Luna was quite bad, but it was pretty straight-forward path to death that everyone saw from a mile away. Not many people predicted that FTX and SBF will fall from grace within a timespan of 48hrs. The whole thing is also so full of scandals, theft and corruption we will be reading about this in the news for weeks to come.
mtGox was so early in crypto, there wasn't any institutional capital or major players, mostly retail/regular folks experimenting with shiny new tech. FTX is an intermingled web of retail, institutions and big name investors as well as having their own investments, huge donations to politicians, lobbying arm, etc. The fallout from this will set us back for years.
It sure is interesting how they extended their tentacles into as many other companies and projects as possible (SBF even approached Elon about financing the Twitter acquisition) while knowing they were financing these deals with customer deposits, before blowing it up in the most spectacular way possible…
I can’t imagine a series of actions that would be more destructive to the industry. The actions don’t make sense unless they were taken to maximize the potential fallout.
The deep regulatory and political connections are also interesting…
The idea that this is some kind of "op" is undermined by the fact that SBF was broadcasting his own lack of trustworthiness for a long time. Remember that exchange with Matt Levine where SBF all but admits to running a Ponzi scheme[1]? That was half a year ago.
I think the idea that this is some kind of 4D chess move by regulators is a convenient way for the gullible idiots who believed in this stuff to put the blame on something other than their own credulousness. The guy basically admitted to running a Ponzi scheme. Why did you continue to trust him???
At no point did he admit to investing customer deposits in defi or similar schemes without their consent in that interview. FTX’s terms even state that they would never do that.
His actions since Alameda blew up were not rational, even if we assume that he was operating a Ponzi scheme the entire time.
He bailed out as many failed projects as he could and attempted to make investments with funds he did not have after the collapse of his ponzi started.
A ponzi operator who sees their house of cards collapsing is going to look for ways to get more money into the ponzi unencumbered with the hope that they can make back the losses before anyone notices.
They are not going to allocate what precious little capital they still have to investments that do not contribute more capital to the ponzi.
Yet this is exactly what SBF did.
It doesn’t make any sense.
Yet the regulation authorities are considering (that SBF literally authored) does very little to address the root causes of centralized exchange collapse, and is more or less designed to give power to regulators first and protect investors as a distant second.
What is needed are proof of reserves that include both assets and liabilities for centralized exchanges.
Centralized exchanges shouldn’t be able to lock up 100mm USD worth in customer Ethereum deposits for staking, when their exchange allows someone to buy that 100mm USD in ETH and withdraw it from the exchange before they can unlock the ETH and use it to fund the withdrawal without delay. If the exchange is going to allow customers to stake ETH on their exchange, the actual customers' ETH must be staked, and shouldn't be accounted for separately than the staked ETH deposit.
That is the core of the issue with centralized exchanges that play shell games with customer funds. They create financial risk if customer deposits are not backed 1:1 and mirroring the financial decisions of the depositor. Anything less is a ponzi, no matter how much window dressing is applied.
It's worth noting that banks are ponzi schemes, but they can borrow funds at the discount rate at will, and must meet capital requirements, so the damage their ponzi schemes can cause is limited. There is no lender of last resort in crypto. Centralized exchanges cannot behave like banks!
SBF was hailed as a crypto savior just a few weeks ago after the Luna fallout. He was viewed as Warren Buffett during the financial crisis. Perhaps Coinbase will be the ultimate winner here if crypto somehow survives. I imagine more than 75-80% of the assets tied to crypto will liquidate in coming weeks. I don’t think this will be “just another” crypto blow up. It’s end game time.
I think MTGox was actually worse just due to the small size of the market then and how much of a joke their security was. FTX just seems like a fleecing job that tons of crypto exchanges and businesses have pulled off. MTGox was sheer incompetence.
I would consider the moral failure of SBF to be worse than the incompetence of Karpeles.
Also, SBF was a billionaire hobnobbing with politicians and celebrated by Forbes. Karpeles was some confused dev on his computer who loved his cat and wanted to build a coffee shop.
SBF's failure is going to have larger consequences outside the crypto sphere.
Jeffrey Epstein funneled hundreds of million of dollars (and 16-yr-old girls) through politicians and business celebrities, and there were trivial consequences outside his family.
SBF just stumbled into money and spread it around, like the Oculus guy.
He was in a custody for about a year, he was later sentenced to a suspended year in prison. He still lives in Tokyo, no idea what he does for work now though.
