So due diligence showed how big a hole FTX is in. No surprise. As I said yesterday, about 50% of announce M&A deals fall through. This deal looked unlikely to succeed. If FTX was out of cash but had a lot of money tied up in things that are slow to sell, like factories or real estate, a merger would make sense. But this is crypto. No big tangible assets. If FTX is well into negative territory, there's no hope.
Next stop for FTX is bankruptcy.
Does FTX.us have any exposure to FTX.intl? They're not supposed to. But do they?
The SEC and CFTC are now investigating to find out.[1] Bloomberg: "US financial regulators are investigating whether beleaguered crypto-exchange FTX.com properly handled customer funds, as well as its relationship with other parts of Sam Bankman-Fried’s crypto empire..." In other crypto collapses, we've seen "assets" that were actually loans to affiliated parties. Loans that became worthless.
At FTX's web site, "https://ftx.com/intl", there is no mention of any problems. Typical.
How can DD find a hole within a day of announcing? It seems too fast. To me, I assume it's CZ getting FTX to explode and then be the firm everyone comes to without having to acquire them.
Edit: Fair enough, thanks for the input repliers! I thought DD was a much slower event to prepare this information and get legal stuff set up with NDAs etc..
"So, step one, let's see your top-level balance sheet, you know, assets and liabilities."
"Sure, we have a notional $1 billion in a combination of junk bonds that have already crashed to a market value of $25 million and other cryptocurrencies worth another nominally $15 million as long as we never try to actually sell them, and we have $1.4 billion in concrete dollar liabilities."
Numbers completely made up, just to be clear.
You can investigate that until you're blue in your face and apply all the nuance in the world to it, that's never going to make any sense.
Also, I'd say Binance is well aware of the message the speed is sending. I don't think that's a mistake. This sort of signalling in "the metadata" of a message happens all the time. You can decide whether or not you believe it.
A billion dollar assets/liabilities mismatch? I'd bet that's quite easy to find.
Honestly, with all the market info. that Binance has on their hands, I'm sure they already knew where to look at, LOL. They were just having fun with SBF.
Maybe that was Option A, while Option B was "spend a couple billion dollars fixing the mess these kids made while still seeing 30% of our Crypto assets disappear ...". They chose A.
They're also now the only big player standing in the game, they're having fun already.
We'll see, but I think you can ask for some topline numbers and evaluate if it's even worth digging deeper. I'm sure this is not about accounting for a million, or two, or even a hundred.
> How can DD find a hole within a day of announcing? It seems too fast.
CZ: “Can I see your balance sheet? Oh, it says here you have $10B in assets and $16B in liabilities. Welp, good luck finding a buyer, I withdraw my LOI to purchase FTX”
It's still shocking because aside from anything else, CZ must know that FTX dying is going to be massive blow to the whole industry. Like Lehman and Bear Stern's but with no Fed or Treasury bailout.
Practically every crypto organisation has been planning on offering some kind of proof of how good its reserves are, real soon now, right up until it went bankrupt.
Whenever news like these are discussed here in HN I get flabbergasted by the amount of technical mumbo-jumbo you guys are able to throw around in the comments. It is genuinely impressive how much deep technical knowledge you have about this. I wonder if there is really no other place you could apply this? Like, what is the point of having all this deep technical knowledge about two hundred different fake coins (and their complex economic-engineering interplay) when there isn’t place in the real world even for the largest one?
Both of these organizations (FTX and Binance) are/were making billions flipping useless bits and feeding on people's greed. If both of them are gone tomorrow, the world would not even notice. When the FTX dude's face was plastered on every bus stop in San Francisco (in a wildly narcissistic PR attempt I guess?) I was shocked at how idiotic this cheap money wave has become, someone who's enriching themselves by letting people trade one "token" for another is hailed as the next Einstein. Well, turns out he couldn't even scam people properly and somehow has managed to blow through it all.
I think about this all the time. First of all it’s not really a lottery, right; it’s worse. Anyone can win a lottery. This is specifically using your smart mind to step on someone else’s heads. But the main point is: what kind of weird twisted fantasy have we put ourselves into? I see genuinely smart (like world-level smart) people arguing 100% seriously that speculating for a fake, useless bitmoney is the same a speculating in the stock market. I mean have we really just completely lost track of what the economy is all about? For some reason I’m thinking about tiktok now and I guess I’ll just have a beer and sleep.
I mean to play Devil's Advocate, many people have the same opinion on MLM's (e.g., "you just have to really understand the leggings market and how to run a business, all these new people who got burnt thought they could get rich quick without working" etc.) because the nature of Ponzi Schemes is that the early investors often do cash out.
In fact, the reason Madoff got so large was b/c he was one of the few who convinced most early investors not to cash out.
Implying that smart money is 'being early to the Ponzi Scheme' is certainly an outlook on life, IDK if it's a particularly good one though.
That's true for most non-dividend paying stocks though, isn't it? The price can only go up if other people buy too since holding the stock itself doesn't generate any income.
Would you call Peloton's VC backers "ponzi schemers"?
Non dividend paying company stocks are market speculation, not a ponzi.
Cryptocoins, not being part of a circular economy, must, by definition, keep attracting new money to pay for earlier investors. Sounds much like a pyramid.
A more apt analogy would be a public company that does not do any real economic activity and simply issues more shares to cover expenses. Cryptocoins cannot exist without the network running and the only way to cover those expenses is to attract new money without any product. While stock speculation is a zero sum game, cryptocoins are negative sum game. Quite a major difference in my book.
Again, the speculative value of cryptocurrencies is largely built on the belief that the dApps built on top of the network will have enough usage and revenues to justify the current valuations.
If you look at the revenues generated by OpenSea or Uniswap or Compound, it's not exactly an outlandish idea.
The speculative value of cryptocurrency is based on nothing more than the greater fool theory. ETH isn’t down 75% YTD because of discounted dApp cash flows, let’s be realistic here.
Peloton sells bikes for cash. That's real honest-to-goodness GDP. I can assume Peloton will make more economic value than it retally will, but at least it creates economic value.
What does Ethereum contribute to GDP?
And that's why it's worse than MLMs, at least those pretend to be retailers.
I'm just going to take a second to recognize the fact we're talking about "investing" in a currency and expecting 10x returns is nuts.
The best thing for crypto as a currency is for Etherium to be worth in 10-20 years exactly what it is now factoring in inflation. The fact that this is horrible for "Crypto" because this means eth won't be giving the 10-100x returns, is exactly what's wrong with the whole thing.
Its not a company, you know. Just because it has "market cap" slapped onto it, it still doesn't mean anything. You should be saying, "A host of companies made $10 billion collecting fees for transacting in Etherium". Western union had $5.3 billion in revenue last year and is valued at $4.9 billion. No one bases the value of the US Dollar on how much fees you can collect in exchanging it.
> No one bases the value of the US Dollar on how much fees you can collect in exchanging it.
But that's precisely what currencies are largely valued on - the value of transactions conducted in that currency, and the speculative direction of those transactions.
Why do you think the US dollar is a stronger currency than, say, the Pakistani rupee? The US dollar is used to pay for more transactions AND speculators make a directional bet that the Pakistani economy won't be as robust as the US economy or that the US dollar's hegemony won't be threatened in the short-term.
If you have a speculative belief that Ethereum will power the digital economy, it is reasonable to value it at XX price.
Look, if you have a belief that Ethereum will power the digital economy, you should have no problem waiting until it does, and just use it within the digital economy. I use Venmo to buy random things from vendors at Art and Wine festivals , pay back some friends for dinner and (probably to crypto's envy) I pay for a legit therapist that I get rembursed from insurance (just not on venmo). Right now, I have $70 on my balance from people paying me back.
If I have a speculative belief that Venmo will rise above Cash.App, PayPal and crypto and end up powering the digital economy, even to the point that a major Blue Shield insurance company would send me reimbursements on it, should I be putting my savings into its balance? What should I value my money on Venmo? What utility would there be for holding ETH in that balance vs USD, besides sheer speculation that ETH would rise in value?
Now you're talking about value, which is entirely subjective. As far as GDP, Ethereum spawned an entire new industry with tons of companies paying actual salaries to people (in fiat, if I might add), all of whom bought lattes and cars and houses, and some, I'm sure, also bought Peloton bikes.
Crypto currencies are like stock tickers. The price does not have to have any bearing on the actual value generated by the stock or the company it represents.
There is a speculative element to all markets, including the stock market. And I think you know that as well.
>Now you're talking about value, which is entirely subjective.
No it's not. When an asset prices in cash, that price is dependent on it's ability to generate future cash (Goods/Services price based on the utility from consuming that thing). If you think that model is wrong, then you are wrong.
>As far as GDP, Ethereum spawned an entire new industry with tons of companies paying actual salaries to people (in fiat, if I might add), all of whom bought lattes and cars and houses, and some, I'm sure, also bought Peloton bikes.
Oh no no no. You are not buying any of that when you buy Ethereum. We are not talking about whether or not Coinbase/Binance/etc. are Ponzi schemes. They offer services in exchange for fees. That is GDP full stop.
Again, I can argue they are bad businesses because their fees are dependent on a Ponzi Scheme, but they are not the Ponzi Schemes.
>Crypto currencies are like stock tickers. The price does not have to have any bearing on the actual value generated by the stock or the company it represents.
This is a very weird argument. When an acquirer wants to buy a company, they need to pay the stock (usually plus a premium) price to own that company. Stock prices reflect the theoretical takeout price of a company (and this is put into practice every day).
Cryptocurrencies are marketed to you as similar to stock tickers, but they are currencies (it's sort of in the name) and currencies are valued by the demand for goods/services/assets you can buy with them (i.e. this is why export economies, all else equal, have strong currencies).
I would agree that cryptocurrencies would go up in value if you could buy an increasingly large amount of things with them (and only them), but heuristics imply the exact opposite is true.
>There is a speculative element to all markets, including the stock market. And I think you know that as well.
You're really not getting that there's 'overestimate future cashflow' speculation (bad but not so bad) and 'funamental misunderstanding of the asset' speculation.
> No it's not. When an asset prices in cash, that price is dependent on it's ability to generate future cash
But that's precisely why people were valuing Ethereum at x,xxx per token - the belief that Ethereum will one day have the network effect to generate future revenues. And honestly, a lot of projects built on Ethereum did generate an absurd amount of revenue in a very short span of time.
OpenSea and Uniswap are probably the most prominent examples. Both generated a combined total of over $1B in revenue and used Ethereum as the fee token. The speculative price of Ethereum - or any other cryptocurrency, for that matter - relies on the belief that the number of apps like Uniswap and OpenSea will likely increase over the years.
> I would agree that cryptocurrencies would go up in value if you could buy an increasingly large amount of things with them (and only them)
That's precisely what's happening with Ethereum. There are more and more dApps that all use Ethereum to process transactions. There are even SaaS tools that you can pay for in Ethereum, with a single tap from your Ethereum wallet.
I feel like you're attacking me without fully understanding how this ecosystem works, nor have you actually ever used a dApp.
>But that's precisely why people were valuing Ethereum at x,xxx per token - the belief that Ethereum will one day have the network effect to generate future revenues.
Ok so let's go first principles here (ignoring the word soup that is "have the network effect to generate future revenues.")
For something to create value it has to do something that people are willing to pay for (in currency, goods, services, etc.). That's the GDP point.
Currencies just exist, they don't do anything themselves. People do things with them but the GDP value comes from what those people do, not the currency itself.
OK, you tell me, "but Ethereum facilitates transactions and people pay for those transactions with fees!"
But those fees go to stakers (who do provide a service, albeit a dumb one).
Ok so now you tell me "But yes, stakers need coins, and I'm buying coins now because I think there will be increasing demand for coins vs. a fixed supply!"
Which great, now we are back to "Currencies are valued by the demand for goods/services/assets you can buy with them (i.e. this is why export economies, all else equal, have strong currencies)."
In this case, what ETH buys is 'the right to earn transaction fees on the ETH network'
Great, again I love this. Feels like we are on to something.
But here's the rub: Are people actually buying anything Ethereum?
Are people buying goods with ETH? No, Ethereum is a very bad tool to buy goods/services with and in fact it's illegal to in most of the world (I'm serious, look it up).
Are people buying services with ETH? See above.
Are people buying assets with ETH? No.
What are they buying? Mostly other currencies.
And now we circle back to why it is a Ponzi scheme: nearly all of the transactions that "generate value" today are just people baying the currency because they think demand will be higher in the future. There is almost no outside value being brought in via "the only way I can buy this good/service/asset is via crypto, so I'll buy crypto because I want that good/service/asset"
If we get to a world where people are actually, ya know, using crypto to buy things, I'll buy into it, but surprise centralized databases are actually intrinsically way better at that than crypto is, but again, that's just my opinion that I've spent years thinking about, so good luck on your bet.
>I feel like you're attacking me without fully understanding how this ecosystem works, nor have you actually ever used a dApp.
I just hope you've though as much about the intrinsic nature of impermanent loss as I have, given all your confidence. I'll give you a hint, it's not impermanent and it's screwing you over 100% of the time.
EDIT: I'm going to head you off here, because I know the 'have you ever used a dApp?" is coming.
You can put as many layers on the above as you want, but if consumable goods and services aren't being purchased with your currency, then it's worthless, regardless of how many Liquidity providers there are on Uniswap.
> But those fees go to stakers (who do provide a service, albeit a dumb one).
That service is the point of the whole thing. The fees go to stakers who *execute your computation for you and ensure the integrity of the results*. ETH is analogous to credits on AWS. It's simply an execution environment with different properties from AWS.
Again. I don’t know how to say this enough times or clearly enough.
If people were buying goods and services with crypto then I would agree with you but they are not.
Right now it’s circular and moving in the wrong direction. People buy coins with fiat to pay stakers to buy other currency. That’s the only use case. And a big part of that is because what ETH does is actually one of the theoretically worst ways to buy goods/services imaginable.
That is why it’s a ponzi scheme no matter how similar it seems to non ponzi businesses.
Let’s put it this way, Lu Lu roe (or whatever that mlm scam was called) looks a lot like lululemon, except in one people bought the leggings because they liked them and in the other they bought the leggings to get rich.
Only one of those two was a ponzi, even if they both sold leggings.
Is amazon web services not a service people pay for? People are currently buying computation (a service) with crypto. I spend ETH to deploy and execute code, in the exact same way I pay USD to AWS to deploy and execute my code.
> As far as GDP, Ethereum spawned an entire new industry with tons of companies paying actual salaries to people (in fiat, if I might add), all of whom bought lattes and cars and houses, and some, I'm sure, also bought Peloton bikes.
Paying developers goes in the cost column, not the benefit column. (If you hire a bunch of developers and pay them to sit around twiddling their thumbs all day, you're not growing the economy but rather damaging it - they could've done something more productive instead). The question is what value the ecosystem produces that people are paying in for. And there's certainly a subjective element to that, but the market price should be a sanity check.
Peloton sells exercise bikes and delivers virtual spin classes etc.. And while you can certainly argue they're overvalued (and I'd agree with you, FWIW), it's easy to see how they're actually doing something valuable in the real world - something that, in a small marginal way, improves peoples lives. We can have a sensible conversation about whether a weekly Peleton class is worth $45/month, but people are paying that much for it, not as a speculative "investment" but as a simple exchange of money for goods and services. Real people are better off - in that they were able to take the class and get fitter or whatever. There's certainly a speculative element on top of that, but at the foundational level there's real value being produced.
Where's the product or service for Ethereum? They've had long enough to come up with one. People used to talk about doing cross-border currency transfers (genuinely useful) or that cat breeding game (potentially genuinely fun), but nowadays fees are too high for either of those to be worthwhile and people don't really talk about them. It's not just excessive speculation on top of a fundamentally sound business; there's simply no there there.
> As far as GDP, Ethereum spawned an entire new industry with tons of companies paying actual salaries to people (in fiat, if I might add), all of whom bought lattes and cars and houses, and some, I'm sure, also bought Peloton bikes.
This is like the Broken Window Fallacy.
All that money that was spent building Ethereum could have been spent on activities that were far more useful to society.
> All that money that was spent building Ethereum could have been spent on activities that were far more useful to society.
Like all the billions that went into building...Facebook?
Again, I don't understand how you can get into the morality of it all when literally tens of billions of venture funding goes into everything from juicers (remember Juicero) to companies that literally help instigate ethnic cleansings [0]
Facebook is hugely valuable. Making it easy to share photos, organise get-togethers, or message your friends, is directly making people's lives better. (And complaining that messaging systems allow people to send negative messages is throwing the baby out with the bathwater; do you blame the telegraph or the telephone for "literally helping instigate ethnic cleansings", which in a literal sense they undoubtably did?) Even Juicero, which is very much the exception rather than the rule, was a real product that helped make people happier and healthier (just, not by $400 worth - which is why it rapidly collapsed in the market, as it should).
"Non dividend paying" is a bit of a red herring since companies have started doing buybacks instead (for tax reasons). Ultimately it's the voting rights that can make the company pay dividends.
If you've got a non-voting non-dividend stock .. you might want to ask what you've actually got there.
A lot of tokens give "voting" rights in the form of governance if its run as a DAO
Some tokens share revenue with token holders. GMX, for instance, distributes all of the nearly $2M daily fees it generates to holders of the GMX token. Goldfinch, which loans to real-world microfinance companies, also gives back its fees to Goldfinch token holders.
Some tokens are necessary for paying for transactions or any on-chain asset (most core blockchain tokens).
Gold is a consumption good (jewelry) that people choose to treat as an asset (so much so that they forget that it was originally valuable because it was our most easily smithed/mined metal that rulers liked to adorn themselves with).
Shareholders own shares of the company, and the company owns assets. For example, Uber owns some data center equipment. If the company were liquidated, that equipment would be sold and the proceeds distributed to creditors, bond-holders, and share-holders.
We're about to see this process unfold for FTX. How exciting!
Companies behind non-dividend paying stocks can own assets and make profits and shareholders own these assets and profits. The value of these assets and profits somehow anchor the stock price, the price can go significantly below reasonable valuation in short time frames, but in a long run market will correct cases where you can buy 100$ worth of assets for 50$.
(also companies often use the profits to buy back own stocks, in which case the price goes up without any people buying)
From a set of companies that do not pay dividends, companies that do not generate profits are a small subset. Many companies in the SP500 index do not pay dividends, but one of the conditions of inclusion in the SP500 index is for a company to generate profits. Unprofitable companies may well be very similar to any blockchain app, although you have more signals to analyze their future profitability potential.
First, stock buybacks are not tax exempt. If a firm earns $100 in profits and buys back $50 of shares, it still pays the corporate taxes on $100, not on $50. Unlike paying interest, corporations don't get to write off money spent on stock buybacks. So it doesn't affect their tax situation.
Second, for the investors in the company, the total aggregate amount of taxes is paid whether the investors are holding 10 stocks and get $1 per stock in dividends, or if they are holding 5 stocks and get $2 per stock in dividends. The number of shares outstanding does not raise or lower the ultimate value of the dividend stream, nor the tax obligation applied to the dividend stream.
What if a company never pays any dividends and just buys back stock? Then it's value is just the terminal liquidation value, and each time investors sell stock back to the company, that is a taxable event for them, probably taxed at the long term rate which is the same as the dividend tax rate, up until the company winds down, in which case the rest is taxed at the long term rate. The set of taxable events is the same as if the company had paid dividends, but the difference is that investors self-select as to who realizes the gain and who doesn't.
Really this is the difference when companies buy back stock -- some shareholders don't want to take any gains, while others do. The total gains are the same, and the total paid to the government is the same, and the time it's paid to the government is the same, but investors can sort themselves into those who want to to take the gain and those who don't. You get to decide when you want to take the gain, and this optionality has value for you. It's as if you could signal to the management -- don't pay out a dividend, re-invest the money that you would have paid out this quarter so that I'll get more later. That's basically what is going on for the individual investor, but for the government, they still get their quarterly taxes paid just in terms of capital gains by those who sell their shares.
What I mean that the tax you pay on dividends is often more than the capital gains tax. So you might prefer that the company spend money to prop up the share price by buying back stock rather than paying it out as dividends.
Perhaps there was some tax reform since I last looked, but generally speaking dividends are taxed at the long term capital gains rate. So they would be the same or less than capital gains (short term capital gains are just treated as income). I am not a tax accountant :)
But I agree that many do prefer buybacks, for the reasons I outlined -- it gives investors a choice as to when to realize the gain. Some investors may not want to receive the gain each quarter. And this can be a tax benefit, not because the rate is different, but because the timing may be more convenient.
I have no illusions that it was skill. It was largely luck.
But 2021 was a time when the casino was giving away money for free. NOT gambling was the wrong move. Sitting on a high horse did nothing for anyone, except maybe bask in the schadenfreude when the thing invariably collapses.
Meanwhile lots of people, including me, made life changing money.
I have no doubt there was skill involved. And of course you should invest if the casino is giving away money for free. I have no doubt it was great for you, so kudos (no sarcasm; I wish I was you). But the whole point is: is it right to call it a “market” or an “economy” or an “ecosystem” or whatever when it’s really just a get-out-while-you-can game? How many of those who are privy to all those technical terms you mentioned are actually going to be able to cash out a significant amount of money? I t’s just kinda depressing for me to think that there are so many people overanalyzing a fantasy football world league of fantasy coins.
Honestly, I'm more bullish about this industry than before. So much of this awfulness unfolding right now is from centralized, opaque entities - precisely what this industry was meant to destroy.
The trouble is that these centralized entities came about when the tech itself was too nascent and there were no decentralized alternatives. So they had too much power and money. And now that they're crashing and burning, the decentralized alternatives can have their moment in the sun.
For instance, there's a dApp for leverage trading called GMX.io. Since it's decentralized, all of its assets and liabilities and treasury balances can be transparently seen by anyone. It offers most things that any large brokerage would offer, and has been functioning without a hiccup throughout the entire clownshow.
When I started out in November 2020, the decentralized economy was tiny and there were few dApps. Since then, there's been an explosion in the number of dApps powering everything from payments to digital asset market places to in-game asset trading. Paying for a digital subscription with a web3 wallet is a better experience than anything in traditional finance.
Of course there's a lot of fluff - that was inevitable given the wild excesses we saw in 2021 - but the pieces are in place to form the foundation of the entire digital economy.
I will be very, very surprised if you're still using your credit card to pay for things online in 2027.
I’m sure there is a lot of great theoretically sound stuff out there, but be honest: were you using any of them when you actually made your money? Or were you just playing the same old game but with a new uniform? The problem is not the tech itself, it’s the way it is sold.
Except for on-ramping and off-ramping, I did not do a single trade on a centralized exchange. So yes, I did use all of those protocols. Majority of usage was Uniswap, OpenSea, GMX, and an assortment of GameFi projects.
Millions of others did as well. OpenSea has over 2M accounts, all of which only work with a decentralized crypto wallet. Axie Infinity
Anyhow, waste of time talking crypto on this site.
All I'll ask you to think about is if the world will still use credit cards to access digital content in the year 2030.
You said you have “mid five figures left” so less than 100k. Is that life changing? Or more like “I got a new Audi” or “I was able to reno my kitchen”.
Also how much time did you spend on it? Sounds like you went deep down the rabbit hole.
Even ignoring the ~350k they said they cashed out on, 50k would be absolutely life-changing for me, and the majority of people in the world. No idea why you have to imply it couldn't be for this individual.
Did you at least buy a house with your winnings? that's what i've always wondered... when people make hundreds of thousands, do they go buy/pay off a house?
Same here until I realized the tax disadvantages of no mortgage. As soon as rates bottomed woohoo let’s get another mortgage, I’ll keep my cash this time.
> Almost all my trades were on decentralized exchanges
Only the entry and the exit trades were on centralized exchanges then right?
Are there any examples of safe and legal decentralized fiat on/off-ramps? I've heard of "Bitcoin ATMs" (I suppose that would count as centralized though), and I've read stories of people getting into trouble for using P2P services like "Local Bitcoin". It all seems a bit sketchy.
There's a big diff in the case of NFLX - the speculation gains are not what the market is for (from a social good standpoint) - they're a side effect of having a market for raising capital for doing useful things (where useful gets defined in a decentralized way by their customers). I mean congrats on winning the lottery, but let's be clear on why crypto mostly has been making us poorer overall.
Outside of the outright scams and meme coins, the speculative value of most cryptocurrencies stems from the same belief that if (or once) the revenue levers are turned on, they will generate a lot of usage and revenue.
Ethereum is valued at $x,xxx per token because of the belief that more and more dApps will launch on it and everyone who uses them will have to buy Ethereum.
Uniswap's UNI is valued at $x per token because of the belief that once there is regulatory clarity, UNI holders will get a % of the revenue generated by Uniswap (currently over $100M/year).
These are basically startups with tokens. Some of them will go bust. Some of them will take years to monetize. Some will be profitable within a year.
Which might have been a speculator, or it might have been Netflix doing a buyback with money from their subscription revenue - people paying to watch movies, concrete real-world value.
As far as I can see there's no real equivalent for cryptocurrency - some crypto orgs notionally have revenues, but they always come from speculators or other crypto orgs (and, sure, maybe some drug dealers or capital control evaders, but that's a tiny fraction of the funding). Money goes into the crypto system and nothing of value comes out.
Think about it: if the HN crowd has never used any dapp, what does that say about the rest of the world? I mean, this is the place where people think rsync should replace Dropbox.
I have no idea whether this thing sees any large scale adoption or not, but I'm just disappointed in the sheer proud ignorance of HN when it comes to crypto.
I mean what you're describing is the central core of the grift.
Complex sounding technical mumbo-jumbo delivered with supreme confidence and seeming internal consistency is how you convince the plebs to invest their life savings in various forms of crypto.
0.1% understand the original underlying technology
0.9% understands the applications possible to be built on top of it
99% are following the 1% and writing governmental and financial policy, and voting with their wallets.
I wish I could say we will look back and shake our heads at it like we do today at Tulip Mania, but I suspect we're watching the birth and childhood of a new religion. Crypto isn't going anywhere for the rest of our lives, and just as we have to keep vigilantly fighting against Scientology permeating tax policy, or religion in general always attempting to undermine secular society, Crypto will continue to be a thorn in society for a long time.
Usual disclaimers: Blockchain is a real technology and crypto currencies have uses, both of which are a tiny fraction of what their backers claim.
Take away the hyperbole and technical mumbo jumbo interlaced with the financial mumbo jumbo, and cryptocurrencies and blockchain are less interesting than the latest PostgreSQL update.
But it's that mumbo jumbo that separates ordinary people from their dollars.
Put a pigeon in a box and hook up a lever to give a reward after a random amount of time has passed, and the pigeon will go absolutely fucking insane trying to figure it out.
I once played a very sophisticated online mmporg ... the amount of information I possessed about all the skills and equipments dwarfs that of cryptobros) Let them play)
Mumbo jumbo opaqueness helps to sustain the bubble. You can paint all the technicals of the world on crypto, in reality it is an emotional rollercoaster that hinges on the sociology and demographics of genz
1) A lot of people learned about this stuff to make money with it, which many of them did
2) A lot of people learned about this stuff because it is a very meme-able concept: mathematicians will upend the entire global system of power with... math. The kids who got their lunch money stolen in elementary school really gravitated to it
> ... when there isn’t place in the real world even for the largest one?
Uh, go visit El Salvador. Every MacDonalds, every Starbucks, and tons of local businesses accept "the largest one." That's because bitcoin stands apart, in terms of its real decentralization, and therefore its independence and utility. Give it time, and it will become far more useful than it already is. The dollar may eventually refer not to a specific weight of gold (that's what the term 'dollar' originally meant), but to a specific number of satoshis.
Business in El Salvador do not accept Bitcoin because it is superior (or even equivalent) to fiat, but because they are forced to by the government. I do not see how that is a point in favor of Bitcoin having a place in this world.
El Salvador has their own national wallet app called Chivo. I would be surprised if El Salvadorans regularly use the actual Bitcoin blockchain (as opposed to just shuffling BTC between Chivo accounts) due to the huge and inflexible fees for on-chain transactions.
On chain fees are usually not more than $0.50 but if you paid on-chain (regular bitcoin transaction) then you'd be paying that (and have to wait 10 minutes for the confirmation). But most transactional purchases are done on lightning, a layer 2 system, which are virtually instant and very low in fees (like a cent or two).
So not long ago FTX was going to save Celsius, then balked. Now Binance was going to save FTX, then balked. When Binance needs saving, is that the end, or is there another turtle under these three turtles?
Pretty sure Binance was the first exchange to socialize the losses of a hack into an aidropped token to all users - which then allowed users of the exchange to gamble on the future on whether or not they’d be made whole.
That was Bitfinex as far as I remember, exchange based in Hong Kong. They are the guys behind Tether which also many people think is not backed up by real assets.
Interestingly Tether started wobbling at just below $1.00 again today. I wonder if it's connected to this news, the drop in BTC price, or something else.
Given the amount of people who are willing to put their money into a fairy tale, I guess it will never end, just shift. After all, why should they stop taking if others won’t stop giving?
The only likely outcome I can see is binance taking on just a part of the rumoured $6bn hole. For example covering deposits up to $100k (or whatever number)
Earns goodwill and users while the size of the bill is smaller.
Not sure how it would work from a legal standpoint but unfortunately 6 billion is too much (and I had a majority of my net worth in FTX as a trader)
> I had a majority of my net worth in FTX as a trader
As a trader myself, this lesson is part of your risk management. I have multiple accounts with amounts that I wouldn't cry if they went to zero. I trade them together, and if AMP decides they hate me because I am too tall, it doesn't change my ability to trade until that issue is resolved.
They allow what is known as "day trading" margins on futures which is usually some small fraction of exchange margin. They have survived for a long time, doesn't mean they won't go under, but they have no qualms about exiting your position if you are going to threaten their risk.
OP seems to be level-headed and rational, I'm pretty sure he'll be able to take the advice well. And the commenter you're replying to is sharing his thoughts in a non-judgmental way as well.
The question is if binance has the $$. They're doing the same exact thing FTX did, but using tether instead. They truly might not have the money to plug that hole.
My guess is that binance just wants to take down a competitor. They publicly started the FTX bank run by announcing they were going to dump FTT, after all.
They had the best API offering so that’s where I started with small funds. Ramped it up to a great significant amount. Didn’t see any early signs that I should withdraw. They’ve raised billions, they’re making millions daily from fees, CEO is looking to donate a billion dollars to politicians etc.
I truly underestimated human greed where making 7 figures of profit A DAY is not enough and you still gamble with user funds.
Luckily I’m still young enough and don’t have a family and I am confident I can rebuild but man, it definitely stings.
> I truly underestimated human greed where making 7 figures of profit A DAY is not enough and you still gamble with user funds.
This is the mind boggling part to me and many others like you. How do you mess up this bad when you were on top of the world and a billionare before age 30? Was it really not enough?
Not sure which exchanges are sane anymore these days, you can rule out pretty much anything with it's own token as being too high risk, including Binance. Coinbase went too big too fast and we saw extreme greed with them going public. Kraken seem cautious overall, taking fewer risks and doing things the right way?
My personal crackpot theory is a lot of these people become addicted to the gamble, so following a simple sure thing plan is actually a huge turn off for them. I definitely think you see this in Elon's recent behavior, where even if he ultimately took the same strategic actions, just a tiny bit of restraint in the execution would save him vast sums of money and headache.
FWIW, the only exchanges allowed to do business with NY residents are (were?) Coinbase and Gemini. Perhaps worth looking at what the barrier to doing business is there. As other exchanges go toes up, it makes me think whatever it was might have been more useful than the kneejerk "ugh, probably some stupid government paperwork" one might first be tempted toward.
> Didn't see any early signs that I should withdraw...
- Double Tops btc in november 2021.
- Interest rates at record lows worldwide.
- Early signs of inflation > Rumors of fed raising interest rates & rumors of quantitative tightening.
- End of covid checks and government bailouts.
I suggest, at the very least, "Psychology of Finance" by Lars Tvede and "History of Financial Speculation" by kindleberger if you want to continue your journey in investing.
I also suggest you reading Financial Times and especially its comment section which is often more insightfull than articles themself... WSJ optional, but its comments section is trash (politicaly and economically very biased). > google bypass firewall.
I also suggest you to disconnect completelly from "assets" built and backed by hashed numbers (once you read "History of Financial Speculation", it will become clear).
Ah, the problem of shorting. Something goes down 20%, you make money. Something goes down 100%, you are theoretically supposed to make a lot of money, but instead your counterparty blows up and you lose everything.
When SBF tweet that "FTX is fine. Assets are fine" that must have been warning enough. Exactly what LUNA and Celsius said. Can't make a warning more clear.
This is why they're only trying to buy non-US operations. Binance is a fraud too; they invented the "I can use my exchange to create infinite long leverage" business model of apparently every crypto exchange.
Binance has never used user deposits for investing and they are leading the industry in transparent proof of funds with their open source proof of reserves protocol.
I am concerned about their near new monopoly. But alleging that Binance is involved in these money printing shenanigans is simply baseless.
> I am concerned about their near new monopoly. But alleging that Binance is involved in these money printing shenanigans is simply baseless.
Can I ask why you are concerned? That they start charging more fees? Isn't crypto decentralized where you don't need to use anyone and it doesn't matter where you live? I don't know a lot about how all this works but isn't the point of crypto that you are divorced from any sort of authority?
This regulation is only necessary because these exchanges are actually banks in disguise. They're leveraging customer deposits and taking on the risk of fractional reserve banking with none of the backstops to protect them.
Cryptocurrencies were meant to be used in a decentralized manner. These centralized pseudobanks are everything that's wrong with this space and I hope they do get regulated.
We really don't need taxpayer money insuring speculative crypto operations. It's also bad for crypto in the long run, as it makes it more dependent on centralized, govt-backed intermediaries. Decentralized trust-less/minimized exchanges are the ultimate goal, but they're hard to do. Removing incentive to continue innovating on that front is harmful to crypto in the long run.
I have to admit that I like Erik Voorhees' opinion stated here, https://open.spotify.com/episode/5a0pw6MQCOOGxjSrYTPrGj, which is don't use an opaque centralized exchange but use DeFi which is transparent as it's all code that's readily available.
That may be his opinion now that the market has gone to crap, but a year ago he was telling me that Bitcoin had a 1-15% yield (presumably via exactly that sort of opaque, centralized exchange, although he was coy when I brought up counterparty risk). https://twitter.com/ErikVoorhees/status/1466541326510428160
Bitcoin is hard to wedge into DeFi, so the yields he was talking about were probably on centralized exchanges. He was likely even referring to Celsius, which has since popped. What has changed since then is DeFi tools like Thorchain single sided vault deposits that let people earn yield on Bitcoin without giving up custody. Unsurprisingly Erik has been one of the most vocal proponents of Thorchain itself.
For a really quick summary, Thorchain provides Uniswap style liquidity pools such as BTC/RUNE that allow people to do one shot trades that can be routed across major blockchains, and liquidity providers collect fees on every trade. Typically liquidity providers are also exposed to RUNE due to the nature of how XYK liquidity works. These new vaults are special because they lack RUNE exposure, but they are also only allowed to make up something like 10% of the liquidity pool, so deposits are limited.
I've been incredibly vocal about how anything promising >10% yields is a scam. It's the reason I built ponzi.finance (which never got popular, but was fun while it lasted). Yields greater than 10% are always either temporary, or straight up fraud. I'd still tend to agree with Erik though that your claim that you can't earn yield on BTC was incorrect, though the counter-party risk at the time was not ideal. Counter-party risk is, of course completely unavoidable in legacy finance systems, and the overhead costs to properly mitigate it are (IMO) unsustainable in a world with easily accessible DeFi tooling.
Counter-party risk is what makes lending useful. The lender gives up control of the resources so that the borrower can use them. This is where the risk arises from. Defi has invented a new form of lending, without counter-party risk. It's "interesting" indeed but not very useful.
>presumably via exactly that sort of opaque, centralized exchange
Obviously Erik did not mean via centralized exchanges. You can lend your Bitcoin on countless decentralized protocols for those yields- even risklessly with flash loans via a dApp like Aave. With non-risk-free lending you can assess and knowingly accept your desired level of risk via fully auditable open ledgers.
If I lend Bitcoin on a decentralized protocol, who has the private key to the wallet I transfer the Bitcoin to? At some point I'm still trusting a centralized bridge, right?
You still hold the keys and can withdraw at any time. That's the point if non-custodial DeFi.
If you withdraw more than your interest and in some other crypto than your collateral then your loan now has leverage. During that particular withdraw transaction you will have signed some logic which can automatically liquidate your lent crypto if the amount you withdrew (minus interest) becomes worth less than your collateral.
Until that pre-signed liquidation transaction executes you are fully in control of the balance and keys.
The difference in fees and throughput of a DEX and something like FTX or Binance (or even Coinbase / Kraken) is so enormous that there isn't a difference.
Normal exchanges don't go bust all the time, it's not rocket science.
But if there were, no one would get away with fractional reserves (at least anywhere near the reserve requirements banks that deal with dollars have). A huge reason why the FDIC works is that the fed can always bail them out in the worst case (see also: 2008). Can't do that with crypto for obvious reasons.
True. But getting FDIC coverage is a privilege which certain entities have earned as a result of compliance with an extensive regulatory apparatus whose goal is the stability of the financial system.
Crypto entities haven't earned that privilege yet, and are quite commonly openly antagonistic to any regulation at all.
Unless Binance does this as a unilateral act of goodwill, it would be difficult for them to acquire FTX in a way that pays out to customers while stiffing lenders and shareholders.
You can stiff shareholders. They know the risk. They are getting near zero in all scenarios including buyout and liquidation. Buyout they may get some cents on the dollar and liquidation they get zero.
They will immediately be sued by shareholders. So you can stiff them and then play with them in court and see if that's cheaper. all for what? taking billions in someone else's debt? Whats the upside?
zero percent of some other insolvent company's liabilities? That's the right amount of someone else's liabilities to volunteer to take. Again what's the upside of taking an insolvent exchange when you already are the default competition to that exchange? Why pay money to fund the competitor's failure?
if binance assumes $6b in liabilities for no gain they'll be acting against their shareholders best interest and be on the way to bankruptcy anyways.
No one here can say what the upside of assuming all those liabilities is. Aside from 'goodwill' and 'the entire crypto market will crash', what actual reason is there for binance to buy an insolvent exchange?
Those credits would become liabilities. By taking them on, Binance would go from solvent to insolvent, using the strict definition of "assets < liabilities". Goodwill alone won't bring the money back.
agreed - I think there's a combo of schadenfreude and "I told you so" vibes from HN, where people have been generally skeptical throughout cryptocurrency's rise in popular mindshare.
I get the same feeling and shudder whenever HN has a new thread about password mangement systems. Most of the suggestions are super fragile and so many people give bad advice that will eventually result in collossal catastrophic data loss.
When numbers in billions of $ are mentioned with regards to these crypto exchanges, is there really that much actual money at stake or is that the imagined value of all the magic tokens that are supposedly traded on these exchanges?
But imagined value that, if you play your cards right, you might be able to convert into real dollars. Leaving someone else with the imagined value instead.
No, not at all like the stock market, which has real mechanisms for getting real cash paid by real consumers in real life for real products into the hands of stockholders.
Do people speculate on it more than they probably should? Sure. But at the heart of the stock market is a system of "I just sold a physical thing for $1000, and since you own the stock you get $0.00001 of that". At the heart of crypto is "my computer did some math, so... money".
At the heart of crypto is the desire for decentralized banking infrastructure and currency, which has non-zero cost to operate and thus requires some degree of compensation for operating the network or protocol.
Just like in the equities market, speculation and gambling dominates market values of these things to varying degrees (to a comical extent in growth tech recently, for example).
> At the heart of crypto is the desire for decentralized banking infrastructure and currency, which has non-zero cost to operate and thus requires some degree of compensation for operating the network or protocol.
But where's the value being delivered by that "decentralized banking infrastructure and currency"? Actual usefulness of crypto for genuinely decentralised (i.e. L1) transactions has been going down not up (fees are higher than ever, fewer and fewer stores allow direct payment with cryptocurrency...).
Regardless of how you feel about bitcoin, there are plenty of revenue generating products and services in the industry, serving both B2B and B2C clientele.
Oracle (READ: aggregated/decentralized APIs feed) services and other infrastructure that supports decentralized protocols (network graph, etc.)
Decentralized lending, borrowing, trading.
SaaS products in on-chain analytics, portfolio management, commerce aggreggation.
Gaming
Fine Art (a tiny minority of the art scene in crypto is pretty interesting, ex. distributed multiplayer run-time art, something that can't really exist outside of the medium)
Digital Collectibles as an end consumer product or in service of the construction of lifestyle brand / gaming / etc startups. (A lot of the most boring use cases land here, imo)
When I take a loan from a bank, I may use it for education, a vacation, medical emergency, a car or invest in a business which will generate revenue and employment.
What do people do with tokens they borrow in "DeFi"? Given that the tokens can't be used for paying college tuition or a hospital bills or rent or buying a machine?
On-chain financial stuff is just more speculation, and the vast majority of the gaming/art/collectible/advertising/content use cases are just stapling crypto onto something where it brings no benefit and often actually makes it worse.
There's a tiny sliver of cases where crypto brings real value by enabling something that you couldn't do without it (e.g. cryptokitties was genuinely novel and interesting). But it's just such a vanishingly small proportion of the ecosystem.
The topic at hand, per the comment I responded to, is imagined value. Imagined value was the subject of my comparison.
Regarding ownership, however, you can explicitly own things- or parts of things- on the basis of token ownership, but you’re right that this isn’t the way that bitcoin and many other technologies are structured.
The average tech share is a non-voting share in a loss making company selling bits on the internet with the promise of a bright future. Barely any difference with crypto
No. Stock market may look like a ponzi where one buys stocks in companies only in the hope of selling them to higher value to someone else at a later date, the value itself doesn't come from that. The value comes from future prospects of a company's actual business. A company's shares can't go on rising infinitely if it has no solid business. Why is Meta sinking? The fundamentals of its core business are looking vulnerable. Why do companies like Apple/Microsoft/Google/Amazon eventually rise? Because they are market leaders, have strong profits and they keep innovating.
Even if a company is loss making and doesn't pay dividend, there will be someone who would be interested in acquiring the company to actually run it and not just just to flip it to a bigger buyer at a later date. That is why Musk paid $44B for Twitter. Because after all is said and done, it is still the most influential social network amongst the people who matter. Owning it has a value for someone like Musk. That value comes from the activity that Twitter conducts and not the demand for its shares.
In crypto value comes only from the demand. In stock, demand comes from the value being generated by the company.
No, not at all like the stock market. Shares of stock grant you partial ownership of a corporation with assets and income. Tokens give you partial ownership of fuck-all.
Asset and income denominated in some currency which is also an imaginary concept that we decided to all agree on was worth something. Not much different if you ask me
This is not entirely accurate. The "crypto" industry is not a monolithic piece of technology or implementation. Some tokens provide governance, which is a proxy for legal ownership. Some tokens provide ownership directly or contain trustless, immutable access to assets.
I personally find decentralized programmable networks like ethereum- where it's sort of choose your own adventure in regard to utility, ownership, implementation, et cetera- to be more interesting than bitcoin.
If just 10% of the "1:1 USD stablecoins" where cashed out today their price would fall 99%. And bitcoin and ethereum are also just at a "value" that's inflated 10 to 100 times due to crypto internal leverage.
We've already seen more than 10% of USDT cashed out in a previous exciting time a few months ago and the traded price value went down a few cents for a few hours. Nothing remotely like 99%.
It was a maximum of around 1% in a single day and this made Tether fall 2 or 3 percent during LUNA crash. The problem is the selling pressure does not interact linear with price but exponential
USDT is backed by over $8billion in commercial paper, a lot of which seems to be in Chinese real estate companies that are very unlikely to be worth their claimed value.
And note that this was true in May - global markets are WAY down since then.
Moreover, it was only a spot verification - they could have moved money into treasuries for a day and then moved it back again. The auditors explicitly avoided commenting on this.
Yes, it looks like 12% of their assets are in commercial paper.
I'm not claiming to be an omniscient source of truth, but USDT is supposed to be backed 1:1, is audited regularly, and has survived extreme volatility events and bank runs for the better part of a decade.
Maybe it will collapse some day. I personally have more trust in USDC and Circle, so I use that if I need a stablecoin.
That's not an audit, it's an attestation. The article says:
>The company does release quarterly attestations, separate from a thorough audit, as required by a 2021 legal settlement with the New York Attorney General’s Office. Following the hiring of its new accounting firm, BDO Italia, earlier this month, Tether said it intends to release them on a monthly basis, beginning early next year.
Roughly 20% of Tether's "cash equivalent" investments are with grade A-1 and A-2 parties. It's effectively stable, until it's not. We'll see it in our lifetimes.
BDO is a legit company, though not a "Big-4", I think most would consider them top-10 for audit without any qualms. It's much more reputable than some of the firms that Tether had been trotting out in the past.
you can read the texts of them yourself and make up your own mind
DYOR or "don't trust, verify" are common mantras in the industry for a reason, and similarly are the reason that I hold custody of my own assets rather than relying on centralized entities like FTX.
Question from someone who hasn't been involved in crypto since baby was born in 2021:
We all know that this can happen to centralized exchanges and using a DEX will protect your assets (the ones that don't go to $0 on their own like LUNA and FTT).
In the past, trading was always much more expensive due to the blockchain overhead compared to trading on a CEX, not to mention liquidity problems with smaller alts and DEXs.
Is this still the case? Do folks day trade using DEXs for small amounts or are they still limited to longer-term trading due to the overhead?
DEX market share as a volume was 25% - 33% of spot market during the peak. It might have taken a hit since Terra went down, though.
For some trading pair likes ETH/USD it is actually cheaper to trade on DEXes (Uniswap v3) where you get 0.05% fee as opposite to Coinbase that charges you 0.6%.
The events like FTX should prod the markets more towards DEXes. Also now there are futures DEXes available like dYdX, Perp.fi and others making it possible for more professinal trades to utilise DEXes.
You can trade on the XRPL DEX[1] (The oldest DEX) essentially for free* since it went online. The DEX works like a central limit order book which limits the way you can trade. There are also liquidity problems for many currency pairs as well as counter-party risk if you trade/hold IOUs with a counterpart like for example Gatehub USD stable coins (Counter-party here would be Gatehub so if they go bust Gatehub USD is likely going to be stable at zero).
For a more advanced use of the XRPL DEX there is Sologenic[2] which is build on top of the XRPL DEX.
> Is this still the case? Do folks day trade using DEXs for small amounts or are they still limited to longer-term trading due to the overhead?
I'd like an answer to this too.
I've been dollar cost averaging into BTC and ETH since the prices are low. But at the same time every exchange I see has fees that eat a large percentage. I know Coinbase allows you lower fees if you're trading big money each month, but I'm not doing that.
Generally DEX will be more expensive. However big part of DEXes costs, which are gas fees, are a flat fee, so if you move large amounts of money it's fairly cheap as a percentage.
DEXes do not have to be expensive at all. This is just a side effect of most people building the wrong stuff on the wrong "blockchain".
It seem quite obvious to me that a DEX should be somewhere where there are cheap and fast transactions.
> It seem quite obvious to me that a DEX should be somewhere where there are cheap and fast transactions.
Interesting, I would have thought that Centralized exchanges would be cheaper and faster.
Cheaper because there are no block chain transaction fees. So assuming a DEX and CEX can charge the same fee structure, then CEX's should win as there is no exchange fee added to each transaction.
On chains like ETH that matters alot if you trade alot.
And same for speed. On a CEX a trade is a database update, on a DEX its a blockchain update. Hard to see how the later can be as fast as the former.
Why should a centralized exchange be cheaper? There is always a middlemen who removes value from the system.
>...then CEX's should win as there is no exchange fee added to each transaction.
The other way around, the DEX should win as there is no fee at all.
If you could make a decentral Ebay there would be no Ebay to take a part of your profit.
The problem with transaction fees in many blochchains is that they actually replaced the middlemen with a decentralized middlemen(s) (the miners/stakes/node operators etc.) Now you have a system operated by people who want high fees and user who want low fees.
They operators cant really collude because they compete but they know low fees would hurt them all so they basically form an oligopoly without even talking with each other.
Ideal the system should be operated by the user so they would all want fees to be low.
I dont know if any such system exists but I know the XRPL solved the problem by burning the fees so node operator have no incentive for high fees. This results in a typical Tx cost of less than $0.0001 USD. Any offer on the DEX is just a special transaction and does not cost anything extra.
The fee is only a negative incentive so people dont spam transaction.
>And same for speed. On a CEX a trade is a database update, on a DEX its a blockchain update. Hard to see how the later can be as fast as the former.
This is true a CEX will definitely be faster with current tech and I dont know if that will ever change but for manual trading this is not really a problem. XRPL DEX executes orders about every 3-4 seconds and the consensus mechanism does not allow front-running.
> Cheaper because there are no block chain transaction fees. So assuming a DEX and CEX can charge the same fee structure, then CEX's should win as there is no exchange fee added to each transaction.
Sorry I meant block chain transaction fee, not exchange fee, I mistyped the second instance.
> The problem with transaction fees in many blochchains is that they actually replaced the middlemen with a decentralized middlemen(s) (the miners/stakes/node operators etc.) Now you have a system operated by people who want high fees and user who want low fees. They operators cant really collude because they compete but they know low fees would hurt them all so they basically form an oligopoly without even talking with each other.
Trustless distributed consensus is expensive - running chain validation isn't free, and there's a tradeoff where the cheaper you make it the easier it becomes to attack. That's why this stuff ends up costing more than a traditional middleman who can use a cheaper datastore and consenus mechanism.
Consensus is actually very very cheap if its not done with PoW or similar consensus "tech".
Distribution isn't cheap because obviously 2 identical servers cost twice as much as one. But this comparison isn't actually applicable to real world use. A centralized system that wants to have high uptime and reliability does need multiple server too. Most centralized system do not reach the kind of reliability "blockchains" can have because from a cost-benefit point of view it just does not make sense. 99.999% uptime or about 5.5 minutes downtime per year is very expensive and very few public system come anywhere close to this.
>...there's a tradeoff where the cheaper you make it the easier it becomes to attack
That is actually a pseudo-math-security coming form the early days of Bitcoin.
Yes, if you double the number of nodes the system is arguably more secure (if the nodes are actually operated by different entities) and it costs twice as much to run BUT there is no point to endlessly increase the number of nodes. Less nodes but strategically placed around the world operated by different entities is way way more efficient and cost way less than the blind "more is better" approach.
Some quick back-of-the-envelope calculation:
1 node hardware + energy and maintenance cost per year $100k USD.
50 such severs distributed all over the world.
This system would therefore cost about 5 million per year.
Sounds like a lot but assume there are 1 million transactions per day that would mean 1 Tx cost only $0.0137.
Obviously more Tx/d would reduce the price per Tx because operation cost cost does not grow at the same rate.
Give $0.0137 USD to the operators for each Tx sound like a good idea but most system also give the operators the power to change that price, which is comically stupid.
The reason Tx fees on some blockchains are order of magnitudes higher, is because of bad design, completely pointless levels of redundancy, and most importantly because the operators do make huge profits.
Its only logical that they would double the fee if that reduced the number of Tx by less than 50%. They dont care if you cant use the system anymore because the fees are too high for you they only care about the sum of all fees.
Imagine HN but every comment would cost money and the operator would want to make the maximum profit possible.
You could plot the average number of comment at a given cost and find the price that leads to the maximum profit.
One thing is for sure, comments would not be cheap.
Have a look at https://news.ycombinator.com/item?id=33536736
There are ofc other solutions where L1 is cheap, fast and secure, Ethereum is just really not the right tech for a DEX.
blockspace is plentiful and on every chain that isn't Ethereum mainnet, small amounts are traded, a lot of financial activity occurs on Solana at extremely high volume - with the predictable consensus, security and uptime compromises necessary to do that
it also occurs on Ethereum Layer2's and other EVMs
DEX volume seems to be around 10-20% of CEX volume. But CEX is easier to overstate as it's cheap, sometimes commission-less. While DEX volume always carries a cost.
I'm just a fly on the wall with all the crypto drama but i thought Binance bailing out FTX was mainly to protect Binance and not just good will. I guess Binance figures they can survive without them.
yeah didn't they precipitate the crash by posting that they were doing thing similar to Luna, and then once the thing is crashing they say they'll buy it, and now they might not even buy it, I'm sure there's a lot of shit going on lol
More than that. Their first move was cutting trading fees, which made FTT worthless (it was useful before for traders to use to reduce their trading fees but with free trading on Binance that became worthless). After Binance made FTT worthless, they then started to sell theirs off (knowing that it's worthless because it's a race to low/free fees). A bank run would have been inevitable anyway as large traders would rationally sell their FTT and move over to Binance for free trading (they pay zero fees and can pocket the money they can get from their FTT). CZ's tweet just accelerated things.
Binance is almost certainly facing the same situation as FTX, just without the bank run. They're leveraged to the teeth with tether, which they similarly treat as a crypto leverage flywheel.
Binance just has first mover advantage; as a result of inventing this "my coin can just be printed forever" crypto exchange model, they have more use and $$ which gives them a better cushion. But it's still only a cushion.
As far as everyone knew FTX was doing fine until a few days ago. Binance is inevitably going to follow a similar path. If you're using a currency/holding as leverage that can go to $0 overnight, you're far from in a good position.
I think cz basically has sbf trapped. I don't even think anyone else can come and save them even if they wanted to cause binance has so much ftt. The moment whoever leaked to coindesk that Alameda was propped up entirely by ftt they were screwed
Why would they even consider taking them over? They killed a competitor by declaring them as insolvent. The damage has been done. The user funds SBF siphoned out of FTX aren't coming back and doubt CZ is going to refund them out of pocket IF they take them over. The tech behind FTX is probably the same or worse than what Binance has. Customer acquisition happens anyway as the people still wanting to stay active in crypto will probably go to Binance.
This reminds me of 2008, when companies were trying to get "rescued", such as Lehman, but Lehman couldn't make a compelling argument why they were worth acquiring, once the accounting books were opened.
Speculation, but consider that plausible scenario that SBF went nuclear and then CZ retaliated in what will turn into crypto mutually assured destruction.
Obviously. The only reason for them sending that tweet yesterday is if they were never seriously considering going through with the deal in the first place.
My understanding is that Binance can step in as a potential savior because Binance is safe themselves and the company doesn't fear a liquidity crisis themselves. But, their whole premise of consumer confidence is based off of SAFU[1] which seems to hold quite a bit of their own BNB coin[2].
Maybe I'm missing something but isn't Binance just insuring funds... with their own coins? (ie. what Alameda basically did with FTT tokens)
1. Couldn't Binance be subject to the same rundown FTX just experienced? / How could Binance realistically rescue FTX at all?
Their premise is that they are not doing fractional reserves and actually have all user funds available at all times. SAFU is just an additional safeguard and was primarily created to compensate for hacks (it was used one time when Binance was hacked for $50M).
IMO Binance has billions of their own cash reserves (not user funds), based on their activity in the last year (acquision of coinmarketcap for 0.4B, commiting $1B to boost crypto projects and companies etc.. this must be a fraction of their overall worth and in that case, $6B should also not be a huge issue, especially since they can get a lot of goodwill and millions of FTX users).
Binance collects billions of dollars from fees every year and also get money from their external investments (e.g. Binance invested in FTX and sold their shares last year for $2B ($1.5B and $0.5B FTT)).
I assume interest rate climate and losses will start an outflow of money from crypto. I wonder how Tether will handle this. They seemed too big to fail but this is looking serious.
A winter for sure, but likely shorter than 5 assuming overall economy isn't going to be stuck in a depression. Crypto winters have been getting shorter and shorter thanks to increased awareness and increased participation.
1) Big assumption there about the economy not getting stuck in a depression. We're still raising interest rates. It's just the beginning.
2) Crypto winters have become shorter? Sure. But have also become more extreme, with deeper and more sudden losses.
Cryptos seem to be: 1) a tech stock 2) a "fair weather" asset.
>Big assumption there about the economy not getting stuck in a depression.
The political cost of being in a depression is far too severe for those in power to not prevent it. They are armed with far more tools and knowledge today than 1929. This will be merely yet another recession in a long history of human society oscillations.
>Cryptos seem to be: 1) a tech stock 2) a "fair weather" asset.
I do agree with that, but it's a result of crypto being played by the same people who played tech stocks and fair weather assets. The OG evangelists who saw it represent the antithesis of the current world order have pretty much disappeared as crypto picked up attention from VCs.
>> Big assumption there about the economy not getting stuck in a depression. We're still raising interest rates. It's just the beginning.
On the contrary, the assumption seems to be on your part. You say "it's just the beginning" but the Fed has already been signaling that they will slow down and then cease the interest rate increases over the next several months.
There’s also an FTX Japan, although as far as I know it was wholly sold to a local buyer earlier this year. I had assumed they remained related only by brand. The FTX.intl insolvency makes me wonder whether they’ll be affected.
Does anybody really find it surprising that a company that engaged in schemes that promised to "monetize" the deposits of clients, at rates 5 to 10 times larger than the current interest rates you can find in traditional vehicles, was a scam down to the core? The owner of said company was even boasting about how his products were PONZI SCHEMES. Anybody that "invested" in those stupid Defi magic beans deserve to lose it all, unfortunately.
This would (probably) be a mistake on CZ's part. Taking on FTX's customers would undoubtedly bring him more goodwill than letting its customers go down with the ship.
We (the public) don't yet know how bad it is. CEO of Coinbase, Brian Armstrong said he was also not interested in an acquisition after a small amount of DD. He said we will likely find out how bad it is eventually.
If we had one for binance, it would show a ridiculous amount of tether and other coins which they probably own a majority of, meaning their balance sheet is similarly comprised of assets they can't actually price or expect to be able to sell at market value
Edit: Looks like the parent commenter was referring to Binance's balance sheet, which might be what you were asking about. The balance sheet I linked is FTX+Alameda.
And surely the buck stops with the Tether Foundation, who stand ready to cash Binance out, and they won't need to dump a bunch of risky assets and possibly not net enough to meet Binance's needs
I mean, unless the whole thing is FUBARed, in which case, he should probably get out of crypto entirely before the whole thing crashes. But I tend to lean on the optimist side of things. :)
I'm not sure they have a choice. Binance is leveraged to the max with tether already; they likely can't afford to pay FTX real-world currency for the purchase. They'd have to offer tether or other vaporcoins as payment, at which point FTX might as well just keep its vaporcoins instead
Why? Maybe it's a different subset of crypto users who did not want to go with binance in the first place, and are not likely to stay in binance for whatever reasons. And it's not like binance is running out of customers
This is good news. The obvious suspicion was that Binance would bail out FTX to cover for the fact that Binance aren’t truly solvent themselves- in exactly the same way FTX did with other crypto projects earlier this year. We all know at this point FTX was underwater, so Binance stepping to take a big loss on it would’ve been a strong red flag.
You might throw a years profit at it to restore confidence in the system and buy up market share. But making losers whole to the tune of 5/6/7/10 years of profits would be a massive red flag ...
What are the risks for generalized financial contagion in the traditional sector? I understand that crypto has been a way for wealthy individuals to hide funds from taxation, so if a bunch of wealthy dweebs lose their shirts I don't particularly care. On the other hand, I don't want to see this sparking another housing crisis or currency/FX crisis.
Back in the dotcom bust pretty much everyone said “yeah, they knew the risks” and generally didn’t care about the losses.
When the housing bubble collapsed you had millions of people who probably didn’t know the risks (because everyone with a voice was saying housing prices never go down) and politicians cared a whole lot.
I’d say even if the whole crypto craze went bust overnight all you’d get is a collective shrug.
Depends if Alameda goes down. They have billions of debt and we don't know who provided the capital. It could be traditional finance or it could be VTX. We just don't know yet.
Is entirely fallacy/fantasy when people talks about shorting on crypto market.
You can't win shorting actual crashes in unregulated markets, the only way u win shorting in crypto is that you were lucky to guess what a whale/org was doing at the same time so pretty much a russian roulette
Marketmakers are not legit and all the movements are pretty much fabricated, its just not regulated and its obvious
> Is entirely fallacy/fantasy when people talks about shorting on crypto market.
What do you mean by this? I shorted FTT the second I saw the tweet, and then I shorted the entire cryptocurrency market. I successfully made money, so how could it be a fantasy?
You are right, but we are talking about binance shorting big amounts of tokens, not you shorting some amount in their own game
Tell me who at the same level of insider info, gonna OTC borrow you millions of FTT for you to short, when most likely that person/entity owning millions of FTT is already trying to protect their value?
You have to remember that when you short and you bet for price going down, the other side is betting for price going up or at least for the price to stay at the same levels, the person borrowing you has to be constantly doing DD to be sure that its the right moment to borrow the asset, and its pretty obvious that someone holding big amounts of FTT was/is very aware of whats comming
if I was an OTC shorter and had millions of FTT and you see Binance CEO comming to you to short, I inmediatly said no and cashed out those FTT instead of shorting, cause clearly at those levels there is certainty of what they are doing.
I only shorted FTT at first. Then I shorted BTC and BNB instead when I realized this was going to crash the market. For some reason BNB was massively overbought yesterday. Binance hype or something. Almost reached 400 USD. I shorted it at the top and watched it melt down to < 300 USD.
God I wish I could be this lucky every single time.
It works, until it doesn't. When volume drops, it's possible to harm lots of people who were short like this by pumping to force liquidation and then handling the liquidation and dumping (taking money from every side). It happened during the Luna/Terra crisis. Shorting LUNA was high risk because there were at least some players who burned others frequently on the path down.
Work at a trading firm and we saw the entire thing play out, but we're algorithmic so we weren't set up to take advantage.
Though if you're a small player, there's a lot of opportunity here. Some times, the difference between the price for liquidation and the price you can get somewhere else is high. We saw one dude make a quick $300k through a flash loan. The market isn't fully efficient yet, so this opportunity was available for 10 min before someone took it.
> there were at least some players who burned others frequently on the path down
I don't know. If there's a risk of getting liquidated during one of those minor reactionary pumps, the position is probably overleveraged to begin with. Also, do people not configure a stop loss?
Market places knows where is your stop loss... You play again them.
It should not be, but it's a scam and unregulated.
I made the painfull experience of it with a future on DJIA in 2009, and it was a regulated market place (CBOT, i think)... I was long because I supposed a reversal of the bear market. I put a stop loss at 8000$ or something. Price went just 1 tick (0.01$) under my stop loss then went up.
It happens market place members (big players or market makers ; you pay to be a market place member which give you some advantages over regular traders) have full visibility of market orders book, but not retail traders. So they have access to your stop loss order. So then can put pressure on prices whatever the direction to force you to close your trade until orders book on one side at a price level is empty and the price can only reverse course.
It's not just FTT/FTX, though. They're probably taking down others with them. Looking at the books gives you an idea of who the "others" are and how screwed they are.
If you have enough capital couldn’t you weather the artificial movements to be able to capture the natural downward movement. VTT is going to zero if VTX liquidated in bankruptcy.
we are all ignorants about the reality here, so we are all guessing
but when you have to guess stuff about the crypto market, you literally have to think the worst things or the best things and you will be right
my guess here is simple, CZ has liquidated everything that can be liquidated that doesnt make him look bad, hes deep in the very same business than FTX/Sam was, he doesnt need to look the balance sheet, chances are his balance sheets are similar or worse haha
So he probally liquidated longs if any, he probally did OTCs with other tokens/assets and just kept the FTT as a PR move to pretend he was a nice guy, anyways having an amount of $ "lost" by a token that was never worth anything is still 0 lost, he most likely got those tokens in exchange for other tokens worth nothing, or during ICOs stage so pretty much hes not losing any cash even tho you will read people saying how much he lost, remember all of that is nominal value, not real cash value at the end, the very same reason things are falling now.
Why is this being downvoted, shorting the book of an entity you are supposed to be bailing out / in talks with has multiple historical precedents. Amaranth and JPM off the top of my head for the last time it happened.
This is crypto, there are plenty of retail 'to the moon' speculators that would be thrilled at the prospect of more sick gains. It's tulips all the way down.
FTT has thin liquidity and was already under significant selling pressure. It's highly unlikely Binance would have been able to build up a significant short position.
Interesting to see how heavily Sam Bankman-Fried dontated in the recent midterm elections in the USA. He might run out of runway before those investments pay off.
Elon: I'm backlogged with a mountain of critical work matters. ls this urgent?
Michael: Wants 1-Sb. Serious about partner w/you. Same security you own
Michael: Not urgent unless you want him to fly tomorrow. He has a window tomorrow then he's wed-Friday booked
Michael: Could do $5bn if everything vision lock. Would do the engineering for social media blockchain integration. Founded FTX crypto exchange. Believes in your mission. Major Democratic donor. So thought it was potentially worth an hour tomorrow a la the Orlando meeting and he said he could shake hands on 5 if you like him and I think you will. Can talk when you have more time not urgent but if tomorrow works it could get us $5bn equity in an hour
Elon: Blockchain twitter isn't possible, as the bandwidth and latency requirements cannot be supported by a peer to peer network, unless those "peers" are absolutely gigantic, thus defeating the purpose of a decentralized network.
Elon: ["disliked" "Could do $5bn ..."]
Elon: So long as I don't have to have a laborious blockchain debate
Elon: Strange that Orlando declined
Elon: Please let him know that I would like to talk and understand why he declined
Elon: Does Sam actually have $38 liquid?
Michael: I think Sam has it yes. He actually said up to 10 at one point but in writing he said up to 5. He's into you. And he specifically said the blockchain piece is only if you liked it and not gonna push it. Orlando referred Sams interest to us and will be texting you to speak to say why he (Orlando) declined. We agree orlando needs to call you and explain given everything he said to us and you. Will make that happen We can push Sam to next week but I do believe you will like him. Ultra Genius and doer builder like your formula. Built FTX from scratch after MIT physics. Second to Bloomberg in donations to Biden campaign.
Ok I’m looking for a word or idiom where mismanaged businesses without money fail, no matter how big they are or how many other businesses that failure will pull down
Machiavellian is such an odd word. People use it to mean mendacious, cunning, self-serving...but Machiavelli himself spent his later years in political exile.
His seminal work reads like a groveling apology masquerading as advice to the politicians who had banished him.
IMO, the word works fine for describing someone who gambled on their own dubious advice and lost. Even moreso if the loss stems from a cyclical event, like the boom/bust nature of financial institutions which let the Medicis buy their way to political power in the 1400s.
Please don't post like this to HN. You may not owe billionaires or former billionaires better, but you owe this community better if you're participating in it.
Probably short term high yield bonds. You’ll need to assume more risk to get that extra 1-2%. CD and treasury is 0 risk so if you want more that you need to assume risk premium.
You don't think he sold his shares in some of the investment rounds? Adam Neumann of WeWork is still billionaire even though WeWork went bust. These scams won't stop till someone is prosecuted. SBF stated that VTX didn't trade customer assets and that VTX was just a custodian, he committed textbook wire fraud.
There was no real money to begin with. If I create 1,000 tokens out of thin air and sell one to a friend for $1,000, I don't suddenly have $999,000 in net worth despite what crypto people try to claim.
They pumped the coins on the way up - Google willybot - which sucked retail money in. The smart exchange fraudsters cashed out on the way up. The uber-greedy exchange fraudsters held on thinking they could get more $$ if the price goes up, only to see that the price didn't go up, causing balance sheet holes which result in their demise a la ftx
From what I read, CZ liquidated his holdings of FTX's primary currency, which crashed its value. If that's the case, the "value" was due to scarcity. This "money" isn't gold-backed; it didn't "go" anywhere. It was a balloon. It deflated.
SBF was the “model citizen” to USA regulators. It’s hilarious how some USA loved this known ponzi schemer while actively fighting legitimate projects like LBRY.
The main discussion was at https://news.ycombinator.com/item?id=33533088 but since the bloomberg.com article has more background, I think we can merge those comments hither. Thanks!
