> Most news accounts seem to portray the scale of the bankruptcy as relatively small.
This is a key point.
They lost $16B in customer deposits.
LTCM lost $4.6B in investor funds.
Enron lost $11B in shareholder capital.
Interestingly, while Madoff is widely quoted as having lost $65B, that was almost all fabricated paper wealth, actual losses were around $18B and $14.4B of that was recovered and returned.
All of these situations are obviously somewhat different, but if what we're starting to hear is correct, FTX may be one of, if not the, biggest financial frauds/scandals in history. The media doesn't seem to be treating it as such.
>LTCM lost $4.6B in investor funds. [...] All of these situations are obviously somewhat different, [...] biggest financial frauds/scandals in history.
LTCM shouldn't be in that list because that wasn't fraud. That hedge fund had a flawed math model of volatility of their holdings when a cascade of events got triggered by Russia defaulting on their bonds. LTCM losses were magnified by their over leveraged positions.
A bunch of PhD traders lost their wealth and got their reputations tarnished but it wasn't criminal activity.
It had the potential to cascade to the rest of the market because of how they used leverage, and the only reason it didn’t was because of emergency Fed intervention.
That does not make it a fraud. They took investor money and leveraged it and made bets on basis of their mathematical models. Their models didn't work out.
I don't think their intention was to rob / hide / betray / hoodwink.
right, but if a counter-party ends up losing money because of incorrect assessment of credit or liquidity risk, isn’t that their own responsibility? It’s like when someone can’t pay the mortgage loan a bank lent them - the borrower isn’t performing under the terms of the contract, but part of the payments that borrowers make to the lender is to account for that credit risk - what matters is if the lender has accurately priced this over their portfolio, taking into account how “independent” (or otherwise…) the individual loan risks really are. The liquidity problem is usually when it turns out that the individual loans credit and liquidity risk are NOT independent at times…
Yes, I understand how financial contracts work. But like I said in my original comment[1], at the top of this subthread, that provides vital context for the point I'm making, this was big enough to have the potential to cascade, i.e. be such a big loss -- against such a formerly-safe capital buffer -- as to spill over to other financial institutions, bankrupt them, then spill over to their counterparties etc, and eventually to the broader markets that are many degrees removed.
The kind of situation they were worrying about and rushed to prevent in 2008, IOW.
You are correct, in a trivial sense, that maybe the entire market should have just not trusted anyone else, except perhaps under extreme constraints, which would have amounted to almost no financial intermediation and thus almost no financial industry whatsoever. But even the most hardcore "you should have vetted your counterparty" finger-waggers aren't willing to go that far.
Taking customer money and using it for something else is absolutely a crime. And it has nothing to do with the regulatory status (or lack thereof) for crypto. If a car dealership takes customer down payments on cars and instead of ordering the cars they gamble the money away in Vegas, they don't get to just declare bankruptcy and say "too bad so sad", they go to jail.
this is exactly what happended at FTX/Alameda. A bunch of "smart" guys who backstopped and over-extended loans to players, and their losses were magnified with their over-leveraged positions, that was backed up with assets with no values. That's exactly what happens in just about every financial scandal.
FTX took customer deposits (which were supposed to be held in custody and untouched, according to their TOS) and loaned them out to Alameda to gamble with. That is entirely different from being over-leveraged and having your debts default.
> FTX took customer deposits (which were supposed to be held in custody and untouched, according to their TOS) and loaned them out to Alameda to gamble with
This is what I initially suspected. But we can see FTX's balance sheet [1]. There is no loan to Alameda. "FTX shot its customer money into some still-unexplained reaches of the astral plane" is the best explanation we have for billions of missing dollars [2].
It's also possible that the one hastily thrown together excel spreadsheet the CEO himself chose to release doesn't include the full accounting. Maybe Sam decided to leave off an illegal off-book loan?
> we can see FTX's balance sheet [1]. There is no loan
The problem with this is that the customer funds are also not present on their balance sheet. Levine opined about this yesterday; Like 3 of the biggest assets are coins ftx didn't pay for - so where did the money go?
That's why the Alameda explanation is likely, in one way or another. Money had to go somewhere.
The information about a loan from was taken from the NYT interview [0]:
> Meanwhile, at a meeting with Alameda employees on Wednesday, Ms. Ellison explained what had caused the collapse, according to a person familiar with the matter. Her voice shaking, she apologized, saying she had let the group down. Over recent months, she said, Alameda had taken out loans and used the money to make venture capital investments, among other expenditures.
> Around the time the crypto market crashed this spring, Ms. Ellison explained, lenders moved to recall those loans, the person familiar with the meeting said. But the funds that Alameda had spent were no longer easily available, so the company used FTX customer funds to make the payments. Besides her and Mr. Bankman-Fried, she said, two other people knew about the arrangement: Mr. Singh and Mr. Wang.
"Alameda had taken out loans and used the money to make venture capital investments." - translation: We took all the money and gambled it all away. Again.
>FTX took customer deposits (which were supposed to be held in custody and untouched, according to their TOS)
Can you provide the exact wording? At least when it comes traditional finance, if there's margin involved (FTX most definitely has margin), your deposits/holdings are fair game for your broker to use as they please.
>Some margin accounts allow the brokerage firm to lend out securities in the account to a third-party, at any time without notice or compensation to the account holder, if the investor has any outstanding margin loan in the account
"You control the Digital Assets held in your Account," says Section 8.2 of the terms. "Title to your Digital Assets shall at all times remain with you and shall not transfer to FTX Trading." The terms continue: "None of the Digital Assets in your Account are the property of, or shall or may be loaned to, FTX Trading; FTX Trading does not represent or treat Digital Assets in User’s Accounts as belonging to FTX Trading."
My point is that the real problem isn't that Alameda was over-leveraged or gambling, it's that SBF stole user funds from FTX to try to rescue Alameda. This is not what (some of) those other companies did.
from SBF perspective Alameda & FTX are the same. Yeah yeah they are separate legal entities, but in actual practise, one market-made for the other, and he treated them like one is left hand, the other is right hand So yeah Alameda gambled, overleverated and lost money just like nearly every other financial crises in history, SBF then fraudulently moved money from FTX to cover Alameda's gambling losses. I won't be shocked if FTX has alway been the source of funding for Alameda's gambling, just that Alameda was winning when everything was rosy. then the crypto market turned
>this is exactly what happended at FTX/Alameda. A bunch of "smart" guys [...]
No, they're different situations.
The current details trickling out of the FTX scandal is that CEO Samuel Bankman-Fried secretly used customer funds to prop up Alameda which is unethical and criminal. This is fraud.
In contrast, the LTCM guys lost billions honestly and transparently via flawed math models based on overconfident assumptions of price spread behavior. That wasn't criminal fraud. There was no illegal transfer of investor funds.
ignore the fraudulent part of covering up the money, how Alameda lost money is the same as how LTCM guys lost money. guys who think they are too smart and made wrong predictions about the market. That part is very very similar.
SBF then compounded it by layering fraud on top of the "im too smart to fail" losses by using customer funds to cover up the losses.
The financial news (WSJ, FT, Bloomberg) is definitely less blasé about it. There's definitely a sense that a scam is slowly being unearthed.
I don't know if it's SBF previous political connections that are making most media outlets hesitant to delve into the details, but the scale of the failure is going to be unavoidable as more details emerge.
Too many institutional investors got burned and they will no doubt be eager to prove fault lest they themselves be blamed for poor judgement.
> I don't know if it's SBF previous political connections that are making most media outlets hesitant to delve into the details, but the scale of the failure is going to be unavoidable as more details emerge.
The Ryan Salame part of it may be making both parties not want to look into it too much.
They lost roughly $8B in customer deposits. The $16B cited in the article is the total amount of money they lost which includes a sizable profit that they were supposed to have made on their legitimate business activities.
I wonder how much of those $16B in customer deposits were actually lightly-traded altcoins that could never have been liquidated at anything close to that value? There is no doubt they defrauded people of a lot of (real!) money, but my guess is a huge chunk of that $16B top-line figure is fantasyland dog-coin nonsense. Whereas the LTCM and Enron investors at least started with real cash.
I think it's likely that a significant portion of those liabilities were generated from magic beans and ought to be ignored when comparing the size of the collapse with other things.
To give a hypothetical example: Alameda, as a customer, deposits magic beans with a mark to market value of a billion dollars. Then Alameda trades the magic beans for a billion dollars of BTC-perp (FTX paper bitcoin), with FTX acting as the counterparty (which I believe they typically were for trades of the perpetuals). Now FTX's balance sheet reflects $1 billion in Bitcoin liability (plus being long $1 billion worth of magic beans)-- but in this example no bitcoin had been deposited at all-- just magic beans.
When sizing up the losses, all liability ultimately resulting from magic beans ought to be backed out. This is exit complicated because some of the magic-bean derived paper assets have presumably been withdrawn using customer deposits, and those funds are actually lost even if the depositors that brought them in never traded (and simply deposited in FTX because of the ponzi-scheme grade yields they were paying depositors).
I think his point is that while it was bought with real money, it couldn't be sold for real money.
If I buy 50 RandoCoins for $1 today, tomorrow it shows that it's now valued at $2, and then the next day RandoCoin is hacked and all the coins are stolen, I didn't really lose $100, I only lost $50.
So he's wondering if the value of loss is being expressed as the money used the purchase the coins or the perceived value of the coins.
Yes, but how much real money is the question. I'm not doubting that real money was lost, just wondering if $16B of actual customer dollars ever flowed into the exchange.
Exactly, I always wondered what the real numbers looked like. It's so easy to mint 100 coins, get a friend to buy one at $100, and say you "have" $9,900.
I wouldn't be surprised if the number of actual dollars was less than $100 million.
It's easy to see how FTX's assets could be "worth" $16B in the absence of any real money coming into play, but I don't see how they could get to $16B in liabilities that way. The most obvious possibility would be if their liabilities were also denominated in thinly-traded shitcoins, but at this point it seems clear that that wasn't the case.
Considering that "pretend money" is purchased with "real money", this distinction doesn't matter much. I guess it just depends on if you consider property valuable despite not having a green tint and dead political figure on it.
The question being asked is if the pretend money has risen in value subsequent to purchase, then is the amount lost the real money used to purchase it, or the pretend money at peak (or another) valuation.
With both the 16 billion figure being preceded by the U.S dollar sign, and FTX being an exchange for many different cryptocurrencies at drastically different values, they were probably adding up the dollars invested by stockholders and the dollars input into the website. After all, their FTT coin crashed and burned completely, and many other currencies are also dipping to record lows. If they valued the dollar based on current prices, then it would be multiples of $16B instead.
Either way, the inclusion of "astronomically overvalued cryptocurrency" as a descriptor definitely makes it seem more like a slight towards crypto than an honest question of the valuation. Put simply, a lot of people lost a lot of money.
This is a great point. I guess I am skeptical that everything will be lost, but even if it's only half it will still be an absolutely enormous bankruptcy and loss.
If all of the actual cash, the real liquid assets were withdrawn leaving only illiquid, relatively valueless crypto tokens, and those tokens are sold down over the coming months then the percentage losses as a percentage of the max or total value they managed will be very high indeed. Sorry for the run-on sentence.
I'm wondering if the numbers are believable. That's because I think they are doing "paper valuation," like when a drug bust happens, and the value of the kilo is broken into "street-level" packets; quadrupling the value.
I am not a crypto expert, but from the bit I do know, it seems as if it's fairly difficult to correlate fiat with crypto.
The Matt Levine article looks at that and claims quite a lot of it is just tokens issued by FTX themselves or related trading entities. In the words of Walter Sobchak from the Big Lebowski : "Mark it zero!"
Perhaps "only" $5bn was real and much of that was from institutional investors. Not yet clear how many retail rubes have been caught up in this.
Unclear if we have accurate info from Sam but the situation is more like 9b in liabilities with 70% of that in liquid and illiquid assets. People getting back that much is highly optimistic but the 16b doesn’t seem accurate at all. FTX already paid users out $5b btw
> 9b in liabilities with 70% of that in liquid and illiquid assets
They have $9B in liabilities, and realistically they have about $1B in realisable assets. On the balance sheet Sam has included about $7B worth of Serum and FTT, both of which vastly exceed their circulating market cap and are also effectively worthless as the businesses they represent have lost all credibility and/or are insolvent (Serum is a decentralised exchange created by FTX)
The starting point is the assumption that FTX's equity sales left them with a few billion and Alameda's trading left them with a few billion. You have to burn through these billions and then dig a ten billion dollar hole.
Ironically keeping a short position to benefit from this collapse is pretty risky. Shorting requires leverage by necessity, which means you'll have to turn to an exchange like FTX, which has the possibility of collapsing. Decentralized lending protocols aren't much better, as collapses a few months ago has shown.
CME offers micro futures at globex: METX2 and MBTX2. You can short those with your typical margin rates; my broker gives me the same leverage as legally defined by my gov.
If only these calls for regulation from the two persons in this interview, could have been heard on time. Most interestingly, and as it's obvious from the interview, regulators were watching these children playing and only poking gently.
The secret is that regulators can only have a fairly limited effect, and retrospectively. As well as the inherent jurisdiction difficulties in operating out of the Bahamas. Mind you, that's something crypto investors wanted: freedom from government!
There's a real "accountability overhang" not just in crypto but so many other things. Justice is slow and getting slower.
Unless there is some sort of event horizon in financial systems, it is wrong to use the word "lost" as if it is impossible to find out who got these kingly sums. Billions of dollars were "blown" and the question we should be asking, very forcefully, is who got that money.
It could be that no one "got that money." If a stock is trading at $2X and the value of all of the shares is $1 billion, no one gets the money if the stock opens the next day at $X. That's the problem with thinking of stock prices as real money. (And, indeed, real cash can also lose value through inflation.)
It's crypto! Once it's transferred off the exchange, it's in a pseudonymous wallet.
Just to confuse matters, it appears that both the exchange was hacked and an insider was draining funds just before it shut down. But before that, there was a lot of "money" that went out the door in legitimate trading losses.
> there was a lot of "money" that went out the door in legitimate trading losses.
Let's not give them easy pass on this. I could be wrong so correct me on this:
Easy setup is to have a bunch of people setup 'shitcoins' and shell companies, scam people to put actual money into the scheme to pump the price, and then pay inflated prices for your fellow scam artists' shitcoins, so they clean out, but the chumps who bought your coin are holding the bag.
As I've explained to others here before, there's a difference in magnitude which is relevant here. SBF pledged to donate _$1 billion_ to the Democrat party. The only person to spend more money on the Democrats this cycle was the dear George Soros.
Who knows what's in store for SBF, but it's important to look at the facts here and acknowledge that this operation was heavily invested in the success of the Democratic party.
There's an even bigger difference between donating and pledging to donate.
Salame donated $26.4M to individual GOP politicians and another $2-3M to GOP political organization.
SBF donated $39.8M to Democratic politicians and organizations.
Not all that different.
The $1B pledge was realistically never going to happen, just as his offer to loan Musk $3B to buy Twitter was never going to happen. Even in the best of times he never would have been able to extract that kind of real money from his operation within a short time.
But he didn’t donate that much. He was never going to have that money. The other person is showing how close the other guy was to the GOP. You’re being partisan here.
An interesting part of Madoff recoveries were through settlements against originators/feeder funds because they « ought » to have known it was a ponzi.
Unsure if FTX creditors will be able to do the same.
But mostly, Madoff himself didn’t really spend much money. Just did nothing with it. The few pieces of fancy real estate he lived in were actually profitable because he didn’t build some gawdy illiquid palace.
But there was a lot of time-value loss that isn’t accounted for. Even 14 years later there are still distributions. Even getting $1 back on your 1995 $1 is still a big loss.
> An interesting part of Madoff recoveries were through settlements against originators/feeder funds because they « ought » to have known it was a ponzi.
Did the judge say that? I would think the logic was that they were effectively getting stolen money as gifts. Like when a scammer gives their victims' money to their own family. Doesn't matter if they were in the dark or even spent it already.
As I understand it, if stolen/scam money is used to buy something it's not the seller's responsibility because money is legal tender. On the other hand, if a stolen item is sold, the issue of knowing where it came from does becomes important.
Strangely, I am not hearing many stories from retail of big losses. There were tons of people coming out of the woodwork on Reddit and Twitter after the LUNA collapse. Not sure what that’s all about.
Their s*tokens were mainly held by Alameda - serum and ftt. So probably not a ton of exposure among real users. Now when people won’t get to withdraw their money/tokens from FTX.. ever? That’ll become a huge problem. Sounds like all the money is just gone on stupid gambles
> if what we're starting to hear is correct, FTX may be one of, if not the, biggest financial frauds/scandals in history. The media doesn't seem to be treating it as such.
I think the media treats anything to do with crypto as much more buyer beware than eg Enron
For another reference, 16B is Spotify's entire market cap. The amount lost here is staggering. And given what's leaked from their balance sheet, I don't see how people avoid jail time.
I'll also add, if you want to really dig into FTX details, simply read Matt Levine's newsletters.
I think a lot of people are missing that it was not 16 liquid USD that was lost here. It was 16B of various assets on paper. That's different from a pretty liquid stock traded on the NYSE.
The 16B could've never been liquidated as 16B in cash because the liquidity for many of these assets is too low. Selling even just a small fraction would have crashed the market for many of these assets. It's impossible to know what the liquid worth of these assets was, but it was probably 5-10x less than what's on paper.
They may have lost $16B but, as they were converting customer deposits into coins the customer did not buy, such as FTT but also many others, then it seems bad math to value the customer deposits at $16B - prior to essentially shorting against their customers, perhaps those deposits were worth 5x more. And it doesn't seem unreasonable to believe more deposits would have been made, if the price of the assets their customers hoped to buy (Bitcoin is far and away the market leader) were not being shorted in this manner.
I'm not a mathematician but their activities may have amounted to many tens of billions of sell pressure against Bitcoin. Elon Musk purchased $1.5B and the price of this finite asset rallied tremendously, what might these tens of billions have resulted in?
> FTX may be one of, if not the, biggest financial frauds/scandals in history. The media doesn't seem to be treating it as such.
Most of that wealth was manufactured in the crypto bubble, not actual money people worked for and put into crypto, just early stage ponzi investors that kept rolling their investment. The wealth, while apparently substantial, was never actually there, I think most understand that the mirage would have collapsed anyway if most investors would have attempted to exit earlier.
Basically, any early holder of Bitcoin today, while losing 70% or so of the peak value, is still a bazzillion basis points in the black, because they can get real dollars for what is essentially an early and rudimentary shitcoin with arcane limits, slow transaction times and extreme volatility, which is only used in the real world for speculation, money laundry and trading other shitcoins. Pretty ironic that's the "gold standard" of the crypto world, followed by an entire brown spectrum of shittier and scammier tokens.
Many of their customers (if not most, on volume) wired USDT obtained from other parts of the ponzi ecosystem, then traded them internally for dollars. This way, FTX could accumulate internal USD liabilities without ever having those dollars wired into their accounts. Even if we were to take at face value the $5 billion liabilities from SBF's "Excel ballancesheet", that's still less than a third of the loses.
Sure, Tether should have a 1:1 backing to real dollars or dollar denominated assets - but it's like the ponzi-world's worst kept secret that they don't, as we'll soon find out.
So the assets of a "crypto hedge fund" that somehow kept "a large majority" of the fund's total assets on a 3rd party centralized exchanged is "real money" now?
That's the very definition of fake wealth, hot money seeking 50% returns in the hot risky mess that is the crypto market. The recursively leveraged self-licking icecream is melting down.
> 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.
If the cup is half empty it's called bribing. Otherwise it's called lobbying.
I don't know anything about the CFTC in particular but I'm familiar with the general idea of lobbying and the role it plays in a representative government.
Elected officials have to interface with basically every industry in the country. How is any specific representative in a legislature going to have the knowledge required to vote on a banking act? Or a bill pertaining to power plants? Or cryptocurrencies?
Does it make sense to allow representatives from various industries access to members of the legislative branches of government? How else could Cynthia Lummis or Kirsten Gillibrand make an informed decision when writing federal laws related to cryptocurrencies? Should there be federal laws related to cryptocurrencies? Should legislatures have a government regulatory agency that enforces federal laws? Who is going to write those laws? Should there be a federal agency like the SEC, but specifically for cryptocurrency? Is that the CFTC? Who should make up the CFTC? Who should make up the SEC? Are the people who are qualified to work for industry more or less qualified to work in the agency that regulates the industry? Who is best qualified to lobby for the industry? For the people who work for the regulatory agencies or lobby for industry, are they owners or laborers in the regulated industry? What if everyone at least wrote their name down on a big public list and said who they worked for and published when they met and who from which government position they met with?
Are there easy answers to these questions? How the hell has any of this ever worked?
The problem is not with industry insiders leaving private enterprise to go work for the government, the problem is government regulators leaving the government to collect large paychecks from the companies they used to be tasked with regulating, i.e. that there is the appearance of personal benefits to regulate to the benefits of future employers rather then the general public.
What's actually needed is government agencies staffed with industry insiders who knows that they will never ever work in the industry again and have nothing to loose from putting the general public first, but this is kind of hard to do when government work is not seen as something of particularly high status, where people go for self realization after a success career in the private sector.
>but this is kind of hard to do when government work is not seen as something of particularly high status,
Super easy to solve for - pay them more.
With the amount of money the government has (the DoD has a nearly 2 trillion dollar yearly budget), it should be relatively trivial to be able to outspend the private sector.
I hate paying taxes, but if those taxes go towards paying an extremely competent professional who will prevent this sort of shit from happening (which would cost us more in taxes to fix), I'm more than happy to pay as much as the government would want me to.
But is it easier to outspend the private contractors(staffed full of former generals) that end up rewarded contracts based on their ability to network with government officials?
The pentagon budget is a chronic scandal and a pretty good example of exactly how the private-public partnerships is creating a system where everyone benefits from the government being seen as inefficient.
>But is it easier to outspend the private contractors(staffed full of former generals) that end up rewarded contracts based on their ability to network with government officials?
Sure. You know, you can also prevent that from happening, right? Any former high ranking military official gets a pretty nice pension and benefits. those alone are more than enough to last a lifetime.
You want to go work at a defense contractor after retiring from the military? Fine, give up your benefits, give up your pension, give up your VA healthcare rights, give up your security clearance.
Using taxpayer money to fund the retirement of a former general who then takes their knowledge and relationships (again, both paid for by taxes) to the private sector to enrich themselves seems highly unethical and a massive conflict of interest. You're essentially bankrolling the development of someone who is going to eventually sell that knowledge to people who profit off of ripping off the very institutions you (as a solider) swore to protect and defend.
I'm not sure paying more will help. It looks like greed can be boundless, so as long as power converts to money malicious actors will keep abusing it.
Perhaps we should make power unattractive to such types instead, making it not lucrative so that only crazy* individuals who are content with good enough clean salary seek it out of dumb* desire to make the world better.
I don't have the links at the moment, but there were some fairly well-researched articles I saw a year or two back about this. The gist was that while our Congresspeople are, indeed, paid quite well by normal-person standards, because of the things they're expected to do (for instance, keep both a home in their district and one in Washington, DC—one of the country's hottest real estate markets), the amount they are paid is low enough that it does lead to significant additional (mostly legalized) bribery.
Making elected positions pay very little, rather than discouraging people who seek wealth, will limit them (even more) to people who are already wealthy, because they will be able to bankroll the expected lifestyle out of pocket.
Furthermore, for those who go into politics looking for money (as opposed to those who go into it looking for power, which is a related, but separate, issue), the salary is peanuts compared to the kinds of money they can get from lobbyists, or as a lobbyist themselves once they leave office. So reducing the salary will have very little effect on that.
I'm not saying "very little", I'm saying make them pay just enough for a reasonable life and make sure the position of power itself does not convert to money in any way.
> will limit them (even more) to people who are already wealthy, because they will be able to bankroll the expected lifestyle out of pocket.
First, you are ignoring the part about "crazy". If they are willing to go into this knowing they will only be losing money, maybe they have some clean motivations guiding them?
> Furthermore, for those who go into politics looking for money (as opposed to those who go into it looking for power, which is a related, but separate, issue), the salary is peanuts compared to the kinds of money they can get from lobbyists, or as a lobbyist themselves once they leave office
That's what I mean by "make it not lucrative". Power converting to money is a bigger problem than salaries.
As it is, people in power who are already clearly far, far from being poor effect laws just after their relatives sell/buy stocks affected--it's almost as if there's no amount you can pay them to squelch the greed.
If power should not be attractive to people with no integrity pathologically addicted to increasing wealth, then increasing salaries will achieve effect the opposite of desired. They will put their huge salary into stocks then pass laws favorable to their portfolio.
> Does it make sense to allow representatives from various industries access to members of the legislative branches of government?
Yes.
It does not make sense to allow those industries to influence elections or the decisions of those elected by making political donations, though.
> Should there be federal laws related to cryptocurrencies?
Increasingly I think prohibition is the only option. Even if it's very leaky. It's far worse a mind virus than, say, TikTok. At least if it's illegal there won't be superbowl adverts for frauds.
Nobody will be voted out. You cannot get elected without cash, but if you do then you can't remain in office without it. You also won't influence legislation without money in your campaign or PAC wallets.
If HN users want to impact policy and legislation, its not happening without donating a lot of money (or to a limited extent time) en masse to lobbyists and institutes that believe in whatever it is you believe in.
Better to be slapped with the truth, than kissed with a lie, and having worked in politics, this is the truth.
I've wondered a lot about a hypothetical scenario where people organize and crowdfund a pool of money with the intent of disbursing it to anyone who votes for the legislation they want. For example, vote to codify Roe and you can get a slice of the pie. It's almost surely explicitly illegal though, but the absurdly wealthy are already playing this game, why can't we do it too?
My understanding is that a PAC can pay for advertising and campaign costs but I'm suggesting literally just giving it to them, straight to their bank account.
Ironically Binance's low trust makes their users especially diligent about on and off boarding their funds. Their model is closer to DeFi than their competitors who are CeFi
Besides what makes FTX especially trendy to cover was how he targeted mostly American, supposedly sophisticated SV VC types. He got funded by dozens of billionaires.
Funny enough SBF openly described his cynical scam months ago, explaining both how shit coins and greedy VCs operated.
If the story goes like FTX, we'll only know after it's too late.
Not being incorporated anywhere (which is the last thing I heard about the matter) is an extremely bright red flag, so that's some evidence (in the Bayesian sense) that something is off.
I'm sure they are doing (or at least were doing) fractional reserve banking as well. They have their own token just like FTX, wihch is a bad sign. Maybe right now they are working on fixing it.
Kraken is one of the few exchanges that provide proof of reserves, which is basically just a Merkel tree of all user assets which users can use to check that the exchange holds their money. This is not just trivial to implement, there are open source implementations that exchanges could just use and prefer not to.
This is pretty cool [0] is the Kraken page, at [1] someone collected both background information, links, and PoR entities, and finally a 2014 post of Kraken’s first PoR audit [2].
Have you read Kraken's own page about that? Here is a quote:
"The results of our most recent audit were once again verified by top-25 global accounting firm, Armanino LLP. " (1)
So from this I read that Kraken has done audit themselves and then some other firm has verified it. This (if true) is called attestation, and not audit. Attestations are an empty claim with no proof in the tokenbro industry.
And second issue I see (directly related to the first) - they list some tokens they are auditing. Auditing on chain. But what if the Kraken company has a completely off the chain liabilities? Like a contract where they loan money/btc to some shady person and get some worthless tokens as a collateral in return. You can't see this on chain, only a real independent audit can uncover such things.
Unless I’m misunderstanding things (as a non-finance person that is very possible), this is not a normal audit, but instead proof, that they actually have the customer tokens they claim to have.
If you have 10 bitcoin and lend them to me by giving me the keys and report that wallet as your bitcoin, and in exchange for lending me those, I give you 10 WorthlessCoin as collateral, you now could say you have 20 bitcoin worth of holdings on chain, if you were playing loose with accounting rules. But in the end you might have 0 of anything if I go bust (and lost the bitcoin you lent me first) because of our off chain contract/loan. Dangerous waters.
A Merkle tree may show what crypto assets are held, but it doesn't stop the exchange from having a balance sheet with a negative $8bn entry described as “hidden, poorly internally labled ‘fiat@’ account”.
Until these crypto companies are audited by actual recognized auditors I would just assume that everything they say is suspect.
The auditor that Kraken used claims to be "one of the top 25 largest accounting, consulting and technology firms in the U.S.". Is the idea that they aren't "auditors"?
Top 25 means literally nothing. Outside of crypto, billion dollar a year companies use the Big 4 (Deloitte, PWC, EY, KPMG) for their audits. There is a second tier of maybe a half dozen audit firms (Grant Thornton being probably one of the best known) below the Big 4, used by smaller companies. By the time you get to #25 you're dealing with mom and pop shops.
Also, this wasn't an "audit" in the traditional sense of the word, it was an attestation as to proof of reserves based on the Merkle tree.
The press release about the "audit" is full of red flags:
"Administered by Armanino LLP, the Proof of Reserves audit is the second of its kind conducted on our exchange since 2014". Two audits in eight years, lol.
"Though the audit covers just two of the over 100 assets available for trading on our exchange". They only checked BTC and ETH reserves, nothing else, lol.
From the audit report itself:
"This report may not be suitable for any other purpose. The procedures performed may not address all the items of interest to a user of this report and may not meet the needs of all users of this report and, as such, users are responsible for determining whether the procedures performed are appropriate for their purposes."
"We were not engaged to and did not conduct an examination or review engagement,
the objective of which would be the expression of an opinion or conclusion, respectively, related to the platform account liabilities and asset balances represented by Kraken. Accordingly, we do not express such an opinion or conclusion. Had we performed additional procedures, other matters might have come to our attention that would have been reported."
"The practitioner’s report is as of a specified point in time and we have no responsibility to update the report or findings therein for subsequent points in time."
All this "audit" tells you is that on December 31, 2021 Kraken had an amount of BTC and ETH that matched customer deposits. That's it. Nothing about other coins. Nothing about assets and liabilities overall (e.g., did they take out loans using customer BTC as collateral). Nothing about financial practices. Nothing about what they may or may not have had the day before or the day after.
> auditor that Kraken used claims to be "one of the top 25 largest accounting, consulting and technology firms in the U.S.". Is the idea that they aren't "auditors"?
"The results of our most recent audit were once again verified by top-25 global accounting firm, Armanino LLP. " (1)
So from this I read that Kraken has done audit themselves and then some other firm has verified it. This (if true) is called attestation, and not audit. Attestations are an empty claim with no proof in the tokenbro industry.
And second issue I see (directly related to the first) - they list some tokens they are auditing. Auditing on chain. But what if the Kraken company has a completely off the chain liabilities? Like a contract where they loan money/btc to some shady person and get some worthless tokens as a collateral in return. You can't see this on chain, only a real independent audit can uncover such things.
Binance regularly closes deposits or delays deposits by hours in an apparent attempt to allocate arb opportunities to their internal trading desk instead of customers. For example, in May, we sent some LUNA to Binance whole the chain was working perfectly, then waited several hours whole chatting "VIP support" about the delay while they told some implausible lies about multi-hour internal network latency (????).
Vote out the politicians who are not prosecuting Binance then also. Not sure how two wrongs make it okay that FTX were ghost writing crypto regulation [1].
This is speculation, but this is starting to fit the classic playbook of:
1) Create / seize a crisis
2) Have new regulation already ready to "address" crisis (using voter outrage to pass under rushed conditions)
3) Incrementally increase regulatory control (regulatory capture)
4) profit / increase power concentration
In this case, it's clear they are trying to establish CFTC control of eth & btc.
This article spends quite a bit of time talking about SBF's risk appetite and how it might be drug related. I think that's missing a fairly obvious piece of logic.
In order to decide to go into crypto trading you need to have an extremely high tolerance for risk. The crypto industry is self-selected for risk in the first place, you don't need complex explanations of why they use lots of leverage on highly volatile assets, that's literally the reason why they're there. If SBF had a low appetite for risk he wouldn't have entered crypto or started a start up, he would have stayed in trad-fi getting paid massive sums of money for some fairly basic quant work. It's not that Sam has a high risk appetite, it's that in order to get into the position Sam was in you need a high risk appetite.
And that obviously poses a big problem for people who want to use a crypto exchange - because they can only find exchanges run by people with a massive risk appetite making it likely to blow up in your face.
I think there's a huge difference with someone who has a huge appetite for risk, and someone who is taking risks, essentially without oversight, while on dopamine-replacing drugs. Many people who work in conventional finance are well aware of how brain chemistry changes (caused by illness, medication, illicit drugs, or emotional and life changes) can push someone from being in control while pursuing risky but profitable strategies to being a degenerate gambling addict.
Putting so much blame on the drugs seems like a way of casting Bankman-Fried as an addict/victim. In reality he's a thief and has been from the start of this scheme. He has a sociopathic disregard for others and cynically covers that with cheap talk of being an altruist.
I liked the chapter in Nate Sivers' Signal and the Noise when he talks about how hard it is to know if you're a good professional poker player.
Been a while since I read it but feel like even after a couple of years of winning games and tracking his own performance, he had enough stats knowledge to realise that he didn't actually know if he was good or just lucky. The noise swamped the signal.
This feels relevant to many of these trading things where people start to believe their own BS.
If you've flipped a coin and it's came up heads 10 times in a row, why wouldn't you bet everything on it happening again? You're really good at getting heads when you flip. Humans aren't really built for that kind of thing.
Later in the movie, when Marvin decides to ask for more money and takes a Polaroid of the Duke in the bathroom of the motel, he comments to himself: "I amaze myself... I'm always thinking."
The thing is, the character of Marvin is quite dumb, not a nice person and above all someone who never grasps the full picture -- but at the same time he has good instincts and is, in fact, a fairly good hunter. It's a dangerous combination.
In crypto as in wall street bets. If your sample is "a bull market when every single week the price is higher than the previous" - then the signal and the noise confirm; if you lose money on monday buy the dip with your client funds - because you cant possibly lose.
The same is very true in VC investing. Because any individual partner does not make that many bets per year, and the time frame to exit is long, it is very difficult to distinguish skill from luck (including being in a long-term bull market like the last decade).
I like how OP opens smugly by calling the NYT article a fluff piece, then proceeds to immediately cite anonymous Twitter anecdotes as better sources.
He's right about the specific NYT article not including much pertinent information, but they're a serious journalistic publication and have verification standards for sources.
It's a 'puff piece' because they essentially take his words almost at face value, almost as if they are supporting his argument and don't dig more cynically into the underbelly of the issue.
There are a lot of really crazy things happening with this story they don't touch upon.
It's worse than a 'puff piece' to the point I suggest there is background manipulation going on. This is 'reputation laundering'.
There is a huge amount of money here, and a ton of very, very powerful people involved.
I suggest that within a few weeks this will be known to be truly a criminal enterprise and this NYT article will not age well.
The person who wrote this post is pretty well known in the crypto space. Not saying that what was written here is guaranteed to be accurate, but it's likely to be much closer to reality than what the New York Times put out.
To be clear, I enjoyed Levine's commentary on the situation so it's not just because I dislike mainstream publications.
Never heard of them, I've been in the crypto space for many years. Their social media looks like it's run by a teenager and I'm not not being facetious, it literally reads like a 14 year old boy runs the account. The person also writes so many tweets they'd hardly have time for serious work. Over 90% are jokes, memes and rumors.
"The person also writes so many tweets they'd hardly have time for serious work."
This statement makes zero sense. What is the arbitrary threshold of tweets to "serious work"? What correlation is there to making tweets and writing articles? This is just a weird form of elitism - congrats on not posting tweets, I guess.
The NYT article was biased. Have you read it? Read the author's other articles and the sharp shift in tone. He is strictly apologetic towards the FTX ponzi scheme, the author's behavior is to the level which one could call morally compromised. He has a history of badmouthing other exchanges (e.g. Kraken) while singing the praises of FTX.
Appeals to authority are weak compared to facts laid bare. The fact is that the NYT author has made clear biases against other exchanges and overly forgiving of a single exchange guilty of customer theft, which is papered over in his article. This is unusual compared to all other reporting of FTX amongst mainstream jouranlists. There were no articles attempting to humanize Bernie Madoff, this article hides the fact that SBF ran a ponzi scheme, imagine the same with Madoff, it would be shocking. This is shocking.
Imagine having the Bernie Madoff subheading, "he had expanded too fast and failed to see warning signs". This is the scale of ludicrousness here. The facts aren't subjective or unclear in any way, FTX didn't have customer deposits, which they claimed to have up even until the very end. When it comes to journalism, this is an unforgivable failure.
The piece is well informed and aggregates a variety of sources only a few of which are not completely credible. the NYT literally refuses to use the word "fraud" or hint at criminality after Sam stole ten billion dollars from customers.
> the NYT literally refuses to use the word "fraud" or hint at criminality
11/10: Meanwhile, the S.E.C. and the Justice Department are said to be investigating FTX for potential securities violations. [...] Whether S.B.F. or others associated with FTX also face civil or criminal action — and where such legal fights would take place — remains unclear.
11/11: Authorities worldwide are intensifying their scrutiny of the embattled cryptocurrency exchange, amid concern about improper use of customer money.
11/11: The bankruptcy proceedings may be only the beginning of Mr. Bankman-Fried’s legal troubles. Federal investigators are examining the relationship between FTX and Alameda, and customers are likely to file lawsuits.
11/12: The implosion of Mr. Bankman-Fried’s cryptocurrency exchange has already cost customers billions of dollars in lost crypto deposits, setting off law-enforcement investigations that could lead to criminal charges. [...] Investigators at the S.E.C. and the Justice Department are examining whether Mr. Bankman-Fried improperly used customer funds to prop up Alameda Research, a trading firm that he also owns. FTX lent as much as $10 billion in customer funds to Alameda, according to a person familiar with the finances.
11/13: “Sam and FTX had a lot of good will — and some of that good will was the result of association with ideas I have spent my career promoting,” the philosopher William MacAskill, a founder of the effective altruism movement who has known Mr. Bankman-Fried since the FTX founder was an undergraduate at M.I.T., wrote on Twitter on Friday. “If that good will laundered fraud, I am ashamed.”
11/14: Should the U.S. have moved faster to create an attractive regulatory environment so companies like FTX would have moved here and had to abide by Washington’s rules? Maybe. But if the FTX case turns out to be fraud, regulation unto itself may not have been enough to stop it. Madoff didn’t live on an island beyond U.S. jurisdiction — he was based on Lexington Avenue. [...] If we ultimately learn that FTX’s undoing is the first of many in an industry that has been built on a pile of offshore fairy-dust leverage, the regulatory lesson will actually be the opposite: The S.E.C., C.F.T.C. and Treasury will have proved prescient for all their warnings to the public that crypto was too risky.
11/15: Major questions still remain, such as whether FTX improperly used billions of dollars of customers’ funds to prop up Alameda Research, a trading firm that Bankman-Fried also founded.
? Stealing $10B is fraud. So when $10B goes missing, due to what we know is 'bad behaviour' at minimum, and all the other 'smoke' around this story - we should use that word in proper context.
This is literally one of the biggest fraud cases in history.
By their own 'standards' they are compelled to use the word in proper context.
While I'm sympathetic to this position, I can also easily see an argument from the NYT's side that "fraud" is a specific criminal allegation, and as such using it in an article like this could open them up to libel or defamation suits.
I don’t think it’s up to their standard yet. Of course the whole world believes it’s a big case of fraud but they may need to wait until there is more clarity on that.
Twitter might provide more information than the NYT, but there's a reason NYT doesn't publish it - because the NYT wants to be reliable. They want their claims to actually stand up to scrutiny and be an accurate portrayal of the events we know happened. Whereas big chunks of this article are just pure speculation. The whole section about how Alameda might have had a rogue algo are just made up out of whole cloth. Is it true? Who knows, there's certainly no evidence for it, but let's stick it down as $1Bn of loss anyway.
This article is very little more than just a gossip rag version of the NYT article.
> This article is very little more than just a gossip rag version of the NYT article
This characterization is so far from the contents of the article I have to assume this comment is in bad faith or you're extremely biased towards the NYT.
The article is 90% discussing facts/quotes from various sources and 10% speculation on what actually happened by people who are very familiar with crypto markets.
The NYT piece on the other hand contains almost no facts (90% narrative) and throws a pity party for SBF. It's a complete joke.
I'm not biased towards the NYT, what I'm saying is that what the NYT is doing is a different thing from this article. The NYT is an interview with SBF, interspersed with the story of what happened, and the NYT will stick to what it can actually prove. You're pissed the NYT is biased towards SBF but it's not - it's an literally an interview with SBF, you're not meant to take what SBF is saying in there uncritically.
Whereas this article has a tonne of speculation (none of the stuff about market making has fact behind it, it's speculation based on a handful of tweets) and a heavy reliance on sources that are at best questionable. The stuff about the rogue algo is entirely without evidence, and the stuff about drug taking, whilst lurid, could be entirely tangential to why the company actually collapsed. The NYT isn't going to quote random anonymous users on an EA forum claiming to be ex-employees.
The NYT is not supposed to 'stick with what they can prove'.
That's definitely not the bar they have or else they wouldn't be able to publish much.
Journalists should be a bit cynical, dig for info. The NYT has more resources than anyone, and should be able to ask around, do some actual blockchain work, interview others.
This story looks like one of the biggest frauds in history, likely because it is, it's the job of the NYT to show at least there's a lot of smoke and put puzzle pieces together (obviously with context), they are not a formal judiciary.
There are so, so many crazy parts of this story that were not addressed it reeks of something awry. For example the co-CEO. There's almost nothing about this guy, as though he does not exist. That's a huge mystery and it's only one small artifact of the story.
This article raises as much suspicion as it clears up.
They might be working on that article, but such an article will take time because they'll want to reach out to the anonymous posters and talk to them directly, find people who can do the chain analysis, verify people's stories, etc.
It's pretty insane to me that you think the NYT would ever deliberately print accusations they couldn't prove.
I also think you're massively overstating the role of the NY Times, yes they have resources but they have to cover massive breadth. The NY Times isn't really going to be an expert in every topic, and there are real expert reporters out there who are going to dig in to this for specialist information. In this case there are reporters covering tech and finance - so you're going to see good articles from Levine, and the Odd Lots people, Michael Lewis was literally shadowing SBF for 6 months. Arguably the Odd Lots guys got to this first - basically getting SBF to admit he was running a ponzi in an interview - an admission that made absolutely no difference because everyone kind of knew it was all a scam anyway. If you said to me there's an article about FTX I would be looking for it in Bloomberg or the FT, not the NYT.
"NYT would ever deliberately print accusations they couldn't prove."
That statement implies a misrepresentation of what I said, and a misunderstanding of what journalists do.
Journalist investigate, source, and provide clarity.
This is one of the biggest frauds in history, it's the job of the NYT to investigate the issue, and show us what's up. If there's likely fraud, they should be spelling that out.
They've already admitted to using deposits to make risky bets at Alameda, which is fraud. There should have been a lot more questions about that alone. Just to start.
Instead, it was a light nothingburger puff piece.
There are better sourced artifacts on Twitter - this very article provides more valuable information that the NYT.
"basically getting SBF to admit he was running a ponzi in an interview - an admission that made absolutely no difference because everyone kind of knew it was all a scam anyway"
To suggest that the people with collectively billions in FTX 'knew it was a ponzi/fraud' and willingly lost all of their money is absurd.
> It's pretty insane to me that you think the NYT would ever deliberately print accusations they couldn't prove.
What are they doing when they cite "unnamed sources"? They constantly publish accusations that they have no intention of ever backing up. I'm not saying that they don't believe their sources, but "100% bulletproof" has never been their standard.
>The NYT piece on the other hand contains almost no facts
Did you even read it? It has plenty of facts and public statements. It creates a thorough timeline of all things that happened over years.
The NYT article is headlined "How Sam Bankman-Friedʼs Crypto Empire Collapsed". The parts of the article which actually answer this question are, in their totality, as follows:
> Alameda had accumulated a large “margin position” on FTX, essentially meaning it had borrowed funds from the exchange,
Par 6. Common knowledge, finance-splained and followed by equivocation and hand-waving from SBF.
> On Nov. 6, Mr. Zhao announced on Twitter that he was selling the FTT, spooking customers who rushed to withdraw their FTX deposits
Common knowledge for more than a week (in par 28). More well-known things about the Zhao deal in the next couple of pars. Obv suggesting the two key questions, why did they need a bailout in the first place, and what was wrong with the business that led Zhao not to invest? Needless to say, neither of them is answered in the article.
> Her voice shaking, she apologized, saying she had let the group down. Over recent months, she said, Alameda had taken out loans and used the money to make venture capital investments, among other expenditures.
> Around the time the crypto market crashed this spring, Ms. Ellison explained, lenders moved to recall those loans, the person familiar with the meeting said. But the funds that Alameda had spent were no longer easily available, so the company used FTX customer funds to make the payments. Besides her and Mr. Bankman-Fried, she said, two other people knew about the arrangement: Mr. Singh and Mr. Wang.
> The meeting was previously reported by The Wall Street Journal.
Several day old scuttlebutt taken from another newspaper in par 30+. (And nicely written to suggest that it's an urgent eyewitness dispatch "Her voice shaking")
That's it. Literally no actual news reporting was done in this article.
The high standards of reliability and standing up to scrutiny are worthless, because they are not actually applied to any useful or new information, but just to the human interest color that 90% of the piece consists of. Yes, the 'facts' that SBF has 15 room-mates and not 12, and that he plays League of Legends not Terraria are rigorously fact-checked, but they might as well not be. The actual question of Where did the money go is completely ignored beyond what is widely known.
This isn't news reporting, it's a form of entertainment journalism, which allows people out of the loop to get a sense of the excitement and glamor of what's it like to live in the Bahamas and have your crypto exchange go bankrupt. (And it equally fulfils the desire for other clueless people to tut and sigh over the way the world is going.)
I think you're misunderstanding what the NYT article is, it's not a piece of deep investigative journalism, it's an interview with SBF with context attached.
I am generally curious what your position is here? You seem to be arguing the NYT article is not a fluff piece but then with this comment you admit its not investigative journalism but rather a fluff piece? I don't understand.
> This isn't news reporting, it's a form of entertainment journalism
I don't see where you're justifying that. I read this article and it gave me a good overview of the situation. You're right, I guess, that it's not "new" investigative journalism and that if I'd been paying better attention I could have found the same info elsewhere and earlier.
I don't see how a correctly-reported review piece becomes "entertainment journalism" though. Do you make the same article about wikipedia?
I justified it, at length, in the above comment by pointing out how little real information there was in the article about what had actually happened to BTX and Alameda.
I did not say anything about "new investigative journalism". I said it was not news reporting.
The claim that is is entertainment journalism is very simple. This type of piece is written, not to inform, but to entertain. That's why it focusses on color and character, while missing basic story details - the 5 W's, any overview of how the bankrupt businesses worked, etc. Such pieces are often designed to give the impression of information, because this impression is part of the entertainment experience. You can easily find decent and free writing on this topic which provides way better analysis and is generally accurate and honest.
As you have probably noticed, stories about scams and frauds are a very big business, and articles about them are now part of a well-worn pipeline by which books, movies and mini series are made. Very few of these have any commitment either to accuracy in general or to useful information about why such scams are possible, why they are socially important, or how they can be stopped. They exist merely to entertain and titillate. A writer like the author of this piece, will be aware that they are part of this machine, and that there is lots of career advancement to be made in writing fluff about grifters, particularly in a way which tends to get you closer to other grifters.
Wikipedia is not news reporting either. Not sure of your point, however note that the wikipedia page about Sam Bankman-Fried, while shorter than the NYT article, contains vastly more detailed information about his career, and has 85 citations to its sources.
I'm still not understanding what part of the article you think is incorrect, and/or what information you wanted it to contain that it didn't. All this meta stuff about "what the article is for" is just confusing me.
Again, I read it and liked it. If you don't want me to read this piece, what summary should I be reading?
I'm not the OP but to me the article did everything in its power to muddy the waters. It seems to try get me to feel bad for or even like someone who appears to have committed major crimes and lost billions of peoples money. If you didn't know anything about the situation and read this article you would think Sam did nothing wrong, is blameless, and just had some bad luck.
Not once did the article tackle the question of where did the money go or why is it okay for this persons company to misplace billion of dollars of customer money?
But the author makes it very clear in the second par "our claims only remain tentative at best".
Isn't it much more useful to write something which actually tries to answer the question of what happened, albeit with appropriate caveats, than something which doesn't advance the understanding of the reader at all?
There's so much rampant speculation in this article... for me it lost a degree of credibility around the point he fixated on the drug aspect. Despite all the disclaimers.
Yes, it paints one picture of how the losses could have added up, but I'm looking forward to more exhaustively investigated reports grounded in more than heresay and gossip.
If Alameda employees tell Twitter DM groups of systematic traders what happened at Alameda, it's hearsay, but if they tell NYT employees, it's an exhaustively investigated report.
Is it more fun to read and talk about the story if it covers existing tropes about rampant drug abuse in the financial industry or more fun to read and talk the story without those tropes?
Is it more fun if the shared story has a clear villain or more fun if the shared story has a diffusive, complex relationship between good and bad between not only the characters but also the readers?
despite being tentative, I would guess its the best explanation of what happened. Their handing out margins, and market-making approach with Alameda left them potentially liable to losing lots of money really fast.
The New York Times piece is even worse, since it paints a misleading picture of SBF and his cronies losing all the money accidentally rather than malice (far more likely).
"their systems became unprofitable" - "Alameda & FTX jointly continued to lose large amounts of money" - "uncompetitive market-making strategies, risky lending practices" - "erratic behavior and unprofitable gambling".
> losing all the money accidentally rather than malice (far more likely)
They sound an awful lot like trading / accidental losses than malice to me.
I agree with that. I don't think this was malice though - just extreme stupidity (and hopefully criminal). I think they thought they could trade their way out of it.
That's different to malice which goes to motivations.
Alameda just non-maliciously gave their own account special privileges on their own exchange, non-maliciously front-ran customer orders, non-maliciously traded on material nonpublic information (their own exchange listings), non-maliciously used their ownership of their exchange to strike trades that caused them $400mm of losses in one of their multiple KCG-style algorithmic meltdowns, non-maliciously stole billions of dollars from their exchange's customers, non-maliciously lied about Bahamas residents being senior to all other creditors so they could withdraw hundreds of millions of dollars again, non-maliciously "hacked" their exchange wallets to steal additional hundreds of millions of dollars from their creditors, and non-maliciously prematurely unlocked hundreds of millions of dollars of FTT and sent it to binance to dump.
The NYT article is a shockingly bad puff piece. It doesn't once mention fraud. Doesn't call out that Alameda borrowing funds from FTX deposits is insanely illegal
Makes it sound like poor SBF got unlucky and it wasn't his fault he recklessly gambled $8+B of customer deposits
> He's right about the specific NYT article not including much pertinent information, but they're a serious journalistic publication and have verification standards for sources.
Ok? Regardless, this piece does a significantly better job than the NY Times and the "serious journalistic publication".
The times articles actually misleads readers into thinking that the FTX downfall was moreso from bad timing & outside attacks then from SBF fraudulently stealing user funds.
> immediately cite anonymous Twitter anecdotes as better sources
The Twitter accounts directly quoted have many followers and a long history of tweets that are easily searchable.
If you're referring to the Autism Capital tweet, that's a tweet of a photograph which you can look at yourself. It's clearly a stimulant that says EMSAM on it.
Name the specific tweets in the piece that you find incredulous rather than an ad hominem.
the anonymous Twitter anecdotes are clearly far better than what the NYT people can come up with because Twitter is where all of these people spend their time.
Interesting, this displays a classic problem with the NYT: they end up searching for their lost keys under the streetlamp since that's where the light is. If they report on an organization that has $1 million in verified assets, but the organization is suspected to have $999 million in assets and $2 billion in liabilities, they will report the organization as solvent because they have verification standards for sources and are a serious journalistic publication. Therefore, they can only publish about the $1 million in verified assets. The organization could therefore be widely suspected to be insolvent, but reported by the NYT as solvent.
In fact, that's what happened this time.
Perhaps this is why the NYT's Judith Miller has such prominent roles in journalism.
Why would I need to torrent it? And how do I know it's legitimate?
I had assumed that the big news about its contents would break any day now. All I've ever seen is people talking about what people told them that they totally saw on it.
It has numerous photos and text conversations that are timestamped and geo located to verifiable locations where he would be. The pattern of life seems reliable. It’s all rather tragic lots of drugs, prostitutes and mental health issues abound if you dig in. I don’t recommend it.
There's some compromising text messages and emails that elude to Biden being involved in Hunter's corruption. Specifically one that calls out '10% for the big guy' when discussing equity split where hunter and his partner are already covered. Contextual information around those emails indicate there may be a 'there there' but, a proper investigation would need to be conducted to determine if the evidence indicates what it appears to indicate.
I absolutely guarantee the FBI didn't do a proper investigation into the information on the laptop.
Both the New York Times and the Washington Post have by now admitted the legitimacy of the Hunter Biden laptop story (of course they waited for the election to be over before doing so). If you haven't seen any proof, it's because you haven't looked.
Where were the verification standards of the NYT when they advocated for the Iraq War, for example? Trust in mainstream media is at an all-time low, and for good reason. These appeals to authority seem out of touch to me.
> In a podcast from 2019, SBF brags about making predictions on the timescale of 1-2 seconds
> While this might have been considered highly competitive in 2019-era crypto markets, it is a far cry from the microsecond-level precision of market making in traditional finance.
The author is confusing tick-to-trade with prediction horizon. The "microseconds" market makers talk about is how long it takes to react to incoming market data and send out a trade message. The 2 seconds SBF is talking about is how far ahead in the future you want to predict price changes over.
Doesn't really inspire a lot of confidence in the rest of the analysis if this is the level of domain knowledge the author has.
You're right about the technical aspect, but the rest of the critique is more about business level stuff like knowing what you have. I don't think you can say the whole piece lacks credibility because he got this thing mixed up.
A side issue, but I found it distracting that the text consistently refers to Caroline Ellison by her first name alone, rather than last name or both names or initials like all other people discussed (and like is generally done for public figures covered in news articles etc).
But I'm not in the "community", I don't read a lot of this inside baseball stuff. Is this the way she is usually referred to? It looks like her twitter name, in tweets quoted here, was just her first name too? And she's referred to by just her first name in the "insider's account" quoted at the end too. What's up with that?
Sometimes peoples' first name ends up being what they're known as by the general public, usually because using just the last name might be ambiguous. Nobody called him "West" before the name change, it was always "Kanye". Similarly, one might not immediately know who "Winfrey" is, but everyone knows "Oprah".
Presumably, since Larry Ellison is also a figure in the high-net-worth tech world, one might unintentionally mislead the reader by just using Caroline's last name, so in this case I see people just using her first. I don't think there's much more to it than that.
I mean in that first-name-celebrity sense, it actually is kind of bombastic, rather than denigrating. Is another read. It still seems weird to me.
The celebrity first-name-ism is sort of an attempt to claim a global fame, as well as a sort of artificial familiarity. I refused to call them "Hillary" or "Bernie" either, they aren't my friends, they are public figures.
It seems notable and weird and interesting to me in this case (as well as distracting as a reader who wasn't expecting it), but I'm not certain or making assumptions about what's behind it, I'm curious.
It opens by using their full names, but goes on to refer to them as sbf, caroline and trabucco in the rest of the piece. I guess it's like "zuck" and "pg" etc, I don't think it was meant in a bad way.
A $3M monthly AWS bill. that's a nugget here. What that means is that amazon, Microsoft, and google are essentially selling shovels during a gold rush. On a subscription basis. In a form that makes it tedious and costly to actually figure out how many shovels your business has, what they do and who uses them regularly.
Essentially, when there's a digital market hype, the big cloud providers collect their share on the revenue. Brilliant.
It sounds more like an admiring compliment. Although for cloud providers, the costs of things like hackers stealing credentials and using them to mine shitcoins are also considerable.
I remember during the dotcom boom people thought the infrastructure providers like Sun Micro would be safer, but it got screwed along with the website companies.
"FTX periodically uses a portion of its profits to buy back FTT tokens. This makes FTT kind of like stock in FTX: The higher FTX’s profits are, the higher the price of FTT will be."
I think this is an interesting alternative to equity vesting. Not all countries have laws that make equity vesting possible. Also this could work if you are a US company and hiring from all abroad. You can give tokens to your employers abroad, keep the token valuable as long as the company is profitable. What do you think?
It could work, but the moment FTX started allowing FTT to be put down as collateral on multi-hundred million dollar liabilities, the entire house of cards fell apart.
The extensive use of stimulants is alarming, though heavily speculative.
What does the league of legends article say? That part seemed crazy speculative. I'm bottom quartile at FPS and fighting games but I enjoy them and play a lot. Dota 2 as well. And I've been top 1 percent at other games. Even higher for a bit in Auto Chess. I hope this isn't evidence of brain damage...
FWIW: as a bona fide user of various anti-parkinsonian medications for their intended purpose, I can say with a degree of confidence that the speculation on cognitive impact (and impairment) is very plausible - and that the article is factually correct on the side effects in a Parkinson’s context. God knows what they would do to a brain with a “normal” dopamine level.
It’s also worth noting (and quite frankly pretty harsh when you eventually realise) that the affected brain has massive difficulty recognising its own altered cognition and perceives its distorted interpretations and consequent chains of response as perfectly natural and justified.
Not drawing any specific conclusions on the particular assertions in the article, but IMHO the interpretation is certainly plausible given the apparent drugs involved.
Playing League for fun is maybe the worst gaming experience possible. Everything about the game is designed to maximize competition and therefore toxicity.
> This is, frankly, just absurd and incomprehensible. It makes absolutely no senseーwhat is he doing? I struggle to imagine the state of his mind at the moment.
Apparently working on his defense. Temporary loss of mental faculties due to drug use, along with this "it wasn't anything other than Sam on drugs" & (yes there it is again) "incompetence" article. Country club prison it is to be then, after all.
I've seen tweets that question the origin story of first windfall of SBF. Has anyone actually vetted that initial "arb" that was the pretext for Forbes et al to introduce us to SBF the virtuous genius? These tweets claimed surprise that it could have been done without substantial unmentioned support. I would start digging there.
Makes some sense. When stuff is messy, you can do financially stupid things. I've sat on desks that lost money from not realizing some very simple things like having options with upcoming dividends. If SBF really was on drugs and playing League of Legends badly, perhaps he also didn't know what was happening in his shop.
But... you have all this money. Hire an adult? Almost anyone who's had a trading desk job would tell you to clean up. You don't need to have much experience to do this part, just get one of your friends that you must know from the business?
Also, WTF would this say about Ontario Teachers' Pension Fund or Sequioa if the whole team was on drugs, playing games all day, and having no idea what their balance sheet looks like? I actually got Ontario into a fund I was at, and we'd have lost the investment if we hadn't behaved like adults. This is causing me some cognitive dissonance, because I don't think of the investors as the kind of people who'd even smile if they found me in the office playing a video game, let alone addled on drugs.
Also about the market making strats not working anymore, I don't see why they'd even need it. Once the exchange is jump started and you have WM/Jump/JS on board, there's MMs on the platform and it feeds itself. Just keep marketing running. Hand out some FTT or something to retail. Do silly advertisements. Just turn off the algo that doesn't work.
I’m no expert in the space but was under the impression FTX was still considered a low volume exchange. If Alameda mm was still providing substantial volume they may have felt the price they were paying being bad at trading was worth it from a marketing point of view. This was the same crew buying stadium naming rights and over paying for eSports teams.
As for hiring an adult, have you seen some of the things they’ve said in public? They thought the adults were wrong! Like on a mathematical level. People that far into their own cult-think don’t want outside help.
Finally, the Ontario Teachers thing feels extremely overblown. They put in 75m of ~220b aum. That’s a minuscule investment in a category that was clearly part of their highly speculative book. I think people keep bringing it up for the “think of the teachers!” benefit, but of a pension fund doesn’t have some outsized return opportunities on their book they’ll not be able to cover their outflows under certain future economic scenarios.
OTP put in something like that in the fund I was at. Yes it's small for them but it's still serious, the guy in charge wants to move on to bigger things.
Oh and I totally forgot to comment on the math. Kelly criterion, I don't get how the guy could have studied physics at MIT and not understood it. It's simply a result that tells you how much to bet of your stash if you are presented with some repeated betting opportunity. It's essentially an extension of high school level probability theory, with similar clean-room constraints (independence, etc). There's also a continuous version of it using Sharpe ratios, no surprises.
If you read anything about it, it's very very not smart to bet beyond the ideal size. This is actually the reason why a lot of people use less than the ideal, because you don't want to end up over the hump. Both the assumptions that underlie the result and the measurements of the parameters are not easy to ascertain, so don't act like it's a dice game within a known environment.
I don’t want to besmirch this particular person I’ve never met, but I definitely have met engineers who look at the stock market, look at their sophomore or junior level signal processing class and decide that all those Econ guys are a bunch of dummies and they could totally beat the market with some Fourier transforms or whatever (the fact that investing firms hired a bunch of quants is left unaddressed). So, I could see somebody making this sort of error.
I'm friends with a retired quant, and one thing I learned from him is the big firms on wall street will hire the absolute most brilliant people they can even to work on utterly banal well known basic strategies. PhD's doing high school math. Because when you're moving billions, nothing is actually basic.
Kelly criterion is not the best strategy for one. It’s the best strategy for an ensemble of ones in many universes but you can only live in one universe. It’s a nerd trap because it seems so elegant and reasonable.
This isn't true? If you aggregate utility across universes using addition and have utility linear in wealth then you maximize your aggregate utility by going all-in on every favorable bet.
Kelly turns out to be equivalent to maximizing expected log-wealth, if one stays within a single universe, or to maximizing the probability that one will eventually have more wealth than any agent in the same universe that employs any other strategy on the same sequence of opportunities.
This is the worst comment I have ever read. There are reasonable definitions of expected value and probability that do not require infinitely many universes to figure out whether you should raise pre-flop with aces.
You are conflating time-samples with ensembles. That lecture refers to finite time series which may be shown to converge for N < infinity. That’s fine.
I have not mentioned either of these things. You can find other finitist formulations of probability if you want.
You replied to a post about aces. For any finite number of chips and players (n_players > 23 starts to raise some questions), there are finitely many games of NLHE anyway.
According to a random source, they moved volume on the order of 500 billion. Transaction fees of 0.1% for 500 billion is a lot of million to keep the lights on.
For a maker and taker with best fees, the exchange only made 0.5bps, not 10bps. We happen to know that top rebates were pretty hard to achieve though, so most volume probably paid at least a couple more tenths of a basis point.
In the trailing 24 hours, presumably sampled at the time FTX's servers for dynamic content such as logging in and trading were shut down. also did you reply to the wrong person?
Yes, the crash at FTX gets all of the press, but it's really the slow motion collapse of things liken pension funds that should really be getting our attention. SBF is just a piker compared to the pension funds.
> I actually got Ontario into a fund I was at, and we'd have lost the investment if we hadn't behaved like adults. This is causing me some cognitive dissonance, because I don't think of the investors as the kind of people who'd even smile if they found me in the office playing a video game, let alone addled on drugs.
They might been starstruck by Sequoia more than SBF and his team, and just gone along for a ride with the most storied VC firm in the world.
The Ontario Teachers' investment is outrageous. They are charging middle-class people (by definition) good money from their retirement savings to make reasonable investing decisions and do due diligence.
It's not about performance or risk management, it's about due diligence. They should not be giving any amount of money to an organization with such poor internal checks of their finances.
I'm sorry but thats not how it works. This investment was made out of their venture fund which deliberately makes risky bets, but is a small amount of the overall pie. OTPP is fine and is going to produce returns which are favorable, let's stop with the hyperbole.
--if you made an investment based on audited books but the books were still cooked - what more can you do? - audit the auditer maybe - at some point you have to trust the books --
What if you made an investment based on not seeing any books, there not being any reliable guide as to the company's liabilities, seen or unseen, and not being aware of any regulation or oversight preventing fraud and/or blowing up? But you had a good feeling about the company's hype and the CEO seemed like a nice young man with main character energy?
If the company turns out to be a fraud and the investment worthless, are you still entitled to say "nobody could have known" and "only 1 in 10 has to be a winner"?
Canadian teachers and retired teachers have $220b, which they paid into the plan from their not particularly opulent pay packets. Nearly $100m was given to a company based in a regulatory haven, which does not know to within $5bn how much money it has, and which was able to steal from its customers without any oversight.
Ontario Teachers were an anchor investor in a round which lots of less clueless people must have passed on.
They accepted the risk of losing $100m because they thought there was a significant chance of getting a much bigger return. Obviously in this case the bet didn't pay off, but putting 0.05% of the AUM in a high risk investment is hardly a scandal.
Teacher's Venture Growth is 8bn AUM. It makes complete sense to me that Ontario Teachers as a whole should put 4% of its assets into a venture fund.
TVG put well over 1% of its assets into FTX. Numerous people who work for the venture fund, who are paid 10-100X the income of the retirees in the fund to make investing decisions, went ahead with this investment without asking themselves:
1. Why isn't there a crypto-savvy lead investor for this funding round? Why are we, Teachers Venture Growth, the best placed people to make this investment?
2. Why are 3 individuals with, ostensibly, enormous personal wealth, seeking outside investment from Ontario Teachers for this business?
3. Why isn't this business headquartered in a jurisdiction where people who commit massive financial fraud will be investigated and held to account?
4. What checks and balances regulate the relationship with Alameda, a hedge fund which a) trades with leverage and favorable fee structures on FTX b) is reputed (long before the Series B and the recent trouble) to have privileged access to FTX data c) is run by a romantic partner of the head of FTX?
5. Who are the grown-ups at FTX? You might well think that SBF and his posse have some magical crypto skills. But why don't they have senior people with experience in accountancy, compliance, or risk management helping keep them on the right path? This is the easiest question to answer - you can simply check who works for them, who's on risk committees and other oversight bodies, and what their resume is.
People like to excuse massive due diligence failings like this by pointing out that not all venture investments are supposed to end up in the money. It's fine, if you have huge winners, to use them to justify a certain number of losers.
If you don't have a proven track record for finding out-of-the-park winners, it's perfectly reasonable to ask why you think you can risk large amounts of money on things that look dubious to other investors, while not performing basic checks.
1% of the 4% for a single years worth of capital isn't that much, especially considering the good reputation and other high end investors putting money in.
-- also it was out of their early stage fund - the vast majority of their money is in traditional investments - don't understand why everyone is so up in arms - they really think they know better than the most successful investment group in Canada? --
Why do an investment group which is successful in making large, traditional, real money investments think they know better than the numerous seasoned venture funds and experienced crypto investors who did not give $95m to FTX?
What was it about FTX's lack of internal controls or experienced decision-makers which only TVG was able to identify as a source of value?
Lol. FTX’s investors were a whose who of “seasoned venture funds and experienced crypto investors”.
Sequoia, Third Point Iconiq etc. Coinbase Ventures gave them money. Blackrock was an investor.
If you want to see FTX as an indictment of the entire venture industry I think there is an argument to be had there. But picking on OTP is just a lazy rhetorical device. They made a similar investment to other funds in the industry they are in, that was a reasonable size of their portfolio in an investment style known to be risky.
an enormous amount of our economy is based off gaslighting and manipulation
they can blur the line between honest mistake, gross negligence, nepotism, corruption, and thievery, enough that people who will applaud beating up a shoplifter for taking 20 dollars of junk will say "oh but they have nice suits and went to Stanford" about someone who gave 75 million dollars for magic beans.
I find it curious Musk was able to snif out SBF as a bullshit artist in his 30 min. Meeting with him, whereas countless polititions and regulators aparently did not have a clue despite years of meetings and other contacts.
What a bunch of BS. It's obviously easy to say that in hindsight. There are a million reasons for why he did not take the investment, but in none of the published conversation was anything about him thinking SBF is lying. In fact, knowing Elon, if he had really said that at some point before FTX collapsed, he sure would have published it by now to prove how smart he is.
He was skeptical even though SBF wanted to give him money, not the other way around. And people Elon knew were pushing for SBF. Elon ended up ghosting him anyway. Look at the chat logs that were revealed in court.
Michael Grimes [IBanker at Morgan Stanley]: Do you have 5 minutes to connect on possible meeting tomorrow I believe you will want to take?
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.
Will MacAskill [co-creator of effective altruism movement, Oxford professor, Chair of board for Global Priorities Institute at Oxford]: Hey - I saw your poll on twitter about Twitter and free speech. I'm not sure if this is what's on your mind, but my collaborator Sam Bankman-Fried (https://www.forbes.com/profile/sam-bankman-fried/?sh=4de9866...) has for a while been potentially interested in purchasing it and then making it better for the world. If you want to talk with him about a possible joint effort in that direction, his number is [redacted] and he's on Signal.
Elon: Does he have huge amounts of money?
Will: Depends on how you define "huge"! He's worth $24B, and his early employees (with shared values) bump that to $30B. I asked about how much he could in principle contribute and he said: "~$1-3b would be easy-$3-8b I could do ~$8-15b is maybe possible but would require financing"
Will: If you were interested to discuss the idea I asked and he said he'd be down to meet you in Austin
Will: He's based in the Bahamas normally. And I might visit Austin next week, if you'd be around?
Will: That's a start
Will: Would you like me to intro you two via text?
> 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.
Anyone able to evaluate this comment? Is this another "poorly batched 1000 RPCs slowing down home timeline" remark?
It's true, and the RPC comment is also very plausible
It's definitely not as ridiculous as what lots of experienced engineers are oddly saying
e.g. simply open up Twitter in Chrome's devtools and look at the networking tab -- I get 148 requests that finish in 6.3 seconds
That is very plausibly "1000 poorly batched RPCs" that makes Twitter slow in other countries -- if it's 6 seconds for me, it's easily 20, 30, or 60 seconds for others
It will be shocking to me if some executive attention on latency can't halve it, in short order. The problem with latency is that no one team is in charge of it -- every team is incentivized to use as much latency budget as possible to ship their feature.
Larry Page harped on at this at Google for a decade, until he kind of gave up / moved on, and Google became nearly as slow as every other website.
So Elon is absolutely doing the right thing with respect to latency -- he's not wrong, and he's not micro-managing.
----
Yes Elon is not infallible -- he made flatly wrong claims about self-driving for years, despite experts in the field telling him otherwise, to his financial benefit. And Tesla is being rightly investigated for those claims (years too late, probably)
It doesn't mean that Twitter isn't slow as hell for extremely basic reasons
I made a similar comment on Reddit and got voted down because Elon fanboyism has apparently turned into Elon hate. People really love to "pick a side" and ignore the facts on the ground.
Simple changes like enabling HTTP/3 and IPv6 would dramatically improve performance in locations outside of the United States. Google developed those specifically to work around performance issues in places like India, or mobile networks pretty much anywhere. Since Twitter is mobile-first, it surprises me they haven't jumped on board with these kinds of advancements.
What were all those thousands of people doing over there!?
Theoretical TPS limit for mainnet and L2s isn't enough to support the scale of twitter. The writes will get expensive very fast unless you offload that and only send a batched proof. Putting actual content on blockchain is a non-starter as well.
Most of the blockchain based social graphs end up using centralized indexer.
Everyone is also dependent on centralized RPC providers for querying and sending transactions since it requires a lot of resources to maintain your own.
So peer to peer isn't possible at their scale depending on how you interpret it.
Think we need to take that with a massive pinch of salt - Musk only came out and said that after the whole thing blew up. The actual contemporaneous messages are simply that SBF wanted block-chain twitter and Musk didn't. It's easy for all the SV people who didn't work with SBF to come out and act the genius now, but it's a bit self-serving.
Yeah that never happened. The only thing clear from those messages was that he wanted the money and was simply asking if the guy was good for the cash.
Musk and the religion that's built up around him in recent years exist in two separate realities.
Just to explain as someone that was initially a fan of Musk but now highly critical of him:
SpaceX owes a great deal of it's success to the people around Elon, particularly Shotwell, minimizing his bad behaviors. Compare this to Tesla and now Twitter, where Elon has unilateral power. At the first he managed to get in trouble with the SEC in the dumbest way possible, as well as continues the Fully Self Driving saga that many of us regard as fraud, the solar tiles debacle, etc. At the latter he's treating employees in an utterly reprehensible and illegal way. He's currently under investigation for similar behaviors at Tesla but involving far fewer employees.
The left hates Elon more for his union busting and abusive labor practices than bad jokes, but bad jokes certainly don't help Elon any when it comes to PR.
I can give Elon credit for advancing the timelines of both EVs and solar power, and applaud SpaceX for their innovation, while also being highly critical of Elon's general behavior and treatment of the people who work for them.
Put more bluntly: I AM judging Elon on the basis of his actions. Your position is actually that SpaceX is so cool it forgives all wrongs.
The EV industry as well as the spacetech industry would have none of the momentum they currently have if there was no messianic figure like Musk leading the pack.
Industries need charismatic evangelists to attract capital. Musk made investing in serious hardware ventures cool.
Now all the billionaires have their own space companies just to compete with Musk.
All in, a net positive. Otherwise Bezos billions might have gone into yet another superyacht.
If you get an abrasive personality with it, that’s a decent bargain.
> Now all the billionaires have their own space companies just to compete with Musk.
Do they? The only other billionaire-owned space company that comes to mind is Blue Origin, but they were founded years before SpaceX. (Which incidentally, seems to debunk the common argument that any billionaire funding a space program would have success similar to SpaceX/Musk. If success with such funding were inevitable, Blue Origin would have gotten to orbit years ago but in reality they still haven't.)
People are acting towards him like that exactly because they praised him before and were holding him at high esteem. I certainly did. Now he started to disappoint people, multiple times.
Nobody cares (much) about CEO of Comcast, or BP, or Electronic Arts. They have bad reputation and when they do something bad again, people just shrug and move on. While people with good reputation doing same things are discussed a lot.
Also note that Comcast, BP, EA etc. are all successful businesses. They just shitty to humans, but successful. So founding a big successful technology company is a big achievement, but not a unique one.
Founding multiple big successful companies in nascent industries that had been starved of capital before is a unique AND big achievement.
Nobody cheers on Bezos because of Blue Origin. They praise him for building Amazon when e-commerce was still new (or when dot coms had gone out of favor).
Same with Musk. There are multiple major private space ventures now. Ever car company has a heavily funded EV division. When Musk started, EVs were considered a joke and private space tech had little to no capital.
Musk is unique because he put his money into industries no big money would touch before him.
I honestly think they would, if Blue Origin actually did anything worth cheering. Their best achievement so far is stalling ULA's Vulcan Centaur for years. By the time it flies it will most likely be utterly obsolete, because Blue Origin has fumbled the BE-4 severely. Vulcan Centaur was supposed to fly in 2019 but Blue Origin only delivered some engines about a few weeks ago. They're years late and it's hurting ULA badly. Because of Blue Origin, SpaceX's Starship will probably fly before Vulcan Centaur. Vulcan Centaur is meant to be a HLV marginally more performant than Falcon 9, but Starship should wipe the floor with both.
>Also note that Comcast, BP, EA etc. are all successful businesses. They just shitty to humans, but successful. So founding a big successful technology company is a big achievement, but not a unique one.
What nonsense. If Comcast didn't exist, some other company would provide cable service to its customers, and NBC would have another owner. If BP didn't exist some other oil company would be searching for petroleum in the Gulf of Mexico and northern Alaska. If EA had gone the way of Epyx, Synapse, SSI, or 99% of other video game companies founded in the early 1980s, its video games would have appeared under another publisher's banner.
If Tesla[1] didn't exist, would the global e-car industry be anywhere close to what it is today? If SpaceX didn't exist, the odds are very, very high that the rocket industry would still be 100% expendables into the foreseeable future.
You get a lot of internet points and clicks for jumping on the hate bandwagon and cynically tearing people down.
Maybe if they weren't so focused on a manufactured villain, and people and the media had put even a tiny fraction of this scrutiny on SBF, an actual fraud might have been mitigated. But no, let's go after the guy putting rockets in space and producing millions of electric cars in the real world. He's the real bad guy!
Just surprised that HN has been flooded with the same low tier takes on Musk and tech culture in general. This audience usually understands nuance better
It is my understanding of nuance that leads to my dismissal of someone who’s success is entirely the result of US political culture where we can’t directly fund NASA so instead find a private parasite to funnel the money through so that the republicans don’t kill the program.
Coinbase has to be the biggest winner here. Despite some odd stories about Armstrong past couple of years, they appear to act like “adults”. BTC and ETH are not going away for awhile.
Everyone in the crypto sphere is a gigantic loser. The overall market cap may never recover and there is surely going to be much lower volume because of this. Maybe the biggest winner is traditional equity holders since all the crypto exiters will probably park their money in stocks.
I am convinced BTC and ETH are both here for the long haul or at least until Fidelity dumps them. That’s when I will know the game is over. Just get ready for the next shitcoin era in about two years. My guess is Elon will roll out crypto tied to Twitter when he’s ready to cash out.
> When loans were recalled in early 2022, an emergency decision was made to use FTX users’ deposits to repay creditors.
Just so you know, this is a clear and obvious prison sentence in normal finance.
Also FTX itself was trading with customer deposits instead of just keeping them like an exchange is supposed to do, which is also prison in normal finance.
Matt Levine wrote a good piece on this debacle, and will probably write more. It is simply breathtaking, every paragraph evokes a massive "wat".
Neither of these numbers are correct, they imply 100M of profit a day.
Volume is heavily weighted towards the highest tiers which on ftx were paying 0.015% to take and receiving 0.01% to make (given, alameda would receive no rebate).
They've also never claimed to do 100B+ a day. They published stats about their volume as well as some other exchanges here: https://ftx.com/volume-monitor.
It's stale since the collapse but they're claiming 16bn, and usually were claiming 5-10bn a day in the last month. Give some fudge factor for various traders at various tiers and this backs out to 1m a day order of magnitude.
Not covering a multi billion dollar hole with that anytime soon.
Those numbers were likely real. Any serious MM firm can quickly get an idea if the books/volumes on an exchange are legitimate and leaves if not (high theft risk on fake venues).
Aside from 365mm on 10bn being a bad trade, the volume will 100% drop off drastically after the loss of trust. That 365mm would be fortunate to stay above 36mm in my opinion
> Aside from 365mm on 10bn being a bad trade, the volume will 100% drop off drastically after the loss of trust. That 365mm would be fortunate to stay above 36mm in my opinion
You wouldn't have had a loss of trust because the loan would've allowed FTX NOT to transfer customer deposits to Alameda, and instead use borrowed money (on their future earnings).
No one in their right mind wants to lend to scammers. They took customers money and used it for their own goals (unsuccessful trading). I cannot express how fucked up that is.
Going through all their shenanigans, any legal activity on the exchange was rare. Extremely criminal behavior. SBF would buy tokens from his personal account, Alameda would then buy the same tokens, and then FTX would list those tokens after Alameda bought them.
Criminal beyond measure and it's absurd that all of these big name funds did not do even ten minutes of due diligence.
The Ontario Teacher's Pension Fund was "investing" in trash like this without even looking at their corporate governance. How do you treat a pension fund like that?
I'm not actually sure that particular move is criminal. Morally reprehensible, most certainly, but my understanding was that, since crypto isn't regulated like a security by the SEC or anyone else, you are free to pump&dump all you want without having to fear legal consequences.
When do we find out the fund’s partners bought the tokens before FTX listed them? That’s what I’m waiting for it’s the only way the lack of DD makes any sense.
This is really low quality 'reporting'. Those tangents about how bad SBF blog is compared to Carroline's. Wtf?
He calls out NYT research, but he bases his "research" on random anonymous forum msgs...
The world really is dumbing down...
The FTX "balance sheet" (which was a spreadsheet) had a cell called "hidden, poorly internally labled ‘fiat@’ account”.
Another key bit from Levine:
"If you try to calculate the equity of a balance sheet with an entry for HIDDEN POORLY INTERNALLY LABELED ACCOUNT, Microsoft Clippy will appear before you in the flesh, bloodshot and staggering, with a knife in his little paper-clip hand, saying “just what do you think you’re doing Dave?” You cannot apply ordinary arithmetic to numbers in a cell labeled “HIDDEN POORLY INTERNALLY LABELED ACCOUNT.” The result of adding or subtracting those numbers with ordinary numbers is not a number; it is prison."
And that's not all. This is fraud on a truly epic scale... Read the whole thing.
Edited to add that the HIDDEN POORLY INTERNALLY LABELED Account had a value of negative $8 billion.
> Having several years’ worth of experience at a trading firm does not make you a geniusーthe top tier of such firms hires well over a hundred new employees every year.
Renaissance Technologies hires less than a dozen new employees per year...
> In making some of these leveraged trades, the quant fund was using a cryptocurrency created by the exchange called FTT as collateral. In a lending agreement, collateral is typically the borrower’s pledge to secure repayment. It’s often dollars, or something else of value — like real estate. In this case, a source said Alameda was borrowing from FTX, and using the exchange’s in-house cryptocurrency, FTT token, to back those loans. The price of the FTT token nosedived 75% in a day, making the collateral insufficient to cover the trade.
This was nothing like a Ponzi scheme - the money was lost due to bad trades, poor collateral, bad accounting/compliance with probably a little bit of criminality thrown in at the end.
Although they were trading crypto it was more like an old fashioned/real money collapse.
There's a slide deck floating around[1] purported to be from Alameda research in 2018. That deck claims they offer 15% fixed returns to investors. If that slide deck is genuine, it seems possible that the unaccounted for money at Alameda Research went to paying for redemptions by early investors. Given how bad the accounting at FTX/Alameda seems to be, it seems possible to me that Alameda investors were paid back at high APYs even as the underlying strategies performed poorly, and the people at the top might not be aware that they were heading towards insolvency. If this is the case, it would be close to a pure Ponzi.
Now I don't really know how likely this is because there's very little public information about Alameda. It's also possible that Alameda bought Doge and Shiba which proceeded to crash 10x.
On that reasoning any company that is successful and people make profit early on then fails would be a Ponzi. It still looks like Alameda/FTX was initially profitable and then began to make losses which resulted in FTX customers (not investors in Alameda) deposits being loaned/stolen.
An investment fund which is successful early on then is not successful but still pays investors high returns is a Ponzi in my opinion. Many Ponzis in history have been backed by a legitimate business.
And worse: pretty much everyone was aware of it, but thought that because they were aware of it and everyone else is a schmuck, they could benefit from it. Some did, but only if they liquidated their holdings last year.
NFTs this year was a microcosm of exactly that. Loads of people jumped on the bandwagon, buying up NFTs as they were released, but the whole thing collapsed again when it turned out the resale market just wasn't there. Except for the first movers.
The art market itself is a bubble. Famous art is primarily used for investment, tax avoidance, and sometimes money laundering. Occasionally someone will hang it on a wall and look at it, but it's more likely to end up in storage.
NFTs were designed as a microcosm of the art investment market, sold on the promise of increasing resale value - like the real thing.
Of course that didn't happen. But some artists made a lot of money, some dealers made even more, and some people made significant savings on their tax bills.
No. Some NFTs are definitely art, like the ones by @beeple on Twitter. There are also NFTs that work as a membership card for a community, like BAYC. And of course there are scams too. You're oversimplifying.
I’d say that Madoff was a Ponzi Scheme. It seems, what Bankman-Fried et al have pulled off was more of stealing other people’s money and probably washing money, both for political purposes. They have donated other people’s money to Dem’s and have paid visits to the Biden White House. And, considering how billions have been sent to one of the most corrupt countries in the world (Ukraine; according to Transparency), I am not the first one to think that probably some of that money was laundered and used for elections or even for personal gain. It wouldn’t be the first time (Hunter’s “Laptop from hell”).
(I am not an US American. And I don’t care for either the Democrats nor the Republicans.)
Not planning to, but this still really saddens me.
You can have grievances about what happened here (and I'm sure many do), but the overtly sexual attacks on Caroline Ellison should disgust us all.
This isn't a defence of anyone's actions. If crimes have been committed, they should be investigated and prosecuted. If no crime has been committed, maybe regulation should be introduced - or maybe people should learn a valuable lesson about what happens when you go out of your way to engage in investments that derive their gains from dodging consumer protection regulations.
In any case, the attacks on Caroline Ellison reflect really badly on the worst stereotypes of Crypto Bros as a whole - even though I'm certain it's a tiny minority of people involved in them.
Maybe I'm misunderstanding your Google Images reference, but the content of the discussions on Reddit since this all kicked off have followed enough of a theme that I can take a guess at what some of those people have photoshopped up for the web masses.
Probably easier to ask outright, why shouldn't I do a Google Images search for Caroline Ellison?
One thing that stuck out at me in the NYT puff-piece was:
Alameda had accumulated a large “margin position” on FTX, essentially meaning it had borrowed funds from the exchange ... He said the size of the position was in the billions of dollars but declined to provide further details.
Did FTX use their pool of customer deposits to extend leverage to margin traders?
The NYT is just lying. The people who controlled both FTX and Alameda stole funds from FTX (which FTX customers have claims against) and gave them to Alameda
For even more context of how bad SBF was at League of Legends, a large part of their player-base is children and teens. You would not expect a normal functioning 30 year old man to lose to 12 year olds after years of playing with the frequency he did.
From what I understand (only seen a game, not played it), League of Legends is more similar to Starcraft where it's about strategy, knowledge and timing than the necessary very fast reaction times of teenagers found in a first player shooter.
You would expect even retired people to be good at the game if they played enough.
Regardless, playing video games, doing drugs, looking dishevelled and being over weight are all visible signs of some kind of internal disorder. Most people don't wear their disorder visibly, they either learn to hide it or it doesn't reveal itself physically. In this episode it's like the signs are treated as a good sign - of creativity.
A high percentage of high elo League of Legends players are 16-25. Pro players average age is like 22. Not necessarily because younger people are better but just because they grew up playing the game and have lots of spare time on their hands.
Imagine if someone played chess for years and were still at the lowest rank you can reasonably sink to. You would think that person has a learning disability.
It doesn't add up that someone that went to MIT in physics, something that correlates well to logically consistent thinking, would be this bad. He must have declined from drug use, a mental disorder, sleep deprivation.
"it is actually shocking that SBF was unable to rank higher than the Bronze or Silver league after years of regular play" ouch... author certainly does not play league of legends. ladder is broken, you are always at the mercy of riot's matchmaking. there was a reddit post appropriately criticizing it and received around 8k upvotes - mods deleted it. even if you completely MinMax everything to climb (which gets quite tedious and boring) - actually climbing takes ridiculous amounts of time. and it's time sensitive - folks that play around 5AM could easily give Faker a run for his money, folks that supposedly are bronzies (I call them robo smurfs). turn the same game on when the school ends and the amounts of stupidity are overwhelming. and the older account is - the worse it gets. at the time I was placed in bronze - won a local tournament full with diamonds, masters and even couple challengers. and the game itself is mistake driven - gold differs from diamond by a single mistake that diamond player never lets go.
Do you have any data to back that up? Do you not understand that the lowest ranked players on the server are going to disproportionately include children that are bad?
That is impossible to believe. Teens AND children only add up to 12%. No lol. The average age of league of legends pro is 22. None of them starting playing the game after 18. It makes no sense.
Then I already pointed out that the rank SBF was in is populated with the worst players, which is more likely to be children that dont have a fully developed brain.
This is a key point.
They lost $16B in customer deposits.
LTCM lost $4.6B in investor funds.
Enron lost $11B in shareholder capital.
Interestingly, while Madoff is widely quoted as having lost $65B, that was almost all fabricated paper wealth, actual losses were around $18B and $14.4B of that was recovered and returned.
All of these situations are obviously somewhat different, but if what we're starting to hear is correct, FTX may be one of, if not the, biggest financial frauds/scandals in history. The media doesn't seem to be treating it as such.