do whatever you want. Steal, hurt,
| kill. As long as your actions lead to a .000001% chance
| of preventing Skynet from taking over in the year 50000
| AD, any means justify those ends.
|
| How is that something that can be seriously engaged with?
| Other than trying to talk some sense into these people
| about limiting their EA calculations to a reasonably
| observable time-space continuum?
| xyzwave wrote:
| I always felt the problem with consequentialism is that
| outcomes are uncertain, whereas actions are not.
| Therefore you are not guaranteed that an immoral action
| (means) will result in a beneficial outcome (end).
|
| For instance, you push someone in front of a trolley to
| save 5 lives, but the trolley isn't stopped and you end
| up with 6 dead.
| wombatpm wrote:
| If curing cancer for the rest of humanity now and forever
| required knowingly experimenting on and absolutely
| killing a certain number of people now, how many people
| could you justify with an Effective-Altruism ethical
| framework?
| WJW wrote:
| Depends on your expected remaining lifetime of the human
| race? (since from that you might compute the expected
| cancer deaths over that time and then you can do a simple
| comparison)
| JamesianP wrote:
| I wouldn't say they ignore it, but rather they
| categorically have decided that is an unethical
| justification. E.g. it doesn't matter if experimenting on
| patients without their consent saves more lives in the
| future, it is still wrong. Perhaps you might argue that
| this is an absolute position they can't really hold to
| for everything. But I think people prefer to find other
| ways to justify such cases.
| danaris wrote:
| It doesn't even have to do that in an objective,
| measurable sense. It just has to do that _from your
| perspective_ --meaning that any harms you can ignore
| don't count, and any potential good you can convince
| yourself you _could_ do in the future because of it do.
| jasonwatkinspdx wrote:
| Yeah, I'm glad to see someone saying this. Something that
| bugs me about EA is it pattern matches to a lot of the
| same performative behavior I grew up around with
| evangelical extremists. Your hypothetical good forgives
| your very real misbehavior in fact.
|
| There's also just the fundamental stupidity of thinking
| you can reduce something as complex as human morals and
| ethics to a karmic checking account balance...
| noloblo wrote:
| which videos please
| dfghbbjiiugb wrote:
| Sorry but this reads to me like someone who doesn't really
| know what they're talking about. First, I think you have
| totally mischaracterized or misunderstood that interview.
| Second, he is obviously a smart guy; I'm not claiming he's
| a unique generational genius but there are plenty of third
| party validations of intelligence (MIT, Jane Street) even
| if you can't tell from the way he speaks. Finally the
| comment "the real badasses are at RenTech" is laughable
| insofar as they don't hire undergrads. I would say more
| accurately that many of the real badasses went to PhD
| programs but that besides that Jane Street was a highly
| desired career choice for this graduating cohort.
| vasco wrote:
| Rentech is definitely bad [0], not sure about bad-ass but
| if evading taxes for years and ending up paying $7B is bad-
| ass, I guess they are.
|
| [0] https://www.reuters.com/business/finance/renaissance-
| executi...
| caminante wrote:
| I've always said their tax attorneys contribute the most
| alpha!
| [deleted]
| nickfromseattle wrote:
| There is also a documentary about a timeshare property mogul
| building the one of the biggest/most expensive personal home
| ever, I believe costs were over $100 million.
|
| Filming was in 2007, the 2008 financial crisis hit, and the
| documentary devolves into watching this mogul go bankrupt.
|
| I remember a quote from the mogul, something like "I have
| nothing but the business. I've re-invested nearly every
| dollar I've ever earned."
|
| https://en.wikipedia.org/wiki/The_Queen_of_Versailles
| loeg wrote:
| I don't understand why anyone takes Lewis seriously after Flash
| Boys. He seems to just make things up from thin air.
| Firmwarrior wrote:
| That book was entertaining, but so frustrating to read
|
| These big corporate traders are being paid millions to be the
| best at what they do (managing stock portfolios) and then it
| turns out they're actually awful at it and a bunch of genius
| math kids are running circles around them in the dark. And
| somehow I'm supposed to feel bad for the lazy, clueless,
| suit-wearing, trash-talking traders?
| smcin wrote:
| Because he was superb since before then, for four decades
| now. I read Liar's Poker and was hooked from the first
| sentence.
|
| Look, Michael Lewis is like the Stephen Gaghan of (semi-
| fictionalized) socioeconomic zeitgeist: he chronicles
| concepts paradigmatic of an entire generation, people and
| personalities that affect or transform an entire decade or
| generation (usually in or about the US, and often Wall
| Street). And he nods towards the societal implications with a
| sense of urgency and inevitability but also dark theater.
| Sure he Hollywoodizes people and quotes, not dissimilar to
| how the screen adaptation of Mark Bowden's superb 'Black Hawk
| Down' merged characters and their story arcs, or how loosely
| 'War Dogs' (2016) was based on Guy Lawson's 2011 Rolling
| Stone article [0] and 2015 book [1]. [As to 'War Dogs' and
| Lawson's writings, there's an obvious similar moral fable to
| three potheads from Miami Beach becoming in 2007 one of the
| Pentagon's largest weapons suppliers, by reselling Chinese
| bullets to US-occupied Afghanistan, and noone at the Pentagon
| actually wanted to know where private contractors were
| getting their supply, as the scale of the contracts became
| increasingly insane.] If you want to more accurately label
| Lewis' genre "semi-fictionalized socioeconomic zeitgeist",
| then do.
|
| To be blunt, people have short attention spans, people in the
| US only read average 15.6 books/yr or median 4 books/yr [2],
| and moral ambiguity seems to sell worse than clean-cut tales
| casting characters as good guys and bad guys, certainly on
| the big screen. But these writers are still fulfilling an
| important service. Noone actually sits down and reads
| Inspector-General reports, CSPAN is occasionally great but
| usually dull to watch, and what now passes for US mainstream
| media is hopelessly coopted and long ago abandoned
| investigative reporting [3]. Writers like Lewis, Bowden,
| Lawson(, Crichton, Grisham [4]) fill a very real cultural
| void in interpreting what's going on.
|
| [0]: https://www.rollingstone.com/feature/the-stoner-arms-
| dealers... [1]: https://www.rollingstone.com/culture/culture-
| news/the-comple... [2]: https://katiecouric.com/culture/book-
| guide/how-many-books-do... [3]:
| https://www.fastcompany.com/90646413/why-breaking-points-
| wit... [4]: https://news.ycombinator.com/item?id=33391995
| latchkey wrote:
| It is almost as if someone has a Twitter bot...
|
| https://twitter.com/_mfrye/status/1590737441874288640
| chubot wrote:
| Wow ... so I'm assuming Lewis could smell this a mile away,
| given his history? (Liar's Poker, etc.)
|
| It's funny that they seemingly weren't in on it -- "No it's not
| at all like the other things you wrote about".
| dilyevsky wrote:
| ML wrote very favorably about IEX team in flash boys so maybe
| they thought it was like that
| par wrote:
| He should call it The Big Short 2: Get Shorted.
| indymike wrote:
| Maybe "Coming up Short".
| chinathrow wrote:
| I'll pre-order it the day it's available. The big fry.
| vishnugupta wrote:
| Sequoia did a profile on SBF/FTX less than 2 months ago [1], only
| to mark down their investment to 0 [2]
|
| Some of the passage from that article reads so far removed from
| reality that I can't even know if it's coherent. Really wild
| stuff.
|
| [1] https://www.sequoiacap.com/article/sam-bankman-fried-
| spotlig...
|
| [2] https://twitter.com/sequoia/status/1590522718650499073
| cma wrote:
| They seem to have replaced that page with a disclaimer about
| the failure. Here was the archived:
|
| https://web.archive.org/web/20221027180943/https://www.sequo...
|
| > Something of the sort must happen eventually, as the current
| system, with its layers upon layers of intermediaries, is
| antiquated and prone to crashing--the global financial crisis
| of 2008 was just the latest in a long line of failures that
| occurred because banks didn't actually know what was on their
| balance sheets. Crypto is money that can audit itself, no
| accountant or bookkeeper needed, and thus a financial system
| with the blockchain built in can, in theory, cut out most of
| the financial middlemen, to the advantage of all. Of course,
| that's the pitch of every crypto company out there. The FTX
| competitive advantage? Ethical behavior. SBF is a Peter Singer-
| inspired utilitarian in a sea of Robert Nozick-inspired
| libertarians. He's an ethical maximalist in an industry that's
| overwhelmingly populated with ethical minimalists. I'm a Nozick
| man myself, but I know who I'd rather trust my money with: SBF,
| hands-down. And if he does end up saving the world as a side
| effect of being my banker, all the better.
|
| oof
| nullc wrote:
| "Users' margin" is now apparently code for "how fictional are the
| assets we're selling users". Could we say that "We don't invest
| client assets (even in Treasuries)" was technically true on the
| basis that there weren't any assets to invest? :P
|
| I guess "internal labeling of bank-related accounts" is one of
| those "dumb" activities that they were counting on amphetamines
| to take care of for them:
| https://twitter.com/carolinecapital/status/13790363463003054...
| AmericanOP wrote:
| Sounds like a guy with ADHD built two banks doing bad things made
| illegal in the early 1900s
| emehex wrote:
| Naive question: % chance SBF goes to jail?
| [deleted]
| jefftk wrote:
| A prediction market on whether he's convicted of a felony in
| the next three years is at 47%:
| https://manifold.markets/mr22222222/sbf-convicted-of-a-felon...
| EGreg wrote:
| What happened was Binance squeezed a competitor, by dumping their
| token. Then announced stuff on Twitter that made people suddenly
| withdraw $6B out of it.
|
| This is an unregualated market -- but even if it was regulated,
| what would the regular do after the fact to make it right for
| everyone inside an exchange or crypto that went to zero?
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