That gets them out from bankruptcy in the Bahamas, which is much tougher than US law. The Bahamas still has classic tough bankruptcy laws, where there's no debtor-in-possession reorganization. It's straight to liquidation, with a court-appointed receiver in charge.
This should be, and may be, converted to a straight liquidation. Chapter 11 can be useful for restarting companies that actually do something, like General Motors. There, much of the value is in the ongoing business. FTX, going forward, has no ongoing business. Lawyers for creditors will be making that argument.
Note that Bankman-Fried is still employed by FTX, "assisting".
Current banners at FTX.com: "FTX is currently unable to process withdrawals. We strongly advise against depositing. Deposits of TRX, BTT, JST, SUN, and HT are disabled. All onboarding of new clients has been suspended until further notice."
"We have reached an agreement with Tron to establish a special facility to allow holders of TRX, BTT, JST, SUN, and HT to swap assets from FTX 1:1 to external wallets. This functionality will be enabled at 18:30 UTC, November 10, 2022."
>"We have reached an agreement with Tron to establish a special facility to allow holders of TRX, BTT, JST, SUN, and HT to swap assets from FTX 1:1 to external wallets. This functionality will be enabled at 18:30 UTC, November 10, 2022."
These centralized coins are hilarious. How can you negotiate a special facility to swap to those assets when they're presumably gone? Also now that they've filed for Chapter 11 won't all these 'activities' and withdrawals be frozen?
Justin will conjure more out of thin air, and be probably views it as more profitable to encourage as many sheep into his ecosystem as possible, even if that means covering losses.
I'm not familiar with any of the listed currencies, but in a properly-designed cryptocurrency a deposit to a given public key is just any transaction[0] that includes a output to that public key. There's no such thing as accepting or not accepting deposits, at most they could actively refund them, which bankruptcy presumably prevents them from doing.
IOW, they're saying: "If you give us money, we will (/may) be forced to give it to our creditors rather than back to you, so don't do that.".
0: IE, a message published by Alice to the effect of "[Alice's public key] gives [Bob's public key] X [coin]s. [Alice's signature for this message]", published on the distributed ledger. Note that Alice can create and publish such a message without any input from Bob.
There are still people who believe. This is the top comment on FTX on Coinmarketcap, posted yesterday:
$FTT -- Take a screenshot of this post
1. Someone is going to buy out FTX and this exchange is not shutting down. By someone I mean Elon Musk kind of people.
2. No. FTT isn't going to wipeout if we talk about the fall, most of the cryptos have all fallen significantly. So a crypto going down from $24 to $3 doesn't mean the are going out for good.
3. $8 Billion Dollars as some here are fidgeting to understand isn't a large number if you look at the entire market cap of the crypto sitting at $800 Billion and $3 Trillion sometime back.
There are people who truly believe. And there are those who exploit that belief.
I don’t think it’s possible to stop someone from depositing something into a wallet/key. That’s an issue with things like doxxing or spreading humiliating media of someone. You can push anything via the protocols to any address.
I don’t think you have a choice to accept a deposit or not, do you? You can’t stop people sending you coins. And sending them back costs you money so you wouldn’t do that.
What address do you think people would send to? You can't send to some random address that you think is owned by an exchange and have it show up in your account. They give you an address to send to when you say you want to make a deposit. How did you think it worked?
They can either send it back or add it to their ledger. You are conflating sending to an address with an exchange keeping a balance. A cryptocurrency and an exchange are two very separate things.
many other exchanges and wallets force users to store an address book of addresses associated with them. this user experience will result in deposits to their old addresses at FTX. there is nothing FTX can do to prevent that.
yes, could. in practice even functioning exchanges opt not to bother. it is a poor practice we should call out, this is definitely something that a regulatory framework could address and carve out procedures for. (people could do spam attacks, so there is a line on how much to bother)
Wait, why does a Bahamas based company get to choose the jurisdiction where its bankruptcy proceedings are held? Surely if they are a Bahamas company they are beholden to Bahamas bankruptcy laws?
How was his compensation negotiated? Obviously, you would need to be paid a lot to wade into this shit show but at the same time, every dollar paid to him is a dollar out of a creditor's pocket. What are the incentives on every side driving this negotiation?
If you're in the Bahamas you can withdraw. People on Twitter with millions in FTX have been paying Bahaman citizens to KYC their accounts so they can withdraw. This is obviously highly illegal.
A few of my buddies were able to change out 1000 or so dollars each to BTUSD or something like that. Not really into crypto so I don't know the details but they just exchanged 100$ at a time or so and it took a few hours for each transfer to confirm
> Chapter 11 can be useful for restarting companies that actually do something, like General Motors. There, much of the value is in the ongoing business. FTX, going forward, has no ongoing business.
I was looking for a diplomatic way to write "and nothing of value was lost...", but you nailed it.
A financial firm with nominal billions in outstanding debts and credits seems like the worst thing to shut down with a straight liquidation. Nothing says "these creditors get nothing" like the need to immediately firesale numerous crypto tokens moving the price dramatically.
I've seen some comments saying that this is all delayed fallout from the Luna/Terra collapse last spring, it's just that FTX had the means (its own token that it could pump and move around its own entities) to paper over the hole in its balance sheet until now. Can anyone more familiar with the situation elaborate? How much further will the contagion spread?
1. Alameda essentially needed a bailout in the spring.
2. Alameda, though, also had a large chunk of FTT coming due in the fall that was basically part of the vesting schedule of the original FTT ICO.
3. So, FTX lent Alameda customer funds in the spring.
4. In the fall, when the vested FTT paid out to Alameda, they immediately paid it back to FTX.
5. The thing that looks highly suspicious and fraudulent is that SBF tweeted out that the big FTT move that day was just normal "rotation".
Also, particularly interesting to me, the FTX-US president, Brett Harrison, resigned the day before that transaction at the end of September. He also just liked an interview on LinkedIn where Brian Armstrong (Coinbase CEO) was being interviewed, saying "not all crypto companies are like FTX, where it appears they fraudulently misappropriated customer funds".
The above is speculation, but it's based on on-chain data.
How would that play have had an effect after the bailout was repaid? I can see if there was the run while the ftts were loaned out, but why would it matter once they were returned?
It wasn’t “repaid”, the FTT was posted as collateral for the loans (customer deposits).
But still, should be fine at that point, right? The loans are nice and overcollateralized, what could go wrong?
Problem is that FTT is itself a bet on FTX. So if the news comes out that FTX and Alameda have these shady linkages, some of your customers will want to withdraw—and at the same time, FTT will fall.
Oops—the value of that collateral just crashed and now you don’t have enough assets to process the withdrawals.
Which makes FTT fall more, and more people want to withdraw.
It’s not like some fluctuation in Bitcoin price, where maybe you could get lucky and wait for it to come back up. FTT is just a bet on you, and you can’t process withdrawals, so why would that ever come back up?
Its hard to tell, but looks like the fall out is far from over. There are a lot of rumours running around so unsure what is true and what is not, but we've gotten confirmations from a lot of crypto companies to be affected one way or another. Genesis (a big OTC trading company) lost about 160M but their parent company wrote them a check. BlockFi seems to be in the hole and has closed withdrawals. Blockfolio (an FTX owned company) paused withdrawals. Anything SOL/SRM related is likely affected. Any market maker worth its salt had money on it as well... think we will see a lot of blood in the coming days/weeks.
Does anyone know the effect on Nova Labs and the Helium Network? It was my understanding that they recently switched the network from the Helium Network token (HNT) to Solana (SOL).
I was at the Jump Crypto hackathon during the terra luna depeging. Jump crypto has a unique structure because as part of their investment, they get a chunk of coins to market make with. They have no requirement to be on the long side of the market making so during the terra luna collapse they made an absolute killing (Even though terra/luna was one of their biggest investments). Also, jump has it's other business running HFT on the stock market that is much more profitable so it can always bail out it's other side.
Everyone's confidence is shook, so I expect a lot projects will be delayed due to lack of funding/interest, and volume will dry up significantly in the coming weeks/months. NFT market was never particularly liquid to begin with, so it might grind to a halt for a bit.
But there's light at the end of the tunnel, I'm sure. With regulators focusing their eyes on tokens and exchanges, NFTs might get a bit of a revival some time down the road. Especially if money starts flowing into it again looking to escape the regulatory hammer.
By their own figures, Tether is now undercapitalized and just had billions withdrawn. They made those payments. But, as Hemmingway said, bankruptcy tends to happen gradually and then all at once. Tether is in a hole. Nobody knows how close they are to not making payments. But when they implode, it will be sudden and the blast radius will be large.
Does Tether weather this squall? Based on history, probably. Based on economic fundamentals, they will sink at some point.
> By their own figures, Tether is now undercapitalized...
Where has Tether stated this? Last I heard--today--Tether has continued to claim the opposite.
(edit to add, 45 minutes later:) I see patio11 makes the same claim, but I've now read both his recent articles on this and he is making a LOT of extremely stretched assumptions to pull off this reasoning, and even then the best he has is that it must have momentarily become insolvent in the past :/. And so like, maybe they are undercapitalized... but if they are it is because they are lying, not because their own figures somehow demonstrate such.
1. Tether has attested, under penalty of perjury in response to orders by a NY court that they aren't backing USDT with dollars, they are backing it with various financial instruments.
2. Tether has claimed, prior to that, that USDT is backed by dollars.
3. Since #1, Tether has not been transparent about their backed assets. Oh, sure, they say that they own X billion dollars of <some particular asset type>, but we don't know if those are AAA assets, or utter garbage[1], or whether they are counterbalanced by liabilities.
4. So far, the track record for unaudited crypto funds is not great.
On the scale of 'Untrusted', 'Trusted', and 'Completely Trusted'[2], I would definitely put them int he 'Untrusted' category.
[1] The fact that they were even considering buying FTX leads me to believe that they have no aversion to paying good money for garbage.
[2] Promotion to the third category can only happen posthumously.
Tether might be able to plug the hole depending on how big it is if treasury rates rise fast enough for returns to paper over their previous asset allocation or mismanagement mistakes, and redemptions don’t exceed assets on hand.
The point of this article was to make the consequences of the following statement clear:
And now you know enough to understand what I'm saying with an otherwise opaque statement like "Tether is 35:1 levered on risky assets during market contagion."
Yes, if everything goes Tether's way, they can weather anything, forever. But eventually it won't, and they won't.
Scoopy in the Alchemix discord had this to say:
"If you are on any CEX or CeFi app or earn product, get out RIGHT NOW. Rumors are swirling and it is possible that none of them are solvent.
I am not kidding, really, get out now. I care too much for our community to not have said anything to warn you."
Those same network effects that propelled web3 into stratosphere are going to bring it down back to earth. Not necessarily vanquish it, but put web3 in its place, so to speak. A scenario I'd imagine where DEXes / DeFi will endure and possibly thrive, but DEXes / DeFis don't have the kind of moats to justify astronomical valuations... which is both a good and a bad thing, depending on which side of the coin you are on.
Tech VCs have already circled back to AI, so doubt private companies in need of more money can stay afloat for longer, if they weren't being careful with volatile crypto assets.
I agree with you, but context definitely matters here... With all the dominoes starting to fall, there is nothing wrong with moving funds out of exchanges or to a temp address. This seems equivalent to going cash in the equity markets as a hedge. I would go even further and claim that it would be foolhardy to not take this random Discord advice if they haven't already figured it out on their own lol.
It means there's no such thing as a free lunch (aka anything giving you "guaranteed" magically higher-than-traditional-banks interest rates is probably shit).
Every coin on every market is being driven by the same collective mania. Just Coinbase is more ethical or Eth is ideologically pure doesn't mean their value isn't determined by the same rampant speculation and outright fraud that dominates the entire space. You may not see an outright bankruptcy but prices and volumes can plummet nonetheless.
They will be fine _modulo people's interest in crypto_. The way I think about it is that their business model is taking fees off of every transactions, so as the interest tapers off so will their earnings and valuation.
What you said is all true and what everyone thoight until sometime today when they said they are cutting off withdrawals and part of the bankruptcy too.
I feel perfectly fine having my crypto stored on Coinbase’s end. As far as I know their business model makes perfect sense and they don’t take the weirdly big risks all of these falling dominoes have.
Also, if Coinbase goes bankrupt and takes everyone’s crypto with them I feel everything will crash to essentially 0.
A week ago someone could have said that about FTX. Loaning customer assets was explicitly disallowed in their TOS, and was not something I had even heard rumors they were doing (though I'm not that up on crypto rumors).
Well they can't make money because all the other exchanges offer better fees/lower spreads since they're loaning customer money out. They'll never be big enough to actually makea. profit while there are shady exchanges offering a better product(until it collapses).
There aren't many compliant exchanges operating in the US, though; Coinbase seriously even raised their fees a couple years ago because they thought they could do so, even while other exchanges are trying to lower them: they aren't merely competing on fees.
Crypto doesn’t do anything there’s no productive asset. Literally every dollar coming out is a subset of the dollars that went in.
It’s less than that even due to electric bills and all that.
Contrast that to a productive asset, like a farm. You start with land and put dollars in and you get food. And you still have the land. There’s more food than there was before.
Or if you’re one of those Elon worshippers, he starts with rocky ore and seawater or whatever and ends up with lithium battery packs.
So with that established, when you see this guy running around spending hundreds of millions of dollars the next question has to be whose dollars were those. Because they don’t have them any more and they ain’t getting them back.
I don't think people realize how big of a collapse UST was. $18 billion market cap that vanished in a week. The fact that Do Kwon is not in jail yet is astonishing to me. FTX by comparison is on the hook for $10 billion, about half of the UST collapse. Everything we're seeing is a result of Do Kwon's scamming.
Y Combinator also backed a failed company [1] that was trying to take advantage of the high APR (20%) for UST staking. [2] I don't think there has been confirmation yet about how much UST Alameda was holding, but if true, it would add more context to CZ's tweet "liquidating our FTT is just post-exit risk management, learning from LUNA. We gave support before, but we won't pretend to make love after divorce." [3]
UST wasn't a true stablecoin (it isn't like any dollars disappeared from the ecosystem), so I'd put it in the same category as the hundreds of billions in "vanished" market value that was a simple consequence of the declining value of crypto in general. Whether or not Alameda was holding a bunch of UST or Luna, is another question. SBF seemed to be pretty all in on fringe shitcoins, so I would not be surprised if they had significant exposure.
For someone that only dabbles in crypto - what are the reasons people choose to use high-risk exchanges like FTX, and buy even higher risk "sh*t coins" on them? Especially the exchange-created-and-owned coins - of which I have yet to see one actually do what it promised.
Is Coinbase just not cool anymore, or is there some advantage to using exchanges like FTX until they go belly-up?
- FTX had much bigger trading volume (which might get people better fills)
- FTX had lower fees than Coinbase
- FTX offered a lot more coins to trade than Coinbase
- FTX (like many others, but not so much Coinbase) were giving large sign up bonuses, and advertising like crazy. (Finance YouTubers like Graham Stephan, Meet Kevin, Jeremy Financial Education, Minority Mindset, etc. are taking some heat for their paid promotions they did for FTX.)
- FTX offered options on some cryptos, like Bitcoin. This seems to be kind of rare.
- FTX offered leverage (like most of the other big exchanges, but not Coinbase)
- Since FTX also set up a separate FTX.US entity, it gave the perception that it had all the same US regulation protections as Coinbase. And since FTX was much bigger than Coinbase, it gave the perception that FTX was more likely to be more solvent than Coinbase. A month ago, I suspect if you asked most crypto people which exchange was more likely to go under first, they would have all said Coinbase.
This whole industry looks very unhealthy. The large exchanges that most people use like Binance and FTX have books and operations shrouded in mystery, so nobody really knows how solvent any of these things were. FTX said they were not lending out coins (and by law, as an exchange, they are supposed to have all assets), but only after a leak revealed by Coindesk, did the public find out something was really wrong. Without that leak, FTX would still be doing business as usual.
Meanwhile, Coinbase which is a publicly traded company in the US which is many magnitudes more transparent with their books (because they are required to be), can't seem to make a profit.
The overall implication is that regular exchanges that just make money from fees are in an unsustainable business model. And all the other exchanges that are making a profit, might be doing all the shady things that FTX was caught doing.
> FTX (like many others, but not so much Coinbase) were giving large sign up bonuses, and advertising like crazy.
Any company that sponsors more than one Formula 1 team is high on my "probably not a good thing for humans" list. The shit that has taken the place of tabacco advertising is just automatically suspicious.
Coinbase doesn't offer the leverage that offshore exchanges do. FTX was popular originally because they offered 100x leverage, later reduced to a maximum of 20x. They also had better spreads, probably because they were making their own market and had inside info. I think that people generally didn't expect FTX to be high risk. It's got a profitable business, all they had to do was not embezzle customer funds.
> Coinbase doesn't offer the leverage that offshore exchanges do. FTX was popular originally because they offered 100x leverage
Sounds like a red alarm for me. There's probably a good reason domestic exchanges don't let you extend out that far... particularly on extremely volatile securities.
Definitely alarming, but mostly for counterparty risk. If the exchange is just a middle man then they can't lose as long as they're able to liquidate toxic positions before they're negative. Turns out FTX was also the market maker through alameda and because of that was hesitant to liquidate toxic positions, leading to the embezzlement to try to save alameda and the current crisis.
market making in a volatile instrument is not easy. when all instruments are .96 correlated it makes it harder to balance your book. the good thing is that its retail flow but just because its retail doesnt mean you won't lose money when the market jumps in one direction or another.
That kind of gets into philosophy of what governments are for: should they protect people who make bad decisions from themselves? Does the answer change if people are actively marketing the bad decision? Does the attempt at doing so suggest they're actively trying to keep poor people from getting rich?
(This comment is an explanation of a viewpoint, and not an endorsement.)
I see it as the government should get out of the way of those who know what they are doing and the risks.
The problem is, these exchanges do not make you go through the same "vetting" processes traditional securities brokers/exchanges do before you can leverage up to your eye balls and lose everything.
They also go out of their way to make it "fun" to trade crypto - gamification at it's best - which reduces/removes the traditional apprehension of getting in way above your abilities.
We can liken a lot of these exchanges to gambling more than investing.
That is to say, an 18 year old with $500 in total assets shouldn't be eligible to leverage 20x or more. That's just a life-changing problem waiting to happen.
In the absence of a government, people would respond to fraud using violence. The government protects embezzlers and fraudsters from the violence of those they have cheated, but in turn creates non-violent consequences for such behaviors.
All of these places were offering insane APRs as well as other perks for staking your coins. So speculators park real money, expecting that they'll be smart enough to see the crash coming and slurping up that sweet return in the meantime.
And it's glaringly obvious everyone offering these outsized returns is literally just pulling a ponzi.
FTX’s lending product was (theoretically) peer-to-peer, the rates were driven by actual borrow demand from other people.
FTX was just a tremendously better derivatives exchange than everybody else when it was launched. To this day only Okex of the major exchanges has a competitive margin system imo. Continuous pnl realization and cleaner perpetual models are icing on the cake.
Theft of user funds aside, SBF likely knows more about derivatives and trading them than most exchange operators and it shows in the design of the exchange.
"... the rates were driven by actual borrow demand from other people..."
Or, alternatively, the rates were artificially inflated by a ponzi operator interested in getting more and more people joining the pyramid. Just like Coinbase, FTX was, with 99% certainty, not profitable. Of course, the creators of the pyramid WILL profit and take resources for themselves to buy things like, let's say, a 10% stake on Robinhood, or invest in many real state properties around the world, a la Do Kwon. People are just gullible, anyone who believed on those "crypto earn" vehycles, paying 5 to 10 times the market interest rates, is probably the same people that would buy magic beans from a random dude in Times Square.
"FTX’s lending product was (theoretically) peer-to-peer"
that's the point of theoretically?
Their spot lending system didn't come out until well after they had cemented their spot as a top exchange, and if you look at the rates anytime in the last year they were well under market rate - like ~1-2% rates for most major products.
It might have been part of the scam, but this looks much more like pretty bog standard "let's go trade our users funds away".
Their little friend BlockFi was offering 8% at the end of 2021 if I'm not mistaken. That was the moment I got out of the crypto space for good, the ponzi mask was all but gone at that point. The fact that FTX bought BlockFi just cemented their ponzi friendly, to say the least, business model.
Ah yeah, I was thinking about the ftx on-exchange spot margin system.
You're definitely right that the retail lending aspects were generally somewhat scammy. I suspect those rates made more sense pre-2021 when it was very expensive and hard for crypto firms to borrow capital, but offering 8% fixed on dollars in any recent time was a loss leader at best.
It's sadly looking more like sbf was buying up these firms to do exactly as you said and grab capital to fill the whole, and hide their own liabilities to said firms.
I am convinced that him not believing in it, getting paid a boatload to do a commercial stating he doesn't believe in it, then it failing is definitely the plot for a Curb Your Enthusiasm episode.
You would be surprised how easy it is for people to get sucked into a crypto bubble vortex that makes you feel like you're missing out big time by not being invested in crypto.
I was pretty heavily involved in the personal finance community on Twitter and there's two camps.
1) VTSAX and chill (basically dump money into an ETF and forget about it)
2) Moar passive income by side hustles and crypto
The latter became more and more common and ultimately drowned out the former. I believe it's because the market was doing so well that folks' risk meter just wasn't registering.
Probably the same reason why people choose to get into MLMs.
> well that folks' risk meter just wasn't registering.
That's because they were probably still in school back in 2008. I remember the days of late October 2008 like it was yesterday, and back then I was a no-name computer programmer working for an independent mortgage broker, not a big finance schmuck from Wall Street.
That one is easy... FOMO - Fear Of Missing Out. People see the 10,000%+ returns extreme early adopters obtained and think they need to get in before the good-getting is done. Most of the time they're wrong and just throwing money into dark pits...
"Gamified" trading apps like Robin Hood have made it all too easy to feel much lower risk that it is in reality though.
For the rest, crypto can be part of a diversified investment strategy. Not all crypto is outright scams... but you do need to be able to handle the volatility.
I bought some (emphasis on the some, sadly) Bitcoin when it was $80. I’ll never get a return like that in my life. Other people are chasing that dragon. Unfortunately it leads them to burgeoning “shitcoins.”
It’s all fine if you view it like the lottery and put “fun money” into it. It’s not fine if it’s your primary investment vehicle. For what it’s worth I still think Bitcoin and Ethereum will be fine and bounce back up, eventually.
“they abolished the fundamental distinctions between investment and speculation… they ignored the price of a stock in determining whether or not it was a desirable purchase.”
Benjamin Graham & David L. Dodd, Security Analysis, 1934
Where is he a commie? EA has insanely famous liberals like Steven Pinker on their side. If that’s what you’re trying to get at. Otherwise I’m puzzled since his main focus is EA.
I know this gets into politics a bit. But when it comes to forming my worldview about these things there is usually the rational side then there is the gut instinct.
The rational side told me (and the best investors in the world) these guys were the smart people in the room, the wont do anything stupid.
Then you look at SBF: he is a major democratic donor, he supports UBI, his underlying driver is to make money to give it away, he is a vegan, he hangs around with clintons etc.
I believe ever since the bloody collapse of communism, the modern descendants of that ideology never label them selves as communists. They use different words to achieve the same end: stakeholder capitalism, effective altruism, UBI etc..
Its a huge leap and to clarify I'm not saying they are closeted or anything. I guess what I'm saying is we are living in a very weird world where nothing is as its seems.
Therefore its more important than ever to rely on ones gut instinct about a person. Its more important than ever to not disregard signals like a high iq person who is also a vegan or supports UBI.
I know this is a controversial opinion but its my 2 cents. I think the corruption of the intellect is the most fatal of threats.
The kind of damage avg people can do is often limited and can be seen from a mile away but these high iq people with a god complex can destroy entire civilisations with their good intentions. SBF is a good example, next is vitalik and Proof Of Stake ethereurm (IMO)..
I don’t think SBF really cares about UBI. That’s pretty clear via his actions.
The problem with trying to put EA alongside post communist thinking is that actually identifying socialists and communists have huge issues with EA and can’t see how EA is the same as their ideology.
Being a capitalist is one of the biggest issues. Completely supporting the current structure of society and being able to selfishly take advantage of it by making the most money possible [and donating some of it] is not close to communist ideals. It’s better than being someone who is just selfish, but EA still allows one to selfishly take advantage of capitalism and privilege without issue. In the name of supposed altruism. Just the name is troublesome. Seeing oneself as so good.
Then going as far as celebrating this selfish behavior and making that a core part of the ideology. As well as fawning over overly rich classist and uber wealthy millionaires and billionaires who donate to one of the two major party presidents is not post-communist ideology.
To give some credit to EA, actual socialists and communists are be able to view EA people as allies at times. Not more than that though.
I think there's a real chance of the entire market going pretty close to zero. The market was only ever suspended by pure belief. If the belief is shattered it's over. There's no earnings report or central bank bailout to stem the tide. The market is in freefall. And the only thing keeping from hitting zero is the collective will of those who are doggedly clinging to their sunk costs.
Alameda's bets went bad in the crypto crash earlier in the year. FTX loaned it up to $10bn in customer deposits against trumped-up collateral (its own token). Somehow, Alameda must have lost most of that money, either by using it to cover its liabilities from the crash, or making more bad bets. When it was leaked to Coin Desk that Alameda's balance sheet was padded with FTX tokens, confidence in the token rapidly collapsed. That obliterated the collateral protecting FTX's loans, ripping open a ~$10bn hole in its finances.
Predicted it, but was willing to make money off of suckers anyway, and then also caught himself with his own pants down despite knowing it was BS? Phenomenally stupid, or just plain corrupt and moderately stupid?
I’d encourage you to listen to the odd lots podcast where Sam gets lost in the explanation of what crypto does and his soon to be famous hypothetical “x coin,” and the “box” it uses to derive value from it.
Yes, it explicitly mentions that FTX US is included:
> FTX Trading Ltd. (d.b.a. FTX.com), announced today that it, West Realm Shires Services Inc. (d.b.a. FTX US), Alameda Research Ltd. and approximately 130 additional affiliated companies (together, the "FTX Group"'), have commenced voluntary proceedings under Chapter 11 of the United States Bankruptcy Code in the District of Delaware in order to begin an orderly process to review and monetize assets for the benefit of all global stakeholders.
Excluded are:
> The following subsidiaries are not included in the Chapter 11 proceedings: LedgerX LIC, FTX Digital Markets Ltd., FTX Australia Pty Ltd. and FTX Express Pay Ltd.
To be fair, any billion-dollar multinational will have an organizational chart that looks very similar to this. Companies like EY exist, almost purely, to create 'tax effective' structures with hybrid debt instruments and service agreements.
Being US only limits your structure options. Start generating some international revenue and you’ll see how your entity/structure requirements increase.
That’s actually just a tiny, tiny subset of the overall Enron corporate structure. The chart you linked just shows the capitalization and ownership of one of the off-balance sheet structures that Enron used to conceal debt. This structure was capitalized with Enron stock, which worked great as long as the price kept going up, but once the value of that stock fell beneath a certain value, the single-purpose entity used here became insolvent and accounting rules (finally) required that that debt be consolidated back onto Enron parent’s balance sheet.
It’s a situation with many interesting parallels in the crypto industry. Not only does history rhyme, but sometimes it really does repeat.
This is a huge oversimplification but my recollection is, there is a design arm of the IKEA structure which is a non-profit. They create and own all of the designs and IP related to products, which a different IKEA subsidiary then licenses and pays royalties on, essentially negating much/all of the margin of the finished good.
It's quite common to spin off daughter companies per project, it isn't unusual or illegal in any way. Without at least type and ownership information it's hard to tell if it's iffy.
From the Sequoia article on SBF / FTX, it's very likely to be able to trade internationally because each country requires you to have a bank account in that country to be able to access their markets.
In the Sequoia article, SBF gained his initial funding for FTX from executing trades from the US to Japan, where BTC was overpriced because no one bothered to arbitrage it because of the setup difficulty. The way he did this was by contacting a friend to open a bank account in Japan and manage the funding over there while he managed the account US side.
I am sure some of it is normal corporate shell game but I'd imagine at least 50% of this setup was for regulatory purposes. Even small fintechs will have "shell game like" company structure to please regulatory forces that require having certain things be independent from the consumer platform even if the two companies are working towards the same goal.
That sounds to me a lot like a cover story to try and convince people there was actually a value-add. I'm skeptical that the barriers were so high they discouraged anyone from seizing essentially free money, but he solved this with a Japanese friend's bank account.
No one did it for Japan first probably because they have pretty strong criminal liability stuff for securities violations and other financial crimes and don't play the "no fault settlement" game.
It's not illegal to arbitrage but yeah I think what you are pointing at is you have to be regulatory-ily buttoned up for Japan markets vs a more loose market where you don't have to be super careful & can learn as you go.
So SBF having been in finance before (Jane Street), he knew where the footsteps were and how to do it vs a fly-by night crypto investor with no finance background.
Supposedly the Japan “subsidiary” (if you can call it that) was set up by a Japanese person and a resident of Japan, who was a contact of SBF through the Effective Altruism thing. I think they knew something was shady, because the account they had opened in Japan was with a small rural Japanese bank.
When that “arbitrage” turned out to be really lucrative one of the founders of Skype (Talinn something) gave SBF a $50 million loan. SBF and that Talinn guy knew each other also from that Effective Altruism sect-like thing.
All this info was part of a Sequoia congratulatory piece on SBF, they of course had also given him money. The article has since been taken down, it’s still reachable through Web Archive.
This guy has major Epstein vibes (minus the girls). comes out of nowhere super politically connected, investing in research, with a pretty dubious origin story of how he got rich.
What do you even need a blueprint for? The guy did an interview with Matt Levine and laid the Ponzi scheme straight out: scammers make boxes that pay fake coins when you store your money in them, they put so much money into the boxes that the fake coins seem valuable, then they rug pull everyone and move on to the next one. That's how he described his own business.
I remember listening to that interview and this part always got me:
> Matt: (27:13)
> I think of myself as like a fairly cynical person. And that was so much more cynical than how I would've described farming. You're just like, well, I'm in the Ponzi business and it's pretty good.
I seriously cannot understand how after this interview Sam still had any kind of support from VCs and so on.
I hope the late 2010s-early 2020s will be remembered as the dot-com era of extremely dumb money...
> Because they thought they could make money by finding a bigger fool
$10B "somehow" "gone" is QED that someone did find their marks.
More interesting is how none of these guys are seeing the inside of a jail and doing the jailhouse orgies. I wonder if 'defenestration' will become a meme in crypto world too.
> I seriously cannot understand how after this interview Sam still had any kind of support from VCs and so on.
yes you do - because they're at best amoral and know their position and connections means they can make money out of shit like this by ensuring there's a series of bigger fools waiting to buy them out.
Forget VCs. This interview snippet went semi-viral, I don't understand how FTX's customers didn't try to pull all their money out right then and there.
I hate to be the That Guy this time, but pump-and-dump is a different kind of fraud from a Ponzi. Not that anyone cares to make the distinction anymore.
Hey, that guy, tell it to Matt Levine and SBF, who literally used the term in the interview.
:)
I'm just reacting to the idea that you'd need to see the SBF corporations laid out on a diagram to reach the conclusion. When Carrell's character says "they aren't confessing, they're bragging", he's talking about an allusion. The Ponzi schemes here are not allusive. SBF literally bragged about them.
That still doesn't mean they're using the term properly, at least in regards to kind of scam you were describing in your comment, or what that comment's parent was referring to.
"SBF/Matt Levine said it" does not automatically make it true.
To be honest, you don't explain how they are wrong and then tell us that "SBF/Matt Levine" saying it doesn't make it true but both have a public recognisable background in finance, we have absolutely no idea who you are to even judge if you could be right or not.
Instead of debating semantics, enlighten us with how/why they are using it incorrectly and what you mean by this being a pump and dump and not a Ponzi. To me it definitely looks like a Ponzi: money from new entrants in the system go to pay off earlier entrants, a pump and dump from what I know would require SBF/FTX pumping up FTT to then dump it all leaving bag holders in the wake of the crash.
That's fair -- I thought that by highlighting the correct term, against the parent's description with its mislabeling, that would be enough to make the point, especially since a) the issue of "Ponzi" misuse comes up so much, and b) one could just look up the terms and compare. But, to make it explicit:
Ponzi scheme: Taking later entrants' investments to pay earlier investors on the false pretense that the venture's activity generated the returns.
pump-and-dump: Duping others into thinking an asset has value so that it can be resold above its legit worth.
The original description given clearly fits pump-and-dump better[1], since it's based on making an asset seem valuable:
>>laid the Ponzi scheme straight out: scammers make boxes that pay fake coins when you store your money in them, they put so much money into the boxes that the fake coins seem valuable, then they rug pull everyone and move on to the next one.
For tptacek's part, he could have defended his claim by presenting a substantive understanding of the distinction and justified the label in his own words. Or, somehow indicated this was a point of contention at all. Or done anything whatsoever beyond arguing, in effect, "the perp used the label, therefore it must be accurate". That does not advance the discussion, or indicate a prompt for the kind of contribution in the first half of this comment.
Is this just the natural outcome of running a multi billion dollar crypto business? Do you hire so many experts and lawyers that they set this up for you as an ideal structure?
Seeing how stupid/greedy SBF was, it makes me wonder if people like him are smart enough to truly understand the need for such structure without having experts in place.
You need that many companies trading with each other to create value and muddle the waters... Intangible assests and future flows passed from one entity to the other and priced at some unrealistic assumptions create/raise paper value.
SBF would be a nobody without Sequoia and others throwing money at him. I'm more concerned about the judgment of monied people who are so desperate to find their own Adam Neumann, that they forgo common sense and invest based on 'feel'.
It's almost like they asked GPT3 or Dall-e to create "a corporate structure that is so confusing it will be a liability shield to keep my ass out of jail", and then used whatever came out
if you're a creditor, good luck getting any part of what's left over after they pay the accounting firms to unwind this. On second thought, if you're an accounting firm, good luck getting paid if you do any work for them.
These days owning a crypto exchange is a shell game where you try to hide the funds and liabilities into a chain of companies located in offshore jurisdictions.
Binance does the same but even more extreme — they don’t even tell where their HQ is actually located.
Money launderers and tax evaders have long used these tricks. Those people don’t normally get VC capital at $34 billion valuations though. The crypto implosion ought to be a massive lesson to the industry.
I'm really skeptical of Binance, whilst I would never accuse them of anything specific, I have no proof. Their structure, governance and business model combined with their refusal to meet basic regulatory requirements makes me feel uneasy.
Binance is effectively saying “I’m not going to tell you where I am but you should let me manage your money.” It takes a special kind of gullibility to accept that, but in the crypto world left has been right and black white for a very long time.
Binance’s US subsidiary is just as safe as FTX.US was, despite their claims otherwise. It will fall along with the other dominos.
Even the assets are questionable — as Tether’s attestation language change shows. They value their assets at what they’re worth “in normal market conditions” which is a flashing red light for bank run vulnerability.
Exchange is pretty simple business. Customers deposit coins and fiat, trade between them and pay you commissions. If you don't send any of those coins out, there is no risk, no liquidity crunches, no liabilities whatsoever. This guy took customer coins to gamble, and lost. Story as old as Romeo and Julia.
> If you don't send any of those coins out, there is no risk, no liquidity crunches, no liabilities whatsoever.
If you don't send any of those coins out, there are no profits for the exchange operator, either. Look at how Coinbase does everything more-or-less by the book, and barely makes money. Trading fees just don't cut it.
Yet, some fly-by-night exchange incorporated in the Bahamas is offering wild signup bonuses and lower fees and yield that would make Scrooge McDuck blush.
it looks like the usual nonsense of "here's some bank account balances", with no explanation of what liabilities they hold, or how much related party loan crime they have on their books.
If a hedge fund trades on an exchange in Singapore they will probably want a corporate structure there for trading and tax purposes. Larger trading operations aren’t just clicking sign up on random exchange websites and allowed to start trading billions of dollars. Legal agreements need to be inked, collateral deposited, etc.
It looks like it? At least from a cursory reading of the press release...which goes against everything that has been said up to this point. The hilarity continues.
Was he in denial? Lying? Clueless? I have no idea at this point.
He seemed earnest and genuine, but everything he’s saying is the exact opposite of reality.
Maybe he was having an anxiety attack. I had one once, and it completely sucks. It ruins your ability to form logical thoughts.
(It’s rare to see someone so powerful be so confidently mistaken. The confidence is the part I’m struggling to figure out. There doesn’t seem to be much benefit for him to knowingly lie about FTX US not being impacted, so it seemed like something else was going on.)
If he comes out the other side massively wealthy, then what was there to be "mistaken" about? You're extending an incredibly generous quantity of sympathy to someone that has absolutely not earned even a little of it. Speculating that he had an anxiety attack! I mean, really.
It kept some number of people from withdrawing their funds from FTX US yesterday, leaving more money in the pot to return to other stakeholders. This has nothing to do with game theory, what would that even mean!?
Ah yes, yet another “game theory” perspective. Seriously, what is it with crypto enthusiasts and making everything about game theory? What does it even mean in reality?
It's a way of ignoring basic fundamentals and construing any move by anyone the way you want it because of 'rationality' as opposed to actual evidence or the most obvious reason.
Rumors were that he was still trying to raise some kind of last minute savior financing after Binance backed out. If so, his best cards are to show that not everything he has is a shitshow and there may still be some real value financiers might be able to buy for pennies on the dollar if they save him from complete collapse.
> He seemed earnest and genuine, but everything he’s saying is the exact opposite of reality.
Con man is short for “confidence” man for a reason. What they’re good at is gaining the unmerited confidence of others. You got played by his charisma. Remember this for next time.
> It’s rare to see someone so powerful be so confidently mistaken.
I struggle to see how this could be true after 4 years of President Trump and Elon Musk's various undelivered promises. It's not rare, it seems to be extremely commonplace.
It absolutely blows my mind; if this[1] failure of an attempt at a "get out of jail free" disclaimer is something you feel the need to write out so poorly, and in all caps, after your diatribe, maybe - MAYBE - you shouldn't have said a goddamn word.
Yeah! That was the tweet that made me suspect an anxiety attack / some other health condition.
The weirdest part is that all 23 tweets were posted simultaneously at 8:13am. So he had the opportunity to say nothing; he could’ve clicked “save draft” instead of “tweet all”.
This guy is just taking a play from the same book Trump, Musk, Kanye, etc use. Only, he's turned it up to an 11. It'd be a funny skit to see a Trump character reading this guy's tweets/interviews and saying "whoa"
Especially on twitter, where by default you only see the first few tweets of a chain.
"Here is a bunch of information about the ongoing potentially criminal collapse of my company - oh by the way I'm a bad dev so some of what I said above might be wrong, don't act on this information."
Wrong. FTX US is the US based exchange that accepts Americans. You gotta always read the latest SBF tweets because he consistently says 1 thing then the next day does the opposite.
> Announcement 2022-11-10: trading may be halted on FTX US in a few days. Please close down any positions you want to close down. Withdrawals are and will remain open. We will give updates as we have them.
If withdrawals are open, then it seems FTX.us still has all its customers assets and can return them, but will not be able to pay its own bills for hosting, staffing, etc. in the very near term. So yesterdays statement that it wasn't affected by the loss of funds implosion would be accurate, but if the business was reliant on funding from other operations to survive, it can still go bankrupt.
People get all antsy in their pantsy and can't read nuance.
I think people are jumping to conclusions by saying that because FTX.us is included in the filing, all user funds are completely gone. Not to say I blame them for thinking the worst, but we'll probably know more once the dust settles.
If the guy is dipping into supposedly segregated client accounts to run his prop trading, and lying about it.. why would he not do the same with FTX US money.
So, SBF seems likely to have flat-out lied, right up to the last moment. At this point, why would you choose to trust any crypto company that wasn't perfectly transparent in how it holds assets, backs coins, what it's borrowing on, etc?
Do we blame individuals or the technology that enabled them? I don't know. I do think we need to get back to building useful tools that people need.
Like Elizabeth Holmes, they are kids of the elite who are well connected and supported at high levels. Further, SBF is one of the biggest political donors and there may be corruption in the SEC. The general counsel of FTX US had served as lead counsel to Chairman Gensler at the CFTC.
And then there's this from a congressman yesterday, "@GaryGensler runs to the media while reports to my office allege he was helping SBF and FTX work on legal loopholes to obtain a regulatory monopoly. We're looking into this." https://twitter.com/RepTomEmmer/status/1590717374801809409
Perhaps, but I think many (Dems and Reps) will recognize a sinking ship when they see one. Tighter regulation on cryptocurrencies (and related businesses) was starting to arrive, regardless. There is little incentive to try to slow this down, if the people being regulated don't have any money left to donate to your campaign.
Indeed, the deregulation that led to the 2008 financial crisis was a thoroughly bipartisan effort, one that began in the Clinton Administration. This is why Brooksley Born is a hero for our times, and Larry Summers, a villain. https://en.wikipedia.org/wiki/Brooksley_Born
You might notice that I didn't say that. But I am skeptical that the party that has branded itself as the anti-regulation party for my entire life is really going to embrace regulation all of a sudden in response to the malfeasance of someone they perceive as being a political enemy.
> embrace regulation all of a sudden in response to the malfeasance of someone they perceive as being a political enemy.
Given the GOP's willingness to strong-arm twitter and facebook (remember Trump tried to have it investigated by the DoJ), I feel like regulating companies due to being a political enemy is exactly what I'd expect the GOP to do. Perhaps it's the one time you can be sure they'll start regulating.
From my perspective, the democratic party is constantly talking about how bad Citizens United is (and I am very sympathetic to that) while taking millions upon millions from large companies and wealthy individuals.
> I remember thinking at the time when the Senate called Zuckerberg up to yell at him that if I were Zuck, I would have just said, "thanks for the tax cut, dudes".
Because most of the adults know that there is a window when you can get rich off a known con and get out before it blows up with quite a lot of cash.
The best part of these being unqualified children is that they don't even realize that part of the deal they've signed up for is to take the fall when shit finally hits the fan.
There's plenty of people who have made money from SBF behind the scenes, but you'll never hear their names.
This couldn’t be further from the truth. SBF had enablers who knew what this was from the beginning but kept mum about it. They actually helped hype it up then exit with profits.
He worked at Jane Street prior to starting his own company which was built on a successful arbitrage. Whatever his issues - qualification isn’t one of them.
I’m not defending this catastrophe (which seems like it was partly an execution by a rival), but this kind of comment is just bizarre on hacker news in the world of tech companies and startups. Age is not a good proxy for competence.
Don't know why you are getting downvoted. Yes, I believe that using customer funds to punt shitcoins at a supposed "quant market making firm" is really dumb, but people here really think the people in this operation are random idiots/got there via underhanded means. I think they just believed that the gravy train would last longer than they thought.
Several Alameda employees worked at JS, which is by far one of the most successful quant firms out there and they only hire the best. He also exploited a very creative arbitrage to start the firm, which is also not a fluke.
Then again, I would expect no less since the people on here constantly complain about leetcode interviews and "not wanting to interview for big tech for XYZ random reasons" when I know damn well they couldn't pass even if you gave them the answer.
These aren't valid reasons - I don't want to get into a flame war though.
- Blockchain's main innovation is solving the double spend problem in a decentralized way.
- This means that self-custody is a new capability.
- Self-custody without a centralized authority is a big deal and can empower users (especially those in hostile countries or places with bad currencies).
- There's an extension of this with smart contracts and ethereum that allow for programmatic uses which can extend to completely transparent decentralized finance.
- zk-SNARKs allow for privacy to exist within the above systems.
That people don't self-custody because they don't understand how it works (and terrible UX) is a real problem and why most people should not be using cryptocurrency. They can still get screwed by regular collapses of fiat currency (and they do often), but they won't be helped by increasing their risk with something they don't understand.
The centralized exchange failures are independent of this and arguably a symptom of how centralized finance can cause problems because people don't self-custody funds. Your reasons dismiss the new capabilities they provide (self-custody, protection from government debasement of value, global use) and are an example of the type of HN response I'm talking about.
That isn’t really a solution. The confusion is the inability for most people to discern the words decentralized and distributed, which is the primary fraud of crypto. Centralized finance already has distribution in place just for security and continuity of business, so blockchain doesn’t really provide anything new there.
The only enticing quality of blockchain to finance is just elimination of transaction fees on a more open ledger.
It's unregulated and decentralized, and banks are not your friends. To be honest, they're not, but that doesn't make any of this Ponzi 2.0 economy great.
This is the result the "crypto community" asked for. They may not have wanted it, but they asked for it. A combination casino/money laundry/ponzi breeding ground also comes with intelligent crooks who are capable of running longer games.
You want recourse? That means oversight, audits and regulation.
>why would people throw billions of dollars at unqualified children?
Because investors had too much cash and became increasingly desperate to earn a return on it. When they have an abundance of cash, they become wreckless and wasteful with their investing as they chase profits.
same cause of the 2008 recession, too much money chasing risky bets. Once the party gets going, you will be stupid to not join in. Just amke sure you're not the one holding the bag, when the music sotps.
I know little by way of the crypto world, but I have to say that calling platforms like FTX, Binance, and others "exchanges" strikes me as very much misleading.
In traditional finance, the "exchange", as in "the New York Stock Exchange", only facilitates the calculation of market prices for a range of assets and the matching between sellers and buyers. Exchanges don't even manipulate money - that's left to other, highly regulated, professions, such as brokers.
Brokers hold your assets and sometimes lend you money, but are very restricted with what they can do with it unless they qualify as banks, which requires complying with an array of complex capital requirements.
So really, I don't understand: how are those entities not offering "investment services" and so not under SEC supervision?
SBF has Tweeted a lot of things in the last few weeks that were provably false, sometimes just hours after he sent them. I was surprised that everyone here just took him at his word about FTX US.
Dumb question, but what happens to stuff like Miami Heat’s FTX Arena etc in situations like this? Should we expect a name change for the arena at some point soon?
I also think this is an interesting question. Coming from a lay person I'd imagine it would remain with that name until the contract is up for renewal. Depending on how the naming deal was structured, the money to do the deal would probably have come from FTX' marketing budget in a lump sum up front (presumably) for a fixed number of years. When that's done, the arena will find another source of funds and give the rights anew.
Edit: here's [0][1] some sources that says FTX ponied up $135M for the name to remain through 2040. Your question still stands, will that name stay even if the organization that has the name doesn't exist or is circling the drain? All depends on the terms of the contract, I guess.
>Coming from a lay person I'd imagine it would remain with that name until the contract is up for renewal.
As a lawyer, not a transactional lawyer so this is pretty far outside my expertise, I'd imagine they'd include some provisions for this type of scenario in the agreement. Even if it didn't, the stadiums owners would probably offer FTX some sort of partial refund to give up the naming rights, which they would have to to pay back their creditors. They could even just breach the agreement and offer a settlement.
Eron field got renamed pretty fast. So will this stadium.
A few years ago Consol Energy broke a naming rights deal early; the original deal was $105 million over 21 years, but they were only about 8 years in. The Pittsburgh Penguins found a new partner in PPG Paints pretty quickly. And Consol didn't even go bankrupt!
The Heat will find another partner, and they may or may not try to get money out of the FTX bankruptcy proceedings, but I'm guessing the odds of that aren't super high. Probably more efficient to cut bait and move on.
Unlikely is was paid up front. The news articles say things like "$90m over 19 years". There is also almost certainly terms in the contract relating to the reputation of the advertiser (FTX in this case).
All of this is handled much differently if a party is in bankruptcy (which is the point of bankruptcy).
The administrators / bankruptcy courts will try and do a deal with the stadium. Something like "we can auction the rights again and we will keep 90% of what we get for them, you can have 10%, so you are 10% up, for nothing"
If there's time left on the deal, but the arena would rather not keep the stinky association, can't they sell a new naming rights deal today, and send a portion of the new proceeds from that to FTX?
In a way it would be another asset for the bankruptcy liquidator to disperse.
Yeah that makes more sense. They have the asset (rights through 2040). Would be pretty funny if it turns out that these naming rights are the single most valuable asset they own today.
I just looked up a similar situation from 20 years ago[0,1].
- They miss their next payment and the contract is terminated. The arena owners find a new sponsor.
- The naming rights are considered an asset of FTX and are sold off during bankruptcy proceedings to recover cash. The buyer puts their own name on the arena for the rest of the contract term.
Considering naming rights are sold for such lengthy terms (20 years in FTX's case) it is incredibly common for companies to go under or get bought out in the middle of it.
Both of those are unlikely. The whole point of bankruptcy is to mitigate things like contract terminations. Further, the bankruptcy court will have little, if any involvement in the eventual sale of the naming rights to a new sponsor.
The company probably has the yearly naming rights fee cut into payments. When they miss their next payment, their name will be removed from the arena.
This happened to Adelphia with the Tennessee Titan's arena in 2002. In that situation the stadium was renamed to a generic "The Colosseum" for a few years because they had trouble finding a new naming partner. I suspect they'll have an easier time finding a replacement in this case, but who knows.
The Sacramento Kings' old arena was called the Power Balance Arena in 2011-12. Power Balance went bankrupt in 2011, and the arena naming rights went to Sleep Train the following year.
I don't think this is a dumb question. I was also wondering. They had a 19 year deal 135 million naming rights with the Miami Heat, but I'm fairly certain they didn't pay everything up front. Apparently the county owns the arena, so they will be involved.
I assumed he got paid based on my limited understanding on how actors in TV commercials are compensated. It would be weird for Larry David to be in an ad that aired during the Superbowl and not get paid.
It's also quite possible they caused it. Fractional reserve banking by definition means keeping only a percentage of customer deposits readily available.
What solves it is the Fed stepping in and agreeing to print money no matter what to cover customer deposits if need be (FDIC insurance). That's hard to replicate in the crypto world but likely possible.
> What solves it is the Fed stepping in and agreeing to print money no matter what to cover customer deposits if need be (FDIC insurance).
The FDIC is not related to the Fed, and certainly does not entail a commitment of mobetary policy (it involves a fiscal commitment by the USG, but the whole point of the Fed is to separate monetary policy from fiscal actions.)
This whole thing is just the .com crash all over again. Super Bowl ad’s the same year of the crash even.
I happened to be at a hotel earlier this year that was hosting a crypto conference and the attendees looked like the kinds of people a multi-level marketing scheme attracts. Very different from a few years ago.
You must not have been following cryptocurrency for that long. This sort of thing happens every 2-3 years. This isn't a wild, unforseen crazy market calamity, this is your run of the mill downturn, this ones mild so far actually. You're only hearing more "bloodbath" talk because the news covers it nowadays, and the news loves to exaggerate bad things and make them sound worse because that's how they keep the lights on.
The previous dips though haven't been this leveraged though. Over the past couple years the amount of opaque and highly leveraged instruments against crypto has ballooned. There's a lot more on the line this time around imo.
It seems like a fundamental flaw in their business model rather than a market downturn.
This seems like a bigger deal to me because FTX is part of then new wave of crypto companies that were supposed to be legitimising crypto. And even they can't stay afloat. It's just a matter of time before the next crypto giant falls.
Every time there's a bull market a hundred new operations spring up. And some of them always present themselves legitimately, and most of them always fail when the downturn comes. This is a run of the mill downturn, it happens every single time. A ton of "crypto giants" don't survive the downturn, every single time.
I’ve held BTC since 2011 so I think I get it. My point is the industry around it collapsing. It’s not just crypto crashing but the industry built around it collapsing at scale. This isn’t Mt.Geox level - this is .com level.
But it's not collapsing at scale... not yet anyway. It's just one exchange, a big one but just one going under. It's scams and rug pulls predictably going under, same story as the last cycle. The only difference is that the news is covering it, it makes it seem like a bigger deal than it is.
And you want them to go under. When the scams stop going under is when you have a real problem, because that means the entire industry is in fact a scam.
Why would it collapse the whole system? These blockchains run themselves, the ones worth a shit anyway. They were here before these companies, there's nothing fundamental that prevents them from being around after.
I am not really convinced of Tether having trouble anymore. I've been hearing it for years. They seem to have gotten lucky and cleaned up their act before collapsing, every time they do an audit or anything the last few years they show full collateral backing their assets in circulation. With regard to binance, I couldn't tell you one way or another, but they've survived more than one cycle so they probably know what they're doing.
Did it? Or did the cruft just fall to the wayside where it belongs. From my recollection the panic lasted a year and within 5 years the companies that were part of it actually doing interesting things were valued much higher than at the peak of the bubble.
All it decimated were hype merchants and their lemmings. Hopefully the same is true here. I think it will be.
> I happened to be at a hotel earlier this year that was hosting a crypto conference and the attendees looked like the kinds of people a multi-level marketing scheme attracts.
So people who are barely holding on to the bottom rungs of the (American) middle class, and who are the traditional targets of multi level marketing (and also religious) hucksters?
That doesn't bode well for the argument that the crypto ecosystem isn't a set of scams, regardless of whatever the merits of the underlying technology has.
So for "normal" financial institutions (eg banks, mutual funds, brokerages) you are legally required to shield custodian assets. They rea typically held in trust. Due to various scandals there's a lot of regulation. There's even government protection (to a point) for individual customers (eg FDIC insurance for bank depositors).
All of this is necessary to stop situations like FTX/Alameda. A bank can't take your money and bet it on blackjack but there seems to be no such protection for these crypto exchanges. All of this is necessary to maintain confidence in the financial system (yet another reason to roll one's eyes at libertarians).
I mention this because it's just another case of crypto lacking protections the non-crypto financial system has and ignoring lessons learned over the last 5000 years of finance.
I saw a comment on HN yesterday where someone in the Navy said that when they get a new CO it'll be one of two types: the first will work out how things work and then incrementally improve things. The second will immediately reshape everything in their image without figuring out why things are the way they are.
I see that trend in management too. But it seems to be a problem with the entire crypto space. Otherwise smart people completely ignorance of the financial systeem just reshaping crypto with no regard for history.
As for SBF, this is a fraud on a massive scale, like Madoff scale. I really wonder what will happen here because what should probably happen is he'd spend the rest of his life in prison.
I would like to clarify that the regulations on "the financial system" have probably enabled just as much fraud as they have prevented over the long run. The financial system you speak of is a huge collection of bets and leverage and interesting interpretations of the truth ("why yes, your money is 'safe' with us!"). The regulations make it work just barely well enough that it only comes crashing down, what, every 10 or 20 years now? If instead of adding regulations and saying, "there, now it's totally going to work, put your money back in," I wonder what things would look like if we had instead said, "yup, loaning your money to banks/corporations/governments/individuals is super risky, learn from past mistakes!" ? Maybe people would only risk what they can actually afford to lose and we wouldn't get into these cycles where people get over leveraged, things crash, bankruptcy gets declared, and the poor and middle class foot all the bills. Over and over and over. A libertarian can dream...
> loaning your money to banks/corporations/governments/individuals is super risky
This is called a "low trust society". The flip side is of course that nobody will lend you money. Mortgages and consumer credit are scarce. Business credit is difficult. Large amounts of capital need to be tied up in buffers. The overhead of keeping an eye on everyone is considerable. You don't get "First World" levels of development with a low trust society.
I actually really like the idea of not needing to rely on trust so much. Needing to rely on trust is a big problem that Bitcoin solves. There's no single Bitcoin Chair than can tweak the policy or supply of Bitcoin that you have to trust. No congress or president that can change the rules of the Bitcoin game that you have to trust. Bitcoin is impossible to forge, no trust that someone is handing you real money needed. There are no charge backs, payments are fully settled in minutes not days, you don't have to trust that you'll get paid and stay paid. No couriers, no middle men that you you have to trust to not steal your money in transit. If you want to prove to someone that you have the funds for something (like maybe FTX proving to customers they have the funds they said they did), you can sign a message with the private key of your wallet and everyone can verify that you have the funds in that wallet.
Many of the crypto scams that are out there are claiming their coin has these same properties when it doesn't and that's where people at getting burned by "crypto." Yes, regulations could reduce the risk of these frauds happening, but they won't eliminate it. Bitcoin eliminates the risk.
> Needing to rely on trust is a big problem that Bitcoin solves.
No, it doesn't. As soon as anything is external to the Bitcoin network, you now require trust. This is so well-known it has a name: the oracle problem [1]. Crypto Andys, of course, just double-down and say we need more crypto. Just like libertarians who when confronted with the problems of lack of regulation they will argue the solution is even less regulation.
> There's no single Bitcoin Chair than can tweak the policy or supply of Bitcoin that you have to trust.
Instead there's unaccountable miners who with 51% of the hash power can completely rewrite the rules with no recourse. Bitcoin has already forked multiple times [2].
> There are no charge backs
Chargebacks are a feature not a bug.
> no middle men that you you have to trust to not steal your money in transit
You have just demonstrated quite a lot of ignorance about Bitcoin. A 51% attack has nothing to do with changing the rules of Bitcoin, just to start. Maybe don't slam something you don't really understand?
For those who believe crypto and web3 is the future, has any comparable emerging technology been met with as many scandals and busts in so little time?
This has nothing to do with the technology of cryptocurrency. In fact, it's the complete opposite.
What people are doing with FTX is taking their money off of public blockchains and giving them to something like a bank or stock exchange where ultimately customer funds are accessed in secret. This is again, antithetical to cryptocurrency which has the main features of avoiding the necessity of banks for operating with digital money and having a public, mathematically verifiable ledger.
All of this nonsense is people using the interest around cryptocurrency to promote what is essentially gambling.
Some people have even theorized that they were intentionally trying to sully the reputation of the technology since it makes old fashioned financial institutions obsolete, and the family has strong ties to the establishment (with massive investments in old-fashioned financial schemes).
I'm just trying to explain what cryptocurrency is and how that is different from cryptocurrency exchanges.
Cryptocurrency speculation on centralized exchanges literally does not use cryptocurrency and it's a shame that people think that's what it is.
What cryptocurrency actually is is a secure and auditable way to do transactions and record keeping in a very large group of people. That's what I and many other people use it for. Completely unrelated to day trading, and using the actual chains.
The technology enabled countless scammers and hackers to disappear with people's funds. It's daily news. Failing exchanges are just an off-chain variant.
This has nothing to do with cryptocurrency. It's just an exchange that gambled away customer deposits and then was liquidated. They're banks. We've reinvented banks with all of the drawbacks and none of the benefits.
This isn't the way cryptocurrency was meant to be used. We were meant to hold our money in our own wallets, not leave it in some centralized exchange so it can "efficiently" allocate the funds. People keep using exchanges as if they were banks and they keep getting burned in ways only banks are capable of.
What of the rumour that Bahamians are allowed to access their funds for legal reasons while everyone else can not? Most of the FTX employees including SBF are based in Bahama? Isn't this just insiders cashing out before creditors/users?
The sheer number of affiliated companies is not unusual in regulated industries as each tends to be a special purpose vehicle to segregate the associated assets and liabilities.
He should have just stuck to running an exchange and trying to innovate that game (note - earlier in the year lots of talk around their automated margin plan for wider industry beyond crypto). Theres a decent business there.
Yes, that’s generally what happens when an unregulated bank goes bankrupt. The list of creditors will be long, and some have priority claims so they get paid first.
Everybody said this can happen. Coinbase was forced to include a warning to this effect in their filings as a public company. But nobody cares when the going is good and FOMO is strong.
Mutual funds and ETFs can have the same problem, but they generally structure it so the fund is a separate entity and a "customer" of the parent company. If the fund house goes bankrupt, the fund is safe because the fund house didn't actually own it.
While I don't touch crypto for the same reason I don't touch Beanie Babies, it's made me think more about what is money, what's intrinsic value, and what protections are in place in case something goes wrong.
They are starting at begining of 2023, I'm creditor, just gave bank account details etc. Most people will get their money back because all assets were converted to fiat from the time of collapse and BTC was worth then magnitudes less than today.
Can anyone speculate what Bankman-Fried's exit plan was?
Was this a fraud that got out of control, or premeditated? If it was premeditated, what was the exit plan?
Did he expect to be able to gamble with customer funds indefinitely?
Were the Effective Altruism intimations genuine?
Why, if Alameda was a market maker, and they therefore presumably have some form of insight into the markets, did they then decide to take a huge directional bet on Crypto [source?]? This is contrary to market making principles.
What was the purpose of encouraging employees to invest? Was it to buy their silence/cooperation ('you have to stay employed and invested if you ever want your money back') if they found out about the fraud, or did Bankman-Fried genuinely believe it was to their benefit?
Why were there so many puff pieces in the media, without any journalist questioning the narrative?
My thoughts are that FTX was maybe a legitimate business, but then Alameda was his trading baby that just happened to be run by kids, including himself, that have no idea what they're doing and was losing money left and right. Then using FTX customer funds was viewed as just a "let's move these funds over to get our trading back on track and when we do, we'll move them back". That's my honest guess if I'm being generous as to their intentions and thought process. Not saying it isn't criminal though, because I think it is. It's also a complete guess as an outsider to all this.
I think they thought they were honest and doing things properly, and didn't realize that their holding of FTT was making them as bad as the other frauds before. I think these ouroboros are complex enough that even main players don't necessarily understand the position they've put themselves in.
Let’s not treat senior management and owners of a company that has gambled away billions of dollars of customers (and investors) money as kids. They should get jail time from what I’ve read so far.
They were either criminally stupid or did this on purpose. It really wasn’t that complex. This isn’t even close to 2008 complexity since this was all happening within one organization With the same owner SBF.
I don't really care whether they're kids of not. I do think it's possible that they step by step ended up in a situation they didn't realize they were getting into. Doesn't mean I think they shouldn't be punished if such a treatment is required.
But again and again, supposedly smart finance folks end up blindsided by retrospectively obvious stuff. There's just too many complicated fabrications on top of one another.
I'm not particularly sanctimonious, I think the average vilain of the day is most of the time just an average person making dumb mistake.
You’re right, and I see where you’re coming from, but the reality is that this can end with a 50 year prison sentence for SBF. That’s what Wasendorf got for swiping a mere $200M (the largest fraud in history prior to this, according to Animats): https://news.ycombinator.com/item?id=33564752
I think that reality hasn’t set in for most people yet. Especially SBF.
I was referring to the same miscreants as the poster was.
It’s only plausible to a certain point that they were unknowingly bad actors. They’d have to willingly be deluding themselves.
No one commits multi-billion dollar fraud accidentally.
They’d have to turn a blind eye to something any reasonable person would consider a ‘are we the baddies’ moment. Or two. Or dozens.
As to if it’s documented? One can hope, but I’m not holding my breath. I’m sure there have been many shredder parties (or digital equivalents) happening in many places since the news broke.
Oh you’d be surprised. I think most people are capable of this kind of fraud. It’s human nature to judge others by their actions, but judge yourself by your intentions.
Most people cross that threshold well before a million bucks.
You can tell by the shape of the lies that are inevitably told. Someone who actually thinks they’re doing something ok won’t go to such lengths to hide important details, or omit specific things that are inevitably omitted.
And in this case, why not just update the TOS to be clear what they’re doing?
Yeah and the point is no one sane would seriously say Madoff thought he was being honest. They’re making an analogy between Madoff and SBF being similar/the same.
[2022-11-13] If I may follow up on myself: I didn't know anything about this situation and just commented randomly. It seems obvious a few days later that it was straight up fraud.
I made a comment on that video elsewhere. It’s pretty clear they were way out of their league in more ways than one.
They’re the type of people that are too smart for their own good where they can’t even see how idiotic they’re being. Or maybe they’re just spoiled. Or maybe they just think they’re smart. It’s interesting to me that Jane Street prides themselves on their hiring process, but they apparently hire folks like this.
Other than people losing money, I am super glad these reality checks are happening. But I wish they’d happen to more as well, e.g., Musk and Trump.
I've studied along guys/gals who've done IMO, also had them as co-workers at other times, they have never performed well.
I really like Linus' saying "talk is cheap, show me the code". These people can make a thousand arguments about why something should/shouldn't work (but never write code), then you show up with working code and they don't have much else to say.
How does it reflect poorly on Jane Street? These are people who left, after not very long.
If your thesis is "they were inexperienced and operating without sufficient supervision" then that's a big part of what the structure of a place like Jane Street gets you.
I think it means Jane Street likely hires with a lot of bias for elites and “twitchy” smart people. The CEO of Alameda was an intern there and invited back for a full time position. Hearing her speak in interviews makes it seem like she has no idea what she’s doing and not all that intelligent or thoughtful. So it’s weird that she, seemingly easily given she states in interviews that she had no trading experience prior to Jane Street, made it through their supposedly rigorous hiring process. It seems their hiring process may not be as rigorous or effective as they hoped, which seems obvious even looking at the process in a vacuum.
Most probably. Web searching for that Caroline Ellison young lady I found some articles describing her as a young math prodigy when she was in highschool (or something like that).
-- having watched a series of in depth interviews with Do Kwon - the interview with Sam Bankman-Fried on Odd Lots - and now this - I wonder if these children had any mentors? - where were the adults? --
Interestingly the lack of finance graybeard mentors was listed was a factor for why a short seller (Marc Cohodes) suspected ftx was going to go down, over a month ago.
I think the adults are the investors who are just older versions of these people that made billions selling some random website to Yahoo in the dot com bubble days.
That sounds like some of the thinking that went into these historic arbitrage disasters.
Some young kid thought he knew better than his elders, and was doing arbitrage, which is moving around vast amounts of money, for very small gains (but safe ones).
They had all this money at their disposal, and just knew that these stuffy old farts were "missing the boat," so they figured that they'd just use a bit, to make a small bet, and put it back...
That’s my guess too but the size of the hole (8bn+) makes it hard to imagine it could all be lost in trading, either in a big bang, or gradually for years.
I also don’t understand why there are competing cryptocurrencies? Without governments and borders, shouldn’t one standard currency be enough? (Technical challenges aside)
Some people think it's good to trade some of bitcoin's security for extra features, or at least, think that enough people will feel that way in the future to make these tokens good investments today.
Those people look particularly silly on days like this.
>I also don’t understand why there are competing cryptocurrencies?
A lot of these "competing cryptocurrencies" are just financial instruments, kind of like you could have stock in a company, but you can also trade options and futures of the same underlying stock.
Crypto-currencies have no underlying. A crypto-currency is like a bunch of imaginary confetti. Why is every crypto organisation is issuing its own brand of confetti? It's a legitimate question. It's exactly the same confetti.
One third of FTX fees were used to buy and burn FTT tokens. This is nearly the same as stock buybacks, and makes it a security, i.e. an instrument that derives its value from the success of a business.
Buying your own imaginary confetti doesn't magically turn your confetti into a stock or into a financial derivative. A stock confers ownership of the firm that issued the stock. These tokens don't confer ownership of anything, and therefore are not like stocks.
Stocks and derivatives are not the only types of securities. I don't really see what you're getting at here.
For most people, the only important part of what you call "ownership" are the cash benefits (buybacks, dividends, and acquisitions). You can see this from the small price difference between GOOG and GOOGL.
Of course they do it because they can manufacture something that people will pay for out of nothing, and then can use that for other things that get them real value.
> A lot of these "competing cryptocurrencies" are just financial instruments, kind of like you could have stock in a company, but you can also trade options and futures of the same underlying stock.
No they weren't. This comparison has no relation to reality.
Why are there multiple racecar teams? If there is a standard set of rules, why can't there be a standard car that hits the maximum ideal speed around a track, and a standard racer to do it? Or even just automate it?
My understanding is that Alameda was a market maker, which should have less exposure to down / upswings.
What kind of bets was Alameda making? Why would it need so much leverage?
I understand why loaning money to Alameda could be rationalized a risky, but not sketchy move (if Alameda posted collateral, paid reasonable terms like anyone else would, etc.).
Whenever I see this kind of fervor and people getting rich off of it I liken it to pro wrestling. Everybody puts on the same show and lots of people cheer because they love the act and lots of people cheer because they think it's real. It's possible Alameda thought that wrestling was real.
My impression is that Alameda was also a legitimate business that also made a lot of money with a lot of leverage for a while, but eventually the tide turned or it had one bad leveraged trade and poof.
There’s this incredulous passage from Sequoia article that’s been taken down since. Make of it what you will
At this point, mid-2019, SBF decided to double down again—and scratch his own itch. He would bet Alameda’s multimillion-dollar trading profits on a new venture: a trading exchange called FTX. It would combine Coinbase’s stolid, regulation-loving approach with the kinds of derivatives being offered by Binance and others. He only gave himself a 20 percent chance of success, but, in his mind, SBF needed extreme risk to maximize the expected value of his lifetime earnings—and, therefore, the good his earn-to-give strategy could do. The fact that he was, by his own lights, overwhelmingly likely to fail was beside the point.
The point was this: When SBF multiplied out the billions of dollars a year a successful crypto-trading exchange could throw off by his self-assessed 20 percent chance of successfully building one, the number was still huge. That’s the expected value. And if you live your life according to the same principles by which you’d trade an asset, there’s only one way forward: You calculate the expected values, then aim for the largest one—because, in one (but just one) alternate future universe, everything works out fabulously. To maximize your expected value, you must aim for it and then march blindly forth, acting as if the fabulously lucky SBF of the future can reach into the other, parallel, universes and compensate the failson SBFs for their losses. It sounds crazy, or perhaps even selfish—but it’s not. It’s math. It follows from the principle of risk-neutrality.
I'm not sure I follow... SBF seems to be talking about the marginal utility of a dollar. True, most people think of this value as logarithmic. However, Kelly Criterion makes no such assumption: It's simply the optimal bet size (as a fraction of your bankroll) that optimally maximizes your returns over successive game plays. If you over-bet, it's much more likely that you'll blow-out -- as SBF mentions in your link (and ironically, occurred to SBF & FTX!).
The super stupidity of using math to dazzle people around you is my greatest lesson from this. In my highly technical field, I can use math without treating it like some precious scripture. But it’s good to know it is so unfamiliar to a normal person in the VC world, I can use it to justify even a startup doing genocide as a platform or something.
What calculation? What's the formula that gives you the odds that your Ponzi scheme will be discovered? What can possibly "model" that, aside from a scifi-level reality simulation? It's not even math, it's math LARPing.
Yes, I feel so cheated that all I needed to do to get money for my ideas was to just talk like an ayn rand novel protagonist. At least Zuckerberg did all this but was legitimately a genius. Made sense that bankers put up with that shit cos they could tell he was smart af. But when you’re larping to be a banker like most VCs are, you’ll just copy what they did like a monkey without understanding why they did it. And I wasn’t there to part their money from them. Fml.
It's almost like people who don't actually know anything about math, statistics, or probability shouldn't be believed when they make poor arguments using the same.
Maybe there's a reason it takes 4 years of extremely tough classes to understand the basics of "hard" math.
It’s not just that. But like if I made up bullshit like “the emerging market populations are growing hard and will strain earth’s resources. Our startup needs to kill them to save the planet, here’s a log Utility function to explain it”, some VC out there is an idiot enough to give me money. Maybe if I’m playing league of legends while saying it, I’ll get more cash than I even want to raise.
> Maybe there's a reason it takes 4 years of extremely tough classes to understand the basics of "hard" math.
On top of that, any decent tech school also has an "ethics of engineering" course somewhere along the way, or at least I did about 20 years ago when I was a student (we had quite a stupid professor, but the intention was there).
I thought it was convenient how people's response to that class immediately showed me who shouldn't be allowed to run, start or control anything. "This class is bullshit and stupid" no, you are a selfish asshole who refuses to spend even half an hour a week understanding the history of the industry and the mistakes we made and how your work will have an impact on people so refuse to let that be a negative impact.
I this is exactly it. When you let utilitarianism run your life, you try and maximize your ability to do good, even if you have to bend a few rules on the way.
But outcomes aren't certain and high EV plays can still carry a substantial amount of risk, which is exactly why we have finance regulations.
Diminishing returns don't apply for SBF - his life's goal is to fund effective altruist charities, so each billion is as valuable as the last as long as there are good projects to fund.
I don't think people are comprehending how tragic this whole situation is (acknowledging that it's SBF's fault). This collapse put the brakes on a powerful force for good, and lives that would have been saved won't anymore.
> Diminishing returns don't apply for SBF - his life's goal is to fund effective altruist charities, so each billion is as valuable as the last as long as there are good projects to fund.
Let's be honest: we don't know what his life goals are. He said that his goal is to fund charities, but that's a pretty common thing for wealthy people in the U.S. to say because saying so gives you a lot of social status at no cost. Very few people actually proceed with any plans of significant charitable donations.
We don't know what his life goals were, but we do know that he was sending a huge amount of money via the FTX Future Fund, granting it to a wide range of projects. That whole team resigned yesterday: https://forum.effectivealtruism.org/posts/xafpj3on76uRDoBja/...
Well he failed miserably at that. If he had stuck with his original supposed $1 billion, he could have given almost all of it away and still lived a very comfortable life. As it stands now, his charitable foundation has pledged far less than $1 billion (at it remains to be seen just how much it pledged actually gets paid out).
Perhaps if he had spent more time donating money (his stated aim) rather than inventing convoluted financial structures (FTX has over 100 related companies!), he would have achieved more, and cost people a lot less.
There are lots of reasons to be mad and lots of red flags, but having over a hundred companies is pretty normal in this space. To operate a financial business legally across many jurisdictions you generally need to have subsidiaries in each jurisdiction. Ex: https://wise.com/help/articles/2974131/what-are-the-wise-gro...
Lehman Brothers didn't allow individuals in many countries around the world to make trades on their platform, so I don't think they're a good comparison here.
(Sorry for saying "financial" earlier when the reference class is really something more specific like "international retail finance")
Most obscenely rich people in history attempt to redeem their reputation at some point through philanthropy, from Nobel to Gates. It’s an old story and the guilt which leads to philanthropy doesn’t justify the means.
Jho Low gave a few hundred million to charity too after stealing a few billion from the Malaysian government. It's easy to be charitable if it's not your money you're giving! But I guess you're right that this is a different than that. No one is really saying that he got rich from this massive fraud (although a clear accounting of what actually happened is not available yet and probably won't be for years), in fact he lost most of his net worth because of it.
No, Bankman-Fried is a scheming fraudster hiding under the cloak of so-called “effective altruism”. He’d have done much better for the world if he didn’t found a crypto exchange promoting scams and being reckless enough to trade with user deposits and losing it all.
Every serial gambler in the world thinks that they are just temporarily in the red and one big break away from winning big. They just need to invest a little bit more.
Regarding his exit plan: not sure if you will find a good answer right now. One way to get some insight into this type of mental game is to read about other major scammers who just couldn't help themselves and got too deep to pull out. Bernie Madoff comes to mind, and there are many books written about him and his business.
U.S. Department of Justice lawyers are already closing in.[1]
Using customer funds held in custody is theft. Period. People go to jail for this.
This may be the biggest embezzlement of customer funds held in custody in history. Most scams involve misuse of funds invested, not just held in custody. The biggest outright theft of this type seems to have been Peregrine Financial.[2] That was $200 million, far smaller than this one.
What happened to the CEO of Peregrine? Here he is, 10 years after conviction:
Bureau of Prisons Inmate Locator
RUSSELL R WASENDORF
Register Number: 12191-029
Age: 74
Race: White
Sex: Male
Located at: Jesup FCI
Release Date: 02/19/2054
I just want to say, you have some of the most fantastic coverage of events like this.
It feels like having an investigative journalist on payroll. The delay between an Animats comment and this showing up in the news is significant. Thank you!
(I remember your comments about the CEO that forged pay stubs being similarly excellent. Someday it might be worth collating them. In the meantime, whenever Animats says CEO Foobar is going to prison, Foobar had better start mentally preparing themselves for the journey.)
It's just knowing some basic financial history. Crypto scams are not new kinds of scams. They're mostly scams from the 18th and 19th centuries, with a new paint job. "Extraordinary Popular Delusions and the Madness of Crowds" (1841), has the first time around for most of these bad ideas. Mass market scams first got going when newspapers appeared. At last, you could reach large numbers suckers at low cost. Before newspapers, scamming was a one-on-one in person thing.
We still have both mass-market and one-on-one scams, but now they can both be done remotely.
There's not much originality. It's mostly the same old scams of a few standard types, sometimes in new packaging.
Stories like that are really interesting to dig into. They all seem to get caught because the world changes (audits happening via internet in Wasendorf’s case, the economy imploding and sinking Alameda’s risky investments, etc) rather than from any particular mistake. The mistake always seems to be that they started cheating in the first place, and then it was just a matter of time.
Of course, we only hear about the ones who were caught. It makes you wonder how many stories like this were swept under the rug — if Alameda had made money instead of losing it, FTX would probably still be online, even though they’d still be committing the same large scale fraud.
Anyway, thanks again for all this, and especially for all the detail you put in. (Your comment pointing out that SBF is firmly under the SEC’s jurisdiction was wonderful.)
By the way, that Wasendorf story (Animats’ second link) is quite interesting. He skimmed $200M by forging bank statements and was eventually caught only when the world switched to electronic auditing. Previously he was able to fool everyone by intercepting the snail mail: https://www.forbes.com/sites/walterpavlo/2012/07/13/pfgbests...
> This may be the biggest embezzlement of customer funds held in custody in history.
I wouldn't be surprised to learn that the amount of actual customer funds that went in were much smaller than claimed.
Keep in mind FTX was mostly 'perpetuals' -- fake assets. It might be that a lot of the customer funds were just fictional gains, also may be that a lot of them were paper value owned by SBF entities.
I've been trying to find anyone I personally know that had FTX exposure and so far I'm coming up dry.
How about everyone with assets stuck in FTX that can’t withdraw them? When your accounting is fictional it might be hard to pinpoint who’s money went where but everyone got screwed in the end
Interestingly, many madoff victims had paid tons of federal gains taxes on the fictional gains and were unable to get the money back from the government.
Ultimately the US government is the party that gained the most financially from Madoff's scheme!
Yeah I think it’s why SBF immediately went on about not knowing everything that was going on, that he messed up by misunderstanding things, etc. He’s trying to lay the groundwork for plausible deniability here.
He will either go to prison or kill himself I would bet.
Betting someone will kill themselves or go to prison is far from constructive, and is triggering to many. Go to prison is one thing. Suicide is another. It's not a joke.
EDIT: Suicide is something that's hit personally lately - my response was likely something based on that. To the person who responded - I didn't think you considered suicide a joke - and plenty do consider it. It's never a solution though. You even got an upvote.
I’m not joking. And I agree it’s a serious matter. But staring down at 40+ years, a significant number of people would kill themselves in his position.
“I’d bet” is a figure of speech. Not the stated desire to gamble.
He won't get forty years. If he ever is indicted in America, he has to be extradited from the Bahamas first. Anyone with money can delay extradition proceedings for a couple years. Maybe he'll agree to extradition on the condition that he is granted bail in America (where he'll have $200,000 a month security guards from Guidepost Solutions enforce the conditions of his bail). Then he'll have Ben Brafman or a bigger $2000/hour firm, assisted by the world class investigators from Kobre & Kim and other high priced co-counsel negotiate the best deal possible and he'll plea guilty to some counts of wire fraud. Then at sentencing we'll hear about all his great charitable deeds, there'll be 100 letters from high level businessmen, politicians attesting to his great character, how he thought he was doing the right thing but "takes responsbility" for his actions, etc. Then maybe due to the massive losses and large number of victims he gets 10-15 years which of course after the 15% time good credit becomes 8 and a half. Then maybe we'll also find out he had a substance abuse disorder which makes him eligibile for the RDAP program and accordingly a 12 month sentence reduction. He'll also be eligible through the First Step Act to earn sentence reduction through "evidence-based recidivism reduction" classes in prison. And even if there is court ordered restitution almost no one ever pays that or if they do it is only a small fraction (there are major white collar fraudsters on $200/month payment plans for $10 million restitution orders). This is assuming he even faces justice in America because there are reports of several hundred million dollars of crypto being moved out of FTX wallets which to me looks like the internet money version of a "go bag" and someone intending to flee.
I think it likely started with a small mistake, not necessarily an innocent one but maybe one that was assumed to be low-risk. And like in the Fargo movie/show, Sam just kept digging the hole deeper trying to get out of it.
This explanation seems pretty plausible from a game theory angle. The selfish cost of losing 1 billion dollars and losing 10 billion dollars for fraud is the same. Either way he is ruined and probably goes to prison, so he keeps gambling even if the odds aren't in his favor, and problem grows exponentially.
Altruism is a lot easier when it's not your neck on the line.
That's an interesting take. Probably wouldn't happen though, the argument being that illegal dreams taking place in the metaverse would contagiously spread to the unmetaverse.
The part where he was lending out deposits to make big bets looks very problematic, and hopefully illegal.
The CEO described how a feasible 'pyramid' could work with Levine on Bloomberg and it looks like he was doing just that.
This is basically a smart kid breaking all the rules, doing mostly what he was allowed to do legally with all of the misrepresentation and hyper - plus a little bit of illegal stuff which is all you need along with the massive leverage that comes along with it.
But I would say aside from his shenanigans - this is a crypto problem. At the base of the pyramid was an 'asset worth nothing' well ... of of crypto is essentially that.
The critics who follow this space rather closely seem to suspect that Alameda was especially exposed and damaged by the Luna collapse. This should have been Alameda's end, but because FTX can create FTT tokens out of thin air and it is so easy to manipulate the price, it can create the illusion of solvency ("flywheel").
Presumably, SBF was hoping that the crypto winter would end soon, which would bring everything else massively profitable for them again, and then plug the holes he had.
But how, if you had spent time being a market maker, that is to say you understand market neutral strategies, would you convince yourself to take this bet? It seems contrary to his presumed understanding of the markets.
My personal hypothesis is that people keep attributing the successes of SBF to his intellect rather than a mix of intellect and luck, like the rest of us mere mortal. That list could as well include SBF himself. One can be lucky often but not forever, and sooner or later the "prodigies" see the fault in their impeccable algorithms.
this is it. Luck can look a lot like genius. We see it everywhere. And when you have credentials behind you, you really start to attribute luck to your genius.
People who understand that betting on red over and over again isn't a long-term winning strategy usually don't make the news for fraudulently pissing away 8 billion dollars of customer funds.
He didn't have an exit plan because, like every gambler, he was sure his "system" was better than anything that came before and couldn't possibly go tits up.
Like every gambler, he was wrong of course, and eventually lost it all because gambling is stupid.
They expected the gambles to pay off, and faster than customers started withdrawing en masse. Reminds me a lot of AIG's sketchy Securities Lending back before 2008.
> Can anyone speculate what Bankman-Fried's exit plan was?
I can speculate based on recently revealed facts.
SBF did grease politicians to the tune of 40 million USD in political donations. Several have described these donations as: "bribes" (I'll let you judge). (as a sidenote I wonder if these politicians are going to give these donations back to the people SBF scammed).
A US congressman, as reported here several times, wrote: "GaryGensler runs to the media while reports to my office allege he was helping SBF and FTX work on legal loopholes to obtain a regulatory monopoly. We're looking into this".
It's "allegedly" but it's a fact that a US congressman posted that.
It's also established that a colleague of the SEC's Garry Gensler happens to be the father of... Drumroll... The 28 years old woman CEO of Alameda.
So I'll speculate a TL;DR:
SBF was working hand in hand with corrupt politicians and corrupt officials to kick Binance out of the US through regulatory capture in order to grab Binance's insane market share (easily 10x the size of FTX).
SBF would then have continued the established FTX/Alameda scam through FTT. So he'd have then used FTX to pump the price of FTT (and, because why not, other manipulated shitcoins too) in order to keep pretending traders at Alameda were geniuses.
Alameda would have been fully legit and would have take shitloads of money from various pension funds and investment funds (knowing he already got some: why not think he would have gone for more?).
That's my speculation: why stop at 1/10th the size of Binance when you can donate tens of millions to politicians (which is pocket change when you're making billions) and work with the SEC to get a monopoly on crypto exchanges in the US, all the while pumping the value of your Alameda fund and all the while having covers of magazines and people everywhere (Bloomberg, Sequoia, JP Morgan, etc.) saying how big of a genius you are and how geniuses all people around you are.
The guy is a megalomaniac: no longer than a few weeks ago he was saying that companies worth tens of billions were "potential acquisition targets".
And I think that, had the overall markets not have been crashing hard, he may have succeeded at all that, creating a scam 10x or 100x bigger than the one he actually ran.
But the market crashed and CZ took the opportunity to reveal the FTT scam to get rid of a very dangerous competitor. No matter if Binance is legit or not: SBF was after Binance but Binance was too big for SBF too chew. Binance may be going down too (no clue about that) but Binance was never going to go down alone while letting SBF free to run his SEC-endorsed scam.
Binance leads the industry in proof of 1:1 reserves of custom holdings.
CZ knew about FTX's finances because he was the original investor in FTX. The reason he had FTT to dump in the first place is because of that initial investment in FTX.
No, you're thinking of Kraken, which has been doing this for years (not an endorsement!). Binance just did it, by revealing their wallet addresses, and promised more in future.
Two important points:
1. Generally Proof of Reserves is a term where all holders can validate cryptographically that their funds are accounted for. This is harder because it's natural and efficient for an exchange to co-mingle multiple customers.
2. Doesn't mean they're solvent! They might owe customers $100bn for all anyone knows.
It's still far better than nothing, but FWIW their history of lying about their home jurisdiction, and massive "out of nowhere" growth is a huge red flag that you should be aware of (FTX did the latter even faster, of course, being founded in 2019!).
Im 9-to-1 that Binance is shady asf but I don’t have much evidence - outside of the fact that they used to list tokens in exchange for a share of the pie, which in my eyes is super dodgy.
It's called value destruction. The coins value dropped very quickly, the counter parties then where either 1) Most likely nobody, (as in nobody cashed out, as the myriad altcoins approached the limit of worthless) and 2) traders on FTX who cashed out other ,"more valuable" coins they were lent after depositing altcoins as collateral.
They accept FTT as collateral, give out a leveraged loan to the other company. The company spends that money on things like stadium rights and bailing out other failed crypto companies. Collateral falls to a value of 0, and the money is spent.
He wouldn't be safe from US authorities in the Bahamas. They'd happily turn him over. The US Navy leases a lot of land on Andros for a Navy base that is a significant part of their GDP iirc.
Howdy HN, as some of you may know from previous comments of mine, I’m always on the hunt for swag from dead companies (Lehman Brothers letterhead, Theranos shirts, Clinkle phone case, Enron desk art, et al). The more fraudulent the collapse, the more interested I am.
I’d love to get ahead of the ball on this one so if anyone here has any, and I mean any, FTX swag you somehow have picked up over the years, I’m a very motivated buyer. I’d also do unspeakable things for swag from any one of the subsidiaries on that absolutely ludicrous flow chart I’ve seen floating around.
I’m serious.
And whatever you do, don’t sell it to /u/filmgirlcw, she is also a collector of deadco swag, and thus my competition here.
I want to buy a Theranos Edison machine and am willing to pay. If you know anyone that has one, parts of one, or anything like that, my email is in my bio and I am very happy to talk to you.
I intend to take a small portion of it, melt it into steel ingots, and include it in 'Order of the Engineer' rings for myself and my colleagues who are also engineers.
We are looking for physical equipment in which engineers screwed up and the general public paid a high price for it, as a reminder to ourselves that our work is meaningful and is one of service to the people we serve with our efforts. If you know of any equipment that may fit that bill, I am looking to pay for that too.
Maybe a very long shot but in an earlier thread from a year or so ago about a similar topic, this HN user mentioned being in a Theranos facility during liquidation: https://news.ycombinator.com/item?id=29791488
We've not been able to source any 'failures' outside of some fragments of the space shuttles that fell on people's land.
We're looking to get as many failures as we can before melting down out rings, casting in the debris in appropriate masses and compositions (they still needs to be steel rings at the end), and then reforging/casting the rings for all of us, with enough of an ingot left over to continue the process as 'failures' continue onward.
It's entirely symbolic, but does take effort and time.
Perhaps it would be better to say "you might also like to contact /u/filmgirlcw, who is also in the market (and here is how)"
You are not in competition - you are both tiny versus the size of the market, and can work together to grow the amount of offers, thus lowering the overall price.
Two years ago, when Twitter was banning right wing politicians (and left wing ones too), it was a private company that can do whatever it wants.
Suddenly in the past two years, it has magically transformed into a national security risk with global consequences.
Which is it? if the former, then they should be able to do what they want, including ban whom they want. If the latter, it needs to be regulated and certain rights ought to be enumerated for its users.
I don't know that anyone likes how moderation is ever done. If you try I bet you struggle to find folks who have ever liked twitter / the ecosystem for very long ... ever.
If twitter is a national security risk, it needs to regulated and not be a private company. If twitter is not a national security risk, then whoever owns it makes the rules.
-SBF's other pet project Alameda Research suffered huge loses after Luna blew up.
-Alameda Research, a 'backer' of FTX was given billions of FTT tokens that they 'owned' by FTX because they participated in its 'ICO', transferred it FTX, and then used it as collateral to 'borrow' FTX user assets, hoping they could gamble with it and make back their money.
CZ, of Binance, got wind of this somehow, and holding billions of FTT on Binance, decided to tank the price by saying it will all be sold immediately
From the marketwatch article it sounds like this was essentially a hostile attack from Binance, first dumping the token to collapse the price, then pretending to be interested in an acquisition to keep FTX from looking at other emergency measures, then pulling out at the last minute.
Compare this to traditional finance with events like the collapse of Lehman, then Bear Stearns, with Morgan Stanley next in line to fall. Their competitors stepped in, with a major push from the Fed, to prevent the collapse because they knew it would trigger a domino effect that would crash prices and bring them all down. Binance seems to be doing the exact opposite.
Binance triggered the collapse, but the stage was set by FTX/Alameda by "creating its own token" (per "The FTX-Alameda nexus") and "loaning" $10bn to Alameda using their "own created token" as the backing collateral.
Of course, there's a risk that the hedge fund could lose some or all of the customers' funds. And the exchange promises that customers can have their assets back on demand, which could be a trifle problematic if they are locked up in leveraged positions held by the hedge fund. But this is crypto. There's an easy solution.
The exchange can issue its own token to replace the customer assets transferred to the hedge fund.
The exchange will report customer balances in terms of the assets they have deposited,
but what it will actually hold will be its own token.
If customers request to withdraw their balances, the exchange will sell its own tokens to obtain the necessary assets - after all, crypto assets, like dollars, are fungible.
["The FTX-Alameda nexus" - emphasis mine]
FTX the exchange appear to have lent client funds to Alameda research.
The loans had very poor collateral behind them, meaning that FTX were exposed.
It is not currently clear if or how Alameda lost the $billions of client assets, or if they are just illiquid.
There is noise that the client assets were spent on things like the summer bailouts of defunct crypto firms, but I think we are just speculating at that point.
Just noting that the FT article has a statement from its interim CEO:
“The immediate relief of Chapter 11 is appropriate to provide the FTX Group the opportunity to assess its situation and develop a process to maximize recoveries for stakeholders,” [John J] Ray [III] said.
Well, secured creditors really. They may or may not be insiders.
The people who are really hosed are the non secured creditors. Who, again, may or may not be insiders.
That said, in either case, they are very likely to be extremely disappointed in what is recovered. I just have a sneaky suspicion that even the USD6 Billion that everyone hopes remains available, is not actually there.
Group holdings yes, but the US exchange and some of their other acquisitions are in US. It seems to be quite an elaborate cluster of firms that have filed for bankruptcy, which makes me think maybe someone was doing funny stuff with money.
You can't really pick and choose where to have your bankruptcy. This filing is for FTX's US entities, those in Antigua will be wound up with Antigua's rules.
FTX Trading Ltd is "is incorporated in Antigua and Barbuda, and headquartered in The Bahamas", yet the linked statement clearly says FTX Trading Ltd (plus the FTX US entity, and Alameda, and others) are filing for Chapter 11 under US law in Delaware.
Is there a parent company of FTX Trading Ltd that's based in the US?
Edit: Apparently "Paper Bird Inc" is registered in Delaware, is 100% owned by SBF, and has ~89% ownership of FTX Trading Ltd.
As a sidenote, many of the commitments that SBF made to the FTX Future Fund were either in FTT or paid in installments, which means that they will never be paid at all. Huge impact on the EA movement and their grantees.
This where the investors including the big silicon valley investors that make billions of returns step in and make the little people whole. If BlockFi needs a line of credit to allow withdrawals, each of the investors needs to be in line to provide that credit at the expense of the partners and LPs. Officers eat last.
I transferred my crypto out of FTX.us.
The pilot transaction was successful, but about the main transaction, while I’ve confirmation from FTX.us about initiation, 12+ hrs. Later, there is no confirmation of a successful completion of the transaction. I don’t see crypto in my either my FTX.us wallet or the target wallet.
Is there a way I can get my crypto? Thanks!
(FTX sponsored the chess tournament where Hans Niemann said "the chess speaks for itself" after winning the first game of his match against Magnus - and before promptly losing the remaining three)
Bitcoin's difficulty adjusts on-demand. Regardless of how many or few people use it, as long as some people do then it'll keep existing and sitting there clearing transactions all day long, spitting out new blocks every ten minutes like clockwork. That's the beauty of Bitcoin -- it's a program that once started never stops running, like a watch that keeps ticking.
The work in place to build L2 systems (Lightning, Web5, etc) that can derive a secure economic system from that base consensus clock will continue on just fine.
Ethereum has a good developer network. It does work well as a decentralized, distributed compute engine. The costs are also coming down with new scaling solutions.
Paying for digital products (software, digital items) is hands down far better wtih a web wallet than a credit card.
Ethereum is probably the only crypto I can imagine holding for the medium to long-term
The CEO of Alameda said "we tend not to have stop losses... I'm trying to think of a good example of a trade where I've lost a ton of money... I probably don't want to go into specifics with that"
Now how did this place end up managing billions of dollars and SBF the darling of politicians?
The picture is starting to come into focus. SBF used customer funds to become one of the top political donors. He donated $40M and was planning up to $1B. His parents are Stanford Professors who are well connected in the political world.
Caroline, Alameda's CEO, also said "My advice for college is that classes don't matter that much and friends and networking are really important. Probably the most valuable thing you can do in college is find the coolest people you can and spend lots of time hanging out with them". Apparently so.
Her dad is the Department Head of Economics at MIT. Prior to getting appointed to the SEC, Gary Gensler was a Professor for the Practice of Global Economics & Management at MIT.
The CEO of GoldmanSachs met with SBF to help FTX get regulatory approval.
From a congressman yesterday, "Gary Gensler runs to the media while reports to my office allege he was helping SBF and FTX work on legal loopholes to obtain a regulatory monopoly. We're looking into this." https://twitter.com/RepTomEmmer/status/1590717374801809409
It looks like Enron or Theranos 2.0. The kids of the elite were being elevated into positions way outside their ability and supported at high levels with no scrutiny. The fallout from this is going to be astronomical.
> Caroline, Alameda's CEO, also said "My advice for college is that class don't matter that much and friends and networking are really important. Probably the most valuable thing you can do in college is find the coolest people you can and spend lots of time hanging out with them".
This is mainstream advice if you're at an Ivy, Stanford, etc. You're learning the same material as the people who go to a state university. The advantage is the proximity to power, the people you rub elbows with who can help your career down the line.
This is the entire premise of elite business schools – nobody is dropping $100k/year for the content that you can get on YouTube for free.
> You're learning the same material as the people who go to a state university. The advantage is the proximity to power, the people you rub elbows with who can help your career down the line.
I got my MS CS from Stanford and this is completely false. I did my BS CS at Georgetown, and even between the two there was a huge difference being at Stanford. The course material pushed me way harder, there were more resources (e.g. robots), a much wider selection of electives, and more consistently brilliant peers. I never felt behind at Georgetown; I certainly had those moments at Stanford, even though I did very well there in the end.
The original comment applies more to humanities and business school than to hard sciences. But it's still relevant in STEM.
> I got my MS CS from Stanford and this is completely false. I did my BS CS at Georgetown, and even between the two there was a huge difference being at Stanford.
Stanford is probably the best-known school in the world for Computer Science. Georgetown (while a great school) is known for its international relations. So I'm not surprised that Stanford had more CS electives, resources, etc.
But the fair comparison here is a school like UC Berkeley, University of Illinois, or [insert flagship state university here]. Is the quality of education really that different vs. Stanford? Or is the Stanford name brand on the resume the differentiator?
Also, a masters program should be harder and more competitive than an undergrad program!
> and more consistently brilliant peers
Exactly. At Stanford, your "consistently more brilliant peers" will be in positions of power down the road. They'll be hiring managers at Google and Apple in <5 years.
This is actually generally how finance works though. The whole industry is built on the illusion of superior competence.
"Prestige" is a determining factor in someones ability get a job running a hedge fund/financial asset management. Generally they need to have gone to the right school, worked at the right bank, then at the right hedge fund. Each should show a good amount of tenure ( > 3-5 years ).
A major asset manager that I won't mention hires PhDs from Harvard as a way to get people to invest in their fund. Behind the scenes, away from all the quant marketing nonsense, is some guy you've never heard of making gut based trades on the market.
To see this all you have to do is interview at a few "prestigious" financial companies.
A while back I interviewed with one of the top trading firms. It was for a lower level position that I normally wouldn't take but I was excited about the prospect of working with some truly brilliant quants.
Wow was I disappointed. The discussion with the quants quickly relieved that they had absolutely zero interest in their field, and not a particularly deep understanding of the fundamentals of the mathematics they were using. It became clear that their entire course of study was focused on getting in to high paying financial company, and all the things they had to learn on the way there were just boring prereqs.
I've met a lot of really talented and smart applied math people over my career, and this quant team was not in that groups of people.
That said all the engineers I chatted with were great. My takeaway was that these companies do need talented engineers to run these systems but the "brilliant quants" is more or less just, as you say, the illusion of superior competence.
I think it really depends to be honest. I don't think what you are saying is generally true of people at prop trading firms, the ones that I know were generally very into math/physics and got lured by the high pay.
With prop firms, there is little need to schmooze the rich with fancy degrees
"This is actually generally how finance works though. The whole industry is built on the illusion of superior competence. "Prestige" is a determining factor in someones ability get a job running a hedge fund/financial asset management"
It's not just finance, people everywhere are impressed by a prestigious background, and assume if you can drop certain names on your resume you must be great.
Such names will open all sorts of doors for you that are firmly shut against the riffraff.
Of course, conmen have used such patinas of prestige to their advantage since the dawn of time.
There's also the irony of the fancy office. If you're a customer of a professional and walk into a very luxurious office, you know ultimately you're the one paying for that. If it were a separate surcharge to meet in the fancy office vs something basic would you chose to pay it? Yet psychologically we all feel more confident in the fancy office.
I saw this at Bridgewater. Hired only ivy league, smart people actually. But their total discretionary control was a tiny % of fund. Hedge funds are mostly marketing. When 2008 financial crisis happened, Dalio was making the big trades in the control room himself on gut feel.
This. Someone from Bridgewater mentioned that Dalio's "radical transparency" and all that we-record-everything nonsense is just a marketing bluff. Actual decisions are made behind closed doors by a few people.
I do feel like SBF path was obviously distinct from this hedge fund/IB pathway you are describing.
For one, he got hired for a prop trading firms - in which these effects are not very large because they have little-to-no interest in clients and managing assets.
To be fair I heard from a few places that you really don't want to do stop losses on crypto exactly because of companies like FTX - since the traders and the exchange are really the same people, it's possible that there isn't a good enough chinese wall between them - when that happens the traders can see your stop losses which is like holding a massive sign saying "Here, take my crypto for cheap".
I hope people read this and really understand what it says. It Crypto had any intrinsic value this paragraph would be ridiculous ... but it's not. At least tulips were pretty to look at.
The only reason big banks doesn't do this openly is because they actually have regulators breathing down their neck so they have to either hide it well or find ways around.
The problem isn't crypto, it's the lack of accountability.
> The only reason big banks doesn't do this openly is because they actually have regulators breathing down their neck so they have to either hide it well or find ways around.
I thought that's what the whole PFOF debate in the US was about? That e.g. Citadel is allegedly using SL and order book information to hunt stops on thin volumes.
Not from the US and I didn't follow it too closely, maybe I got it wrong.
> Now how did this place end up managing billions of dollars and SBF the darling of politicians?
It's not that hard to be the darling of politicians in this day of extreme polarization - you just tell them what they want to hear.
SBF made a good safe bet that coming off as "pro-regulation" would be a winning strategy in the current climate. Heck, it was probably a good bet regardless of whether Democrats or Republicans are in power, because even though Republicans are nominally anti-regulation, being against "Silicon Valley billionaires" is basically the one thing that gets bipartisan support these days, so flattering politicians with "we need you to regulate us" was probably a good strategy.
I guess the way it works is before they blow up people go "clearly they're doing great, they know something we don't. You think they need stop losses, but that's because you just don't get it. Stop asking questions".
This stuff just worries me so much. These people are looked up to as some gods of business, insight, or whatever. Even I have been guilty of getting caught up and being jealous of these younger people with so much apparent success. But then you find out, in gory detail, about just how much bullshit it all is, and that these people are just from elite circles who got handed keys to the Lamborghini after just playing with a Tonka truck. I mean, just hearing these people speak is cringe. They don’t understand how anything actual works. I can’t believe that something that literally stops your losses is not an effective risk management tool.
This is what you find with kids from the elite class. They can take on mind blowing risk because they can fall back on their parents when it fails. People from lower socioeconomic levels cannot do that. Our government sets back and let criminal actions go unpunished, letting people truly treat life as a Monopoly game.
Yeah, it's funny to see Alameda called out for this, when most hedge funds don't use stop losses. It's pretty reasonable not to want their assets liquidated at a bad price in their sleep, in response to a price movement which might have been an artificial blip.
Is this how it always is and has been in Silicon Valley or Tech in the US. Startups started by well connected or well off kids, with backgrounds at elite Universities. Background and connections count for so much in that industry, it makes you wonder how much has been lost or how much potential was lost because people didnt go to the right schools.
no, this is not true. The reality of Silicon Valley since the mid-1970s is an explosive and unpredictable mix of institutional money, their cohorts and practices; defense industry, their cohorts and money (these fit your hypothesis somewhat); dramatic and overlapping physical inventions using silicon parts, the people that build and promote those, their investor and insiders; marketing success more like Hollywood of old, their cohorts and practices; non-USA money and investment systems, their cohorts and practices; international Fortune 500, their cohorts and practices.. and more I am leaving out..
My point is this doesn't feel like stupidity or some confluence of mistakes. It feels more like someone realizing they can get people to invest in their house of cards while knowing it's a house of cards.
How many times are we going to allow someone to slice us with weaponized stupidity before we realize that willful ignorance is actually a powerful tool in the malicious actor's/white collar toolkit?
On the street, the cops/court'll beat you with "ignorance of the law is not an excuse".
In the board room, the corporation can do no wrong, here's your settlement, chapter 11 plox.
SBF should delete twitter mostly to stop publishing increasingly ridiculous "I’m really sorry, again" messages: "Hopefully things can find a way to recover. Hopefully this can bring some amount of transparency, trust, and governance to them. Ultimately hopefully it can be better for customers."
The same way fiat finance builds up and then collapses: most people have no idea what's going on or what any of it means. There's a lot of accounting smoke & mirrors to make everything look successful, until it's put to the test. At least with traditional finance there is occasional some effort to reign things in, or at least cover consumer checking accounts. But even there the finance companies employ more lawyers, accountants and experts than the regulators can and so the regulators are usually playing catch up after the collapse. In crypto there's no regulators, just other companies hoping they don't get found out.
This has been a wonderful social experiment, enabling people who didn’t live in the 19th century to see what happens when banking and investing is treated like the wild west.
Maybe something could have been different this time? In the end it wasn’t, and it proves the necessity of regulation and institutions.
There aren’t very many other aspects of our society where we get to have that kind of experiment and find out whether our approaches to past problems were really correct. Letting us do that may turn out to be the true value of crypto, after the coins go to zero and we start mentioning it in our history books alongside tulip mania and the South Sea bubble.
I don't see why crypto is incompatible with regulation and institutions. Crypto is a unit of account, not some magical lawless thing that's doomed to never have a regulation written about it. In fact, places like New York already have pretty strict regulations requiring specific licenses for crypto-related businesses.
Crypto crises like these are in general due to regulation not having caught up yet, not because companies that involve crypto are inherently un-regulatable. Crypto is speed-running banking regulation over again. It's an ugly process, but the end result will be crypto institutions that are strictly regulated like banks (and/or existing banks will start to handle crypto just like they do any other foreign currency balance).
As for the current state of things, FTX is (was) a Bahamas company not subject to the financial oversight of the general western world. The public would generally hesitate to wire large amounts of money off to some company in the Bahamas, but when it's crypto, people don't think twice about it for some reason. After the FTX blow-up, perhaps more people will. It's hard to prevent people from wiring money off to a company in some other country that has much looser financial regulations, but that's not a crypto problem, it's a financial education problem.
Crypto is incompatible with regulation and institutions because it was designed to be, and is consistently a part of the ethos espoused by pretty much all crypto players?
Literally, the first sentence in the Bitcoin whitepaper (which arguably kicked off 'crypto' as a thing) is "A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution".
The network was designed not to be regulatable. Businesses however are regulatable.
The US has shown they can effectively enforce AML/KYC requirements across the vast majority of exchanges and businesses. Any exchange the average person tries to use to buy crypto will request your ID to do any meaningful transaction.
Granted, there are exchanges you can use a VPN and access without KYC, and while it is difficult to manage billions of dollars in the dark, it's certainly possible. But they can regulate the vast majority that any regular user will find, and have shown they're willing to OFAC others.
It is not going to be long before regulations are increased, and some exchanges/services will be known to be subject to them - and will likely lean on that as a selling point. The others will only be accessible to those going out of their way to use them.
Sure, but that’s building a giant industry around the tech to make it explicitly NOT what it was designed to be, or what the ethos has been - secure, point to point electronic cash with no one telling you who you can transact with or what you can spend it on. Aka electronic cash.
No one needs a pile of paperwork to prove to the gov’t who they are to spend or get paid cash.
No one needs to be on a list, and have their every transaction double checked to make sure it’s with a validated counterparty to pay in or get paid cash.
Etc.
At that point, it’s literally cheaper, easier, and safer to just use a normal bank.
> Sure, but that’s building a giant industry around the tech to make it explicitly NOT what it was designed to be,
> No one needs a pile of paperwork to prove to the gov’t who they are to spend or get paid cash.
To be clear there's different types of regulations, some we/I personally agree with more than others.
Personally, I agree with you that kyc/aml laws are over the top. I think privacy and money laundering are two things people often conflate, and that privacy is something we should want. (Side tangent - the majority of crypto was not really designed for anonymity or privacy, although that's a whole different topic). People claiming "crypto is just for money laundering" as a reason it's bad should be applying the same logic to physical cash.
What I'm particularly interested in is regulations around the big exchanges to prevent them from putting all of their clients money somewhere stupid, losing it all, and go illiquid.
> At that point, it’s literally cheaper, easier, and safer to just use a normal bank.
I mean yes, an FDIC insured bank is absolutely safer than an unregulated crypto exchange. This is the exact reason why the phrase "not your keys, not your coins" exists, and why everyone says you shouldn't keep your keys on an exchange. Done properly, a crypto wallet should be safer than a bank provided you can assure physical safety and redundancy of your keys.
Part of the problem IMO is that crypto became this "get rich quick" thing - with "exchanges" advertising double digit returns, people using NFTs for art for some reason, etc. I think the technology has uses, but this "get rich quick" bs has been a massive hinderance. I really think this "the point of crypto is to make money" mentality is missing the actual use of it.
tl;dr - a properly used crypto wallet should be safer then a FDIC bank, an FDIC bank is faaar safer then a crypto exchange, there could be more regulation on just the exchanges, and aml/kyc laws are a seperate type of regulation - I was just using these as an example of the US government successfully regulating exchanges.
Well, one issue is it’s pretty hard to make money being a responsible custodian of cash, electronic or otherwise. It fundamentally doesn’t earn interest just sitting there, it’s a tempting target for thieves so you have to go through a lot of effort to protect it, etc. that’s true even if you’re just an exchange, and you only hold it for a day.
It’s a lot easier to make a lot of money if you steal it, or play games. Most of those are already illegal, no regulators required.
Regulation can help of course, if someone actually comes by and checks that nothing illegal going on. but the type of regulation that comes along with ‘have a reliable audit of what you’ve got every night, or else’ also tends to include ‘and make sure you don’t do business with drug lords and human traffickers’, at least in the West.
God help you if you try to fight that last one too.
Well, you can't mix identity regulations (that only add friction at this point indeed) with securities regulations that organisations should succumb to when dealing with clients' assets.
Right regulation right now would be to straight ban BTC in Europe because of the energy usage and CO2 emissions . And hopefully California could pass a right act during next elections and join the ban.
That just means there are powerful forces that can act against "what it was designed to be" for their own interests, whether it's the financial industry, government or both acting together.
It's not about pleading to these entities that they are "doing it wrong". They know this, because this is their way to control it / oppose "doing it right".
I don't understand your point.
My grandfather tries to use only cash which allow 'payments to be sent directly from one party to another without going through a financial institution'.
Which every financial institution and western government keeps trying to get rid of because it is essentially impossible to regulate or police?
And which cops have a nasty tendency to seize on sight in the US if seen in any significant quantity (outside of an armored car) because ‘proceeds of crime’?
And pretty much every drug transaction, illegal sexual transaction, whatever is done in cash? To the point most major crime shows and drama shows have scenes involving some massive pile or duffel bags or whatever of cash as a plot point?
Cash on the barrel head is the textbook definition of ‘difficult to regulate’.
Also, most people buying person to person used cars and doing yard sale transactions use it too, of course.
It’s not a requirement that Cash transactions involve a crime at all. Same with crypto.
If your transaction is illegal though, using Venmo seems pretty dumb.
There is a very, very long history of that being a bad idea. There are some situations (commodity exchanges) it’s necessary, but they are heavily regulated and audited for that reason. They also have non trivial storage costs.
Gold depositories have the same issues as crypto exchanges have typically had - it’s almost inevitable that someone absconds with the actual gold without telling anyone, or ‘prints’ extra without backing assets, etc. and until someone does an audit or everyone tries to withdraw their gold/tokens/whatever, no one knows.
How you can transfer bitcoin between exactly two people with zero outside involvement from other entities? I suppose you might be able to have a bunch of pre-filled wallets of various amounts that you can transfer via thumb drive, but in a practical sense your transaction is going over various networks and through other machines.
In order for a balance to be transferred on the chain, it MUST be included in a mined block (the longest chain one/aka the primary blockchain).
So there is always a middleman, unless you’re on your own chain. But it’s distributed, no one can reliably pick who is going to be the miner (or always be the miner) because of the POW algorithm, and everyone can trust the outcome because of the way everything is structured. There are very strong incentives for everyone to try to mine, for instance, and the more mining power there is, the more difficult it is for anyone to have a controlling interest or monopoly on mining, barring special economies of scale in mining hardware, anyway. (Which do exist, but not enough to make it doable to get a monopoly right now)
Worst case, the miners can ignore your particular transaction indefinitely, but the counterparty can see that too, and it would require active collusion from a very large percentage of miners to even attempt that.
I thought of a random analogy here - the block chain miners are the equivalent of a common carrier parcel service here (albeit with far stronger guarantees against tampering).
So it’s not a middleman like a bank or a payment processor. Rather a bulk processor who moves a bunch of opaque chunks somewhere for money without any particular regard for who or what as long as they get paid for it.
Cash has serial numbers for traceability, and is emitted by a central bank. That's a big chunk of a financial institution right there. Additionally, if you pay for $50, the state won't give a damn, because it's $50. Pay a company $10k in cash and every alarm will go off and the transaction will have to be notified to a financial institution. Tracfin in Europe for example, etc.
So, no, cash isn't entirely separated from financial institutions.
I didn’t say cash didn’t require institutions somewhere. Cash creation (physical), and cash into and out of the system requires institutions.
Cash transactions do not, so spending, receiving, and if one is crazy storage can be done without institutions.
That hypothetical $10k transaction for instance only sets alarm bells off if it’s an abnormal transaction for an individual account.
Someone doing a cash business is going to do stuff like that so much, it’s a drop in the bucket and no one cares. Coin shops, check cashing places, certain types of convenience stores and restaurants, etc.
If they manage the cash themselves instead of a cash drop, such as if they are a dispensary and are unbanked, a given dollar bill can circulate a very long time before touching a bank, depending on which parts of the economy it touches.
The reality is it isn’t super hard to launder funds apparently, so it ends up back in a bank somewhere soon, but with the intermediary transactions hidden.
Let’s say I buy a legal widget for $10K and I pay cash and I don’t plan to treat it as a business expense. On my side, I’m done, and any alarm that might be invoked is the problem of the seller, and probably dependent on their compliance with weakly enforced regulations.
For some classes of widget I might want a receipt, but definitely not for all. You can easily spend that much on a birthday dinner with your friends, if that’s your thing.
I don’t think anybody is arguing that cash is “entirely separated from financial institutions” but — even above $10K — it allows for the possibility (not the guarantee) of transaction privacy.
That reminds me of the excellent Econtalk episode: Devon Zuegel on Inflation, Argentina, and Crypto
Devon Zuegel talks with EconTalk host Russ Roberts about the crazy world of money and finance in Argentina. When inflation is often high and unpredictable, people look for unusual ways to hold their savings. And when banks are unreliable because of public policy, people look for unusual ways to keep their savings safe and to make financial transactions. Welcome to Argentina, where Zuegel finds surprising applications of cryptocurrency for solving problems.
Like, theoretical value add? Composable open source finance seems like a cool idea.
Practical value add? Less clear. On-chain comes with "contract risk", off-chain is more or less unregulated and comes with these FTX-like collapse risks.
IMO, Cool is ‘value add’ in that it makes it easier to part naive investors or customers from their cash, not in value add in the way that actually makes something hard easier and more efficient, or enables some new high value thing that was previously impossible.
I mean it obviously enables things previously not possible: open experimentation with financial primitives which results in new ideas like automatic market makers. Nothing within the traditional financial world allows you, as a random tinkerer, to create algorithms for exchanging between pairs of assets along a curve defined by the relative amounts of reserves for each asset.
However, whether this freedom to tinker and invent new primitives is worth all the extra risk from people trying to "invest" in this stuff, way less clear. Especially when the freedom is most often used to recreate traditional flavors of financial fraud dressed up as new technology.
There needs to be some conceptual separation between the actual on-chain technology (used by a very smaller minority of people with some kind of financial stake in crypto) vs. buying tokens/coins off-chain. At the very least marketing and promotion of buying made-up crypto tokens should be illegal and probably every off-chain entity related to crypto should be heavily regulated to avoid using the cover of "new technology" to perpetuate scams.
Bitcoin was about digital money, out of the reach of central banks as a response to the 2008's financial crisis.
Modern crypto is about trying to convince others your altcoin has some intrinsic value by selling rumours, partnerships, governance or some other vaporous dream, so it can be used for gambling.
The problem are central exchanges creating monstrous speculation instruments and of course gambling with user funds on top of it by lack of regulation.
Why bother with proof of work or proof of stake mechanisms if you want political regulation? In that case, you might as well empower a state's central bank to develop a payment mechanism, and task them with ensuring fairness and enforcing laws around taxes, illegal activity, etc.
You're right in that if all we wanted was a domestic payment network, blockchain consensus mechanisms would be overkill and introduce unneeded overhead. Personally, I'm excited about the FedNow payment service coming online in the USA next year. Perhaps I'll finally be able to easily send money from bank to bank without involving third party fintechs like PayPal and Venmo, and without waiting a day or two for ACH.
However, crypto is useful because it standardizes behavior across regulatory boundaries, and because it creates a stateless unit of account.
Standardizing behavior across regulatory boundaries means that crypto "just works" to send value from one country to another, without needing cross-border intermediary companies that support your specific country pair to convert things between currencies/systems.
The stateless unit of account part is perhaps more interesting to me, though. Before crypto, there were no digital representations of value independent from state. No country has the power to hyperinflate crypto, and there doesn't seem to be a clear path to be able to accomplish a unit of account like that through traditional political means. The closest thing we have to that is the Euro, but it doesn't tick all the boxes.
Is a stateless unit of account good, or better than traditional government currencies? I'm honestly not sure. It does have some drawbacks in terms of the ability to use monetary policy to loosen and tighten markets. But it's an interesting enough concept that I would say it's worth it to "bother" with blockchain consensus technology.
We can have an international unit of account through, e.g. Special Drawing Rights. This makes plain the political bargains struck to ensure international economic stability. Crypto alternatives would have the same political valence as a return to the gold standard, which was abandoned to avoid the crisis potentials peculiar to it.
The most influential statement of your proposal is Hayek's article "Choice in Currency: A Way To Stop Inflation"[1] which he later expanded on in "Denationalisation of Money".
Hayek's views have an admirable internal consistency, but his political premises are contrary to the core values of almost every pre-industrial society, and of the social democratic tradition in Europe which has been internationally influential.
Very few people understand the full scope of Hayek's political vision, which is premised on a thoroughgoing skepticism toward the very possibility of rational democratic deliberation. If they fully understood his proposal's implications, I doubt they'd support them; but certainly there are some who are willing to fully own their anti-democratic implications.
Well, I mean...that's the thing. There really isn't much point to crypto once it's regulated the same way as traditional finance...and there's no world where that wasn't eventually going to be the case.
> As for the current state of things, FTX is (was) a Bahamas company not subject to the financial oversight of the general western world.
The headline says filing for US bankruptcy so I’m assuming they have some US based entity — which as of yesterday was perfectly solvent because the accounts weren’t commingled.
So one would presume (without actually reading TFA) that they are indeed subject to US financial oversight and have some explaining to do to the people in charge of those sorts of things.
So I could become a trusted individual and handle hundreds of millions of dollars in transactions through my homegrown exchange (read: I cloned a git repository) and I will not be regulated because I'm not a company?
Buying and selling property is a tricky thing, legally.
To buy and sell cars in a personal capacity, you don't need a license. But if you run a business with the intent of making a profit by buying and selling cars to other individuals, that's illegal to do without a licensed corporation.
To buy and sell gold in a personal capacity, you don't need a license. But if you run a business with the intent of making a profit by buying and selling gold to other individuals, that's illegal to do without a licensed corporation.
It all comes down to whether the government deems something to be a personal activity or a business activity. Handling hundreds of millions of dollars worth of trades may well be considered a personal activity, if you're rich and making a series of OTC trades with a friend. But if you're attracting a diverse customer base and making a business out of it, that's when regulations apply.
A great example of the murkiness of this distinction was the crackdown on localbitcoins. It wasn't the people doing one-off personal trades who got in trouble, it was the people profiting off of volume, doing many trades and capturing the spread. The people who traded with several counterparties, but maybe not enough to be considered a business - well, that's where the gray area lies and personally, I am not a big fan of that gray area.
> if you run a business with the intent of making a profit by buying and selling gold to other individuals, that's illegal to do without a licensed corporation.
Do you have a USA reference for this belief? From my experience and knowledge that claim is not true.
I believe it's mostly a state-by-state thing. The state laws I'm familiar with apply to "precious metal dealers", defined as people who are "in the business" of buying and selling. The laws require a state license and cover things like customer KYC, mandatory transaction records, criminal background checks, and restrictions on transactions with minors.
The critical distinction is between someone who is buying and selling precious metals, compared to someone who is "in the business of" buying and selling precious metals.
The internet is also naturally globally networked, and it's regulated in every jurisdiction.
When a packet hops from one country to another, it's bound by a different set of laws. Same thing with an international financial transaction, crypto or otherwise.
A reasonably likely possibility is that the SEC starts sending letters to every issuer and exchange that sells to US persons. If you're an issuer, you have to register as a security or get a no-action letter that says yours is a utility token. If you're an exchange or a broker, you have to register as an exchange or a broker. Sign up for FINRA regulation and pay SIPC premiums. They did that to ICO issuers back in 2017, which is why you don't see many ICOs any more. NFTs were a workaround for that, but the SEC has been saying that bulk NFT issues and fractional NFTs are probably securities.
The SEC has been reluctant to do this, partly because they were still litigating over whether crypto issues are securities, and partly due to political pressure. Last week, the SEC won SEC vs. LBRY with a decision that crypto is almost always a security. Much of the political pressure came from FTX, which is now a political liability. FTX donated to both Republicans and Democrats. Now, on Capitol Hill, key committee leaders from both parties are against them.[1] The SEC is now ready to act.[2]
The crypto industry sees regulation coming and is freaking out. It's not that filing an S-1 is that hard.
It's that you have to give all the info crypto issuers like to hide, such as where the money is going, the business plan, and who's running the thing. Under penalty of perjury.
(I want to see an S-1 for Yuga Labs (Bored Ape Yacht Club / Otherside).
They raised $400 million, printed some pictures, and threw some raves. That could be the most fun S-1 to read since BOYSTOYS.COM did an IPO for a strip club.)
There are fewer offshore havens available. China pulled the plug on crypto mining. (Literally. Power was cut to crypto mines.) Cyprus cracked down. Japan, post Mt. Gox, licenses and regulates crypto exchanges. Bahaman regulators were about to take FTX into liquidation. Cyprus cracked down after the binary option debacle. There's still Bulgaria.
What will be left after all the sketchy operators are shut down?
Crypto seems like the kind of risky/novel investment the accredited investor program was designed for.
Of course that would kill crypto.
In general I’m glad the government let the experiment be run. I was not one of the people saying crypto should be banned, and I’m still not. But at this point I think it should be regulated, for the same reason most other investments are.
FTX was a centralized exchange. Those who believe in trying to build an alternative financial system did not use centralized exchanges except perhaps for on-ramp off-ramp. Uniswap among others has been stable with very audited open code that prevents anyone from doing what FTX did.
Just want to remind ppl to not put them in the same bucket.
Yeah, but the conversion happens very quickly. Deposit, trade, withdraw.
Unfortunately, people leave tons of money on exchanges, for long periods of time. That's the problem. That's what the majority of exchange users are doing.
People leave money on exchanges because the alternatives are worse. They're almost as dangerous (if not more so): how many people have lost millions or billions due to malware, forgotten passwords, failed hard drives, death of the owner and inability to transfer that wealth to their heirs, etc.?
All of these problems are solvable with ludicrous levels of complication and confusion, and the average person doesn't even realize they need to take these sorts of measures until they've irrecoverably lost everything.
You could replace "money" with any specific area of human expertise. I don't need to fully understand how my body works because my doctor does. I don't need to fully understand how my car works because my mechanic does. I don't need to know how to build my home because my contractors know.
The information is available to those who are interested or want to further that area of human expertise, but the collective knowledge of humanity is too great for all of us to know everything. That's why we pay (mostly) regulated experts to handle these things for us.
(1) Knowing how to use crypto safely is hardly "expertise". It's something that can be learned quite quickly from experts.
(2) Having a general idea of many areas in life is important for a functioning society and becoming a healthy human being.
I really dislike this narrative that we must not think for ourselves. Always delegate. Always leave it to the experts. I see the same anti-intellectual sentiment in programming communities.
- Don't write assembly, compilers are smarter than you.
- Don't think about building your own networking stack. It's too complicated.
- Don't write your own OS. Do you think you can outperform Linux? Lol
> Don't you think someone with millions of dollars to lose should take some responsibility and become informed about how to protect them?
I really just think that if someone thinks an institution might disappear with their money they won't use the institution. If the alternative is too much of a hassle, or also seems like it could lead to loses then people will just not use crypto.
Without greater fools in sufficient quantity, cryptocurrency loses its speculative use-case. You won't get greater fools in sufficient quantity without centralized exchanges where people hold their funds.
You can "buy cash" right now in amount from $100 to $1M on most d-web exchanges. Decentralized versions like Open Bazaar have worked for years just no one uses them so its more expensive and less choice.
Decentralized on/off ramps have existed for a LONG time and the fist was a key reason Bitcoin Core (BTC) broke away from the Bitcoin roadmap and became more of an "alt-coin" than the Bitcon we started with. Many think "SegWit" was a hack desigend to inject malicious code into Bitcoin Core to make these types of decentralized exchanges more difficult but then Vitalik just said fuck the US Government and came out with Ethereum.
This is pretty clearly not a failure of cryptocurrency. Bitcoin et al. are still chugging along just fine. This is, once again, a failure of a centralized business in which people placed way too much trust. I hope SBF, and other "crypto" company execs, are held accountable for misleading customers about their offerings. Specifically calling it crypto when it's not.
I sent EUR from one bank account in country X to another bank account in country Y the other day. It arrived in five seconds and it cost me less than 1 EUR to transfer 2k EUR.
I have also done that. Congrats. Some places it’s easier to move money with bitcoin as even though i can send money directly they have tons of limitations in place around amount that you can send that is very low.
Just because you haven’t found crypto helpful doesn’t mean it doesn’t have use cases.
Surely we can think of other reasons they might want to avoid TradFi?
Maybe the payment is related to, say, Cannabis, so companies like Wise would refuse to facilitate it [1], legal or not.
Or perhaps they've heard the stories of PayPal seizing funds with no explanation or recourse (e.g. [2]), and don't want to roll the dice on that.
Maybe they want to exchange currency at the actual market rate, rather than PayPal's 3-4% spread.
Or they might not want to wait forever for a two-sided ACH transfer (usually the cheapest option with e.g. Wise), or pay wire fees and still have to wait until Monday morning before a US bank will consider processing the transfer.
You can buy houses for bitcoin in some places but im really not arguing that bitcoin is the best money to use for every day. I responded to a person who said it had no use case. I use bitcoin multiple times a year for transactions where it works better. And i happened to do that yesterday.
It’s crazy how stupid HN becomes at the word crypto.
“A non binary view about crypto omgzzz can’t compute!!!”
No, you are not buying houses for bitcoins. You are using bitcoins that are converted to the currency the house is quoted at and if the amount is greater than the contract price you get the house.
It is no different from saying "In some places I can buy houses with cocaine". Sure, if the buyer thinks they can immediately offload cocaine for cash, the buyer might take it. That does not mean that the house is sold for cocaine.
1. BTC has cratered 20% in the past couple days. I know, par for the course for crypto, but also a good example of why it doesn't share standard features of real currencies.
2. All the "not your keys, not your coins" mindless chanting misses the point. While true, a modern financial system depends on being able to have trust in financial institutions if you actually need to move money quickly. Years ago I went the "move everything to cold storage" route, and it was a major pain in the ass, not to mention slow and expensive every time you needed to move to an exchange to trade or convert to fiat. It's the equivalent of stuffing your money under your mattress - valid for emergency situations, but not for a currency you actually want to transact in.
Oh, and the reason hardly anyone actually stuffs money under their mattress any more is that we've built up institutions (e.g. FDIC insurance, SIPC insurance, and the associated regulations to provide this insurance) to reliably protect depositors.
> 1. BTC has cratered 20% in the past couple days. I know, par for the course for crypto, but also a good example of why it doesn't share standard features of real currencies.
Currencies tanking is not uncommon either. I'm not sure what you think this proves exactly.
Major fiat currencies tanking 20% in a matter of hours is extremely uncommon, that's my whole point. In the forex world moving a percent or two in a single day is considered a major, major move. In the land of crypto that's standard lunchtime volatility.
Cold storage is kind of an old concept. Now there are multisig variants and tools like Fireblocks to allow active trading without being immediately hacked.
It seems like you're conflating the value of crypto with the recent blunders of crypto-focused businesses. The fundamental value of cryptocurrency is being able to self-custody tokens of value without relying on any other mechanism besides the proper functioning of the blockchain and its respective rules. What we're seeing here is a lack of clarity/regulation amongst world governments on how crypto and the businesses that manage them should be treated.
The promise of DeFi has a higher barrier of entry for those unfamiliar with the technicalities of interacting with decentralized systems, but they generally have more transparency in management of funds than crypto-centric businesses. All code running on the blockchain can be audited and so can the funds held within smart contracts. There are plenty of valid criticisms that can be made of various cryptocurrencies with those models of on-chain finance (and even with the value of cryptocurrencies themselves), but criticism of cryptocurrencies deriving from bad businesses that manage them shouldn't be one of them in my opinion.
> The fundamental value of cryptocurrency is being able to self-custody tokens of value
Like dollars under my mattress? Sure, self-custody can be useful sometimes. But (almost) anyone with substantial quantities of "tokens of value" generally appreciates that delegating custody of them to a (regulated and insured) institution provides a lot of both convenience and protection that's difficult to replicate with "self-custody".
> This has been a wonderful social experiment, enabling people who didn’t live in the 19th century to see what happens when banking and investing is treated like the wild west.
The only difference is that the bank-analogs do not get to face era-appropriate "frontier justice", but instead get to hide under the skirts of 20th century bankruptcy laws.
even the idea of "declaring bankruptcy" is a modern regulated construct.
In medieval times, if you "declare bankruptcy" your family and dependents get sold into slavery and your wife is sold off to the highest bidder who will buy your debt.
In many previous times, if you couldn't pay debts you'd just be killed.
This idea of auctioning off someone's wife seemed (seems) unlikely to me in a medieval European context (since divorce was hard to come by).
What I found was actually weirder:
> In medieval Italy and southern France, it was common for the cedens to stand nude but for his shirt and strike a stone with his posterior ('vituperii lapis') while declaring 'cedo bonis'." The patent purpose of this ceremony was as much to satisfy the anger and frustration of creditors as to publicize the debtor's bankruptcy.
Well, those 'previous times' where you just got killed ran concurrent too those slavery times. And if you borrow money from the wrong people today, it can still happen.
This has been a wonderful social experiment, enabling people who didn’t live in the 19th century to see what happens when banking and investing is treated like the wild west
Defi can help. There are still issues with contract vulnerabilities, but I don't think you can get away with the same level of fraud as you can on a CEX, where there's far less transparency.
This post conveniently ignores the long line of 20th and 21st century banking and finance disasters, which occurred under the watchful eye of Congressionally appointed regulators.
One could also argue that the presence of regulators and regulation creates the very problem it tries to solve through moral hazard.
As long as there are schmucks with dollar signs in their eyes and little patience to read history, these disasters will continue - with or without regulation.
Or maybe it is the opposite? Why did (institutional) investors trusted and funded this ... thing so much? Maybe the fact that the Founder was literally born inside academic elites has something to do with it?
The guy who is supposed to have "won" this , is running an exchange apparently banned by china, largely disliked by regulators and disinvited by governments, and not funded by any government or large investors, right?
Why would this prove the necessity of regulations? This occurred within the realm of regulations, not in the wild west. FTX.US is a regulated entity in the US, and FTX Intl wasn't available to US customers. Doesn't this prove that calamity happens even despite the regulations
Bitcoin is neither banking or investing. It's a decentralized ledger.
I for one am not very excited to continue using the legacy systems with countless of middle men and entrenched rent seekers to extract the maximum they can out of the completely legal trades I do with other consenting individuals.
Even in 2008, no depositors in FDIC-insured banks lost their money. Some banks died (Washington Mutual comes to mind), but it's not like FTX where the depositors are left with nothing.
> it's not like regulation saved them from being able to become insolvent.
It may have, in a way.
It's too early to tell, but it's possible that FTX's USA-based corporation ("FTX US") is still solvent. I believe it's the Bahamas-based entity that's in bankruptcy - the one that's in an offshore haven not subject to US regulations.
Edit: Looks like FTX US is bankrupt too, but still it may or may not be solvent.
Regulation saved the economy from the worst of it. But this is the kind of uninformed ignorance that is common in these parts. It has been consistently proven that regulation and central banking have prevented the worst of excesses. But live in your own world without reading anything. No one is stopping you.
The US generally protects retail investors from risk like this in other financial instruments and markets. This isn't really different, its just new enough that regulators haven't caught up. This kind of event could speed that up.
I would rather see people be more scrutinizing when giving their money to others. It doesn’t matter if there are rules and regulations, people are always going to be duped. When I read about FTX I just think that people need to be better educated.
Maybe one could argue that the rules and regulations are specific to providing consumers with tools to make educated decisions about financial investments.
> I would rather see people be more scrutinizing when giving their money to others.
"I just wish everyone is better" is never a solution for anything that has mass appeal/is used by the general public. You can't ever depend that individual actions will solve a systemic issue, it's not realistic.
The same argument can be made for government intervention.
I don’t buy it, there are a ton of examples where not only does the gov get it wrong but also have the opposite effect of what they were trying to achieve. Good intentions is not realistic.
Protectionist government is the only reason why societies would need to go through cycles of repeating the experiment. When they are protected, they forget how to protect themselves... from their own decisions.
I red a bunch of financial books including some history of financial systems to learn to invest but also because I am just curious about how we got where we are.
It is interesting that the waves that we are experiencing are nothing new, everything has been repeating every 20-40 years for the past three centuries or more.
Yeah, bitcoin is nothing new. It is the roughly similar thing happening all over again -- people buying something they absolutely do not understand just because they see the value is going up. Investing is hard and here is this golden opportunity -- just put your money in and see it multiply. And for a long time this works because more people are putting their money in and expecting returns. Then suddenly for whatever reason the positive returns dry up (at the very least you have to run out of new capital at some point) and those same people who were only in to speculate now want to get their money back. But as the first are able to do it, the price starts to fall.
Then you get companies or individuals swarming nearby the stream of money because, hey, for every greedy person with capital you will find a greedy person without it. And lots of these people also want to get rich quick.
It really is just another pyramid scheme that lures in people who do not understand finances but want to get rich quick (and some who do understand but are just too greedy to pass on the opportunity or play with somebody elses capital), the difference being it looks way more legit and legal because of the number of investors and amount of capital.
The cycle length has something to do with how long people remember the previous painful lesson before they forget and do it all over again. Remarkably stable over centuries...
I made the argument a couple days ago that CZ thought he was playing "4D chess" as the kids like to say these days by publicly and loudly dumping FTT, and he ended up burning the whole thing down.
intentional or unintentional, he didn’t really have a choice: if he had dumped FTT quietly, people would have noticed and it would have had the same outcome. If he didn’t dump it, he’d have been left with a worthless token. As soon as the Alameda balance sheet was leaked, the fate of SBFs empire was sealed, because it was the SBF mythology that supported FTX — hence the “credible” industry players using and recommending FTX. For cz to have been responsible for this, you have to argue that Alameda could have remained credible within the industry after it was revealed to be leveraged to the gills — doesn’t really seem plausible, it was only a matter of time before it was discovered that he was stealing customer deposits. The only variable in the collapse of FTX was the amount of time it took people to realise that SBF had been stealing deposits, whether it happened because of a bank run or something else, it would have happened.
I don't know if this bothers anyone else, but it always makes me a little grumpy when the press reports on a legal case and doesn't include a docket number so I can look up the records myself in PACER.
In this case it looks like the court is the District of Delaware Bankruptcy Court and there are 29 docket numbers, representing 29 different(?) chapter 11 bankruptcy filings by the same attorney on behalf of 29 differently named entities.
The docket numbers are 22-11066-JTD (JTD because it's assigned to Judge John T Dorsey??), 22-11067, ... 22-11094.
The entity names are respectively Alameda Research LLC; Alameda Research Ltd; FTX Trading Ltd.; Alameda Research Holdings Inc.; Clifton Bay Investments LLC; West Realm Shires Services Inc.; West Realm Shires Financial Services Inc.; Ledger Holdings Inc.; FTX Japan Holdings K.K.; FTX Europe AG; FTX Property Holdings Ltd; LT Baskets Ltd.; Alameda TR Ltd; Allston Way Ltd; Analisya Pte Ltd; Atlantis Technology Ltd.; Bancroft Way Ltd; Blue Ridge Ltd; Cardinal Ventures Ltd; Cedar Bay Ltd; Liquid Securities Singapore Pte Ltd; Maclaurin Investments Ltd.; Mangrove Cay Ltd; Paper Bird Inc; Pioneer Street Inc.; Quoine India Pte Ltd; Quoine Vietnam Co. Ltd; SNG INVESTMENTS YATIRIM VE DANISMANLIK ANONIM SIRK; Strategy Ark Collective Ltd.
This seems awfully confusing. Are the press really supposed to follow all 29 of these docket entries for new filings, or what?
I'd also like to know why the press don't cite their sources or provide references numbers for readers to do further research. It feels like some lesson that must be taught in journalism school so as to ensure some kind of "oracle" status of the press with respect to its readers.
I'm not a luddite (on hacker news lol) and I can clearly see the revolutionary potential of blockchain. But, for the love of God, can we STOP the blind short-term speculation on the promise of extreme wealth. Moderate investment can support development without the kind of hype that ruins lives and sullies public perception of the technology.
> can we STOP the blind short-term speculation on the promise of extreme wealth
I first played around with blockchain in 2011 or so and I still don't know what actual utility this technology is supposed to have. I have never -- never -- encountered a value-producing use case for cryptocurrency that can't be solved by either signed git commits or a SQL database.
Around 2015 a lot of people I thought were smart enough were exploring use cases for blockchain. AFAICT everyone in that space either left the space altogether, is still rambling about solving supply chain fraud (...), or pivoted to shovel salesmanship to support speculators (or speculate themselves).
I worked on code that used a Merkle Tree before any of us had heard of a Merkle tree or this blockchain bullshit came around, so I never got starry eyed about any of this stuff.
That project was in an environment where chain of custody is an established mechanism for ensuring public safety. Layering a web of trust over the top of that was something the users could mostly digest. Consumers can only use software signed by a particular department or person, only approved software is signed, and approval requires a chain of approvals before it going back to an original signature that says "these are the bits we gave you".
That's a useful application of the Merkle Trees. But you'll note there's no distributed consensus, and there's no Proof of Work. Or rather, the proof inferred, backed by process and in this case legistlation.
Blockchain admits it's only barely a Merkle Tree right in the name. Our graph looked a lot more like trunk in a git repo. Slightly more tree-like but people only care about the last node.
A Block header includes a root hash of a Merkle tree of transactions. So yes, it is a tree, if you also consider the useful payload, not just block headers.
Then e.g. in Ethereum there's also a Merkle tree of the entire state as well.
> there's no distributed consensus
Distributed consensus is necessary if you want high availability and replication for your Merkle tree.
If data in your tree is important, you want to replicate it, right? You want to be sure it's stored on multiple nodes.
So this distributed consensus thing, Byzantine Fault Tolerance, it basically gives you a receipt that at least N nodes have this data stored.
You didn't implement it because it takes considerable effort. But if you implemented Merkle tree with high availability, you'd get something very similar to blockchain.
> If data in your tree is important, you want to replicate it, right?
Yes!
> You didn't implement it because it takes considerable effort.
I'd wager it's because he was smart enough to read the man page for rsync and didn't over-engineer a non-solution to a non-problem in his particular use-case.
Data integrity & availability generally considered to be important. So e.g. many databases implement synchronous replications, and Turing Award winning scientists Liskov and Lamport developed Byzantine Fault Tolerance solutions. I guess they were just too lazy to read the man page for rsync...
Specifically, longest chain is Might Makes Right, which is not consensus, it’s leader following.
If I makes you feel any better, I see Raft as only BFT during leader election, the rest of the time if the leader is a bad actor then everything is fucked. It’s a game of Secret Hitler.
Remember, the Byzantine Generals problem is what the BFT term is acknowledging, and the problem with the generals was one of sabotage, not just missing messages. It’s only statistically unlikely that longest chain is created in earnest and not via malfeasance. But the bigger a system scales the more frequent counterexamples occur. That’s the lesson of every scalable system. Bad days that used to happen once a quarter now happen a couple times a week.
Edit:
> In a consortium blockchain, typically blocks must be approved (signed) by a majority of consortium members.
Well, well. Adults have finally joined the blockchain community. Maybe there’s hope yet.
Bitcoin was always this fun nerdy hobby money, right up until the speculators came in and exploited it.
Now it's "investing" in the confidence of the future of a computing network that can only handle 7 transactions a second, but that still hasn't stopped it becoming the essential oils for tech bros either.
Yeah, I almost mentioned Silk Road, but BTC has since been used to back trace and arrest online drug dealers so I feel like it was never really that good at it to begin with.
I suspect BTC has always been an US government honey pot...
Google dorian satoshi nakamoto newsweeks. The guy is probably behind btc. He worked previously as army contractor and in the finance sector...
Just like TOR network was the work of 2 previously army contractors (I remember that quite well, even if wikipedia doesn't seem to remember as well).
Beside, Belgian and other CB (not even ECB) never had a thing to say about crypto with public blockchain of any sort. But monero, which has a private blockchain, has been prohibited in nearly all EU juridiction soon after its launch.
I have found one: Sending the Jamaican Bobsled team to the olympics. I highly doubt that this could have been done based on Postgres. Postgres is too boring and stable to attract the necessary attention.
As noted elsewhere, most of the money wasn't transferred via dogecoin. But reasonable financial transaction systems don't attract the advertising attention that this was able to.
Does that make it a good financial system? To the degree that a clown car is a good public transport system.
I think you have to want or need decentralization in order to buy into most of the use-cases of the technology, either because you don't trust institutions or because you're in a part of the world where either the institutions aren't safe or the currency isn't.
Assuming you do believe that decentralization is nice to have, applications like decentralized banking (ie. lending, borrowing, exchange of assets) become valuable.
There are also emergent culture sources of "value" in the industry, such as medium native artforms in on-chain generative artworks, distributed multiplayer "runtime" systems artworks, on-chain gaming and metagaming, etc.
I understand that for many people, even if you grant that _some_ people might find the above legitimately valuable or useful you may still believe that it doesn't justify the energy costs. To that my response would be that all of the above are serviced by networks like ethereum and its various layer two solutions, none of which utilize proof of work, and the sum of which have a fairly modest carbon footprint, as with other computationally inexpensive digital technologies.
If you take issue with Bitcoin specifically I can't really offer an argument with conviction. BTC is what got me into the industry, and I think the BTC whitepaper is a brilliant example of human ingenuity, but more recent advancements in the technology leave me skeptical about the societal ROI on large scale PoW operations.
I do not see any need in my life for the combination of high finance and decentralization. Centralized and highly regulated high finance is bad enough, and already something I try to avoid except when absolutely necessary. My economic life is highly decentralized, but with extremely high trust and very little financialization, so no need for what crypto people mean when they say "decentralization". DeFi, in my life, means the neighbor down the street leaves a you-owe-me note when she drops off eggs, a debt instrument that I can settle using any number of currencies recognized by the local economy; I most often opt to pay in HomeBrewCoin.
> I think the BTC whitepaper is a brilliant example of human ingenuity
I largely have the same problem as hinkley (sibling comment): I had seen most or all of these ideas prior to the emergence of BTC. I first countered Merkle trees... gosh, forever ago. Got really into cryptography in the 90s. Etc. The idea of creating a currency backed by PoW didn't seem ingenious; it seemed like a particularly silly application of otherwise quite useful technologies. AFAICT it still is mostly useless, except that it made some people very wealthy.
Anyways, I'll go back to yelling at kids to stop picking my tulips.
I don't trust you, you don't trust me, neither of us trust the guy who owns the git server but I need to give you something without anyone being able to stop us.
You really shouldn't be doing a significant amount of your business with people who don't trust you and who you don't trust. Blockchain advocates really underestimate how much of functioning economies simply work because of trust (with lawyers and courts as a backup), and how small the potential "I don't trust you" market is.
It is okay to do business with people you don't trust, but the crux is that pow/pos doesn't actually solve most of the substantive trust problems.
Eg: all of the weird supply chain nonsense around blockchain. You can keep a ledger and so on, but if there's corruption/theft in the physical warehouse then the ledger is worth only and exactly the disk space to which it's written. No amount of distributed consensus will change anything about the fact that Joe's cousin's friend heard about the shipment and stole 10% of the bulk good and replaced it with dirt to make the weights match.
The problem of doing business with people who you don't completely trust is very real. However, blockchain offers no solution (except and unless the thing you are trading is something that literally be placed on a blockchain, ie nothing physical and nothing that depends on a legal system to enforce).
Do you trust the bank, credit bureaus or some other establishment that you deal with to not leak your sensitive info? Maybe you do. But in case you don't, which is a rational response to the past performance of some establishments (e.g. Equifax), your life still has to go on.
Did you trust the POTUS when he said that Iraq had WMD before starting a war? I suppose he's a painter now so everything's peachy.
A lot of people have been giving reminders of the general untrustworthiness of establishments, including Snowden & Assange. Establishments that many people are forced to deal with.
It would be nice if everybody could be safely trusted. For those who readily trust, there is no problem to solve.
However, some other people see untrustworthiness everywhere, so they take opportunities to try to opt out of the system by engaging in a trustless system that does not require privileged middlemen. It's been baby steps so far.
I'm sorry but this is a take I completely disagree with. Fundamentally, I do business with people I trust. If I don't trust someone, I'll simply never do business with them. No amount of bullet proof mathematical constructs will change this.
Now, I may trust someone now, but circumstances change. People change. I don't trust the universe to be constant. I thus want to enshrine agreements in contracts and and I want there to be institutions that can offer objective (within reason) arbitration in case my counterparty and I come to disagree in the future.
I don't know what sort of business you operate in, but in my industry, trust is paramount and is practically equivalent to capital. You'll simply not even be employed unless you are trusted. It takes a long time to build a track record and you can lose it in the matter of seconds if you make poor decisions.
So yes, IMO the world operates fundamentally on the basis of trust. I don't believe for a moment that long term successful business can be conducted in an environment without fundamental trust between counterparties. Again, trust does not equal blindly taking people at their word or neglecting due diligence. "Trust, but verify" is the saying.
> Now, I may trust someone now, but circumstances change. People change.
Trust is inherently a forwards-looking thing. If you don't trust someone not to change in a way that breaks the promises they've made to you, that's not trust at all.
> Fundamentally, I do business with people I trust.
> I don't know what sort of business you operate in
Software industry. When employers have tried to screw me out of things they promised me, I've pointed to sections of written contracts (with the unspoken understanding of a lawsuit if their side of the contract is not upheld) and it's saved me multiple times. These companies just don't care about what they promised you, you can't trust them, they only respond to the looming threat of legal action. On the flip side, I've been screwed before at those times where I didn't keep a meticulous paper trail. The last one was particularly tough because I thought I had made close friends with the person I was doing business with, and I genuinely thought they could be trusted, but they ended up stiffing me out of payment in the end.
In the software industry and in particular working at start-ups, promises are worth jack shit unless they're in a written contract. Nobody trusts anyone to uphold promises. I would love to work in an industry where people could trust each other to uphold their word. What industry are you in?
> Courts and lawyers are the opposite of trusting who you're doing business with.
Courts are extremely expensive and time-consuming. Contracts are definitely not the opposite of trusting who you're doing business with. If you do not trust someone to fulfill their side of a contract, you probably don't bother writing up the contract. The contract is there to punish breach of trust, not to establish trust.
Security is the opposite of trusting who you're doing business with. There's a reason super markets -- the most common type of business operating without high trust -- employ loss prevention professionals.
Notice that the blockchain offers no substantive defense to a five finger discount...
> The contract is there to punish breach of trust, not to establish trust.
If someone can only be trusted under threat of punishment, that means that they aren't actually trustworthy in the first place. I think we might have different definitions of trust. If I fully trust someone, to me that means that I know there's no need for the threat of court at all, because I can be sure that they will uphold their word even if it's in their better financial interest to break it.
We place trust in the courts of justice so we don't have trust every single party that we interact with. If the courts of justice or the government at large cannot be trusted, then society cannot function, and no amount of cryptography or technology of any kind can fix that.
It's funny how after over a decade the best bitcoin can do is an almost half solution to a problem more contrived than the plot of a daytime soap opera. Who the fuck actually has this problem?
This isn't a coherent problem statement, and to the extent that it is, it's solved by TCP/IP (this isn't the early 1980s; why are you using some random third party's server if you explicitly don't trust them to keep the server running? Run it from your own box. This has been solved since the early 90s.)
Eh? You can’t like give me anything - you can give me a token - which can also effectively be money. The latter usually occurs due to some other trust relationship needing to be established - we are back at square one.
I acknowledged “something you can exchange for money” - that was not the objection.
It doesn’t solve the underlying difficulty of exchanging physical goods and services that are not tokens - you, know, the actual hard part. It also doesn’t solve the laundering aspect once you try to get those tokens liquidated to something not volatile as fuck.
For those of us living on the right side of a relatively stable rules based society where we have reasonable expectation of personal property rights, it is not useful.
For those either on the wrong side of the society (eg. Source of income is what the society defines as crime etc) or living in a society where your wealth (possibly acquired through corruption) can be seized without recourse, it is potentially a useful way to store and transfer wealth in a way that is difficult and expensive to interfere with or detect. This is a real use case though possibly not a morally defensible one to most of us.
The other theoriticical use case of having a form of liquidish currency that is not devaluable at whim by governments has not come to pass due to speculation and volatility.
The rest are either speculating OR selling shovels to the gold diggers.
>I have never -- never -- encountered a value-producing use case for cryptocurrency that can't be solved by either signed git commits or a SQL database.
I've heard a lot of people used it to buy drugs on the internet.
That works for a while - when it's an obscure new thing that the government doesn't know to look for. Afterwards, it becomes a public unchangeable ledger of the entire network of illegal trading.
The IRS currently has a $600k bounty on the ability to de-anonymize Monero transactions, which has so far gone unclaimed. Most crypto drug sales are transacted in Monero nowadays. Not every crypto has public and traceable transactions.
You're still betting your future on this privacy holding. If they do find a way to attack it, they will likely still be able to reconstruct the whole history, unlike with cash.
Also, the bounty was awarded to a company who is theoretically developing a solution. I'm not holding my breath, and anyway I hope for the sake of everyone guilty of harmless "crimes" (buying recreational drugs) that the anonymity holds.
I actually don't believe it's possible to retroactively reconstruct Monero history, in an information-theoretic sense. The data just isn't there, because it gets thrown out along the way after each ring-signature is completed. It's on a similar playing field as cash in that regard.
To track cash, you need to surveil each point at which the cash changes hands, otherwise that information is lost forever. To track XMR, you likewise need to surveil each point at which XMR changes hands. In some ways, the process is similar to reconstructing TOR traffic - you can't passively observe and deanonymize the entire network, you have to actively target a specific actor. I believe that's what the IRS is talking about when they offer their bounty.
I've tried to read the white paper, but I'm not confident I understood enough, and it seems Monero does some extra things as well beside protocol described in the paper. It didn't seem to me that the information is destroyed in any way, but it did seem true that many pieces that are absolutely required to de-anonymize were never part of the network, so they can't be gleaned.
It did seem though that some targeted attacks where you obtain the private keys of separate individuals could allow you to confirm that they transacted via Monero in the past by inspecting the block chain with these keys.
I believe that's true - if you can get ahold of someone's private keys, you have free access not only to their money but also to their money's transaction history. The security and anonymity of the system is predicated on the person wanting to be anonymous being able to keep their private keys private.
However, private keys are easy to strongly encrypt, typically don't leave your own machine, and can be safeguarded in many other ways. So in practice, they are impossible to lift from a sophisticated user without performing an equally sophisticated attack of deception, for example an evil maid attack with specialized hardware/software.
You're forgetting that the IRS is basically perpetually handicapped by people who are protecting their friends who do sketchy tax based things to make more money that they then feed back to the people that kneecap the IRS
A “universal” api for moving money between financial institutions that don’t have existing relationships would be extremely valuable and could unlock innovation in everything from payments to mortgages.
But the blockchain space has an extreme bias against the existing finance world. Frequently products in the space want to tear it down as they view it as predatory.
This leaves us with the current situation, the crypto industry speed running the history of finance and a technology in search of a problem.
I swear to god, half of the problem with cryptocurrency is Americans not understanding what a functional personal banking system looks like. The big American banks just never bothered to move beyond the 1970s, and so otherwise fairly well-informed Americans in tech assume you need some sort of completely mad system like "consume the power of Spain making a distributed merkel tree full of partial hash collisions" to make bank transfers work.
in every other rich country, you just log in to your bank's web ui thing, click "SEND MONEY TO MY MUM", and then it sends it, for free, to your mum, with no risk of your mum being able to take more money, no random intermediary, no worry about if it actually gets there, no third party holding it in a non-bank cash account, no pre-authorisation, etc. you enter a bank identification number and an account number (and a name, usually, to avoid mistakes) and it just happens and it just works. in most countries this is quick, even, e.g. in the UK it's almost always < 5 seconds.
FOR FREE.
no blockchains, no multi-billion ponzi schemes, just a boring and simple service offered by every bank in the country.
making the Fed make banks just introduce free, instant bank transfers could have saved the world tens of billions of dollars and apparently tens of billions of tons of greenhouse gases.
Exactly this, I'm in Canada and can transfer money to anyone in Canada (and maybe worldwide, never tried it though) for free, instantly. That's how most people pay rent up here.
Most of the problems people perceive with the banking system are completely societal, 0% technical. If your bank doesn't let you send money instantly to your friend for free, that isn't because your bank needs a blockchain.
> Most of the problems people perceive with the banking system are completely societal, 0% technical. If your bank doesn't let you send money instantly to your friend for free, that isn't because your bank needs a blockchain.
that's excellent, thank you for putting it better than I did.
Most of Africa has more robust money transferring systems than the US. You can literally text someone currency, and this has been around longer than bitcoin.
Now do a transfer between an EU bank and one in Canada.
Or send money to a wallet in China.
I assure you I understand the rails going on in international money transfers, and the amount of different systems, protocols and hops to make it happen is staggering.
It can take sophisticated modern treasury operations years to get up and running in new jurisdictions independent of the regulatory challenges.
If we could isolate it to the compliance and risk management portions of the challenge it would increase innovation dramatically.
It is not quite true that this is the way in every other country. It took Europe quite some time to adopt the IBAN. Money transfer between banks is still mostly cleared only daily (even if the transfer is shown as instantaneous).
Also the name given during the transfer aside the IBAN won't make the transfer fail as far as I know if incorrect.
I've never been impressed by tech startups "disrupting" boring traditional industries. Except that perhaps some of their technology problems may be interesting. But overall, you're now working/investing in a boring industry.
Snake oil comes around every couple of generations once the people who lived it are too feeble or too few to get the message out to the latest crop of people with enough income to grab the attention of con artists.
These are in theory lessons that are meant to be passed along by the Public Education system but ours is pretty broken.
Well I mean the US is the biggest and richest rich country by a large margin. And has maintained a continuously functioning financial system for centuries now (though I do wish they would let it crash and be replaced sometimes when it so-richly deserved to). So it is kinda hardest to implement here, especially with every state having their own banking rules.
The banks are adding some instant money transfer services in the last few years though.
> Well I mean the US is the biggest and richest rich country by a large margin. And has maintained a continuously functioning financial system for centuries now (though I do wish they would let it crash and be replaced sometimes when it so-richly deserved to). So it is kinda hardest to implement here, especially with every state having their own banking rules.
the EU did this, SPANNING TWENTY EIGHT COUNTRIES. they don't even all use the same CURRENCY.
> The banks are adding some instant money transfer services in the last few years though.
it appears to me, judging from talking to Americans, and my own use of the US banking system, that customers do not even generally have ability to login to their bank's website and transfer money, AT ALL, forget "instant".
overall, this is such a bizarre reply, but emblematic of many of the problems the US faces - "it's too hard to fix $problem_with_well_known_solution because of entrenched interests, so let's create this absolutely awful parallel system that creates a whole new world of entrenched interests who will in turn block any innovation".
why do you think it would be hard? ACH exists, and lets banks transfer money. why can't banks make it better like Australia did? or have the same structure create a parallel, better transfer system banks can opt in to, like the UK did with FPS?
I would have said that letting venmo/paypal/etc do it was the worst possible solution, but then I could not have imagined that another solution people would seriously propose was "cryptocurrency".
Yes of course we can do transfers online. I've been doing business this way for decades. Even in the very very early days of the internet they started "online bill payment" services, which would transfer electronically or else outright send a check as needed. It's how I paid rent in college. Also credit cards have been in widespread use for longer than that, so the need for an alternative was always only in narrow niches.
The new services (and the tech companies) only selling point is they can be instant and cheaper or free (though not all older approaches have fees). And serve groups like younger people with no credit.
And what is your post emblematic of with it's abuse of caps and stereotyping? I'm just talking about why they haven't replaced an older solution that "isn't broke" since it gets 99.9 percent of the job done already. No need to lose your mind.
> emblematic of many of the problems the US faces - "it's too hard to fix $problem_with_well_known_solution because of entrenched interests, so let's create this absolutely awful parallel system that creates a whole new world of entrenched interests who will in turn block any innovation".
This is what happens when you build a country with a disproportionate number of the sort of people who are willing to say "Fuck it. Building a decent living in my home country is too hard. I'm going to cross an ocean in a steam ship and start a new life on a new continent where I am a complete stranger."
I say this as an American who has made similar choices of questionable wisdom.
> Solution: Build a for-profit company that will generate trillions of dollars in value for its shareholders, all of which will come from payment for healthcare
> A “universal” api for moving money between financial institutions that don’t have existing relationships
KYC is a feature, not a bug, so there has to be at least some sort of relationship even if it's via mutual registration with a third party.
Also, modernization of banking systems, including inter-bank transfer, has been slowing happening in the background for the last decade. AFAIK no one is using pow, pos, or blockchains (except, maybe, just in the sense that traditional databases have many of the same desirable attributes as a blockchain).
> could unlock innovation in everything from payments to mortgages.
Innovation in mortgages didn't work out so well last time, and honestly the actual origination of a mortgage is one of the least painful and inefficient parts of real estate.
When bitcoin launched we really did need innovation in payments. Apple Pay and Google Pay solved a lot of the problem, and the recent rise of "bank/lender as an api" startups popping up now solve a significant part of the rest of the problem.
How is it currently run? From my layperson experience, every time I do a wire transfer, I feel like I'm inputting data into a mainframe or something...
[1] - "How Mainframes Keep The Financial Industry Up And Running"
"...92 of the top 100 banks use the mainframe to provide banking services to customers, and other types of financial services companies depend on the mainframe, as well. Visa, for example, uses the mainframe to process billions of credit and debit card payments every year. According to some estimates, up to $3 trillion in daily commerce flows through mainframes..."
Technically technically, you're feeding data into a system whose purpose is the care and feeding of a mainframe. That veneer is pretty thin in places and so it tends to feel like you're talking to a mainframe even when you're talking to an arbitrator for the mainframe.
The promise was a trustless system that can operate on its own without central authorities. The problem is this proposed solution has yet to justify itself in terms of both efficiency and cost over existing alternatives which is relying on self-declared central authorities whose trust has been earned via either regulatory guarantees or well-established reputation.
... or they are off promoting "web 3", the definition of which changes as the weather does.
For me, enthusiasm for "the blockchain" is a quick way to identify a) people who promote technologies without bothering to research the fundamentals and b) crooks/charlatans.
> I have never -- never -- encountered a value-producing use case for cryptocurrency that can't be solved by either signed git commits or a SQL database.
The value is in a permissionless and censorship resistant financial network. You may not find that valuable, but that's ok.
>I have never -- never -- encountered a value-producing use case for cryptocurrency that can't be solved by either signed git commits or a SQL database.
You have always --always-- lived in a high trust society with trustworthy institutions
I will concede your point if it means you'll agree that at the very least cryptocurrency is useless to people in the USA.
(Even as a hedge. My resiliency to societal collapse comes from the social relationships I maintain in my local community and the collection of skills and knowledge we collectively have, not my ability to flee to New Zealand and hope my digital tokens still have perceived value.)
Being able to self-custody and send money anonymously and internationally in seconds without an intermediary. Decentralization, composibility, programmable money. Come on this is literally crypto 101
I don't understand how anyone can be on HN talking about crypto without knowing any of crypto's use cases. I mean you don't see people here in Rust threads commenting "I can't think of a single use case of Rust".
Also possible with cash, but extremely risky for most people. Not an advantage of crypto, not an advantage in general.
> send money anonymously
Only relevant for crime. Disadvantage or irrelevant for most legitimate businesses (you anyway need to provide address for shipment).
> send money [] internationally in seconds without an intermediary
Also possible with many banks, VISA, Western Union. The fact that you're using an intermediary is irrelevant - since either way you're paying transaction fees, and trying to avoid sanctions is too dangerous for most people.
> Decentralization
In practice, it's far more centralized (far fewer exchanges in the world than banks, and the majority of people using crypto hold it with an exchange)
> composibility, programmable money
Doesn't really mean anything. Money is money, it can only change hands with a legal contract, and "smart contracts" are not legal contracts.
Absolute nonsense. There are people who prefer paying with cash for the same privacy advantages.
> Also possible with many banks, VISA, Western Union. The fact that you're using an intermediary is irrelevant
Sending crypto is way easier, faster, and cheaper than sending an international wire transfer or Western Union transfer. With crypto, it is peer to peer and no one can censor you. In the traditional finance world, anyone can have their bank account, payment provider, or transactions blocked by their bank, payment provider, government, or any of the other countless middlemen who need to approve of your transactions.
> In practice, it's far more centralized
Peer to peer money and self-custody is more decentralized than holding money in any centralized institution.
> Doesn't really mean anything
You clearly don't understand the concept, so please educate yourself before you comment. The composability of smart contracts is what enables defi.
> There are people who prefer paying with cash for the same privacy advantages.
Unless they're mailing in cash envelopes, they're usually doing this in person, so while there is some privacy advantage, it's not as great as most think.
> Peer to peer money and self-custody is more decentralized than holding money in any centralized institution.
First off, crypto is not money - it is an asset that you invest in. Secondly, few people ever bother with self-custody, because it is extremely dangerous for any significant sum, and very very hard compared to the alternative - getting someone to take you dollars and give you BTC or or ETH in return (in a trustworthy manner) is much more difficult, so few people do it. And there are far fewer actual exchanges (real money to crypto) than there are banks in most of the world. This also hits on the point about money transfers: for the way people use crypto in practice, it is justa s easy if not easier to prevent them from trading it tahn it is to trade money.
> You clearly don't understand the concept, so please educate yourself before you comment. The composability of smart contracts is what enables defi.
"DeFi" itself is a meaningless notion, just like NFTs were. It has no legal power, and it can't be used to trade real-world goods or even real money (again, crypto in general is not money, it is something closer to stock, at least in the USA). The fact that the technology allows you to trade ETH for Dogecoin or whatever it is is neat, but irrelevant - my income is in RON and things I want to buy are in USD, EUR or RON - and this is true for the vast majority of the world.
Sending money anonymously is speech. Just as there's no reason the government needs access to my Signal text history, they don't need access to my sex toy purchase history either.
Are you in favor of strong encryption for messaging, but not payments? If so, I am curious to hear more of your reasoning on that.
> Money is money, it can only change hands with a legal contract, and "smart contracts" are not legal contracts.
Possession is 9/10 of the law, and low-value transactions are not worth litigating. Smart contracts let a piece of software be the judge and jury on a $5 transaction, and I think there's some value in that. It could also be useful for transacting with people who live in countries with broken legal systems.
> send money anonymously and internationally in seconds
I can easily do this without crypto. (It many cases it's illegal, ofc, but it's trivial to do without crypto if you don't mind breaking the law, and using crypto doesn't suddenly make illegal things legal.)
> Decentralization, composibility, programmable
Glad to see that the dot com era OOP consultants found new employment opportunities that don't involve agile or scrum consulting.
>send money anonymously and internationally in seconds without an intermediary.
Something that the vast majority of people have no need for. Remember, most americans never even leave the country.
>Decentralization
Prove this is good without just claiming so.
>composibility
What?
>programmable money
Ah yes, because the main feature missing from my bank account and debit card is a half assed, poorly programmed system that sends all my money to a random account that nobody controls.
>Rust threads commenting
Because "impossible to corrupt memory" is a feature programmers have been asking for, developing, and considering since the 40s. Who the fuck has been asking for "you don't control your money unless you take 100% personal custody of it and take on all the risks that entails and the money changes value pretty much every day and any transaction takes at least a minute to have any confidence it actually went through"
i thought that physical places that take bitcoin use (centralized, LOL) intermediaries to provide float for points off the top to cover for the extra long txn completion times
As someone with a similar-ish position to yours, I think by the time someone figures out how to build something useful with this technology, the terminology of cryptocurrencies (blockchain, "defi", NFTs and whatever a "web3" is) will be so tightly associated with scams, that this new useful thing will use completely different terms to describe itself.
The only currently existing purpose of those things is to trade scam tokens for other scam tokens, which makes them effectively meta-scams. What I mean is that, like Ethereum, they're not scams in itself, but their only real-world use-case is to provide a decentralised platform on which to run scams.
Lazy and shallow take. But at least those using the “scam” DeFi protocols still have custody of their assets, which is not the case with FTX depositors.
We already tried that, that was the wave 2 of Crypto, when people were trying to build tokens with utility. Things like Filecoin.
Eventually everyone realized that the value-add of the utility those tokens bring is roughly ~$0, and the only reason tokens in general, and those tokens in particular have any value at all is because people buy them so they could sell them to a bigger fool.
Token producers thus took the next logical step[1] - dispense with any promises of token utility, and go straight to minting NFTs and fartcoins. Why bother actually developing a product and ecosystem when the only thing people buying from you care about is the pump and dump?
[1] I'm omitting the various ponzicoins, here, those are straight up, unabashed fraud, without even a fig leaf to cover themselves with. :)
"> can we STOP the blind short-term speculation on the promise of extreme wealth"
Then there is nothing left to do.
"I can clearly see the revolutionary potential of blockchain."
Started in 2009. 13 years now. How much longer do we need to see the revolutionary potential ? Isn't it obvious that there is no real practical usage ?
> and I can clearly see the revolutionary potential of blockchain.
I can not.
It's been 13 years and there's still nothing.
It was never anything else but a scam and can not be anything else but a scam for all crypto"currencies" with a transaction fee are negative sum games.
Fast, cheap money transfer (theoretically) not requiring trust in any middle man, cutting out bank's control, i.e. "digital cash". I don't know if it's revolutionary, but it has a lot of potential and is great when it works.
Here are the steps you need to take to move money with crypto"currency":
1. Establish a presence at an exchange (you need to do this only once)
2. The receiver needs to establish presence at their exchange (every receiver of yours need to do this)
3. Transfer money to the exchange
4. Buy coins and move them and the receiver exchanges back them to money
5. The receiver needs to move money from the exchange to their back account
Reminder: you want to transfer money and crypto"currency" is merely a vehicle to do this. And so turns out the hard part is #3 and #5 -- integrating into existing banking systems and #4 is completely superflous. For example, wise.com (nee transferwise) solves the same problem except without the receiver needing to do this nightmarish rigmarole.
Not trusting the middle man would require the entire world to switch to some crypto"currency" and this is completely unfeasible with the current ones.
That includes steps that you shouldn't. I.e. to transfer money via bank, I wouldn't include "get a job to earn some money".
You don't want to transfer money, you want to transfer value. If the recipient can use the crypto currency to buy something else, they don't need an exchange.
Here's my very simple setup: have a bunch of mbtc sit in a wallet. Open the wallet. Insert the password. Insert address and amount. Insert the password again. Done.
I can do the same with a bank, but it takes much longer (i.e. days instead of seconds or minutes) unless the recipient is at the same bank, or I pay extra and they're in the same network, and I need to rely on the bank to allow my payment. Want to buy porn, drugs, or want to gamble your hard earned money away? Good luck using your VISA or PayPal for that.
There's plenty of potential in crypto, it doesn't need to replace any and all usecases of banking to be useful.
No, this is a crypto"currency" fanboi's version, sorry.
Everyone wants to transfer money except a vanishingly small percentage of the population who wants to use these things. Aside from a rounding error, no one even understands what they are or how to use them. I get invoiced for services in money, I pay my taxes in money. There's nothing else.
This has been the favorite poster child of bitcoin shills but it's been, again, thirteen years and it still doesn't work so much that there has not even been a credible attempt making it work.
"It doesn't work"? I've bought stuff and paid with bitcoin just yesterday. It worked fine. That you and a majority of the population have no use for it doesn't mean that it doesn't work. It works for the people who use it, and it solves problems for them.
You're not one of them. That's fine, not everything has to include you to be useful.
I mean international money transfer using Bitcoin doesn't work. Currently Wise leads in the international money transfer business and something even better Bitcoin should have arisen if the crypto bros' claims were true -- but there's nothing.
My landlord won't accept bitcoin either, but I'm perfectly fine with just using my bank account to let them take the money out of my account. It's easy, convenient and just works, they even have an account at the same bank I have mine.
I also occasionally spend money at international businesses on things PayPal, VISA and MC aren't fond of, so short of putting bills into an envelope and sending them it's difficult to do. Crypto solves that for me. It's quick and I don't need anyone's approval of the industry I'm spending money on. It's like cash for local shopping, minus the large acceptance. I'd love to see more businesses use crypto, and for it to be less roller-coaster-y, and to have less energy waste etc, but it is what it is, and it still works for me.
> I also occasionally spend money at international businesses on things PayPal, VISA and MC aren't fond of, so short of putting bills into an envelope and sending them it's difficult to do.
Not at all, a simple wire works , yes , even for porn.
Sure, it does. But it takes a lot more time to arrive (which is the whole reason of existence of SOFORT, which logs into your banking account, assures you have the funds and triggers the transfer and then tells the recipient that it's safe to assume the money will arrive in a day or three) and you need the recipient's bank details, which is a problem in the US, because of identity theft and dumb regulation around it.
That's getting better, and some day it will probably work globally and near-instant, but we're not there yet.
i thought your counterparty doesn't need to be on the exchange since you're just sending funds to a hex address? i thought that it's trivial to lose funds b/c of this?
And yet, we have these middlemen like Coinbase and what not. IN theory, decentralized currency is awesome. In practice, almost impossible. Novel idea for sure but it is time we admit that it cannot be implemented without middlemen.
You don't necessarily need Coinbase etc, but yes, they do make everything easier. I meant that you still need to trust the miners who have centralized and aren't guaranteed to be trustworthy.
I can transfer money for free and it gets instantaneously deposited in the other bank account. You list many things (middle man, bank's control) but don't list any reasons why these are bad. You also say it has potential, but don't provide any example such potential.
IMO there is one saving grace of cryptocurrencies, but ultimately this is also the reason why they simply won't be accepted: they are temporarily out of government control. This allows one to funnel funds in and out of hostile jurisdictions. This is a genuinely beneficial use case for people trapped in these jurisdictions. However, I'd argue this is such a vanishingly small portion of the mindshare and "business" conducted with and on behalf of the crypto industry, that it doesn't offer even a shred of redemption. The one altruistic use case is practically drowned out in the insane amount of buzzword laden echo chambers coming up with ever more hare brained structures and concepts to sell to each other. I wonder if these people even recognize how much of a caricature they have become.
I really connected the dots when I read some banker's messages to Elon Musk about how SBF was pitching some blockchain silliness for Twitter (as he would), and even Elon Musk, the master memer and troll, recognized how silly the idea was.
The "out of government reach" part applies equally to TOR, VPNs etc, I believe. Yes, it's a vanishingly small number of people profiting from that while doing things most of us agree with, but for some, that's worth it.
Banks controlling who gets to participate in sending and receiving payments is obviously bad in my opinion. Being able to participate in the economy is fundamentally important. The government cannot outlaw a legal business, but banks and payment providers can do it for them. That doesn't bother anyone that buys a pop album off Amazon, but that's a different issue if you want to sell porn or drugs or whatever US morals have issues with and just get cut off from payments, so that your willing customers cannot pay you. When that happens, people get out the old "it's a private company, you have no right to their platform"-spiel and crypto-currencies solve that.
Crypto-currencies are to finance what the fediverse is to social media. They have shortcomings, in a perfect world we wouldn't have any need for them, but they fill a niche in the real world we inhabit.
> That doesn't bother anyone that buys a pop album off Amazon, but that's a different issue if you want to sell porn or drugs or whatever US morals have issues with and just get cut off from payments, so that your willing customers cannot pay you. When that happens, people get out the old "it's a private company, you have no right to their platform"-spiel and crypto-currencies solve that.
I'm sorry but I deeply disagree with this. If you want to do commerce and your area of business is shady/illegal, then the way to change it is to campaign for a change in the law. All that cryptocurrencies accomplish is that people are able to sidestep the law.
I'd like drugs to be legal, government controlled and taxed. But until that day comes, the fact that drug dealing can't be conducted using the official financial system is a feature, not a bug.
> I can clearly see the revolutionary potential of blockchain.
What do you feel is the "revolutionary potential" here? Bitcoin has been around for a while, and I surely haven't seen it.
I see this stuff only used for scams, speculation, and illicit transactions. None of this is "revolutionary" - scams, speculation, and illicit transactions have been around as long as money.
The reason is because your government is reasonably well behaved. You can think of crypto as a hedge against bad government behavior. So in your case, you aren't a target customer.
Try thinking about people in Turkey or Venezuala, where the yearly inflation is 100% - 5,000%. Bitcoin looks like a relatively stable safe heaven in comparison.
In the US it was illegal to send dollars to Wikileaks. Is it really your money if you aren't allowed to send it to whoever you want?
Imagine instead of Wikileaks it was a political cause you truly believed in and wanted to support but your government didn't like. Surely you can see how they could label any money flowing to this cause as an "illicit transaction". Dn't you think that you should have the power to support whatever cause you believe is right? Or do you think that only your government should decide what are the approved political causes you are allowed to support?
From the article you posted, it seems like its primary value there has been as a proxy for other [more stable] currencies.
USD did that something like that for a while when it was gold-backed. How is it now revolutionary when crypto does the same thing backed by fiat currencies instead of gold?
You don't need to preemptively apologize for criticizing or questioning a particular data structure. That certainly does not make anybody a luddite. Also luddites had some decent reasons for their activism given the mass unemployment as a result of factory work, which I don't think we're facing with the 'blockchain revolution' any time soon, unless you operate a casino maybe.
Guess I’m a Luddite as I only see blockchain tech as a solution in search of a problem. I think it’s worse than useless and crime isn’t a valid use case.
Calling out useless "tech" for being useless doesn't make you a luddite. If you call out a "free energy" machine for not actually making free energy, that just makes you honest and reasonable.
The state has a monopoly on the use of force. It can tax, expropriate, conscript, regulate, and otherwise redirect resources however it wants, and it can demand payments in any currency it chooses. The wishful thinking involved in trying to "separate" money and states is absurd. Even under a gold standard, the government can acquire resources from the public at will. The entire goal is nonsense. The root desire there is the urge to not have a government, which is just yet more wishful thinking.
Not the person you're responding to. But I concur. How will one separate money from state and then protect one's state-separated money without themselves becoming a "state" of sorts, that then is fused to their money? And then everyone becomes their own little island/state, that is fused to their money, and then you forge alliances and become allied island-states, and so on and so forth, until you become a nation of sorts?
Like cmon now. Isn't that the inevitable progression? And if so, doesn't that mean these folks who insist upon separating state from money just want to become the ruling class?
I dunno. That's just how it always comes across to me.
Yep, power vacuums always have a way of being filled.
The question is, do you want it to be controlled by rational actors seeking to exploit everyone else, or an organization that has potential for other (maybe even altruistic) motives?
Back in the beginning, bitcoin was intensely attractive to people who were in the intersection of extreme libertarian ethics and cosmopolitan financial capitalism ethos.
It's a fundamentally contradictory world view, of course. You cannot have cosmopolitan financial capitalism without very strong states propping up an extremely unnatural global order. But you can understand how middle-wealthy tech people ended up there. They were self-made, annoyed with taxes, and primarily held wealth that was generated without geographic ties. This is opposed to traditional middle-wealthy folks, whose revenue streams were historically closely tied to place and/or community.
Now that the End Of History is over, the contradiction is laid bare, and the reaction has been a sort of ideological immune response triggering fever dreams that are increasingly absurd and desperate (metaverse, web3, NFTs).
The majority of people on Earth live in countries which are considered corrupt & incompetent and have regular bank crashes. It would be a good thing if we remove control of money from corrupt governments.
As if that’s really working. Food is still paid in local currency and exchanges can be controlled by the government.
It’s not worth boiling the oceans for.
But even so, crypto was never really about the poor and unfortunate.
Crypto is about pure greed. Money. Tax evasion. Don’t tell waffle stories about people in other countries please. It was never about them. Be at least honest.
Crypto is about a lot of things. A new asset class appears and people will assign different stories to it. Totally possible that blockchain tech is used for payment infra in future.
These are the same people that want free software to workaround abusive corporate policy instead of first regulating corporations. We might actually even be served by a free software movement if employees and people were actually free and unconstrained by corporations that that keep them from ever participating. People like Stallman think a license.txt is going to solve this?
I would have assumed separating money and state simply means the state can no longer control money creation. So yes it would be similar to using gold as a currency. Just high tech. Though with all the hype I'm sure there was a lot of craziness imagining more beyond that.
That seems like a non-feasible end-goal. If we assume there's any meaningful input involved with the creation of money (mining equipment or graphics cards), then centralization will happen around having the most of the input and securing that, which naturally implies a monopoly on force, which implies a state.
If you allow for fiat money, then almost definitionally, there's a state that everybody agrees is empowered to create the money or else, why would they continue to ensure the value of money?
Gold mining purportedly does cause inflation in gold-backed currency. I guess bitcoin mining is the same, not familiar with that other than the annoying effect on hardware prices. Perhaps the argument is that this gets increasingly harder, as opposed to fiat money creation, which appears to be exponential growth. Plus manipulation of the currency has never been all that consistent, they are constantly trying new things and pushing boundaries. so any claims of future stability comes down solely to predicting how far some president or fed chairman might choose to go next along with how other countries react to that.
These donations were pretty clearly part of a forward-play on having a prominent seat at the table for writing regulations, it’s not really a secret that they were planning to try to starve out Binance through crypto regulation.
Also while it’s kind of a thing to buy influence to the legislative process, buying your way out of justice isn’t really. There’s way too much apparatus outside of electoral politics. FTX wasn’t investigated because what were they going to be investigated for, it’s an unregulated offshore financial outfit with no signs of distress until it went boom, like most “Ponzi schemes”.
Why would an organization donate to BOTH competitors sizeable amounts like this? Okay, it's more to the dems, but quite a sum for the gop as well. Do they just want a soft landing regardless who wins? Wouldn't that be the same if not funding at all? Or maybe not, they can tell later any winner "look I paid ya"...
From a "trader" perspective, the best policy if you are bribing is bribing any current AND future candidates, discounted by some factor for probability of being in power at some point in the future, and discounted by the time value of money (so people currently in power gets more.) That's probably the type of amoral, risk reward based thinking that goes through someone like SBF's head.
Source: was a quant at some hedge fund in a past life.
Donations from employees, not the company itself. The company can't force the employees to donate in a specific way (or maybe they can. I don't the know US laws, but that would sound unethical)
I think it's really amazing that she started a PAC and 13 days later her son became one of the largest political donors to the Democrats. What great timing for her.
I didn't try to suggest it because HN would probably downvote me to oblivion if I did. I personally, however, think that a quid pro quo is pretty likely - and Republicans would shout this from the rooftops if they had a little more sense in my opinion. Stealing a ton of money, giving a ton to Democrats, potentially helping win an election, and then not investigating or properly punishing the thief is a perfect crime... so, if I am the Dems, I would throw or at least try to get 150+ years in prison Madoff-style at a minimum.
> Republicans would shout this from the rooftops if they had a little more sense in my opinion.
The Republican party has been defunct since 2008. I say this as a republican. Yes, they have local machines in isolated areas, but the party itself is non-existent on a national level, except when they scrape by due people being disaffected by the democrats. The Republicans have not been a true majority party for decades.
You will certainly see certain republicans shouting this, myself included. You will see smaller local groups shout this. But the national party does not really exist
I still can't reconcile how fast this happened. Back in April SBF was willing to give billions to buy Twitter. It seemed like there was plenty of surplus or was the money he planned to invest just FTX customer holdings?
"Musk responded to the text by asking if Bankman-Fried had “huge amounts of money?” MacAskill said SBF was worth about US$24 billion at the time and could be willing to provide as much as US$8 billion to US$15 billion in financing." [1]
Ah, the magic of loaned funds with little or no demands tied to it. And you wonder why real estate prices are so high? It's largely the same principle, except the regulation is way, wayyy tighter. But in sum, the effect it has on markets is unquestionable.
It means that the contract you enter when you loan money has limitations to what you can use said funds for, and how or what it's secured with (including interest). It would seem that the creditors of Bankman-Fried gave him quite liberal limits, if it wasn't simply the byzantine structure of his many, many straw companies that made it extremely hard to understand what the money was ever used for, so much so that he may or may not have lost track himself.
FTX was making a killing, so its token that paid out trading fees was worth a lot. To bail out trading losses in Alameda, FTX sent it cash in exchange for a bunch of its own token. This might have worked out fine, except now the moment everyone expects FTX to go bankrupt, it's bankrupt.
Haseeb Qureshi said recently on his Chopping Block podcast that it was a not-so-secret secret that FTX was the least profitable exchange of any of the major exchanges, so even if they were generating a lot of revenue they weren't making much profit on it.
That's normal for trading firms. Lehman Brothers went down about this fast.
The larger finance and regulatory systems are no longer willing to tolerate long "pauses" in withdrawals from crypto companies. Now, you "pause" withdrawals for a day and you're dead. Back in the Mt. Gox days, crypto exchanges went into limbo for months before the hammer of bankruptcy came down. That's over.
most of crypto/segments of wallstreet are a giant scam using mathematics to make money, any pr is good for them. It is like that wall street movie quote "You got ninety percent of the American public out there with little or no net worth. I create nothing. I own. We make the rules, pal."
It's Enron accounting all the way down. Except in Enron's case the accounting was actually creatively done to dodge regulators. These guys didn't even have that to worry about.
Throwaway as I used to socialize with a number of names connected to all this.
It did not “happen that fast”. It’s been forecasted and debated for weeks if not months. We were just not privy to those meetings, IMs, and calls. You’d have to be incredibly handicapped to assume behind the scenes comms aren’t occurring and merely a deluded rube to assume it’s all “nice”.
The analytics exist to predict these things and people chose to let it play out, see if it could be fixed before the bill was due.
This is the free market. Awareness exists for those with the money to build the analysis. They sit and gamble on the actual outcome that will occur.
SBF screwed up by assuming the establishment cared enough to rescue his ephemeral pet. The establishment never cares about the fallout to the average person. “Free market” to be stupid. Where being smart is kowtowing to established rule.
Because the establishment is people too. Same core motives. Same lack of obligation to buy into others bullshit. Life on Earth is sorted. It’s normalized. Actual science of net new discovery is the only true frontier, not engineering new versions of old shit. Crypto is just a new version of a manipulated value store like religious symbols and nation state currency. It has all the same upsides and pitfalls because it’s belief in nothing but the imagination of a handful of dumb apes.
As a data structure it’s not interesting; a linked list with a unique hash in place of an index. Yes yes much mathematical notation can be jotted down to explain it but the same can be said of growing lettuce and we don’t seem to feel the need to do so. Short hand recipes and experience suffice.
Crypto is former script kiddies clinging to nostalgia as humans do. It fills the same existential hole as things like superheroes, war heroes, and gods; not for everyone and demanding it should be is the same old human imperialism of thought. We don’t need crypto like we don’t need fiat currency, because special people don’t exist. Any rules for defining them are arbitrary given the unknown reason for our existence.
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 $3B 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.
I found that odd too, but I would guess it was meant to show that he was a "major player" and thus had political connections that might be useful to Musk/Twitter.
That's certainly who he started pandering to once the deal looked likely. "Democrats are the party of division and hate" in May 2022 [0]. BTW, searching for this tweet on Google is fruitless, whereas DuckDuckGo brought it up straight away (from my US-based IP).
If that was to set the stage for reinstating Trump, it seems to have backfired massively, as Trump (of all people), called him out as a BS artist and RINO.
Still, on what should have been of the busiest weeks in Twitter's history, he found time to use his Twitter bullhorn to advocate voting Republican in every race.
Elon isn't red or blue. He has leaned to voting dem in the past and now leans to voting gop for various reasons. It could change tomorrow. In the end, he thinks what he thinks and doesn't care how it aligns to a "party".
And finished it off with with “second to Bloomberg when donating to Biden”.
If any of this had happened in a non-rules based world or even at the periphery of our “civilized” world, a whole bunch of US-financed NGOs and “civil society” thingies would have been up all in arms about it, with cries of corruption and the like. But the moment when it turns out that the second largest financial donor to the US President is basically a crook and a fraudster all those voices are suddenly silent.
They made the Theranos series within a year of the trial and she still hasn't been sentenced yet. I think Jonah Hill could still get the part though for some reason I'm thinking Michael Cera?
Right. But (1) The Big Short was not a very good movie, and (2) it was about the collapse of the entire housing market. This is about the collapse of an abstract metaPonzi scheme.
The Big Short and Boiler room are incredible movies. The only real competition is Wolf of Wall Street, which goes too deep into the debauched party lifestyle at the expense of the more interesting financial story, and Margin Call which has the opposite problem since it’s completely inaccessible to most people.
It's an amazing movie and for a good reason. It explains the complexities involved in the 2008 market crash using simple and humorous analogies making the problem comprehensible.
I think the connections with the Effective Altruism community would make for a really amazing think-piece on conflicting ethics, circuitous reasoning, and moral rationalization.
I don't understand it. I haven't ever done a deep dive on EA, but at first blush it seems like such a benign, banal idea: direct charity money effectively and pragmatically. Sure! How does it end up so weird and broken?
You get the usual brainiacs who integrate over the total happiness of imaginary future humanity (trillions of generations colonizing the galaxy) and decide that safeguarding that future justifies doing basically anything in the present day.
Yeah, I didn't dig into EA that much after asking, but then I read the insane Sequoia-commissioned Bankman-Fried piece and it clicked immediately after the part about how William McCaskill convinced Bankman-Fried to go work for Jane Street so he could "earn to give". Oh. You can justify anything that way! You could murder hobos, if it jazzed you up for really hardcore day of trading or whatever.
I get it. Like utilitarianism itself, it makes a lot of sense in the small and like zero sense at all generalized.
Sequoia already deleted the fluff piece they put out about SBF so they’re clearly embarrassed / afraid of legal fall out. And sequoia being embarrassed doesn’t seem interesting to you? And this is just one of the VCs putting crazy money into a scam. This plus the Bahamas coed dorm and the political ties is already enough for a 2 season Netflix series.
Had it been going on behind the doors, the VCs would have pumped more money in to the scam. Since it became too public to hurt their brand they will no more fund it.
It happens all the time. The VCs know how their portfolio companies operate and still keep supporting them.
Quick reminder that we're on a VC board that has participated in this shell game; this fraud that has stolen money from naive people.
And before I get downvoted to oblivion or moderated by @dang I hope a few people read this comment and realize how much was stolen from you so the sand hill gang can play monopoly ... it was a lot.
yes its been my opinion for years that they are all crooks, the whole thing was made possible basically by quantitative easing. but I still find a lot of ridiculous foolishness posted here so I keep getting lured back.
It feels like it was just yesterday when the CEO declared on Twitter that all the problems are localized at international FTX.com and that funds at FTX.us are 100% safe!
r/bitcoin did that in one of the early downturns, and with good reason: at least one person on r/bitcoinmarkets did take their own life, and several more in the cryoto subreddits talked about it.
Not good for anyone, obv, but where is the money?? If dude sent it to his other company, shouldn't it be sitting there? Did they already spend it?
Although crypto is marred with scams and is by nature often shady, this isn't about crypto but about 1 single person, the ex-CEO, stealing people's money.
The FTT on its balance sheets as if it was real money is very crypto-stupid though.
I take full responsibility for stealing $10 billion and am stepping down as CEO, it has been a long journey from me having nothing to this point. I am sorry to those that lost some or all of your money.
I will no longer take part in the company and will quietly fly away on my private jet to my $50 million home where I will contemplate my next venture.
he's bankrupt and deeply in debt. Why would his "connections" stick their necks out for him? I don't know if having a dad teaching at Stanford gives you a free pass everywhere.
is he? sounds like his various corporate frauds have destroyed a lot of companies and led to corporate bankruptcies, but what information is there about how much he scooped out before?
The allegation is he moved money between companies to support his terrible “hedge” fund. Where have you seen anything at all about him not having a lot of personal money?
Bloomberg Billionaires Index estimates that SBF has lost 100% of his net worth, all of which was in one way or another tied into Alameda/FTX-related firms (there was some invested in Robinhood, but it was used as collateral for Alameda-related loans.)
I'm not sure how much trouble having parents at stanford gets you out of. Maybe he can get a good lawyer but losing 10B of client funds is going to have a lot of wealthy people quite upset with him. I'd imagine anyway.
Oh I completely agree. I don't think having two parents on the faculty at Stanford helps any more than having one parent on the faculty, which is to say probably not at all here. My comment was really just meant to be parenthetical to the OPs statement.
The context here is other CEOs stepping down after a fiasco, getting a massive severance check, saying they take "full responsibility". Compared to that SBF is massively screwed.
I will bet you cash money that this is one CEO you’ll see in prison. This is like 10x as bad as anything Elizabeth Holmes did, and as far as I know, she wasn’t tweeting real time as the walls were closing in on her.
Is it as bad as Holmes? Theranos had patients with incorrect medical test results, which seems different in kind that a bunch of crypto investors losing a massive amount of money.
> “People on Twitter now are like “he admitted that FTX is a Ponzi!” but of course that’s not true. He conceded a certain validity to my claim that some crypto businesses — not his — are Ponzis. He is just in the business of trading their tokens.
“In fact, I came away from that conversation bullish on FTX and Bankman-Fried. My view was, and is, that if you talk to a crypto exchange operator and he is like “crypto is changing the world, your old-fashioned economics are just FUD, HODL,” then that’s bad. A wild-eyed crypto true believer is not the person to operate an exchange. The person you want operating an exchange is a clear-eyed trader. You want someone whose basic attitude to financial assets is, like, “if someone wants to buy and someone wants to sell, I will put them together and collect a fee.” You want someone whose perspective is driven by markets, not ideology, who cares about risk, not futurism. A certain cynicism about the products he is trading is probably healthy.”
I'm not arguing on the basis of what Levine thought of the conversation.
At the very least, it's apparent that SBF sees crypto as being heavily based on speculation that's disconnected from any actual value proposition, but he's choosing to exploit and profit from those systems. And it's now apparent that he also was engaging in speculation with user funds himself via Alameda.
A wild-eyed crypto believer might lose anywhere from a few thousand to a few million of their own money in poorly placed speculation.
A sophisticated market-maker will facilitate the loss of billions (about $10 billion in this case) from numerous people.
Which is more dangerous? A HODL who loses their savings on some speculative crypto purchase, or the next Bernie Madoff?
That is not the comparison at all, and while I have to assume you are commenting in good faith, it is really hard to do so here.
The difference Levine is pointing out is between the type of person operating the exchange. It is not the comparison between janitor and CEO at a fortune 500 company.
A "true believer" will cause just as much (or per Levine's assertion: more) damage as a "sophesticated crypto cynicist", but one will at least understand financial fundamentals while the other brings none of the learnings from running any kind of investment or banking firm.
A "true believer" isn't able to carry out their work without a marketplace. Nobody lost money in crypto on the scale we're seeing 5 years ago.
The largely unregulated, uninsured, and opaque marketplace of crypto, facilitated by people like SBF, has been the conduit for the true believers.
If somebody says "I know you're a sucker and I'm going to take your money", (as SBF did in Levine interview) they just told you everything you need to know. You can rest assured that their other dealings are dirty, as is now coming to light for SBF.
I'm not sure why "good faith" is being brought into question, and I certainly haven't challenged the good faith of those who disagree with me. So I'm not going to address that aspect of the conversation.
>I'm not sure why "good faith" is being brought into question, and I certainly haven't challenged the good faith of those who disagree with me. So I'm not going to address that aspect of the conversation.
Per the commenting guidelines, we are expected to believe people are commenting in good faith even when they say:
>A wild-eyed crypto believer might lose anywhere from a few thousand to a few million of their own money in poorly placed speculation.
>A sophisticated market-maker will facilitate the loss of billions (about $10 billion in this case) from numerous people.
Which is either a deliberately bad comparison (akin to janitor vs CEO), or completely irrelevant in the context of what SBF was saying / what Levine thought.
A wild-eyed crypto believer would make all the same mistakes as the sophisticated trader and run the exchange into the ground while breaking laws. The sophisticated trader will typically run their business within the legal framework, while taking as much profit as possible.
A wild eyed Luna type can lose a lot of people’s money and is probably more likely to do so than a skeptical trader making deals. The issue with this wasn’t that general heuristic which is still true (imo), it was SBF’s decisions despite that (which were bad and extremely high risk, but different than it being a ponzi).
Pair that with an intelligent enemy looking for ways to destroy you and this is where it ends up.
But the exchange it seems was but only one constituent of a wider more complex (necessarily complicated?) web of cross funding that in no way represents the expected business practice of an exchange. Matt it seems failed to account for the bare faced lying of a deluded ideologue. Or at least someone who hid behind an ideology to excuse absurd business practices
In some circles resigning from a failed tech venture is not seen as a failure. WeWork CEO resigned and is now promoting a new fully funded company in the same space.
FTX CEO has been openly lying about the impact for a long time now, and has mismanaged billions of dollars (of other people's money). Resigning doesn't seem like a reasonable punishment.
Not to get too far off-topic, but WeWork was commercial real estate, Flow is residential:
Andreessen [of Andreessen Horowitz, investors of 350M in a company that's single asset is currently a landing page] positioned the new company as a long-awaited solution to the nation’s “housing crisis.” ...
“community-driven, experience-centric service” — to explain how the new startup would “create a system where renters receive the benefits of owners.”
This sounds completely different than WeWork, which had the simple goal of changing the world, one beer-Friday at a time.
The sad part is the AZ money isn't the dumb money in this deal; that will flow in latter.
I'm not trolling. So far this is just a business failure, not a crime.
I don't know much about this whole thing. It sounds likely there will be investigations, and they may prove "large scale theft" at that time. But right now resigning is the only way for him to "take responsibility".
When everything was going down he tweeted something on the line that everything was fine, he later deleted that but for sure there's an archive somewhere (and I'm sure Elon would be GLAD to provide that data). That's fraud, and I'm sure there's a lot more like that once the DOJ/SEC start looking around.
I like SBF, honestly, I like his personality, I don't believe he's a bad person, I could even believe (with a truckload of salt) that all of this happened without him being fully aware of what was going on. But, real is real, and I'm quite sure he will do jail time.
He already lost his whole net worth overnight ($16B) and will live in hiding with serious death threats for the rest of his life. This is no ordinary CEO switcheroo where the he walks away with a slap on the wrist and a golden handshake.
I am still not convinced that he did not steal the missing FTX client funds. So at this point it is not clear to me how much he lost or gained from this. I do hope the DOJ conduct a full investigation and trace where all the money went.
It wasn’t a Ponzi scheme, at least based on what’s publicly known.
This is just investing with client funds, which the US learned the hard way must be carefully restricted. The US has the Glass-Steagall Act, and deposit insurance to try to prevent bank runs like this.
They were talking about stuff like Celsius. I don't think FTX was itself offering yield-farming products, just letting people trade those tokens. "Yeah, the stuff people trade on my platform are probably Ponzis" is definitely not great publicity, but it's not obviously admitting to your own crimes.
Me, as a kid: “the emperor’s new clothes is nonsense, nobody would go along with something that obviously wrong”
Me, after watching people sell no-hope dotcoms, dubious real estate, and cryptocurrency: “… unless they thought they could cash out before the other fools wised up”
> To be fair to the guy, he wasn’t afraid to admit it in some very public interviews.
I don't think brazen criminals should get a different perspective than sneaky ones; perhaps a worse characterization because they either don't recognize what they're doing is wrong, or they simply hold society in contempt.
I'm not. Just saying that he won't get away with it like other CEOs have done in the past while "taking responsibility". His punishment has already begun.
Yes, losing his money, reputation and freedom (whether that's in hiding or in jail). He's obviously royally screwed, regardless if he goes to jail or not, and yet people are saying he walks away from this unscathed.
He will have worked with some accountants and lawyers to move money into untouchable places. There will be someone employed to hold it for him, and dole it out in the future. Sure he will have to keep a low profile, but there will be resources.
He will probably have dispersed quite some sums to friends and family, some of that will come back to him in one way or another.
Finally, he will be able to go on the celebrity speaking circuit for quite a while...
I stand corrected on this point. Bloomberg is reporting that SBF's Robinhood stake was apparently held through Alameda and may have been used as collateral for loans.
No death threats because he had money? Have you perhaps seen the extensive list of Russian billionaires who "committed suicide" during like the past five years?
Russia is a terrorist state oligarchy with a murderous dictator. No one is actually going to kill this guy in the US. He will obviously get threats, and then reboot with a new $500mm seed round for some new scam from Marc Andreessen in a few years. Nevermind that's Adam Neumann.
Wow... I thought this was satire. (when talking about trading) 'We don't tend to have stop losses, we don't see those as very good risk management tools' No wonder they're bankrupt...
SBF loaned her company 10 billion to trade without basic risk management for trading.
She’s not wrong, stop losses are pretty pointless if you’re running a high volume market maker that is in theory constantly doing tons of volume and reacting to updates.
They’re also super dangerous if you have gigantic positions
Anyways they wouldn’t save you from collateralizing your loans with shitcoins, taking leveraged bets with money that isn’t yours, having super high exposure to UST and/or Luna, exposed to hackable defi products. Harder things that “having a good sense for risk” usually entails thinking about.
The real red flags are claiming she doesn’t use math and that she’s never lost a lot of money on a trade despite doing largely human informed trading for size…
Fair enough. I'm not familiar with that kind of trading I'm only familiar with basic day trading such as momentum and swing trading which stops have been very helpful for me personally. I imagine when you're making a market and are moving massive volume the rules are different and as you mentioned would require a lot of math like maybe trying to be delta neutral.
For a bit more color, as stop makes sense for you since you’re not there 24/7 making decisions.
But if you are, there’s no reason to just auto trade a position away. The decision of “what to do when price hits X” is a function of many things instead of price, and you’re better off dynamically deciding.
Consider that you could already implement a stop as a 24/7 trading firm anyways
>The real red flags are claiming she doesn’t use math and that she’s never lost a lot of money on a trade despite doing largely human informed trading for size…
For the peak crypto years it was almost impossible to lose money AS AN EXCHANGE. These clowns really thought they were on fire, and not just in position that random moves could be winning strategies.
> For the peak crypto years it was almost impossible to lose money AS AN EXCHANGE.
She wasn't running an exchange. You're confusing Alameda, the trading outfit, with FTX, the exchange. She was the CEO of Alameda. She was not the CEO of FTX.
Prices are not continuous. Stop loss orders are suicide pacts, especially in illiquid markets. They have little to no role in a coherent risk management strategy.
They're primarily marketed to unsophisticated retail traders as providing protection that they can't provide-- something equivalent to a free put.
In fact, some time back their firm was sued for IIRC essentially manipulating markets to trigger traders stop loss orders in order to swallow up trades at unreasonable prices.
Tiny traders in the largest of markets can potentially get away with using stop losses and not get burned too badly too often, but none of the cryptocurrency markets really qualify as that.
She was referring to the type of math that she did to earn a math degree, which I suppose could be true. My math degree did not require any of the kind of math I assume they do at these kinds of exchanges, although I also assume that the whole branch of math that starts getting into modeling and analysis would be very useful in these sorts of companies.
It's funny. Banks are widely perceived as corrupt; and lo and behold, the alternative systems to replace banking have been dragged by their heels through Banking 101.
Edit: Also funny, was the unrelated Matt Damon TV ads about how "Fortune Favors the Brave." Obviously it comes from Caesar, but it was also used in Charles Dickens's Little Dorrit by a character encouraging what later turned out a Ponzi scheme...
FTX being corrupt doesn't automatically mean banks are not corrupt. Just 14 years ago, the actions of banks brought most of the world to the precipice of financial collapse. FTX and Alameda depositors will lose their money. During the GFC, almost everyone lost their money.
>FTX being corrupt doesn't automatically mean banks are not corrupt.
That's not what OP said. OP highlighted the fact that a lot of the crypto space lambasts the traditional banking system as being wholly corrupt, despite a lot of the crypto space itself being equally corrupted in the same ways.
Edit: "People who live in glass houses shouldn't throw stones", basically.
FTX WAS a corrupt bank/betting parlor. Cryptocurrency is about self custody and full transparency. This is what blockchains allow. FTX was people depositing money in SBF's personal piggy bank. FTX has nothing to do with crypto, other than the fact that it allowed people to bet on crypto prices.
Too often banks are perceived as corrupt due to risk management practices, like not giving mortgages to poor people who go on about how their rent is more than their mortgage.
That thread is completely deranged and uses a lot of tweets to say nothing of substance. Barely above Qanon level here. Well connected kids with successful well connect parents make lots of money, news at 11...
It's currently getting downvoted to the bottom of the comments, and follow up responses to it with more "corroborating information" are already getting downvoted to hell.
Edit: Most comments in this chain, including the genesis, "Add some political contribution money laundering into the equation", are now grey.
Edit 2: Aaaaand the genesis comment, as well as the follow up with "corroborating information", are now flagged.
We know what happened. Smart rich kid uses his connections to get loaned $50M and gets wildly rich from arbitrage. I'm not sure why more and more people decided he was worth trusting with even more insane amounts of money, especially when it's just a gang of kids running the company.
You really think it was necessary to set up a totally fraudulent multi billion dollar crypto company in order to raise money for Biden? You realize they could have just gone to any of a few dozen left leaning billionaires and gotten the money far easier?
Occam's Razor.
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That gets them out from bankruptcy in the Bahamas, which is much tougher than US law. The Bahamas still has classic tough bankruptcy laws, where there's no debtor-in-possession reorganization. It's straight to liquidation, with a court-appointed receiver in charge.
This should be, and may be, converted to a straight liquidation. Chapter 11 can be useful for restarting companies that actually do something, like General Motors. There, much of the value is in the ongoing business. FTX, going forward, has no ongoing business. Lawyers for creditors will be making that argument.
Note that Bankman-Fried is still employed by FTX, "assisting".
Current banners at FTX.com: "FTX is currently unable to process withdrawals. We strongly advise against depositing. Deposits of TRX, BTT, JST, SUN, and HT are disabled. All onboarding of new clients has been suspended until further notice."
"We have reached an agreement with Tron to establish a special facility to allow holders of TRX, BTT, JST, SUN, and HT to swap assets from FTX 1:1 to external wallets. This functionality will be enabled at 18:30 UTC, November 10, 2022."