I have had limited but direct experience with CFTC (because of a cryptocurrency related project I did for a client), and I was not impressed.
In this case, CFTC came at us with claims that we were breaking rules and then required us to prove that we were not. Just looking at our website it was very clear what we were doing and what we were selling (education content), and there was not a hint of anything to suggest that we were selling investments or commodities. Even still, we had to give our corp attorney annotated screenshots of our website, illustrating exactly what our business was, and have that sent back to CFTC.
After doing so, we heard nothing back from them. They should have been satisifed by what we sent (presumably they were), but they didn't even both to say, "Ok, you may go."
The whole thing felt really arbitrary and amateur.
> it was very clear what we were doing and what we were selling (education content), and there was not a hint of anything to suggest that we were selling investments or commodities
Lots of “educational” crypto content is thinly-veiled sales.
> we had to give our corp attorney annotated screenshots of our website, illustrating exactly what our business was
An attorney signing to your business being bona fide informational, and not one that e.g. profits from affiliate sales or coin drops, is material. What looks irrelevant at first glance is germane, at least for a regulator doing a first pass.
> they didn't even both to say, "Ok, you may go."
Not sure about commodities and futures, but for securities you may never go. You are always under force of jurisdiction, a set-up intentionally more intrusive than most American regulation.
…which until recently was 'LedgerX' (still its domain name), & wasn't part of the bankruptcy filing, seems to be operating normally, & has reassured customers their assets are, per its regulated processes, separately custodied (not with the unlicensed/offshore FTX).
So while it takes some time for these things to unravel – it could be the next domino to fall! – there is at least a plausible story that the actual CFTC-licensed entity here (fka LedgerX) was spared the theft & bankruptcy.
That would be a credit to the CFTC's regime, rather than the knock portrayed here.
(I believe that this spin comes from a advocacy group for maximal regulations, firing a salvo to support its factions in DC, taking advantage of confusion about which related but legally-distinct entities are licensed.)
>Not sure about commodities and futures, but for securities you may never go.
Weird, the IRS didn't seem to have a problem notifying me when they were satisfied with my faxed explanation of a discrepancy they found. Maybe they're just unusually good at respecting their subjects as federal enforcement agencies go?
I'm not from US, but in my experience the tax office is a different agency compared to many others. They are happy if you are "honest taxpayer" so to say. Other agencies have different incentives.
I think this experience could be replicated anywhere in the world. This type of agency (as well as tax offices) will pursue low-hanging fruit while overlooking more complex and critical situations. And the lack of actionable feedback really underscores their inefficiency.
> The whole thing felt really arbitrary and amateur.
Lack of domain knowledge + corruption + a lack of incentives to improve (because they are part of the government, it is difficult to hold them accountable for their claims)
Well, it's quite popular in the MLM scene to wrap investments into some type of educational material. I believe OneCoin did just that, you paid for education packages and then got tokens as a gift. Maybe that's what they were looking at.
> In this case, CFTC came at us with claims that we were breaking rules and then required us to prove that we were not. Just looking at our website it was very clear what we were doing and what we were selling (education content), and there was not a hint of anything to suggest that we were selling investments or commodities. Even still, we had to give our corp attorney annotated screenshots of our website, illustrating exactly what our business was, and have that sent back to CFTC.
Obviously I don't know the full story, but there really should be more diligence than just reading your website and taking your word for it, so I can't fault them just for requesting more information.
-1: this is often how regulatory bodies work. In particular, their non-response gives them better CYA in case there's malfeasance vs an explicit approval.
He means he downvoted the comment. The original comment wasn't notable. I've also dealt with regulators and they primarily gather information and review it on their own.
Do you actually mean to say that a regulatory body should publish who they suspect is committing fraud or am I mis-reading your comment? Given they have a limited time to review select entities and a limited view into them, that would be an impossible feat, not to mention the legal liability if/when they were wrong.
I think the problem is that, let’s say the police drives past your house and sees a pile of bodies.
Then they check on you and find you are a serial killer and arrest you.
Now, if you were smart and buried the bodies, is the police supposed to knock on your door and say: “Good job, keep doing what you are doing because you are obviously doing nothing wrong, as evidenced by the lack of bodies on your lawn.”
They don’t do that, they simply drive past and probably assume you’re honest but reserve judgement until later.
As far as I can tell - FTX (at least international / not FTX.us) broke only 1 law - they broke their own terms and conditions :-
8.2.6 All Digital Assets are held in your Account on the following basis:
(A) Title to your Digital Assets shall at all times remain with you and shall not transfer to FTX Trading ...
Excluding this stipulation, which they will be prosecuted for - what exactly the CFTC/SEC/NYSE/NASDAQ/Secret Service/DEA/Texas Rangers were meant to do about a company in the Bahamas is beyond me.
> Excluding this stipulation, which they will be prosecuted for - what exactly the CFTC/SEC/NYSE/NASDAQ/Secret Service/DEA/Texas Rangers were meant to do about a company in the Bahamas is beyond me.
The point is to look tough on crypto, so they can garner support for expanding budgets to deal with a new mandate. It's pure show.
You mean the law(s) they broke involved stealing users assets? Reminder so, terms and conditions are not law nor is there any guarantee they hold up in court if challenged.
Terms and conditions aren't necessarily enforceable, and they really aren't necessarily enforceable when it comes to financial services, and they reallyreally aren't necessarily enforceable when it comes to blatant fraud.
i think you're describing an agency whose members don't feel sure what they're even supposed to do.
many people i know (most engineers, but not all) would say it's a symptom of "big government", the parts that exist and pay unmotivated employees as to their mission.
(i find myself wondering almost off topic how this might or might not be analogous with small kernels and big kernels in operating systems.)
But if you plan to do it guys, only do it when the fundraiser raising tens of millions happens to be your well-connected-to-the-elite mom, a lawyer and teacher at Stanford teaching tax laws!
Why should the bureaucrat be doing more work? That increases expenses for taxpayers, or alternately means the regulator can't do other things. In principle, there's nothing wrong with making the business being regulated pay the costs, assuming the work needs doing at all.
> illustrating exactly what our business was, and have that sent back to CFTC.
Could it be that they were collecting data from you to build models for future analysis? Instead of paying people to research companies, and enter data into a system, force 20% of all companies to provide this data regardless of suspicions of wrongdoing?
There's that saying "looks like a duck, quacks like a duck." Maybe they start from the position "I don't know what a duck looks like, or what it sounds like. I think you're a duck. What do you look like? What do you sound like?"
That's just a guess. I have experience working elsewhere in the federal government. They often just throw darts at the wall to prove they are doing their job. New management will take over a department, and want to demonstrate change of some kind. Don't try to attach any rational thought to these actions.
The crypto industry lobbying effort has been trying to have the CFTC regulate crypto, and escape SEC regulation.[1] Now we know why.
The CFTC is mostly concerned about how things are traded. Not what the things are. Commodities are things like wheat and oil, which already exist. Not newly created things. There's nothing like an IPO in commodities. (The CFTC does regulate derivatives, which complicates this.) So the CFTC has no regulations which apply when someone issues a new crypto coin, NFT series, or whatever. The crypto issuers like that.
The SEC has two main areas of regulation - securities issued by companies, and markets. Most of the SEC's efforts are on the issuer side. The definition of a security is very broad. If you raise money by offering the potential for future profit, it's probably a security. See Howey Test.
There was litigation over whether the SEC had broad authority to regulate crypto issuers. So the SEC has been holding back on things that were not blatant fraud. On November 8, 2022, SEC vs LBRY was decided, which pretty much says crypto issues are securities, period.
Current thinking on the SEC side is that Bitcoin is probably a commodity, because the issuer is long gone and not profiting from it, but everything in crypto with a live issuer behind it is probably a security.
Your last isn’t accurate (Bitcoin is a commodity bc of…)
Source - follow Gensler’s speeches and MIT classes, Hester Peirce’s speeches, and the SEC GitHub.
Basically, Bitcoin is likely not a sec because of how it works as a system, ethereum likely is not a sec but it gets opaque, clones of ethereum/EVM have similar treatments. From there, the ICO coins and similar tokens since then likely are secs, bunch of them are hazy as we veer into L1 and L2 and ….
The SEC has advocated for a “regulation beach” or whatever they call it to get companies to build a token within this beach, work with the SEC, and figure out the security vs commodity question. I don’t know if this has gotten traction though. There’s a SEC speech and GitHub repo somewhere for it.
The Supreme Court’s 1946 Howey Test, which was about orange groves, says that an investment contract exists when there is the investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.
My predecessor Jay Clayton said it, and I will reiterate it: Without prejudging any one token, most crypto tokens are investment contracts under the Howey Test. Even before the Howey test, in the first several years of our federal securities laws, some entrepreneurs were notified that they had to register their offerings of chinchillas, whiskey warehouse receipts, oyster beds, and live silver foxes as securities offerings, as “the purported sale of the…property was merely camouflage and not the substance of the transaction.”
Today, many entrepreneurs are raising money from the public by selling crypto tokens, with the expectation that the managers will build an ecosystem where the token is useful and which will draw more users to the project.
Thus, it is important that we work to get crypto tokens that are securities to be registered with the SEC. Issuers of crypto tokens that are securities must register their offers and sales of these assets with the SEC and comply with our disclosure requirements, or meet an exemption. Issuers of all kinds across a variety of markets successfully register and provide disclosures every day. If there are, in fact, forms or disclosure with which crypto assets truly cannot comply, our staff is here to discuss and evaluate those concerns. Any token that is a security must play by the same market integrity rulebook as other securities under our laws.
That's pretty clear. If there's an issuer raising money with it, it's a security.
Note the line “the purported sale of the…property was merely camouflage and not the substance of the transaction.” That covers much of the NFT market.
Ya, I’ve been following the Howey Test and SECs read on it since ‘17 when it really started to surface with ICOs.
You copy/pasted the types of speeches I’m referring to.
“everything in crypto with a live issuer behind it is probably a security.”… This claim is still a massive overstatement from a regulation-informed perspective. Everything in crypto extends beyond “much of the NFT” market.
In ‘18, SEC chairman says ETH and BTC aren’t securities. Pre-merge, eth wasn’t a security to Gensler. Post-merge, it was. So then what about the many ETH-clones that didn’t do PoS and stuck with PoW/not-a-security ETH design. Also, “eth might be a security” came up in Sept ‘22. SEC and the chairman have changed minds in significant ways within that time period many times over since ‘09 and the whitepaper.
It’s nowhere near cut and dry as you’re making it to be, but I won’t devolve into an argument about it and instead say there’s more info to this than your views indicate you’ve researched.
Maybe not "everything". The crypto people have desperately tried to invent things they can claim are not securities. Post-FTX, and post SEC vs LBRY, that's not going to work.
The original theory behind NFTs was that they were "collectable art". But then they started looking a lot like securities, with collections, series, "floor prices", fractional ownership, secondary markets, and such. See [1] The US test for whether something is a security is use, not form. If there's a billion dollar market in trading buttons, it becomes a security.
There are NFTs representing land in virtual worlds. Most of the sellers sold land before actually getting the virtual world working. That's a clearly a speculative investment which depends upon on the promoters finishing the project. This is exactly like selling real land in a not yet built subdivision, which is a security offering in the US. See "Swampland in Florida" in Wikipedia. (Although China allows this; there are people stuck paying mortgages on unbuilt buildings, which is not going well.)
There's the DAO concept, where the token holders own the thing and can vote on running it. That looks a lot like a stock IPO in the early stages. In the later stages, when all tokens have been sold, there's an unexpected kicker. Owners of the DAO may be personally liable for its losses.[2] Not just for the amount they paid. A DAO is a partnership or unincorporated association, and debts pass through to the members.
Ethereum is almost definitely a security. It had an unfair issuance and is controlled and influenced by a small group. I mean it has a roadmap by vitalik!
Even more so now that they've migrated to proof of stake.
Unlike proof of work bitcoin, the control authority of the entity that is the Ethereum network is now entirely in the hands of the top stake owners, just like control authority of a company is entirely in the hands of top shareholders.
Whether or not certain coins are securities is a separate issue that has nothing directly to do with exchanges cheating customers and losing their money, which is what happened in the case of FTX. They traded with customer funds (and apparently massively lost) and SBF even used some of that money to bribe politicians. Look at all the political donations he's made: https://fortune.com/2022/11/10/sam-bankman-fried-ftx-joe-bid...
So here's a private company that acts like a bank and like a commodity/securities exchange, but it's completely unregulated. Or else how can they simply lose 9 billion dollars without anyone noticing for months until a run on withdrawals makes it apparent that they're insolvent. In the past there were multiple other cases of such companies "losing" user funds or "getting hacked", as they often put it. And the guy running the biggest fraud of them all, SBF is all over Washington meeting with regulators and telling them crypto needs more regulation!
It's an absurd situation. They're going after decentralized finance apps and the EU wants to regulate wallets, all of which are on chain and transparent, while people like SBF have for years been allowed to run these exchanges with no oversight whatsoever. The worst part is most people do not understand any of it and will think this comes down to cryptocurrency being shady, while the actual use of blockchains fixes exactly this problem. It's the shady off-chain deals where the money disappeared and none of the users could have known what was going on, because SBF, FTX and Alameda (which are essentially all the same entity) lied about it. Regulation of financial institutions is a joke.
This is a bit misleading: FTX US Derivatives LLC, formerly known as LedgerX, is indeed a wholly owned subsidiary of FTX US (acquired Oct 2021). However, at an operational level, it is an entirely separate entity and will probably continue to operate as such (likely reverting to DBA LedgerX). The CFTC licensure was established well before the acquisition.
It's debatable whether you can pin some kind of blame on the CFTC for failing to regulate the entirety of FTX's international operations when they were 100% decoupled from the operations of the one entity that was actually licensed. This article, while surely well-intentioned, is still mostly just grandstanding by a political lobbyist.
I don't think that's entire believable anymore. This direct account from a Alameda employee linked in the other frontpage discussion alleges the Hong Kong office was busy at work trying to sell Alameda assets to cover ftx.us withdrawals (in addition to ftx.com). Why would ftx us need this support if they were fully segregated?
The NY Times just ran an article on SBF and doesn't mention the word "fraud" or "crime" once. It looks like daddy and mommy's friends are hard at work here. It's completely surreal.
I don't understand this take at all. It's like we're reading different articles.
This is the title page of the article:
> How Sam Bankman-Fried’s Crypto Empire Collapsed
> Mr . Bankman-Fried said in an interview that he had expanded too fast and failed to see warning signs. But he shared few details about his handling of FTX customers’ funds."
And there's this:
"But he would offer only limited details about the central questions swirling around him: whether FTX improperly used billions of dollars of customer funds to prop up a trading firm that he also founded, Alameda Research. The Justice Department and the S.E.C. are examining that relationship."
Of course the New York Times can't accuse him of committing fraud. That hasn't been proven. But I don't see how anyone could miss the implication of this article that something shady may have happened.
You might see the issue if you're familiar with the case of Scott Alexander or how hard they went after the CEOs of Coinbase and Kraken. Why did they get the hit piece treatment but SBF didn't, even now.
Neither of them misused and lost billions of dollars of customer funds.
My guess is that SBF would also not be treated with kid gloves if he professed a belief that white people were biologically intellectually superior to black people, re: Scott Alexander.
Definitely agree that he is being treated nicely (likely due to being a democratic donor) compared to other crypto folks.
His latest words on that type of topic speak for themselves:
"This is far enough from my field that I would usually defer to expert consensus, but all the studies I can find which try to assess expert consensus seem crazy. A while ago, I freaked out upon finding a study that seemed to show most expert scientists in the field agreed with Murray's thesis in 1987 - about three times as many said the gap was due to a combination of genetics and environment as said it was just environment. Then I freaked out again when I found another study (here is the most recent version, from 2020) showing basically the same thing (about four times as many say it’s a combination of genetics and environment compared to just environment). I can't find any expert surveys giving the expected result that they all agree this is dumb and definitely 100% environment and we can move on (I'd be very relieved if anybody could find those, or if they could explain why the ones I found were fake studies or fake experts or a biased sample, or explain how I'm misreading them or that they otherwise shouldn't be trusted. If you have thoughts on this, please send me an email). I've vacillated back and forth on how to think about this question so many times, and right now my personal probability estimate is "I am still freaking out about this, go away go away go away". And I understand I have at least two potentially irresolveable biases on this question: one, I'm a white person in a country with a long history of promoting white supremacy; and two, if I lean in favor then everyone will hate me, and use it as a bludgeon against anyone I have ever associated with, and I will die alone in a ditch and maybe deserve it. So the best I can do is try to route around this issue when considering important questions. This is sometimes hard, but the basic principle is that I'm far less sure of any of it than I am sure that all human beings are morally equal and deserve to have a good life and get treated with respect regardless of academic achievement."
Haha not sure what I thought - I guess that you would treat children more carefully/kindly than they might deserve. (and you would have special gloves to do so??)
It's not slander unless it is false, and it is not false.
And yes, the second part of your comment was what my comment was alluding to. My guess is that they will treat someone who stole billions of dollars less poorly than they do someone espousing beliefs in the biological intellectual superiority of white people over black people.
You are reading a value judgement into my comment that I never made, my comment is entirely descriptive and non-normative.
Some people don’t seem to understand there’s a difference between a comment thread and a newspaper article. One isn’t better than the other, but they serve different purposes. You see this in political discourse especially, with everyone from the left to the right complaining that the media took a neutral POV towards something that they consider (and probably even is) egregious.
The way they're wording it makes it seem like FTX committed a procedural error. And there's no way to word their actions without making it seem dodgy, because it is.
The Justice Department and SEC are investigating FTX and Alameda Research for committing fraud. That's entirely true. You can say that. Deliberately not saying some variation of that is shady in and of itself.
I don't understand the magic of using the word "fraud." Personally, I find this description of the actual alleged offense much more enlightening and equally damning: "FTX improperly used billions of dollars of customer funds to prop up a trading firm that he also founded."
In any case, I'm not really here to argue about whether The NY Times used exactly the right language in describing the situation. I'm reacting more to the claim that The NY Times is somehow covering for SBF here ("daddy and mommy's friends are hard at work") which strikes me as baseless.
"His management of FTX is now the subject of an inquiry by federal prosecutors in New York, who have begun contacting possible witnesses, according to a person familiar with the matter. Others associated with FTX have started reaching out to lawyers for potential representation, said several people briefed on the matter. FTX is being represented in the investigations and the bankruptcy by the law firm Sullivan & Cromwell, while lawyers from Paul Weiss are representing Mr. Bankman-Fried.
In the interview, Mr. Bankman-Fried declined to discuss the prospect of prison time."
I realize it's counter to your narrative so you won't be able to accept it, but there it is.
They don't publicly comment on on-going investigations. But places like the WSJ isn't afraid to link the word fraud to the investigation. Because, that's what the Justice Department does, investigate crimes.
The article does appear to have a bizarrely light-hearted tone given the magnitude of what transpired:
>"But in a wide-ranging interview on Sunday that stretched past midnight, he sounded surprisingly calm. “You would’ve thought that I’d be getting no sleep right now, and instead I’m getting some,” he said. “It could be worse."
For a self-professed "wide-ranging interview" it actually provides scant if any meaningful details to support the headline of "How Sam Bankman-Fried’s Crypto Empire Collapsed."
Of the few details the editor and author chose to include:
>“You would’ve thought that I’d be getting no sleep right now, and instead I’m getting some,” he said. “It could be worse.”
>“Had I been a bit more concentrated on what I was doing, I would have been able to be more thorough,” he said. “That would have allowed me to catch what was going on on the risk side.”
Had I been a bit more concentrated on what I was doing? This reads like "aw shucks, the phone rang and I got distracted." This can not be taken seriously. Is this meant to answer the "How" in the article's title?
>"Mr. Bankman-Fried’s circle of colleagues was bound by a commitment to effective altruism, a charitable movement that urges adherents to give away their wealth in efficient and logical ways."
So he was a charitable man? Just with other people's money?
And then of course this important bit:
>"He has also found other ways to occupy his time in recent days, playing the video game Storybook Brawl, though less than he usually does, he said. “It helps me unwind a bit,” he said. “It clears my mind.”
Yes the NYTimes included the line about DOJ and SEC, but it fails to mention why these two department are "examining" this man's now "crumbled empire."
This is literally just describing him, and none of it is generous. I'm not sure why you don't see that but okay. He sounds like a complete idiot according to every single thing you quoted. Is the Times supposed to say "SBF, a complete idiot, thought he would have trouble sleeping, but doesn't"
>"This is literally just describing him, and none of it is generous."
Yes this is literally "just describing him" which is what makes the article so glaringly bad. Exactly none of these trite details have anything to do with the article's title of "How Sam Bankman-Fried’s Crypto Empire Collapsed."
I would argue that the amount of attention spent on such trivial details about "him" instead of actually talking about the "How" of his spectacular failure is quite generous indeed.
It's also worth nothing that this piece is in the Technology section of the NYTimes by a journalist who according to his byline "writes about the crypto markets and financial technology." Yet so much of this article would not be out of place in a profile in the Style section.
The article quite literally allows Sam to hang himself, I think you are completely misreading it and are counting on NYT to editorialize (which I assume you will of course complain about if they did it to someone else).
It seems as though you might not understand what "literally" means. "To hang oneself" is a figurative expression. It is actually the polar opposite of "literally." Your comment about me "counting on the NYTimes to editorialize" is equally bizarre and makes me think you might not understand what that means either. At any rate your ad-hominem attack is uncalled for. I expect better journalism from the NYTimes as it is newspaper of record in the US. I also clearly articulated my reasons for believing why this article did not constitute good journalism in my previous comments.
"But he would offer only limited details about the central questions swirling around him: whether FTX improperly used billions of dollars of customer funds to prop up a trading firm that he also founded, Alameda Research. The Justice Department and the S.E.C. are examining that relationship. There are some who question this narrative of mistakes made and are calling it a fraud".
That's first thing that jumps out. You have to list all the organizations willing to go on the record calling it fraud.
Your added statement doesn't provide any information about additional organizations that consider FTX-Alameda a fraud. It just puts out a nebulous implication that there exist some organizations, somewhere, that are calling it a fraud. In fact, your statement doesn't clarify whether or not these organizations are engaged in investigations. Nor does your statement even make mention of the evidence these organizations gave you to back up their assertions. Only that these, hopefully not totally hypothetical, organizations "question" a narrative.
I have to say, this addition by you is actually worse than the statement that NYTimes printed in terms of journalistic quality.
I actually hate NYTimes/FOX/CNN/BBC etc for reasons that should be obvious. But what you're doing is going in the opposite direction of where we need to be headed with responsible journalism.
Even in the space of crypto, the community, there are people openly calling this a fraud. That is news. To omit to mention that the crypto community itself is making these claims is to suppress information.
If you just read The New York Times on this topic, would you have a clue that there is a storm of controversy and very pointed questions regarding this affair and other 'important people' associated with this affair?
Who specifically? What evidence did they give you? How are they communicating that it's a fraud? Why do they think it's a fraud?
Journalistic quality requires you to answer questions. Some answers can be "it's under investigation", but you have to have an answer.
You've, again, made a vague reference to something as nebulous as a "community" and you want it to be taken as equally authoritative in nature to the NYTimes' reference to the SEC and the SEC's investigation.
It's just not.
You have to name the organizations, and layout the actions they're taking.
If you want to understand you could have a look at any of the stories about Trump, about anything he's been accused of over the years. Take note of the difference in language used, the choice of words etc.
Well, that's different, because in Trump's case it was obvious he did it all. After all, the NYT told us. Or at least, they heavily implied it, even though nothing was proven. Waaaait a minute.
In fairness, they're heavily implying it here as well. Which is also a problem.
In none of these incidents are any of these investigations complete. So even if it is obvious SBF is a crook, or Trump is a crook, it's not right to be out "heavily implying" guilt. Used to be we only did that kind of thing to street criminals on the local news, (and I had a problem with it then). Now we're doing it all the way up to people like DSK and the President of the US. This is bad. CNN/FOX/WSJ/NYTimes/BBC etc are so irresponsible that people have begun to believe this is appropriate journalistic behavior.
Contrast that with their hit pieces on Brian Armstrong and Coinbase.
It's a great injustice that they didn't apply even 1% of the scrutiny with FBX and SBF, an actual, literal fraud. That NYT piece even lets SBF plug the game that FBX acquired, in a sympathetic way no less.
> He has also found other ways to occupy his time in recent days, playing the video game Storybook Brawl, though less than he usually does, he said. “It helps me unwind a bit,” he said. “It clears my mind.”
Yeah. A developer working on Tornado Cash in the Netherlands gets arrested nearly immediately for writing code. A rich boy playing with crypto and defrauding people to the tune of billions, nope, not gonna even mention “crime” here.
> developer working on Tornado Cash in the Netherlands gets arrested nearly immediately
Authorities publicly mooted Tornado Cash's complicity in money laundering January [1]. It was sanctioned in August after being used to launder millions in proceeds from hacks on 24 June and 2 August [2]. Two days later, Semenov was arrested [3].
Treasury acknowledges it is legal to access the website, view the source code, and none of the developers, DAO members, or users of the application are currently sanctioned by OFAC. The only thing that remains illegal is interacting as a US citizen with the deployed contracts on Ethereum since the time of the designation.
The developer was arrested by Dutch authorities and is currently on remand until December and has not been charged. It's incredible that you can be arrested and held without charge for 90 days by Dutch authorities, but hey that's Europe.
From the official Treasury FAQ:
> OFAC has not designated Tornado Cash’s individual founders, developers, members of the DAO, or users, or other persons involved in supporting Tornado Cash at this time. However, all Tornado Cash property and interests in property are blocked, and U.S. persons cannot transact with Tornado Cash or deal in its property and interests in property, absent authorization from OFAC.
> While engaging in any transaction with Tornado Cash or its blocked property or interests in property is prohibited for U.S. persons, interacting with open-source code itself, in a way that does not involve a prohibited transaction with Tornado Cash, is not prohibited. For example, U.S. persons would not be prohibited by U.S. sanctions regulations from copying the open-source code and making it available online for others to view, as well as discussing, teaching about, or including open-source code in written publications, such as textbooks, absent additional facts. Similarly, U.S. persons would not be prohibited by U.S. sanctions regulations from visiting the Internet archives for the Tornado Cash historical website, nor would they be prohibited from visiting the Tornado Cash website if it again becomes active on the Internet.
> Tornado Cash was re-designated recently, a capitulation that the arguments from the Coin Center lawsuit have merit
You're misreading an administrative action. The re-designation broadens Tornado Cash's alleged support for "North Korean hackers to the allegation that it supported the North Korean regime more generally" [1]. (Also, this entire discussion is a red herring.)
The scope of the original order was quite broad. While Treasury asserts Tornado Cash has been used by North Koreans, they have now narrowed what they are banning to interacting with the sanctioned smart contract addresses by US persons and entities.
The interesting argument at play is if they even have the authority to do that. Encrypted communications are also used by North Koreans, but we do not ban that for US people because, 1) it's math, and 2) there are valid reasons for privacy even if it assists North Korea.
It is an open question for the courts if this is within the authority of Treasury to ban interacting with self-executing smart contracts.
> As part of the SDN List entry for Tornado Cash, OFAC included as identifiers certain virtual currency wallet addresses associated with Tornado Cash, as well as the URL address for Tornado Cash’s website.
Treasury says that originally the website itself was OFAC sanctioned.
With the redesignation:
> Similarly, U.S. persons would not be prohibited by U.S. sanctions regulations from visiting the Internet archives for the Tornado Cash historical website, nor would they be prohibited from visiting the Tornado Cash website if it again becomes active on the Internet.
The scope was narrowed in overt ways as clearly stated above, and for those of us closely following this story, there was a lot of worry that various people involved in Tornado Cash would have serious legal liability. That has been radically reduced.
> originally the website itself was OFAC sanctioned
Sure, the website was originally sanctioned [1] and now isn't [2]. That wasn't part of the re-designation. It also wasn't the part of the sanctions anyone objected to, OFAC's authority to sanction websites being long established.
I doubt they have jurisdiction in the Bahamas's. The Netherlands is a country that really doesn't need all this crypto shit so this was a thinly veiled suggestion to Tornado and everyone else in this field to fuck off to Nassau and stop wasting regulators time.
I am going to swim way against the tide on this one and say I for one am grateful for that piece - it is really an interview of SBF not a piece on SBF.
They have given SBF a chance to set the record straight - he went with the story as laid out in their piece - evidence supporting or contrary to these events will no doubt come out over time. I prefer to have the quotes (lies or truth) on record, and that is what they have delivered.
His father was, reportedly, in Nassau on Saturday. Day after, favourable interview with NYT. He was also, reportedly, questioned by police on Saturday too.
Make no mistake, if the US wanted to end money laundering in its backyard, it could do so. These jurisdictions exist because they provide value, especially to people with the influence to stop them, who see no reason to interfere in a system that benefits them without personally hurting any individual. Any negative externalities are sufficiently diffuse so the public can't pin the blame for the continued existence of the system on any individual beneficiary of it. So why would anyone stop it?
The media has been strangely blind to the rampant fraud in the crypto space up to now, but I think we're going to see a turning point now. This guy is going to have a lot of ink spilled on him in the coming days.
This is patently untrue. search: `site:nytimes.com crypto`, it's overwhelmingly negative coverage. This specific article is either grossly uninformed reporting or politically motivated.
Most of the negative coverage I see using your suggestion is very recent, or around specific events, or by op-ed contributors. But they have the "expert" David Yaffe-Bellany on staff to churn out feel-good crypto stories.
> This specific article is either grossly uninformed reporting or politically motivated.
I know people like to find conspiracies, but I think you can safely leave the politics out of it. To me it looks like they put a crypto bro in charge of reporting crucial crypto failures, rather than to default assuming that the entire space is full of fraudsters and crime and putting a real reporter on it.
Well they do say he’s being investigated by the DOJ, which is the same as saying he’s suspected of committing a crime. The reporter on the crypto beat at the Times doesn’t appear to be very technically or financially saavy, so I’m not surprised they are focusing more on the human interest angle.
>It looks like daddy and mommy's friends are hard at work here. It's completely surreal.
Yeah. All the "Bitcoin Jesus" articles leading up to the collapse almost had me feeling sympathetic for the guy, too. Amazing the mental hoops you can jump through to justify pure greed.
Considering the legal exposure SBF has and the (in my opinion high) likelihood of going to jail for a very long time, I was amazed that the NYT got SBF on the record at all. Every time he opens his mouth he is just giving the DOJ more rope. I'd agree that the Times was soft on him and FTX in general, considering the vast criminality of the organization, but the article is not going to change the inevitable criminal outcome here.
SBF was not a "Biden Campaign Donor" - he donated to various Democratic candidates and PAC's. You also neglect to mention that FTX's Co-CEO (Ryan Salame) donated $23MM to GOP candidates/PAC's and was the 10th largest GOP donor in the Midterms.
As far as the DOJ goes - they are already "looking into SBF" and if you honestly don't believe he will go to jail for a very, very long time then I have some waterfront real estate in Nebraska that I'd like to sell you...
When you have a net worth of $26B as he did a month ago, even if it was mostly paper gains on shitcoins, you manage to get some of the money out of the system and hide it away. Even if FTX is bankrupt and his current paper net worth is $0 or negative, he almost certainly has $100M or so squirreled away in multiple accounts in multiple countries with lacking regulations, in the name of a shell companies that can't be tied to him.
He is probably preparing for prison time.
All jokes aside, he used to game a lot, I think it was always to distract himself from stress. Business going bad and only you know it >> excessive gaming. Engaging in fraud and being nervous about it >> more gaming. Looking at a lot of prison time and death threats(there have been many on reddit) >> more gaming.
The fact that he's still talking to the media. The fact that he's a sociopath who's been running a scam for years. Normal people don't have the nerve to do things like this.
I don't like Trump, but he sure for the 'fake news' thing right... How did NY Times and so many other journalists miss this or Theranos? It's almost like journalists aren't really that good at their job.
I think the important factor in Hunter Biden is his family, not his race. If Joe Biden was black and Hunter Biden was black then we’d probably be in the same situation regarding prison (ie, he’s not in prison).
I suppose that even with a Joe Biden white, Hunter Biden black scenario, Hunter is still not in jail.
This entire press release is a master class in misunderstanding the relationship between the CFTC, FTX, and FTX US (LedgerX).
FTX US was registered, licensed, and regulated by the CFTC as both a DCM (designated contract market) and a DCO (derivatives clearing organization).
FTX Intl bought LedgerX (the DCO and DCM) presumably as an entryway into the US marketplace and as an attempt to bypass the registration process for those types of entities, but FTX Intl was in no way registered, licensed, or regulated by the CFTC.
It's a shame LedgerX may go down with the ship, and their marketplace has a lot of opportunity.
So the cftc is a tiny agency (~700 total employees) and has a lot of other things they regulate (everything from commodities exchange order book micro manipulation to gold fraud over the phone).
At the end of the day FTX came apart too fast and didn’t impact enough people to generate a reason for them to spend their limited resources on them.
This is not accurate. FTX is, afaik, the biggest fraud of it's kind that there has ever been. I saw today an estimate in the FT of 1m creditors. Biggest outright fraud since Madoff, in many ways this is even bigger (Madoff didn't steal directly from his investors, he just paid off old investors/himself with new investors, Madoff was a $60bn fraud but most of this money never existed at all, Madoff was maybe $20bn and a good portion of this has been recovered...SBF did actually steal $10bn...it seems).
Generally, the issue is that regulators come down like a ton of bricks on the little guy but won't do anything when something is too big to regulate.
There is no easy solution to this because you will never be able to overcome the lack of critical thought at regulatory agencies. It is also worth considering the actual scope of protection that regulators offer: the premise of most regulation is that regulators can regulate...when they can't (this is less true outside financial regulation btw, in financial markets you seem the same people do the same scam over and over with no consequences because there are slight variations...and then come down heavily on other people who are innovating...it is really despairing).
It's almost like we need some open source, transparent way of doing finance - where anyone can audit the books and companies have no ability to run off with user funds. We could call it decentralized finance, or DeFi for short. Throw in some zk proofs for user level privacy to really make it shine.
Paraphrasing one of my earlier comments here, because it is appropriate.
> DeFi already exists, and have been existing for almost as long as FTX. Likes of FTX and Binance was created in the first place because decentralized, trustleas on chain transaction is slow and expensive, and people don't like slow and expensive. Just because FTX blew up doesn't mean DeFi is at a better place than it was in the past. "DeFi fixes this" is like saying "moving back to horse drawn carriages solves drunk driving fatalities!" Maybe, but no one wants to deal with horse shit.
Except that DeFi has evolved since then. Transactions on Arbitrum and Optimism are basically instant and cost cents (soon to be fractions of a cent with EIP-4844) while being as secure as Ethereum. ZK rollups are coming out now that are even better than them.
So you get speed, low fees, and full transparency and safety. There's a reason both Brian Armstrong and CZ have said they see DeFi replacing their exchanges eventually.
You surely mean to say "basically instant" (with a 7 day period where your transactions can be challenged)? The asterisk seems kinda important to me.
Also, promising my half-assed project will be perfect by the time the finals roll around stopped working in the real world when I graduated from high school. Seems like only in crypto world it's acceptable to judge technology for not what it is but what it dreams to be.
7 day challenge doesn’t exist for ZK rollups because they can be verified instantly through their fraud proof. Yes, right now if you use optimistic rollups there is a dispute window but I expect next time the bull market comes around we won’t be using them as much.
I would recommend saving your optimistic opinion for the next bill run, then, when the ZK rollup is actually built. My comment that people used FTX because FTX is the fastest and cheapest option they had still holds.
DeFi, the various bridges they tend to use, etc have suffered hacks in the billions[0]. Turns out that smart contracts have bugs like every piece of software ever written and opsec is hard. Then, like all things with non-custodial crypto wallets lets consider how many have been individually cleaned out from phishing, clicking the wrong link, the ridiculously complex nature of the entire space, and poor UI/UX all over. Plus there's the tendency for people to lose access to their wallets forever... I known some very sophisticated people in the space that have been burnt by all of these issues and more.
From what I've seen it's basically at a point now where hacking a DeFi bridge essentially guarantees that you can keep 10% as that seems to be the standard for "bug bounties" now. That is, of course, unless you keep 100%...
It's very likely that if DeFi as a whole had the user base of FTX (or major centralized $EXCHANGE) the losses would be similar if not higher. The only thing that has stopped this from happening is the fact that the average centralized exchange user doesn't have a chance of figuring out how to do DeFi (see points above).
The big difference is DeFi apps are immutable, humans are not.
If someone has deployed a DeFi app that can't be changed and hasn't been hacked in a few months, I'm fairly confident it's safe. With an exchange it doesn't matter if it's been running 10 years, it could start stealing money tomorrow.
Code generally is but the target size and scope here completely changes the game.
When an iOS zero day is discovered (as one example) exploiting it often still takes multiple steps, i.e. some action each individual target needs to take. In most cases (rarer and rarer with the exception of log4j, etc) this limits exposure until it can be discovered and patched. Even in the case of things like log4j you can patch your instance before someone gets around to exploiting your instance.
It's widely known that governments, people like the NSO, hacking groups, etc sit on zero days for as long as possible waiting for an opportune moment with the highest return and biggest impact. Hacking groups, governments, etc have been known to sit in compromised networks for years before striking. Point here is they can be remarkably patient and with smart contracts by the time the issue is discovered there's no point - the smart contract is now at $0 and the attackers have disappeared into the night.
When smart contracts are deployed they sit at an address. If an equivalent "zero day" is discovered it's just there there waiting for someone to exploit it with global/universal impact. No action on the part of any users, no need to deploy target by target. I'm sure I could phrase that better but early-morning HN is what I do between waking up and the caffeine kicking in for real work :).
Point here is, I don't quite understand your "it's been around growing for a few months and $10m (or whatever) is there so it's probably safe". Why strike a buggy contract when it's received some amount of traction and is still early stages? Why grab $10m when you can grab $100m (or more)? As I noted there have been several cases (arguably most) where I'm pretty sure the attackers did just this.
Or, in the case of Axie Infinity, you can steal $620m the "good old fashioned way" by targeting and manipulating one of the people behind it. So, in practice, in many cases, humans are still involved.
This also doesn't get to my other points involving the challenge of securing your own wallet, etc. If you peruse around Discord, Reddit, etc where crypto people of higher than average knowledge, skill, and sophistication are reporting daily wallet hacks you'll see just how hard this is. The equivalent being there's a reason why (for example) the United States keeps gold reserves in places like Fort Knox where there is a literal army of 26,0000 soldiers securing it. Most people don't have that ability and even though this comparison is a little tired I think it applies quite well to the difference between keeping gold in your house vs securing it in a bank vault (for example).
That said, you have a point about centralized exchanges but there's a reason why banks don't run off or gamble (FTX) with customer funds - regulation. I think it's clear from the FTX situation something closer to "bank-ish" regulations are coming to centralized exchanges which only tips the calculus further here towards centralization. So, as is often noted, crypto in general is marching closer and closer towards centralization and consolidation which history has demonstrated is almost always naturally the case.
I don't know how you got that from the points I've made. I'm also noticing the past two replies to my original comment don't attempt to address, debate, or refute any of the points I've made.
I understand what you're saying but the result is the same and it's little consolation to the people who lose their money.
If you get mugged and someone steals your wallet (FTX, crypto wallet, or physical wallet) = money gone.
If you lose your wallet (physical or crypto) = money gone.
If you get handed a counterfeit bill (physical hack) and it's detected and confiscated later = money gone (best analogy I could come up with for a DeFi hack).
In any of these cases if those funds were needed to buy groceries for your kids or pay your rent the end result is the same. Whatever philosophical point you and the last commenter are trying to make means absolutely nothing to the very real people in the very real world who are significantly impacted by these events. People work for their money and the blase attitude and callousness shown towards victims in this space is very disturbing. We wouldn't remotely be having this discussion if someone gets robbed at gunpoint (victim of a crime) vs FTX (victim of a crime), DeFi hack (victim of a crime), wallet hack (victim of a crime), etc.
In the real world outside of crypto these events are exceedingly rare. I've been mugged once and I'm an outlier. I report credit card fraud and it just goes away. I've never had a bank fail. I've never lost access to a bank, trading, etc account. I've never had a negative experience with a wire transfer. I could go on and on while meanwhile all of these things and worse are a daily occurrence for an outsized portion of people involved in crypto.
The FTX failure alone is estimated to have impacted 1 million people. Celsius has 100,000 creditors. Who knows with DeFi, crypto wallets, etc but as I said originally I personally know an order of magnitude more people who have encountered these issues than the equivalents in the traditional financial system (real world).
Forgive my naïveté, but aren’t you describing a decentralized exchange (DEX) instead of what FTX was? Looks like Uniswap, a popular DEX, is still alive and well.
Yea I work at Balancer and love decentralized finance. It is the shining light of the crypto market and it unfortunately gets so little attention in mainstream media.
We have a chance to make finance better with companies that are completely transparent. Where all funds are held by code which can be audited and proven that they can't steal funds.
Decentralized versions of what FTX did already exist:
- Exchanges: Uniswap, Balancer
- Lending Markets: Aave, Compound
- Options: Lyra, Ribbon
- Perps: GMX, Perpetual
We don't have to suffer through scammer after scammer until the end of time, and we don't need overbearing regulation to save us. We just need transparency.
Real finance is already being done in these platforms and I wish more people would take it seriously and realise this can be a much better future for everyone.
Plus because they're open source and composable we can innovate much faster but that's a thread for another time.
Your "love" of decentralized finance is clouding your judgement. "We just need transparency" -> this is patently false. The decentralized exchanges you mentioned are supposedly open and transparent and yet 97% of coins listed on Uniswap are scams. Being open source and transparent solves nothing.
What we need is better, more equipped, and less corrupt regulators.
The problem with DeFi is it can't handle credit risk. You see, banks can also eliminate credit risk. They could lend money, and then insist that the money be kept in a box under their supervision. That would eliminate credit risk, and the money would always be safe. Okay, but what would be the point of that? The entire point of lending is temporarily giving up control of resources so that other people can use them. Therefore credit risk is inherent to any lending activity that is useful. Lending without credit risk is pointless, it defeats the purpose. Most DeFi enthusiasts I have spoken with don't understand this.
GP is most likely mocking what they see as circular logic in the crypto-sphere. Re: Uniswap - a study posted here few days ago found that 97.7% of tokens launched there are either scams or rug pulls: https://news.ycombinator.com/item?id=33572361
1. I received useful emails each day, and spams are always around 10%. Maybe I am just conservative about wher I put my email? Not being in crypto may help as well, but it's definitely not 1%-99% for me, more like 90%-10%.
2. More importantly, an email provider that doesn't make an effort to distinguish between 99% of spam emails and 1% of legit ones is definitely useless and worthless.
Uniswap the protocol is like SMTP - it's open and permissionless. Uniswap the website is more like Gmail, it has a whitelisted set of tokens to swap.
Because it's a protocol anyone can build a frontend on top of it to filter out any information they like, just like Email. Zapper, DeFi Saver and Zerion are examples of this. Element Finance runs using Balancer under the hood but you wouldn't know and aren't exposed to any tokens or pools they don't manage.
Without the capacity for powerful spam blocking email is a bad technology, or at least an unusable one. DeFi seems to pride itself on _not_ blocking its equivalent of spam.
The more interesting part of that article was the ML techniques described, and the actual conclusion that using said techniques, scam versus not-scam projects can be identified very early on. But that was lost is the typical ‘I told you so’ from the ‘crypto is bad’ crowd.
It doesn't sound like mocking scams, it sounds like mocking people not putting money where their mouth is. A lot of people already promoting "defi" are keeping their funds on centralized exchanges. Why? They still provide a performance edge and more features, but if all you need is basic trading, they should be being utilized even more.
DeFi has no fiat gateway though, that's the biggest bottleneck. The gateway is the centralized exchanges, and I think people tend to park their money on them once they deposit/convert their dollars.
"the former CFTC Acting Chair is FTX’s Head of Policy and Regulatory Strategy and a former CFTC attorney to a former CFTC Chair is FTX’s General Counsel."
Meanwhile there are people explaining with a straight face that FTX.us and FTX have nothing to do whatsoever with each other. The name has to be a coindicence certainly!?
The CFTC has historically been a friendlier regulator than the SEC. It was born to protect farmers from Wall Street, amending in 1936 a 1922 Grain Futures Act, itself created to help farmers, by “prevent[ing] and remov[ing] obstructions and burdens upon interstate commerce in grains and other commodities by regulating transactions therein on commodity futures exchanges…” [1]. Inherently facilitating, in contrast to the adversarial Securities Act of 1932 [2].
This is why Coinbase’s Armstrong et al have been pushing for it, not the SEC, to regulate them [3]. Hopefully this puts a nail in that coffin.
There are multiple agencies that BOTH claim the right to regulate crypto AND refuse to actually do so. The SEC in particular is very vocal and brings cases against crypto users. But is actively avoids any case where a court might be asked to rule on whether it actually has the authority or where someone with the money for a real legal battle is the defendant. On top of that, there are 50 state governments all randomly passing non-sense.
This mess is fundamentally the fault of congress which has refused to address the question. And it is congress that should make this decision, not the courts, both in a legal and democratic sense.
As much as I'd like to see regulators dragged over the coals for talking big, and offering (or demanding) registration but actually doing nothing, it's politicians that have watched this grey legal space turn into a black hole and done nothing.
Regulators should have acted against crypto years ago. But these agencies have been walking on eggshells because the conservative Supreme Court is inclined to take away much of their enforcement powers. A lot of crypto money has flowed to mostly Republican politicians who support turning the SEC and FTC into hollow shells.
Ultimately the criminal is to blame for the crime. Law enforcement can’t be everywhere actively preventing people from sending money to shady actors, as much as we try to build systems to that effect. Hopefully the FTX collapse is a reminder to both American parties to beware “innovators” bearing gifts, and for SEC to better use the powers they have (for now anyway).
Bankman-Fried, the CEO of FTX, gave $35M to democrats. Ryan Salame, the "Co-CEO" of FTX, gave $18M to republicans, making him the 10th-largest republican donor (though this is slightly misleading as a comparison; republicans have more large donors than democrats, and Salame's donation would have been the 5th-largest if it had been for the latter).
That doesn't seem to support the claim that "crypto money has flowed to mostly Republican politicians". Rather the opposite, as the amounts from those donors are $35M to Democrats vs $18M to Republicans.
Are there some other donors who gave crypto money to Republicans?
I am not supporting or refuting either claim, I'm offering data. Speaking personally, I will say that overturning Citizens United would be a good start at keeping this money out of politics, which, as of March, was an effort that appears to be sponsored exclusively by one party: https://schiff.house.gov/news/press-releases/congressman-sch...
> Are there some other donors who gave crypto money to Republicans?
I can only speculate as to the sources of wealth for many of these people and their motivations. That said, we do see Peter Thiel with a $32M donation to republicans, the same Peter Thiel who headlined the Bitcoin 2022 conference this year:
'Taking a break from throwing cash into the crowd, Thiel accused the three finance moguls of facilitating a system that harbors institutional and political biases against Bitcoin.'
'"The central banks are bankrupt. We are at the end of the fiat money regime," Thiel declared. Thiel believes Bitcoin is the ultimate alternative to the entire traditional financial system.'
Given that those things frequently follow a power law, one man is hardly indicative of the impact the 2nd biggest donor has. Even more so when I am not sure if anyone in crypto comes even close. Coinbase only maybe?
> Regulators should have acted against crypto years ago
This case has surprisingly little to do with crypto. Gambling user deposits is already illegal.
>A lot of crypto money has flowed to mostly Republican politicians who support turning the SEC and FTC into hollow shells
Note SBF and FTX's donor list.
Insightful comment. It makes sense for the agencies to want control and no responsibility, the best of both worlds. If we are waiting for Congress to actually act, then nothing will happen. They are too busy empowering the executive branch.
Regulation won't be a silver bullet, plenty of scams remain in regulated finance that they are supposed to fix as well.
But they could establish rules that guarantee transparency.
No regulator in the world has successfully stopped a scam before people lost money (afaik). But if you establish some regulatory framework in which people have to disclose information, establishes capital rules, etc. then it makes that less likely.
Scams are a central component of financial innovation. But this specific kind of scam (stealing money from customers) is basically non-existent at scale today because of regulation.
> no regulator in the world has successfully stopped a scam before people lost money
It's impossible to prove anyone stopping anything before harms materialize because the prevented harms never happened. Regulators have definitely stopped scams early enough to reimburse victims. And where they couldn't (and where regulators were the ones to stop it) would have presumably kept going absent their interference. Americans are to a large degree shielded from FTX's collapse on account of regulation.
>No regulator in the world has successfully stopped a scam before people lost money (afaik). But if you establish some regulatory framework in which people have to disclose information, establishes capital rules, etc. then it makes that less likely.
Just trade on chain. Smart contracts are transparent by default.
If you're going to trade with smart contracts, the correct advice should be 'don't trade at all', because you're going to have your lunch eaten by software bugs.
Wasn't the SEC directly involved in one of the last few financial collapses? IIRC there was an whistleblower on how monitoring data could be annulled by deleting 3 files during transfer off an airgapped system. The SEC was all like 'it's a feature, not a bug'
It's not really a legal grey area, congress deliberately writes vague laws so that administrative agencies can interpret and fill in gaps during their rulemaking process, which would then receive deference from courts if challenged and effectively become judge, jury, executioner. At this point I'm surprised that they haven't delegated out all the naming of post offices to some agency.
Too bad the press release here is also hot garbage. For one, it's heavily based on speculative notions of what happened. Secondly, the withdrawal notice IS regulatory, and LedgerX is the legal entity that made the request. Changing it would look far more suspicious than following procedure. Also, what sort of regulation could have stopped this is very much an open question, since the whole phenomenon of affiliates, subsidiaries, and everything that led to FTX and FTX.US offering different products to different customers is entirely a product of anticipating or compliance with regulations, keeping in mind that FTX doesn't only operate in the US and some amorphous world but actual countries with their own regulatory frameworks. And the revolving door is effectively inevitable - those who are engaged in the field with any expertise on specific regulations is going to be a very small pool, and this goes for a lot more industries than CEXes, especially in technical fields and it doesn't even need to be rocket science. Courts and attorneys are setting a lot of junk precedent that will never be relevant or end up counterproductive because they don't know how CDNs work and some of the opinions from DMCA suits against absentee defendants are entirely based on infringement arising out of Cloudflare IPs while defining incidental (non-purposeful) availment of service as insufficient. Without a revolving door, it'll become farcical because you'd end up the equivalent of asking a dentist to do brain surgery. Without competent counsel, and facing down regulatory pressure, you will just lose the industry all-together, which is the apotheosis of an unregulated market because all activity is either underground or out of jurisdiction. The US is a big market, but nobody wants to go through what Ripple is going through, and calling it a regulatory failure when undercollateralized derivatives were offered on ftx.com but not ftx.us wasn't some 4D chess move but self-preservation, like Binance eventually did. I also can't figure out the logic behind the rationale that can include both "CFTC failed to regulate" and "CFTC should regulate more". 100 x 0 = 0. CFTC has acted incompetently before - like treating all holders of a token as an active member of a DAO in an enforcement action, seemingly forgetting that I can send anyone a few tokens, or hell, an offensive NFT for that matter, and there's not much you can do to stop that even if you catch it.
Although reading bettermarkets I can't help but notice that its critiques are almost always on the regulators and their incompetence and the solution is... more regulation. They depict what can only be described as a fantasy world where crypto - that is all crypto, which is not a monolith - is the boogeyman while in reality, crypto is given the exact opposite of the too-big-to-fail treatment.
> The key to that influence campaign is to buy as many former public officials and regulators as possible to gain access to their expertise, inside knowledge, and networks developed when they were supposedly working in the public interest. The importance of those revolving door hires cannot be overstated because they not only enable ready access to current policymakers and regulators, but also to the inside knowledge that enables crypto to precisely tailor and target their strategies to be optimally successful.
Are they deliberately misleading the reader or genuinely talking out of their ass? You hire regulators for compliance, because the tech moves too quickly, and optimally successful strategy? Even MEV bots get salmonella. Not to mention that academia has much of that covered. Then, I checked out their CEO's litigation record on courtlistener and found that until last year he was at some big law defending predatory lenders. Well, there you go.
> The 30-year-old Bankman-Fried has been a major force in Democratic politics, ranking as the party’s second-biggest individual donor in the 2021–2022 election cycle, according to Open Secrets, with donations totaling $39.8 million. That ranks only behind George Soros (about $128 million) but ahead of many other big names, including Michael Bloomberg ($28.3 million). What’s more, he had promised to spend far more on Democrats moving forward, predicting in May that he’d fund “north of $100 million” and had a “soft ceiling” of $1 billion for the 2024 elections.
> This mess is fundamentally the fault of congress which has refused to address the question. And it is congress that should make this decision, not the courts, both in a legal and democratic sense.
SBF was using congress as sock-puppets to ghost-write regulation:
> Crypto’s supporters in Congress are determined to ignore the massive gap in capacity between the two agencies; in fact, they likely understand that its incapacity is part of its appeal to FTX. A bill proposed by Sens. Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) seeks to grant the CFTC “exclusive jurisdiction over any agreement, contract, or transaction involving a contract of sale of a digital asset that is offered, solicited, traded, executed, or otherwise dealt in interstate commerce, including market activities relating to ancillary assets.” Perhaps in anticipation of such a move, FTX has stocked up its ranks with former CFTC officials. Former CFTC commissioner and acting chair Mark Wetjen is FTX’s head of policy and regulatory strategy. Ryne Miller, who was legal counsel to Gensler when he led the CFTC, is FTX’s general counsel. The Tech Transparency Project has also identified 14 other cases of CFTC alumni revolving into the crypto industry.
The current Chairman of the SEC worked with the CEO of Alameda's dad.
Gensler initially didn't support the FTX bill, but was reportedly lobbying for it a few weeks before FTX collapsed (to be clear: this is a guy who was saying crypto should be regulated, SBF appears with a big chequebook, and he then says that his own regulator shouldn't be doing the regulating...not suspicious at all...).
A few years ago I became convinced that there would be a collapse in the crypto space triggered by the insolvency of Tether. I was looking into ways to build a short position.
I could only find three means that were legally available to me in the US (at the time at least); trading CME Bitcoin futures, shorting relevant equities (eg publicly traded Bitcoin miners), and trading options on LedgerX (which was purchased by FTX).
I couldn't trade futures or short stocks, because I couldn't handle infinite downside risk. So that only left put options at LedgerX. LedgerX was supposed to be fully collateralized, and so should have had all my funds on hand even in the event of a contagion in the crypto market.
But I could never shake the feeling in my gut that they'd get wiped out with everyone else. I let the idea go. Entire years passed and now the market is falling apart. Part of me wishes I'd been short somehow of course, but I know I couldn't have remained solvent this long.
Tether was actually created to solve the problem you describe. Traders needed to be able to sometimes park assets in dollars with an exchange (if they're exiting a position for example), but couldn't because of US regulations, so Tether was created and has been wildly successful.
And it's interesting how much hate it continues to get, especially from people in the US. It was released in 2014 and has maintained it peg since then, with trillions and trillions of dollars of value transacted in it. It's one of longest running and most successful crypto projects by far.
The regulator's purpose is to raise barriers to enter and prevent competition so that those already established on the market can make more money. The regulator has zero interest in protecting consumers. That's not what it's for. CFTC did not fail to regulate, and there is no reason to think the regulation was not effective at its actual purpose.
Reflexive antiregulation is the empty ideology that keeps us in a cycle of boom, bust, and bailout with banks. We neuter Glass-Stegall and within a decade we had 2008 now the regulations in Dodd-Frank meant to keep guard rails on the banks has also AFAIK been thoroughly neutered but this time it lasted less than a decade and banks have already reinvented and rebranded the same financial instruments that blew up in '08.
It is very difficult to be particularly brief. But the purpose of regulation is not to outlaw boom and bust, it was to stop TBTF...which it has largely done.
But the issue is that outlawing XYZ did absolutely nothing because there was still an economic rationale for that activity. So a lot of activity moved to PE funds, and other non-bank lenders.
The exact issue is that people think in the rear view mirror: we are in a cycle of "boom and bust" with banks...my guy, banks stopped being relevant years and years ago. But the problem now is: liquidity in markets has absolutely disappeared (current liquidity in USTs is as low as the depth of 2008, this is despite the market growing 5x since then), risk has moved to non-banks, etc. All these other side-effects have now been triggered.
Also, the financial instruments that "blew up" in 2008 were ones that investors were demanding. It is like blaming the guy who sells you a gun if you shoot someone, "why did you sell me this?". The reason why investors wanted these securities was because the demand for AAA securities in 03-04 was very high but the Fed drove rates down to 1% so large institutions were legally unable to meet liabilities. Obviously, there was other stuff going on but the underlying logic of things like CDO/CMOs is strong (almost every country in the world wishes they had a financial market like this, Denmark is the only other one, ironically the issue with not having securitization markets is that risk gets centralized in banks, people in the US think the 2008 bailout was crazy...countries like Germany, that have heavily centralized financial markets, have had to bail out banks three times since then). Unf, the lessons of 2008 largely haven't been learned (and this is despite the fact that the US had, by far, the best/least interventionist response).
There were some critical flaws in the logic though. The risk calculations for the synthetic CDOs that mixed the lower tiers of loans and that diversification magically made them suddenly prime ignored the possibility of any kind of event that would affect the market generally; say a recession or in this specific case lots of adjustable rate mortgages changing to higher rates when the initial rates expired? The idea of creating an instrument like that is fine but the analysis of the risk and the layering of them together created an impossible to analyze time bomb.
Also no one sold me a CDO gun they sold someone else a gun and it threatened to sink the global economy riiiiight as I was going into college. Luckily software engineering weathered the period fairly well and I was able to get a job when I graduated in '13. These things don't just impact the buyers and sellers they incentivize and potentially warp the entire economy and when the sellers and buyers screw up they're not even left holding the bag.
LedgerX is not included in the bankruptcy filings, is not a fractional reserve and is still functioning
It is regulated but that has nothing to do with why it didn’t fail, its just managed better, fully collateralized, and maintained its separation in the ftx issue. for now.
> same way that "FTX is a ponzi scheme" was a conspiracy theory until a few days ago
FTX’s failings weren’t widely acknowledged. But critics weren’t dismissed as unbelievable, even absent strong evidence. Most of us just don’t give a shit.
Beyond Robinhood ramblings, there isn’t even circumstantial evidence of DTCC being corrupted in favour of Citadel, a claim which requires having the latter overpower every global bank plus every competing fund complex, from BlackRock to Bridgewater.
>FTX’s failings weren’t widely acknowledged. But critics weren’t dismissed as unbelievable, even absent strong evidence. Most of us just don’t give a shit.
Did you forget the HN thread about the initial leak?
Wasn't there some kind of YouTuber screaming his lungs at SBF and his exchange a week before this happened? I even remember people were laughing at him. They made a joke out of his tantrums.
I don't follow it too closely, but I've seen blog headlines suggesting that the big Wall Street entities got together and colluded to avoid having to eat major losses on their short position on GME stock that the meme people were holding. Basically that investment banks were able to cheat individual investors out of their money by changing the rules at the last minute. I have no idea where this falls on the spectrum of "LIBOR price fixing" down to "2020 election was stolen" as far as plausible conspiracy theories go.
They also have a cypriot CySec new crypto license obtained just 2 month ago that was suspended, the license was obtained from another company that was involved in Financial investment scam in Europe.
Eh, people incur billion pseudo-dollar losses on a monthly basis in crypto. Exchanges and token issuers rugpull all the time. This just happened to be a much better publicised fraud. I doubt even this will stop retail investors getting scammed.
It's not every day that the second largest exchange in the sphere goes down the toilet. Well actually, if the knock on effects hit other exchanges like some people fear that might happen.
The real hair on fire moment would be a Binance rug pull.
More accurate to replace "crypto" with "Wall Street". This is a story about nepotism and corruption in Wall Street. The fact that SBF was peddling cryptocurrencies didn't matter for the fraud, but is likely a key reason that he got caught.
As I understood it FTX did have a US subsidiary (which is what I assume was CFTC regulated entity), but that all the shenanigans were offshore. It’s the same reason that when Lehman folded, the US broker dealer clients were relatively unscathed vs European broker dealer clients who lost a pile due to different (laxer) regulatory regime
FTX US collapsed too, as did Alameda Research (the hedge fund that was supposed to be totally separate and theoretically as regulated as any hedge fund).
Most net flow of economic activity where real currency is involved is not 'scams, laundering, gambling, and crime'. They definitely make up less than 10% of the real economy, probably less than 5%.
Meanwhile, the real economy of crypto seems to be coin issuers and early adopters and platform operators fleecing later entrants, with a generous helping of outright theft.
This story has the details wrong. I have had an account with FTX US Derivatives since they were LedgerX (right after they got the CFTC charter).
They complied with the regulations, They still do. My assets are liquid and I was able to wire everything out. Whoever made this story doesn't understand corporate structure, and also didn't bother to check their facts in even a superficial way.
I'm surprised the CFTC approved ICE Clear Credit's initiative to bring options to the credit default swap market, seeing how bank's over-levered CDS holdings contributed to the great recession. Options can be used to manage risk but can also be used to efficiently lever a position.
Were the futures market (if any) on FTX operating correctly? Because that's the role of the CFTC. It's not to regulate entire companies and identify fraud.
I love how regulators are using this as a crux for saying crypto needs regulations meanwhile the wall street regulations don't really do anything except keep the big dogs in charge and the little guys being fleesed.
I bet if there was a run on brokers, the exact same thing would happen because lots of peoples shares are just IOUs.
The reason people try to avoid the "it's all fraud" kind of realization is that it deterministically leads to the second half of your comment, where you start to perceive every person and policy you don't like as a unitary web of badness. Plantation masters, bankers, and industrialists are all very different groups of people with different interests, goals, and practices. So if you find yourself with a grand unified theory of how they're all the same you've taken a wrong turn.
They certainly have some. Like most people, they tend to aspire to making money, gaining social status, and building fulfilling relationships.
Can one find a goal that only these groups have in common? I don't think so. The only commonality between them is that they're conventionally considered powerful in modern American society, and even that part is only true because the terms are understood to refer specifically to powerful members of the underlying group. A counter clerk at Wells Fargo isn't really a "banker" and a farmer who hires a handful of people to help with the harvest isn't really a "plantation owner".
Everyone thinks Coinbase is safe because it’s regulated by the SEC as a public traded company… Coinbase is not safe, Coinbase will collapse. That’s word from the inside.
The kind of risky behavior that caused the 2008 crisis would have happened a lot more often if the markets had been regulated as poorly as crypto. There would have been a 2008-style crisis every decade.
What happened to banks in 2008 demonstrates the value of the regulations and other systems we had in place. Some banks did fail, but depositors didn't lose money because of the FDIC insurance.
In this case, CFTC came at us with claims that we were breaking rules and then required us to prove that we were not. Just looking at our website it was very clear what we were doing and what we were selling (education content), and there was not a hint of anything to suggest that we were selling investments or commodities. Even still, we had to give our corp attorney annotated screenshots of our website, illustrating exactly what our business was, and have that sent back to CFTC.
After doing so, we heard nothing back from them. They should have been satisifed by what we sent (presumably they were), but they didn't even both to say, "Ok, you may go."
The whole thing felt really arbitrary and amateur.