I don't think a Ponzi scheme adequately explains the problems with centralized cryptocurrency exchanges. They're just banks. There are plenty of scammers in this space, I just don't think Binance is one of them.
The problem is they leverage user deposits as gambling money. These corporations can't bear to watch a pile of money sitting around doing nothing while in their custody. They just need to loan it out.
Did anyone actually believe they weren't loaning out user funds? How were they funding their massive leverage programs? How were they loaning all that money to SBF's trading firm?
Hello, your comment does not follow guidline "Comments should get more thoughtful and substantive, not less, as a topic gets more divisive." per https://news.ycombinator.com/newsguidelines.html. Please be more constructive.
I understand that. I think you are likely missing some context and what is motivating comments like the one I responded to. Long story short a cult developed around gamestock bag holders that didn't manage to sell the top and now they're shitting up every discussion on the internet related to finance or investing. It's starting to really annoy me now that it's escaped reddit
Fractional reserve in the context of banking is completely different because the FDIC backstops runs and the Fed backstops the FDIC.
Nobody backstops FTX or any other crypto exchange so its better described here as 'the yolo lifestyle'.
A modern day bank run in traditional finance is functionally impossible* (up to the FDIC insurance limits, and often higher in practice - there were no imposed limits at WaMu for instance).
Matt Leving from Money Stuff discussed it today (!). If exchanges provide leverage products to customers, they become banks (providing leverage, through funding typically by other customer's deposit).
So bank runs are possible.
There's a reason the perp exchanges have a fund, it's the capital that protects them from losing money on overleveraged customers. Or rather it's the rainy day fund that they lose out of when the delev happens.
Not sure this is related though, mechanics of today are not clear to me from what I've been able to find.
> modern day bank run in traditional finance is functionally impossible
Not at all. Bank runs still happen, the backstops just soften the blow with liquidity injections. Every time you see a withdrawal limit, there is no doubt a bank run is occurring.
A failing bank in the US will be taken over by another healthy bank over the weekend (or overnight) with help from the FDIC. You're not really at risk, at least if you're the kind of person who can take their whole account out in cash. The reason they'd put those signs up is that the government doesn't feel like loosening fraud regulations just because there's a bank run on.
So this is presumably going to stop the bleeding for customer deposits at FTX. I wonder how this all shakes out with Alameda - because it looked extremely likely that Alameda and FTX were doing a fair amount of business between each other, and now Alameda likely will be forced to unwind a load of illiquid shitcoin positions, CZ isn't going to want those loans outstanding (or maybe he will - pull the same move again and hold a gun to Alameda's head ready to force liquidition whenever he likes)
I think SBF realized marketing is everything. Being the face of crypto, sponsoring sports stadiums, being on the cover of a widely distributed magazine, all part of the same playbook.
In general, when I see someone on the cover of Fortune, I expect their business's half-life to be about a year. This has been very consistent because of the process of getting on the cover of Fortune and kind of people who push to get on it
>Note that http://FTX.us and http://Binance.us – two separate companies–are not currently impacted by this. http://FTX.us withdrawals are and have been live, is fully backed 1:1, and operating normally.
I wonder if this means SBF will continue operating FTX.us as a competitor to other US-based exchanges.
SBF said "We don't invest client assets (even in treasuries)". [0]
He then says the purpose of the transaction with Binance is to "clear out the liquidity crunches". [1]
How could there be a liquidity crunch if assets are not invested? You can't do a bank run on an entity that doesn't function as a bank and doesn't invest clients assets... Something is shifty.
There's nothing decentralized about FTX or Binance. They operate in an opaque manner like any traditional business, transparency comes from forced audits
& regulation.
Decentralized finance is built on chain where all assets are publicly auditable at all times.
EDIT: parent comment talked about decentralized finance, then edited to remove mentions of defi
>literally centralized companies as "not-decentralized"
So defi is only 100% decentralized everything, even if the financial tools are decentralized? That feels like an appeal to purity if ever there were one.
Ok, my previous comment is a bit unclear about what I mean. In my opinion if there is a group of people, other than the participants themselves, who can control the operation of the financial service then it is not decentralized. There can absolutely be an organization that builds the service, but participants should not be forced to adopt updates and should be free to transfer their entire balance to any other service at any time.
I realize I’m on the fringe a bit with this but I think it’s not because I have an extreme idea of what defi is, it’s that there have been so many grifters in the last 5 or so years that have used the buzzword “defi” to sell their shitty reincarnation of long-outlawed shady centralized financial schemes as something revolutionary that it’s shifted the public perception of the term. I’d even agree with you that it’s an appeal to purity.
Note that FTX.us is regulated under some US licenses and is unaffected. What was blown up was FTX.com operation that is licensed and regulated in Bahamas.
The FDIC is just a ruse to let "useful idiots" think that everything is okay. In reality, the FDIC charges banks 90% less than the actuarial value of the risk they take on, and banks make wildly risky loans/bets all the time, knowing it's "heads I win, tails the taxpayer loses."
Insofar as you can call US Finance any better than crypto, it's because of socialized losses. IMO, bank failures are a much more appropriate solution.
I can tell you a bank like say JP Morgan Chase, who is charged 5bp a year (i.e. 5 cents for every $100 dollars), has a much higher chance of catastrophic failure than 1 in 2000. Many banks just like them fail every few decades, and it was generous of me to only say they're undercharged by 90% (i.e. 1 in 200 odds), when the reality is probably more within a range like 1 in 20 to 1 in 100.
The insurer is the United States government. They take losses on things all the time. It's called "socialized losses." I referred to it before, and it sounds like you don't even understand these finance 101 (or even basic high school civics) topics, so why are you insulting anyone?
The insurer is a corporation with its own financial statements, so it's pretty easy to see if it's operating at a loss (and thus subsidising the banking industry) or at a profit (not subsidising it). I guess you didn't know that either.
In case anyone is curious, here is what some of my research has found:
The empirical rate of bank failure in the last couple decades has been slightly over 1 in 250 banks per year (that is, ~0.4%/bank/year, or "40 basis points"). This is from these two sources: https://www.fdic.gov/bank/historical/bank/ says that on average 27.3 banks per year have failed, while https://banks.data.fdic.gov/explore/historical?displayFields... says that there have been ~6500 banks covered. (I think that the probability of a massive bank failure is in fact higher than the empirical rate, due to the tail risk of catastrophic failures.)
I have not been able to find what rates JP Morgan Chase pays for their deposit insurance, but I think this page https://www.fdic.gov/deposit/insurance/historical.html suggests that the rate is between 1.5 and 40 basis points per year. Some other sources I've found do suggest that the average rate is around 5 bps/year.
Already we see that the empirical failure rate is higher than the assessment rate. (Although note that the probability was not weighted by dollars, whereas the rate is.) This is perhaps surprising, because the FDIC claims that "The FDIC receives no Congressional appropriations - it is funded by premiums that banks and savings associations pay for deposit insurance coverage." https://www.fdic.gov/about/what-we-do/index.html Perhaps this is part of the point of this comment I am replying to.
As a result, it's plausible to predict: (a) the deposit insurance fund might go negative again (ie, the insurance rate is incorrect), (b) the deposit insurance fund will definitely go negative in a situation like the S&L crisis or the 2008 financial crisis (thus requiring tricks like the borrowing mentioned above), and (c) in the event of a more catastrophic failure, the insurance fund will go so far negative that it might be explicitly bailed out by the broader federal government.
12:38 PM · Nov 7, 2022 2) FTX has enough to cover all client holdings. [0]
4:03 PM · Nov 8, 2022 2) Our teams are working on clearing out the withdrawal backlog as is. This will clear out liquidity crunches; all assets will be covered 1:1. This is one of the main reasons we’ve asked Binance to come in. [1]
has enough to cover all client holdings ---> not enough to cover all client holding in 24 hours. Either they lost a billion or so dollars of client segregated funds in a day down the back of the sofa or it was a lie the whole time.
Giving them the benefit of doubt, this is not a contradiction. The statement means that they have enough illiquid assets to cover the withdrawal that they are working on converting into liquidity.
But they're meant to store the customer assets in a cold wallet. They're not meant to invest them in illiquid assets that would need to be liquidated to give people their money. If it's not a contradiction, it's an intentionally misleading statement to avoid admitting they let Alameda Research invest the money when the entities are supposed to be completely separated.
In that scenario they could point to some of the wallets to help calm the fears the money isn't available. Or they could approach a number of different lenders who would be comfortable lending at high interest rates if the money is there but slow to access. They only sell if we're in the non-charitable case.
FTX/Alameda holds tons of illiquid FTT tokens that they cannot sell and which Binance was dumping. Thus, they might have not technically lied. But they were still wrong from the accounting perspective - they surely understood that FTT token cannot be used to cover gaps in large scale.
It was the question that matters "how fast you can process user withdrawals and with what risk"
Sam owns 8% of Robin Hood that is worth around ~$1B - he could sell that and cover some of the gap. But what we do not know yet is the size of the gap in time and space. FTX had $6B withdrawals pending on Tuesday.
> Sam owns 8% of Robin Hood that is worth around ~$1B - he could sell that and cover some of the gap.
Not knowing too much about this space have you ever seen anything like this happen? A CEO using their personal wealth to cover their customers funds seems unlikely.
This isn’t a thing, limited liability (which is the fundamental principle that distinguishes corporations from partnerships) prevents this. The only way would be if SBF was charged with defrauding FTX
That can't happen directly (I think).
Mingling breaks the limited liability mantle.
He will have to buy equity or other product from FTX to infuse with cash. And if it is going bankrupt he has to stop running it to preserve the liability "shield" -- details of course depend on the country/state of organization/incorporation. I know nothing about the Bahamas.
Example: Elon for instance infused his own cash into Tesla, when it was going bankrupt. But he practically bought equity to my understanding.
Covering customer accounts is different, in a financial firm. I do not know what tools the Bahamas give to FTX. This is all uncharted territory. (Also there is legal exposure to other countries.)
I thought FTX Alemeda (the trading side) invested into their own token, which is tanking thus causing problems.
Alemeda has like $14b assets and $8b in liabilities. But of that $14b, $5b are in their own token (FTT) which is kinda?? worth nothing at this very moment. So now the assets and liabilities are more equally matched, but less margin for shifting values of tokens.
I don’t know, but the derivative of their assets looks scary the last 24hr.
Illiquid just means that you can't cash it in quickly.
Cash is 100% liquid while a house is illiquid you might have millions US$ parked there but only if you manage to sell it, then you convert it into liquid cash.
Liquidity is a measure of how easy it'd be to trade a thing for another thing you want.
Agreed, but in this case these tokens have suddenly become 'illiquid' because they have just become worthless. It seems that here the term 'illiquid' is being used as a euphemism.
But cold storage and locked funds lead to you taking out a loan or just saying "sorry, it's going to be a while, our funds are locked". You know what you don't do if your funds are illiquid? Sell to your competitor over night.
Remember that blockchain transactions are slow and FTX has over 1m users. Even in the most positive of scenarios, I would not be surprised if it took days to clear the backlog of withdrawal requests.
Slow blockchain transactions and it would be shocking if they didn't stake user assets. Most (all?) proof of stake chains have lock up periods. Atom and other Cosmos chains are usually 21 days.
Indeed, all Bitcoin blocks today are full. There is no physical possibility to withdraw all those funds. That's why Binance must implement Lightning deposits/withdrawals, like Kraken did.
Not sure what people are talking about here, bitcoin mempool doesn't even have a notably large backlog at the moment and fees are currently low/normal: https://mempool.space/
Exchange withdrawals are one to many for btc helping keep size down and most other chains shouldn't have any issues. Don't see how FTX or really any exchange should be bottlenecked by blockchains here.
And that’s why banks are heavily regulated and get protections.
If FTX wanted protections against a bank run they could also choose to be regulated as a bank.
Cryptocons want us to both treat crypto scams as banks and not banks depending on what suits them in the moment, just like they want us to treat cryptocurrencies as assets or currencies based on what suits their argument in the moment.
All to hide the fact that it’s a mediocre technology which has been surpassed by many other technologies for most of its possible uses and is nothing more than a Ponzi scheme designed to enrich its original backers.
How many people do you think have more than $250k in the bank? How many people do you think have more than $250k in FTX? It sounds like you're saying it's not good enough because 0.1% of people won't get the full benefit.
As other people said, usually a lot of assets are illiquid in 24 hours. You can say I have money to buy this house, but if I ask you for the money the next 24 hours, most people will say they need more time to liquidate.
It is actually irresponsible to the users (risk management wise) to be keeping all that cash in hand 24/7. The easiest bad case example: are you keeping all your savings under your mattress?
Edit/to commenters below:
I understand there are emotions, but that's simply how things work. As other fellow commenters noted, banks do not keep or even promise they do keep your money($) under their "mattress."
Say you deposited in EUR. The exchange and everyone borrows in USD, so your EUR become USD -- no way out of it. EUR goes down, and then there is a bank run. Even if as the bank were irresponsible and kept 100% liquid, they can not serve everyone 1:1 in 24h. Nobody can give you that guarantee, besides your local grocery store. We are thinking these things at the wrong scale.
We are not trying to shift blame away from FTX -- already the whole relationship was sketchy. But claims about keeping 100% USD with a 24h cashout in a worldwide scale is not something on the table right now. I get worried when people feel comfortable believing those statements.
My read of the situation: SBF's comments were about assets (balance sheet) rather than FTX's liquidity. I believe SBF was saying (paraphrasing) "Our balance sheet is fine; FTX doesn't invest customer assets; we're processing withdrawals as fast as possible." That's different than saying "we have 100% liquidity."
Banks make similar statements all the time -- they require regular audits of assets (stress tests) and maintain some minimum levels of liquidity.
In the Glass-Steagall sense, they probably shouldn't. Mixing commercial banking and investment banking was illegal from 1933-1999, and it is (arguably) one of the underlying factors in the 2008 financial crisis.
Note: There's a difference between being a custodian of customers' investments (brokerage / commercial banking) versus proactively investing customer deposits (investment banking).
Going to need a _huge_ source on that claim. Investing customer funds is the primary way banks make their money, and has been that way essentially since the invention of banking.
> It is actually irresponsible to the users (risk management wise) to be keeping all that cash in hand 24/7. The easiest bad case example: are you keeping all your savings under your mattress?
"We never block withdrawls" is the new "We don't crash ever" as seen in the Facebook movie.
If you are in the crypto exchange business you gotta do both actually. Don't crash the website and don't suspend withdrawls ever.
If you take other people’s money by promising you will be keeping their money under your mattress, yes, you should keep all that money under the mattress or you’ll be behind bars for fraud.
Short dated government bonds would be the safest. But tweet 0 he litterally says they dont do that, they keep the cash under the mattress and you can have it if you stop by. People stopped by and there was no cash under the mattress...
how many of these y'all need before you learn: all crypto is a scam. It never was anything else, it never will be anything else because it can not be anything else.
There's an awful lot of fancy piled on the simple fact that all crypto"currencies" are negative sum games. The only disagreement is whether this is an entirely new type of scam , a "Nakamoto Scheme" or the difference between these and the classic Ponzi are irrelevant like the difference between a CRT and a HDTV and then we are looking at a Ponzi.
Because it is currency itself that you measure everything else against. What my sentence meant is that without transaction fees it would be a zero sum game -- ie if you undid all crypto-money transactions then nothing is left -- but with transaction fees their sum is a negative number. But you need to measure this in something.
Note how stocks are decidedly not like this because if you undid all stock-money transactions the sum would be positive because of buybacks and dividends.
> Because it is currency itself that you measure everything else against.
So what? I cannot see the significance of that. There are many possible measures of value.
> if you undid all transactions then nothing is left -- but with transaction fees their sum is a negative number. But you need to measure this in something.
Yes? So what's the important difference between cryptocurrencies and traditional currencies?
Distributed ledgers are not a scam, and our true best hope for anti-corruption.
I would like every elected official to have all their income and spending listed on a public ledger.
True accountability of representatives to those they purport to represent will solve so many problems, both in terms of the types of people incentivized to become public servants, and also in terms of public understanding of spending and waste.
All this "crypto" is intellectual warm-up for what is to come, I'd highly suggest looking at rollups (what I would describe as ledgers within ledgers) which are delving into the true possibilities of next-to-zero cost of immutable transaction records.
>Distributed ledgers are not a scam, and our true best hope for anti-corruption.
They are not a scam, but they are almost completely useless
>I would like every elected official to have all their income and spending listed on a public ledger.
A public ledger is not necessarily a decentralised ledger. This could be accomplished by any bank account controlled by a US politician to send the payments made to a US goverment controlled webapp that's then publicly accessible (by FOI request, if necessary). No blockchain, no decentralised woo needed. What you have stated is a POLTICIAL problem, and those require POLITICAL solutions. No new or speculative technology, of any sort, is needed to accomplish the problem statement.
He admits they were illiquid and needed Binance to cover withdrawals 1:1.
>Our teams are working on clearing out the withdrawal backlog as is. This will clear out liquidity crunches; all assets will be covered 1:1. This is one of the main reasons we’ve asked Binance to come in. It may take a bit to settle etc.
This a.m. before securing an emergency lifeline from rival Binance, FTX was canvassing deep pockets in Silicon Valley and Wall St — think billionaires, not institutions — ppl familiar told me & @lmatsakis @SaacksAttack. Two of the ppl he was seeking more than $1bn.
> SBF said "We don't invest client assets (even in treasuries)"
We know that was false when it was said, given the Alameda balance sheet. (FTX invested in Alameda which made risky loans to crypto folks and bought FTT, which FTX minted [1].)
FTX issued FTT to Alameda. We have no idea what Alameda gave them as collateral, but it's clear it wasn't cash. Lending is a form of investing. (I don't get what unlocked versus collateral FTX on Alameda's balance sheet means.)
How can you say it's clear it wasn't cash? What's the source?
Also, FTX minted FTT out of nothing - effective cost zero - so no matter what they received in exchange, even if they had received nothing that is not an investment unless they received Alameda equity. I agree that lending is a form of investment but nothing says that they received a loan in exchange.
You could still be right, but it's all speculation :)
I know the SEC is struggling to stay on top of the crypto market, but it certainly seems like SBF should be in an absolutely huge amount of legal jeopardy right now. And if he isn't, then the crypto market is beyond saving and deserves to die.
> SEC...it certainly seems like SBF should be in an absolutely huge amount of legal jeopardy right now
FTX U.S. is fine. To the degree Americans are hurt, it's investors in the international entity. If anyone deserves regulatory scrutiny, it's the institutional investors betting fiduciary assets on crypto.
It's an obvious joke a 3 year old kid would understand, if that kid didn't value signal by implying someone was an antisemite because of an unrelated joke that is.
> Cash and cash equivalents refers to the line item on the balance sheet that reports the value of a company's assets that are cash or can be converted into cash immediately.
> Cash equivalents include bank accounts and marketable securities such as commercial paper and short-term government bonds.
> Cash equivalents should have maturities of three months or less.
Don't know specifics on FTX/Alameda but this is probably normal to a degree for banks/brokers or just any regular business?
Well, if the customers are holding FTT and they're trying to get rid of their FTT, that could cause the liquidity crisis. The crisis isn't with the customer assets, it's with their FTT side of the business.
They lied to everyone of course. Never trust these corporations. They're sitting on huge piles of consumer deposits, of course they're gonna leverage that money. They cannot resist the temptation.
> Why was there a liquidity crunch in the first place? A crypto exchange is a weird sort of business, in many ways more like a brokerage than a traditional exchange.
> A lot of FTX’s business is in perpetual futures, a leveraged product, sometimes levered 20 to 1. If you are an exchange and you are in this sort of business, you will need to come up with the extra $100 to lend to your customer. Presumably that doesn’t come from your equity: You are doing some sort of borrowing, perhaps from other customers, [2] perhaps from outside financing sources, perhaps from your affiliated hedge fund, etc. You will have some customers who owe you money, and others whom you owe money. You will be like a bank. If everyone to whom you owe money demands their money back at once, you will need to get the money back from the ones who owe you money, which might be hard. (You might not have a contractual right to demand the money back right away, or it might be rude and bad for business, or you might have to liquidate them to get the money back and that would blow up the value of your collateral.) In broad strokes this is a reasonable description of what happened to Bear Stearns, a brokerage that financed its customers’ positions.
[2] (footnote in original article): Effectively a perpetual future involves you borrowing from and lending to your customer in offsetting ways: If the price goes up, you owe money to the long and the short owes money to you. If the short doesn’t pay you, then you still owe money to the long.
I’m a little ignorant to the whole crypto ecosystem, so can someone give me a quick rundown on the chain of events that led to this? Seems a little out of left field.
BTX, from the outside looking in, looked to be one of the more well run, stable crypto exchanges. $1.02 billion in revenue with $388M in net income in 2021. They didn’t go on any crazy hiring spree when they didn’t have to. Liquidity crisis implies that people are withdrawing cash they do not have, but if so, where did it go?
FTX bet customer funds through the CEO’s hedge fund on an FTX token [1]. The token price fell when this was revealed [2].
The hedge fund, and thus FTX, had less money than they owed lenders and customers. FTX found a bail-out in Binance; otherwise everyone would have lost their money.
It isn't officially a bailout. They just said they intend to acquire FTX. But, once they look at the books they may backout out the deal, especially if most customers want to take their money out. What is the point of buying an exchange that has no customers?
FTX's ceo also runs a prop trading firm which is the real source of his wealth. FTX loaned the trading firm billions of its own token FTT. FTX also gave binance billions of dollars of FTT because binance invested in them. Over the weekend FTX's ceo and Binance's ceo got in a fight on twitter and binance sold all of their FTT which collapsed the price. FTX's assets are tied up in the loans to their trading firm which are denominated in the now essentially worthless FTT and so they can't convert the FTT to cash which means can't process withdrawals.
Binance offers to buy FTX’s non-U.S. operations to fix ‘liquidity crunch’
The acquisition impacts only the non-US businesses, FTX.com. FTX.us will remain independent of Binance. The deal, according to Tweets from both Zhao and Bankman-Fried, rests on a non-binding letter of intent, pending full due diligence.
CZ has shut down the China branch, and was essentially banned since their crypto crackdown. He has been publicly critical of the CCP government too. The gov may not have much leverage over him.
Some ASPI analysts believed that one of the feature of MSS is their ability to co-opt Liberals to work for them. I'm not surprised if NSC would suspect anybody that intersected with Chinese govt. Dissidents included.
There was a report that came out a few days ago claiming that Alameda Research (SBFs company) was insolvent / did not have enough cash to cover their FTT liabilities[1]. CZ begins dumping their FTX token to de-risk and that led to them actually being insolvent.
If I've learned anything, the moment you start seeing posts like "funds are safe", "withdrawals are flowing" from an exchange, it's game over, and time to gtfo if it's not already too late.
ZIRP is a hell of a drug.
There's not a lot of innovation to be had on lending that is actually going to be considered legal.
Unless they obfuscate it with AI, they are going to run afoul of some sort of anti-discriminatory laws.
Credit score&history, income, capital.. go.
Most of what BNPL actually turned out to be was just dumb money.
Its also the fact that in a bear market / recessions usually most correlations go to 1(on the way down) and whatever risk metric you used previously justify having low default provisions suddenly doesn't work anymore.
Wonder whether we will ever see the actual datasets that BNPL founders saw that made them decide it is a safe business. Probably like you said ZIRP,bullmarket delinquency percentages.
Part of the supposed appeal of BNPL is that if the market gets risky, you have much more choice about how much new credit you can offer, since you're free to offer it per-purchase not per-customer.
It makes more sense for a large retailer to run it themselves, though; there's not necessarily any value in a dedicated company selling it straight to customers.
Insurance is already "AI-powered"...insurance companies employ statisticians to build prices, and they have been using low-cost distribution since the 90s.
Speaking generally, insurance was one of the first industries to deploy technology effectively in their core business. They are still doing that.
The issue with companies like Lemonade is that they are rebranding the same product as "AI" (afaik, Lemonade is just taking share by offering cheaper prices...doesn't sound quite as appealing as "AI").
Obviously this does vary because retail insurance is usually sold locally but the middle men were eliminated years ago.
First, it was phones. This happened in the early 90s. Then it was internet which was largely finished by the early 2010s. The only exception for this is that online price-comparison websites have added back some distribution costs...but you still need to spend on marketing if you are online (generally speaking, online ads aren't cheap, I know insurers in my market that have moved away from price-comparison/online advertising because of the cost).
There are still plenty of middle men in insurance. There are Carriers, MGA's, Agency Networks/Aggregators, and Brokers.
Large insurance carriers (think Geico, etc) with enough market share (and captive agents) have the vertical integration that eliminates the middle men, but there is a whole world of insurance that most people don't realize each taking their cut.
Their stock value is down, but they still are financially solvent. Lehman didn't explode when it fell from $60 to $6, it exploded when it went bankrupt. They're a lot closer to it now then a year ago, however
Well the place where I work at has a PE/VC arm that unfortunately decided to invest in Klarna sometime in 2021(not my call and not my loss), so naturally this year when it took a huge markdown, I became aware of it.
To track private markets you either need to basically know someone in VC/PE and just ask for a specific company you are interested in, or use something like Pitchbook. The first option is much better, as you can get an estimate of prices even when deals aren't getting done(i.e a VC/PE person can tell you how much they would pay for X company even when X company isn't raising).
Speaking with the Financial Times on July 14, Bankman-Fried stated that if FTX can become the top crypto exchange and supplant rivals such as Coinbase and Binance, the idea of purchasing giants such as Goldman Sachs and CME group is not off the table:
“If we are the biggest exchange, [buying Goldman Sachs and CME] is not out of the question at all.”
Any crypto exchange posturing buying out the likes of Goldman or CME are obviously doomed to fail. There's a fundemental difference between having courage and being down right lunatic, SBF definitely falls in the latter...
That says more about media outlets like Fortune, than "SV fintech." It seems like you're using that as a way to describe a single entity. Many people in crypto saw him as a snake.
You know what this makes me kind of wonder... back earlier in the year SBF made a big show of coming in and investing in a bunch of the companies that were collapsing due to the LUNA/3AC/Celsius problems. He stepped in and to some extent halted the unwinding of some of these issues. It turns out now that it's likely FTX is underwater, and Binance is basically doing the same thing - coming in, picking them up cheap and preventing them from really having to unwind.
So It's perfectly possible this action does the exact same thing as last time - simply stalls the unwinding of this catastrophe, which in the end could possibly even prove Binance insolvent. At the end of the day we just end up in a situation where Binance itself has pricing power over tonnes of coins, and if the market comes back they'll be fine, but if the market continues to slide at some point they won't be able to support the market any more.
Binance has serious legal issues (governmental investigations) and isn't based out of any jurisdiction. A Binance failure would have consequences that are very hard to predict
I'm not sure that binance has a reason to exist in the current world where defi is a thing.
Things like Coinbase etc are your place to go if you want a fiat to crypto on-ramp or off-ramp or if you want a reasonably safe place to park crypto if you don't want to own it yourself.
There are innumerable decentralized exchanges where a person can be absolutely (for some definition of the word) sure that the exchange won't be shutting down and taking your money before you're done doing your transaction. There are L2 DEX even that are approximately the same cost and same level of inconvenience as something like Binance.
Why does it matter if Binance goes away? I'm not sure if it does!
All the more reason for them to go down sooner rather than later because they’re eventually gonna go down, so better now where they will have less impact outside the crypto world than they would a few months or years later.
It's not an economic catastrophe: currently the real economy is not strongly affected by what happens in the crypto-economy--and we need to keep it that way!
Binance reminds me of https://en.wikipedia.org/wiki/Bank_of_Credit_and_Commerce_In... but I don't think they're stealing customer money. It is amazing that they have evaded American regulators so long. I think one day they are going to disable trading in dollars.
Honestly, I think FTX is biting off way more than they can chew. They’re really well-connected for the crypto industry, knifing them will definitely get the attention of regulators and that could blow up the entire thing. Their only real asset is being perceived as too big to fail but they’re not exactly acting in ways that endears them to the federal government
In retrospect, something very shady about those deals they made. There may have been more contagion than let on. Or FTX themselves was financially tied to those assets, and was the true actor swindling people through ponzi yield farming schemes.
This is the crypto ponzi falling apart. First the smaller ponzis fall apart so the larger ponzis need to step in so the fact that the entire thing is one big Ponzi doesn’t get fully exposed.
The Ponzi falling and subsequent cover up by the bigger Ponzi keeps going up the chain until those at the top of the Ponzi food chains collapse.
Pure speculation - but I am going to go ahead and speculate that they lost most of the money when everything collapsed a few months ago in the defi blow up.
They doubled down and bought up distressed assets for cents on the dollar, hoping to make it back. A few months on, these bets are worth $0 and there is a $5bn hold in the balance sheet.
If binance havent been f'ing around on the side gambling on the price, and just collect their brokerage on their exchange they will have plenty of cash to make FTX customers whole, restore some faith in the system and dominate the market place.
Yup, I think this is what happened. And they claimed "it was for the good of the crypto ecosystem", which in part is true. But the reality if SBF aquired because he had to.
Without wanting to overdo the "speedrunning 100 years of trad finance" crypto has just replayed 2008.
FTX is playin the role of Bear Sterns and Binance playing JP Morgan. Defi are subbing in for Mortgage bonds, CDOs and synthetic CDOs squared. Margott Robbie can play herself again the the explanation https://www.youtube.com/watch?v=wlHrSZ7BVFI
As with 2008, it is entirely possible that an exchange does what it is meant to do and just happily generates piles of profit for zero risk - taking a percentage of every transaction a bit like ebay. Is that Banance? Or maybe Gemini of Winklevoss fame?
No idea, CZ of binance tweets like he gets this, but who know. SBF tweeted saying they had everyones money but i guess the character limit means he couldnt say the whole statement which really was "we have everyones money ... except for 5-6billion of it"
> No idea, CZ of binance tweets like he gets this, but who know.
Agreed. CZ has also posted that he intends to start publishing merkle-tree proof-of-reserves [0] for Binance. Definitely could be posturing, but if he follows through it would definitely raise the confidence in Binance.
Yes, because the entire space is predicated on some magic beans having intrinsic value, which they don't. And then people realize that magic bean number N is also worthless, everyone exposed to magic bean number N goes bankrupt.
"We’re going to look back at a generation of successful founders and VCs with the realization that all of their talent was in creating a company during the bull market." - random tweet I came across that's very relevant here.
Thats funny, sure going to Gtech for an American as an undergrad doesn't scream privilege but seeing that today the total cost of going to such school will run you around 400k as an international student, while millions of people graduate high school in Nigeria and have to go through the hunger games of Jamb for extremely limited spots due to the lack of investment in education lead by his dad and cohorts tells a different tale.
Someone like him not born to such father in Nigeria, will likely be an high school teacher getting paid $100 every 4 months.
Are you just assuming his dad paid for his school? Do you know if he received any scholarships? Do you know the finances of his mother/mother's side of the family?
It's literally about how options traders and the like can be lucky for 10 or 20 years, but they are actually idiots who destroy the economy.
They think they are skilled, and others think they are skilled, but it's luck. You can also call it "anti-luck" because their short-term actions can cause the long-term crisis.
This book was a #1 best seller, as were most of Taleb's books, but for some reason whenever I mention it to anybody, I get blank stares.
I think it's just really hard for people to understand phenomena that occur at time scales of say more than a decade.
(BTW Another good book about recurring economic cycles is Dalio's 2022 The Changing World Order. All of this stuff has happened before. This is separate from crypto, and relates to the global economic environment.)
> whenever I mention it to anybody, I get blank stares.
Maybe it's the circles you move in. In finance nobody hasn't heard of it.
Well deserved reputation too, it really changed how I saw things. It's weird because even as someone who studied probability and stats, I hadn't thought it would change my entire worldview.
>It's literally about how options traders and the like can be lucky for 10 or 20 years
I don't see how doing anything successfully (in this case, gaining profit?) for 20 years can be described as "luck." Surviving/being successful that long trading isn't a fluke.
I haven't read the book, but I know that Talib talks about 'tail risk' a lot and 'risk of ruin'. Which are very different than what you describe. If my bet size is only limited to 2%, I would be happy to be "lucky" for 20 years!
Example: sell attractively priced insurance against a 100-year-flood. You make money for 20 years, but then a crazy big flood bankrupts your insurance company. Who would have thought that would happen?! Options (and other things) can be structured to create 'catastrophic insurance like' outcomes.
This is literally the definition of "beta" in equities trading.
There is nothing bad with riding a good bull run. Ponzenomics is the issue here (imho) where we have to come to realize that there is no liquidity in many crypto currencies because there is not need to actually trade them. And projects that provide real yield (i.e., use an existing currency as their main currency of operations) fail to get traction because they don't provide the Ponzenomics scheme to their users.
"We’re going to look back at a generation of successful founders and VCs with the realization that all of their talent was in creating a company during the bull market.". I would add: "and tweeting all day".
Alameda won’t be worth nearly as much without FTX - it was so successful because FTX fed it as much market data as it wanted and gave it priority market making etc. Also seemed to be sending it its own printed FTT tokens to secure loans for trading which was the cause of the insolvency rumors.
Neither of those things benefit the owner of FTX unless they are also the owner of Alameda
Not sure how safe Alameda is. $6 billion out of $14 billion of Alameda assets is FTT based. With FTT tanking, its asset balance shrunk greatly. It might well has its own liquidity problem.
Also with Biannce buying FTX, it can call back the loaned FTT from Alameda.
And people who knew what they were actually talking about were pointing out that it's unlikely anyone would have voluntarily left Jane Street as early as he did. But they were largely ignored.
Seems like a weird critique to me. Some people join out of college and realize that, for a variety of reasons, that sector isn't for them (yes, even at Jane Street). Maybe they get overly enamored by an internship; maybe they don't want to live in NYC. My impression is they are pretty 'open door' about rehiring if you leave on good terms or decline an offer anyway.
It seems likely that the Kimchi arbitrage (arbitraging between exchanges in Korea an the rest of the world) was indeed massively profitable. He took a wrong turn later.
Why? He must have had some money of his own and some rich friends to set it up. So he had the means. Also, the difference was there and it was persistent so he had the opportunity as well.
There was very little volume available on those pricing discrepancies, making thousands per day without erasing the arb would have been a challenge but perhaps not impossible. The public is expected to believe he made over $10 million dollars per day on average on that trade. It's not credible.
Not really, quite the opposite in fact. If humans were robots they’d trust each other completely, meaning all financial transactions could be done instantly with a simple database.
Humans are messy, so the solution we’ve arrived at is a database enforced by a complicated legal system + state power/violence (and arguably private power/violence via the mob). This works pretty well and powers trillions of dollars around the world.
Crypto is a fundamental misunderstanding of what makes modern finance hard. It’s not about trust, it’s about enforcement. I don’t need to trust my bank, but I need to trust that somebody will make things right if my bank takes my money. That allows me to trust my bank with my life savings, even though I’ve never met my banker or even know a single employee at the bank.
Crypto is missing this point and it’s why, despite following it since the beginning, I’ve never thought it has a future. It’s fundamentally solving the wrong problem.
That's a very eloquent way of putting it, thank you. It's possibly even worse than just a misunderstanding though. I'm sure there are people in the Crypto industry who see core issue of enforcement, because the second wave (after Bitcoin first became mainstream) was all about smart contracts. E.g. there was an effort to move the subject of enforcement into the framework. After all, if the contracts that need enforcement are part of the crypto system, then enforcement can also happen in the same system. Right?
Of course, this still falls short because no amount of mathematics will bridge that gap. At some point, the financial system (whether classical or based on blockchains) has to interact with the mind boggling mess of the real world. In the real world, 2+2 is not certain or deterministic at all. It can be debated, social implications weighed and the judge might say it's 4 and a bit, or slightly more than a pie.
In some sense it feels like crypto would work perfectly in a world that is completely deterministic, measurable and is populated wholly by algorithms interacting with each other. The second order question then is: would such a world even need crypto?
The time to have been bullish was a decade ago. Now it looks like the bubble finally burst. No bottom in sight. No adoption either. The government has made crypto obsolete or unusable. Everything is traced and tracked.
> The government has made crypto obsolete or unusable.
i don’t think you can really say this until the DNMs meaningfully shrink in size.
US govt has had like one major success that i know of in shutting down DNMs — Silk Road — since then there’s always been a dozen or so in operation that serve most/all the big countries whose govt you would expect to track crypto.
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[ 4.6 ms ] story [ 358 ms ] threadApparently this is for the international exchange business, FTX.com, but not FTX.us or Alameda quant trading firm.
Never a dull moment in the world of crypto.
https://twitter.com/SBF_FTX/status/1589598285798707202
The Bagehot quote is not SUPPOSED to apply.
They're liars. They are literally banks with all of the drawbacks and none of the benefits. They do fractional reserve banking with user deposits.
The problem is they leverage user deposits as gambling money. These corporations can't bear to watch a pile of money sitting around doing nothing while in their custody. They just need to loan it out.
Exchanges aren't subject to bank runs. If an exchange (or even broker) cries run, they were taking novel risks.
Nobody backstops FTX or any other crypto exchange so its better described here as 'the yolo lifestyle'.
A modern day bank run in traditional finance is functionally impossible* (up to the FDIC insurance limits, and often higher in practice - there were no imposed limits at WaMu for instance).
Levine spoke about brokerages. When brokerages extend credit, they can be subject to run dynamics. Not exchanges.
There's a reason the perp exchanges have a fund, it's the capital that protects them from losing money on overleveraged customers. Or rather it's the rainy day fund that they lose out of when the delev happens.
Not sure this is related though, mechanics of today are not clear to me from what I've been able to find.
Not at all. Bank runs still happen, the backstops just soften the blow with liquidity injections. Every time you see a withdrawal limit, there is no doubt a bank run is occurring.
This is not accurate. Withdrawal limits are there to control fraud.
The line between where FTX starts and Alameda ends always confused me.
https://twitter.com/ClarityToast/status/1590016720923930628?...
Without withdrawals FTX will loose in importance and value every single hour.
It is hard to build trust as a crypto exchange, but it is very easy and can be quick to lose it.
Iunno, it seems a lot easier than I ever expected
(I don’t run one, just observing others)
Binance called attention to the weakness. The underlying issues were all caused by FTX.
https://content.fortune.com/wp-content/uploads/2022/07/COV.W...
I was wondering why he was throwing rescue tubes to silly projects. It seemed like he had too much money.
>Note that http://FTX.us and http://Binance.us – two separate companies–are not currently impacted by this. http://FTX.us withdrawals are and have been live, is fully backed 1:1, and operating normally.
I wonder if this means SBF will continue operating FTX.us as a competitor to other US-based exchanges.
He then says the purpose of the transaction with Binance is to "clear out the liquidity crunches". [1]
How could there be a liquidity crunch if assets are not invested? You can't do a bank run on an entity that doesn't function as a bank and doesn't invest clients assets... Something is shifty.
[0] https://twitter.com/sbf_ftx/status/1589598285798707202
[1] https://twitter.com/sbf_ftx/status/1590012126701441025
There’s a reason the FDIC exists and all banks must be insured.
Decentralized finance is built on chain where all assets are publicly auditable at all times.
EDIT: parent comment talked about decentralized finance, then edited to remove mentions of defi
i.e. an attempt to remove bad actors who deal in decentralized cryptocurrencies from the purity that is defi.
What are some large, successful defi organizations today?
> What are some large, successful defi organizations today?
In my opinion, if there is an organization behind it then it is, by definition, not decentralized. Yes, even the ones that operate fully on-chain.
So defi is only 100% decentralized everything, even if the financial tools are decentralized? That feels like an appeal to purity if ever there were one.
I realize I’m on the fringe a bit with this but I think it’s not because I have an extreme idea of what defi is, it’s that there have been so many grifters in the last 5 or so years that have used the buzzword “defi” to sell their shitty reincarnation of long-outlawed shady centralized financial schemes as something revolutionary that it’s shifted the public perception of the term. I’d even agree with you that it’s an appeal to purity.
And I came to the conclusion that SBF is a crook and the whole crypto space is build on thin air.
Beside, It's more the remembering of the unfolding of the Subprime crisis and the financial books I read back then that raised the red flag.
[insert coconut meme.gif here]
Insofar as you can call US Finance any better than crypto, it's because of socialized losses. IMO, bank failures are a much more appropriate solution.
The empirical rate of bank failure in the last couple decades has been slightly over 1 in 250 banks per year (that is, ~0.4%/bank/year, or "40 basis points"). This is from these two sources: https://www.fdic.gov/bank/historical/bank/ says that on average 27.3 banks per year have failed, while https://banks.data.fdic.gov/explore/historical?displayFields... says that there have been ~6500 banks covered. (I think that the probability of a massive bank failure is in fact higher than the empirical rate, due to the tail risk of catastrophic failures.)
I have not been able to find what rates JP Morgan Chase pays for their deposit insurance, but I think this page https://www.fdic.gov/deposit/insurance/historical.html suggests that the rate is between 1.5 and 40 basis points per year. Some other sources I've found do suggest that the average rate is around 5 bps/year.
Already we see that the empirical failure rate is higher than the assessment rate. (Although note that the probability was not weighted by dollars, whereas the rate is.) This is perhaps surprising, because the FDIC claims that "The FDIC receives no Congressional appropriations - it is funded by premiums that banks and savings associations pay for deposit insurance coverage." https://www.fdic.gov/about/what-we-do/index.html Perhaps this is part of the point of this comment I am replying to.
But indeed, we find that historically the FDIC's Deposit Insurance Fund has gone negative multiple times: https://www.aba.com/news-research/research-analysis/fdic-cap... https://www.fdic.gov/deposit/insurance/assuringconfidence.pd... Historically, in such a situation, the FDIC is able to borrow from the federal government. It has done so in 1990, while in 2008 it did other maneuvers that similarly show that the rate is insufficient.
As a result, it's plausible to predict: (a) the deposit insurance fund might go negative again (ie, the insurance rate is incorrect), (b) the deposit insurance fund will definitely go negative in a situation like the S&L crisis or the 2008 financial crisis (thus requiring tricks like the borrowing mentioned above), and (c) in the event of a more catastrophic failure, the insurance fund will go so far negative that it might be explicitly bailed out by the broader federal government.
Am I crazy or would 5 basis points be 0.05 cents (1/100th of a percent)
4:03 PM · Nov 8, 2022 2) Our teams are working on clearing out the withdrawal backlog as is. This will clear out liquidity crunches; all assets will be covered 1:1. This is one of the main reasons we’ve asked Binance to come in. [1]
has enough to cover all client holdings ---> not enough to cover all client holding in 24 hours. Either they lost a billion or so dollars of client segregated funds in a day down the back of the sofa or it was a lie the whole time.
Literally a contradiction.
1. They have all the funds
2. Many are in cold storage or otherwise inaccessible in short term
3. Their cold storage restore process is so slow they need emergency help to provide liquidity in the meantime
Seems more like that they've either embezzled client funds or been hacked/lost some cold storage keys
It was the question that matters "how fast you can process user withdrawals and with what risk"
Sam owns 8% of Robin Hood that is worth around ~$1B - he could sell that and cover some of the gap. But what we do not know yet is the size of the gap in time and space. FTX had $6B withdrawals pending on Tuesday.
Not knowing too much about this space have you ever seen anything like this happen? A CEO using their personal wealth to cover their customers funds seems unlikely.
No, but I would love to see it happen, enforced by a court, and backed by a promise of jail time if the CEO fails to comply in a timely fashion.
It’s in the category of “desperately wants to be true” of crypto crash denial.
I’ve been lampooning people defending FTX in Hacker News all day. This is what I come here for!
He will have to buy equity or other product from FTX to infuse with cash. And if it is going bankrupt he has to stop running it to preserve the liability "shield" -- details of course depend on the country/state of organization/incorporation. I know nothing about the Bahamas.
Example: Elon for instance infused his own cash into Tesla, when it was going bankrupt. But he practically bought equity to my understanding.
Covering customer accounts is different, in a financial firm. I do not know what tools the Bahamas give to FTX. This is all uncharted territory. (Also there is legal exposure to other countries.)
Alemeda has like $14b assets and $8b in liabilities. But of that $14b, $5b are in their own token (FTT) which is kinda?? worth nothing at this very moment. So now the assets and liabilities are more equally matched, but less margin for shifting values of tokens.
I don’t know, but the derivative of their assets looks scary the last 24hr.
Disclaimer: not a crypto person
Cash is 100% liquid while a house is illiquid you might have millions US$ parked there but only if you manage to sell it, then you convert it into liquid cash.
Liquidity is a measure of how easy it'd be to trade a thing for another thing you want.
It is also very hard to trade worthless things for expensive things you want.
Insolvent institutions like to claim they are illiquid when in reality they are insolvent.
We've seen this happen over and over during the 2008 crisis.
Exchange withdrawals are one to many for btc helping keep size down and most other chains shouldn't have any issues. Don't see how FTX or really any exchange should be bottlenecked by blockchains here.
Right?
https://www.bloomberg.com/news/articles/2022-04-25/sam-bankm...
Well…
If FTX wanted protections against a bank run they could also choose to be regulated as a bank.
Cryptocons want us to both treat crypto scams as banks and not banks depending on what suits them in the moment, just like they want us to treat cryptocurrencies as assets or currencies based on what suits their argument in the moment.
All to hide the fact that it’s a mediocre technology which has been surpassed by many other technologies for most of its possible uses and is nothing more than a Ponzi scheme designed to enrich its original backers.
How many bank runs have there been in 2022 in the developed world?
The reason people don't try to pull their money out all at once is because their deposits are insured, because their bank pays into an insurance pool.
That wouldn't be a problem for the majority of Americans
It is actually irresponsible to the users (risk management wise) to be keeping all that cash in hand 24/7. The easiest bad case example: are you keeping all your savings under your mattress?
Edit/to commenters below: I understand there are emotions, but that's simply how things work. As other fellow commenters noted, banks do not keep or even promise they do keep your money($) under their "mattress."
Say you deposited in EUR. The exchange and everyone borrows in USD, so your EUR become USD -- no way out of it. EUR goes down, and then there is a bank run. Even if as the bank were irresponsible and kept 100% liquid, they can not serve everyone 1:1 in 24h. Nobody can give you that guarantee, besides your local grocery store. We are thinking these things at the wrong scale.
We are not trying to shift blame away from FTX -- already the whole relationship was sketchy. But claims about keeping 100% USD with a 24h cashout in a worldwide scale is not something on the table right now. I get worried when people feel comfortable believing those statements.
FTX CEO litterally said that in his tweet.
Banks make similar statements all the time -- they require regular audits of assets (stress tests) and maintain some minimum levels of liquidity.
Note: There's a difference between being a custodian of customers' investments (brokerage / commercial banking) versus proactively investing customer deposits (investment banking).
From https://en.wikipedia.org/wiki/Fractional-reserve_banking:
"Fractional-reserve banking predates the existence of governmental monetary authorities"
Real regulated banks have access to the Fed to borrow in a case of a bank run.
Anyone who has more than the insured amount, or anyone who needs their money in the near future will still engage in a run.
There were several runs during the 2008 crisis, the most famous is the run on IndyMac Bank.
https://en.wikipedia.org/wiki/IndyMac
Shadow banks don't.
"We never block withdrawls" is the new "We don't crash ever" as seen in the Facebook movie.
If you are in the crypto exchange business you gotta do both actually. Don't crash the website and don't suspend withdrawls ever.
Short dated government bonds would be the safest. But tweet 0 he litterally says they dont do that, they keep the cash under the mattress and you can have it if you stop by. People stopped by and there was no cash under the mattress...
how many of these y'all need before you learn: all crypto is a scam. It never was anything else, it never will be anything else because it can not be anything else.
There's an awful lot of fancy piled on the simple fact that all crypto"currencies" are negative sum games. The only disagreement is whether this is an entirely new type of scam , a "Nakamoto Scheme" or the difference between these and the classic Ponzi are irrelevant like the difference between a CRT and a HDTV and then we are looking at a Ponzi.
> There's an awful lot of fancy piled on the simple fact that all "currencies" are negative sum games.
?
Note how stocks are decidedly not like this because if you undid all stock-money transactions the sum would be positive because of buybacks and dividends.
So what? I cannot see the significance of that. There are many possible measures of value.
> if you undid all transactions then nothing is left -- but with transaction fees their sum is a negative number. But you need to measure this in something.
Yes? So what's the important difference between cryptocurrencies and traditional currencies?
I would like every elected official to have all their income and spending listed on a public ledger.
True accountability of representatives to those they purport to represent will solve so many problems, both in terms of the types of people incentivized to become public servants, and also in terms of public understanding of spending and waste.
All this "crypto" is intellectual warm-up for what is to come, I'd highly suggest looking at rollups (what I would describe as ledgers within ledgers) which are delving into the true possibilities of next-to-zero cost of immutable transaction records.
They are not a scam, but they are almost completely useless
>I would like every elected official to have all their income and spending listed on a public ledger.
A public ledger is not necessarily a decentralised ledger. This could be accomplished by any bank account controlled by a US politician to send the payments made to a US goverment controlled webapp that's then publicly accessible (by FOI request, if necessary). No blockchain, no decentralised woo needed. What you have stated is a POLTICIAL problem, and those require POLITICAL solutions. No new or speculative technology, of any sort, is needed to accomplish the problem statement.
https://news.ycombinator.com/item?id=33518961
The "as is" worries me here
They stopped processing withdrawals according to on chain data.[0]
[0]: https://www.theblock.co/post/184176/ftx-appears-to-have-stop...
If you look at the comments on https://news.ycombinator.com/item?id=33518961 that article missed that FTX uses multiple addresses for withdrawals.
>Our teams are working on clearing out the withdrawal backlog as is. This will clear out liquidity crunches; all assets will be covered 1:1. This is one of the main reasons we’ve asked Binance to come in. It may take a bit to settle etc.
[0]: https://twitter.com/SBF_FTX/status/1590012124864348160
https://www.coindesk.com/business/2022/11/08/ftxs-bitcoin-ba...
https://twitter.com/lizrhoffman/status/1590021299295768578
He / his people didnt call me, but I would have passed anyway
We know that was false when it was said, given the Alameda balance sheet. (FTX invested in Alameda which made risky loans to crypto folks and bought FTT, which FTX minted [1].)
[1] https://www.coindesk.com/business/2022/11/02/divisions-in-sa...
Alameda invested in FTT which is minted by FTX which is not the same thing.
FTX issued FTT to Alameda. We have no idea what Alameda gave them as collateral, but it's clear it wasn't cash. Lending is a form of investing. (I don't get what unlocked versus collateral FTX on Alameda's balance sheet means.)
Also, FTX minted FTT out of nothing - effective cost zero - so no matter what they received in exchange, even if they had received nothing that is not an investment unless they received Alameda equity. I agree that lending is a form of investment but nothing says that they received a loan in exchange.
You could still be right, but it's all speculation :)
FTT spiraled and FTX went insolvent.
FTX U.S. is fine. To the degree Americans are hurt, it's investors in the international entity. If anyone deserves regulatory scrutiny, it's the institutional investors betting fiduciary assets on crypto.
> Cash and cash equivalents refers to the line item on the balance sheet that reports the value of a company's assets that are cash or can be converted into cash immediately.
> Cash equivalents include bank accounts and marketable securities such as commercial paper and short-term government bonds.
> Cash equivalents should have maturities of three months or less.
Don't know specifics on FTX/Alameda but this is probably normal to a degree for banks/brokers or just any regular business?
They don't "invest" client assets, not even in treasuries, ie actual investments.
They "speculate" client assets, in tokens.
> Why was there a liquidity crunch in the first place? A crypto exchange is a weird sort of business, in many ways more like a brokerage than a traditional exchange.
> A lot of FTX’s business is in perpetual futures, a leveraged product, sometimes levered 20 to 1. If you are an exchange and you are in this sort of business, you will need to come up with the extra $100 to lend to your customer. Presumably that doesn’t come from your equity: You are doing some sort of borrowing, perhaps from other customers, [2] perhaps from outside financing sources, perhaps from your affiliated hedge fund, etc. You will have some customers who owe you money, and others whom you owe money. You will be like a bank. If everyone to whom you owe money demands their money back at once, you will need to get the money back from the ones who owe you money, which might be hard. (You might not have a contractual right to demand the money back right away, or it might be rude and bad for business, or you might have to liquidate them to get the money back and that would blow up the value of your collateral.) In broad strokes this is a reasonable description of what happened to Bear Stearns, a brokerage that financed its customers’ positions.
[2] (footnote in original article): Effectively a perpetual future involves you borrowing from and lending to your customer in offsetting ways: If the price goes up, you owe money to the long and the short owes money to you. If the short doesn’t pay you, then you still owe money to the long.
BTX, from the outside looking in, looked to be one of the more well run, stable crypto exchanges. $1.02 billion in revenue with $388M in net income in 2021. They didn’t go on any crazy hiring spree when they didn’t have to. Liquidity crisis implies that people are withdrawing cash they do not have, but if so, where did it go?
The hedge fund, and thus FTX, had less money than they owed lenders and customers. FTX found a bail-out in Binance; otherwise everyone would have lost their money.
[1] https://www.coindesk.com/business/2022/11/02/divisions-in-sa...
[2] https://www.coindesk.com/markets/2022/11/08/ftt-plummets-as-...
That's a bailout.
> once they look at the books they may backout
It's not a done deal. But the proposal is a bailout, through and through.
Preventing exposing the entire crypto currency ecosystem as fraud.
That implies they embezzled customer funds (customer deposits should never be invested or loaned or intermingled with company funds)
Here is an article about the twitter acquisition also with Binance/CZ onboard - this would similar or worse, no?:
https://www.brookings.edu/research/the-national-security-gro...
The national security grounds for investigating Musk’s Twitter acquisition
[1] Not ftx.us, which is not getting bought
https://www.cnbc.com/2022/11/08/binance-offers-to-buy-ftxs-n...
Binance offers to buy FTX’s non-U.S. operations to fix ‘liquidity crunch’
The acquisition impacts only the non-US businesses, FTX.com. FTX.us will remain independent of Binance. The deal, according to Tweets from both Zhao and Bankman-Fried, rests on a non-binding letter of intent, pending full due diligence.
The U.S. subsidiary had to follow rules that made FTX’s shenanigans more difficult.
FTX starts to fail…
CZ snaps it up for a song
[1] https://dirtybubblemedia.substack.com/p/is-alameda-research-...
This is why regulations exist.
"FTX is fine. Assets are fine."
Can't trust a word out of this guy's mouth.
SV fintech keeps reinventing all the mistakes of 19th century banking.
BNPL is the next explosion btw.
Another good candidate is "AI-powered" insurance i.e Lemonade.
Credit score&history, income, capital.. go.
Most of what BNPL actually turned out to be was just dumb money.
Wonder whether we will ever see the actual datasets that BNPL founders saw that made them decide it is a safe business. Probably like you said ZIRP,bullmarket delinquency percentages.
It makes more sense for a large retailer to run it themselves, though; there's not necessarily any value in a dedicated company selling it straight to customers.
Speaking generally, insurance was one of the first industries to deploy technology effectively in their core business. They are still doing that.
The issue with companies like Lemonade is that they are rebranding the same product as "AI" (afaik, Lemonade is just taking share by offering cheaper prices...doesn't sound quite as appealing as "AI").
They likely also have lower costs due to eliminating the middle men whose job is to translate text on the screen into words spoken to a customer.
So their lower costs could actually be legitimate.
First, it was phones. This happened in the early 90s. Then it was internet which was largely finished by the early 2010s. The only exception for this is that online price-comparison websites have added back some distribution costs...but you still need to spend on marketing if you are online (generally speaking, online ads aren't cheap, I know insurers in my market that have moved away from price-comparison/online advertising because of the cost).
Large insurance carriers (think Geico, etc) with enough market share (and captive agents) have the vertical integration that eliminates the middle men, but there is a whole world of insurance that most people don't realize each taking their cut.
To track private markets you either need to basically know someone in VC/PE and just ask for a specific company you are interested in, or use something like Pitchbook. The first option is much better, as you can get an estimate of prices even when deals aren't getting done(i.e a VC/PE person can tell you how much they would pay for X company even when X company isn't raising).
Speaking with the Financial Times on July 14, Bankman-Fried stated that if FTX can become the top crypto exchange and supplant rivals such as Coinbase and Binance, the idea of purchasing giants such as Goldman Sachs and CME group is not off the table:
“If we are the biggest exchange, [buying Goldman Sachs and CME] is not out of the question at all.”
https://cointelegraph.com/news/billionaire-sbf-says-ftx-may-...
JFC, what an arrogant twat!
So It's perfectly possible this action does the exact same thing as last time - simply stalls the unwinding of this catastrophe, which in the end could possibly even prove Binance insolvent. At the end of the day we just end up in a situation where Binance itself has pricing power over tonnes of coins, and if the market comes back they'll be fine, but if the market continues to slide at some point they won't be able to support the market any more.
Things like Coinbase etc are your place to go if you want a fiat to crypto on-ramp or off-ramp or if you want a reasonably safe place to park crypto if you don't want to own it yourself.
There are innumerable decentralized exchanges where a person can be absolutely (for some definition of the word) sure that the exchange won't be shutting down and taking your money before you're done doing your transaction. There are L2 DEX even that are approximately the same cost and same level of inconvenience as something like Binance.
Why does it matter if Binance goes away? I'm not sure if it does!
They are also huge investors in crypto and any winding up will have an impact on a significant number of companies.
They control a significant portion of stablecoin, defi, and chain market too.
Their impact would be felt outside the crypto space if they ever go down.
The Ponzi falling and subsequent cover up by the bigger Ponzi keeps going up the chain until those at the top of the Ponzi food chains collapse.
Right now it looks like that might be Binance.
They doubled down and bought up distressed assets for cents on the dollar, hoping to make it back. A few months on, these bets are worth $0 and there is a $5bn hold in the balance sheet.
If binance havent been f'ing around on the side gambling on the price, and just collect their brokerage on their exchange they will have plenty of cash to make FTX customers whole, restore some faith in the system and dominate the market place.
FTX is playin the role of Bear Sterns and Binance playing JP Morgan. Defi are subbing in for Mortgage bonds, CDOs and synthetic CDOs squared. Margott Robbie can play herself again the the explanation https://www.youtube.com/watch?v=wlHrSZ7BVFI
As with 2008, it is entirely possible that an exchange does what it is meant to do and just happily generates piles of profit for zero risk - taking a percentage of every transaction a bit like ebay. Is that Banance? Or maybe Gemini of Winklevoss fame?
No idea, CZ of binance tweets like he gets this, but who know. SBF tweeted saying they had everyones money but i guess the character limit means he couldnt say the whole statement which really was "we have everyones money ... except for 5-6billion of it"
Agreed. CZ has also posted that he intends to start publishing merkle-tree proof-of-reserves [0] for Binance. Definitely could be posturing, but if he follows through it would definitely raise the confidence in Binance.
[0] https://twitter.com/cz_binance/status/1590055819416330240
If that tweeter has done something wrong in his life, then talk about it. But he didn't really have a choice on who birthed him.
From the wiki page:
> Some of his children were resentful that he gave them no special privileges and treated their mothers poorly.
Someone like him not born to such father in Nigeria, will likely be an high school teacher getting paid $100 every 4 months.
There are a quarter of a million immigrants from Nigeria in the US.
[0]: https://travel.state.gov/content/dam/visas/Statistics/Immigr...
This is like saying every great sailor happened to sail when the wind was blowing in the right direction.
Fooled by Randomness by Nassim Taleb
https://www.amazon.com/Fooled-Randomness-Hidden-Markets-Ince...
It's literally about how options traders and the like can be lucky for 10 or 20 years, but they are actually idiots who destroy the economy.
They think they are skilled, and others think they are skilled, but it's luck. You can also call it "anti-luck" because their short-term actions can cause the long-term crisis.
This book was a #1 best seller, as were most of Taleb's books, but for some reason whenever I mention it to anybody, I get blank stares.
I think it's just really hard for people to understand phenomena that occur at time scales of say more than a decade.
(BTW Another good book about recurring economic cycles is Dalio's 2022 The Changing World Order. All of this stuff has happened before. This is separate from crypto, and relates to the global economic environment.)
Maybe it's the circles you move in. In finance nobody hasn't heard of it.
Well deserved reputation too, it really changed how I saw things. It's weird because even as someone who studied probability and stats, I hadn't thought it would change my entire worldview.
I don't see how doing anything successfully (in this case, gaining profit?) for 20 years can be described as "luck." Surviving/being successful that long trading isn't a fluke.
I haven't read the book, but I know that Talib talks about 'tail risk' a lot and 'risk of ruin'. Which are very different than what you describe. If my bet size is only limited to 2%, I would be happy to be "lucky" for 20 years!
Neither of those things benefit the owner of FTX unless they are also the owner of Alameda
Also with Biannce buying FTX, it can call back the loaned FTT from Alameda.
That said: the sooner we can get rid of these weird centralized exchanges and weird messiah figures the better.
The next thing I thing will explode is Cardano, which appears to function approximately like a cult, with no actual product (as far as I can tell).
Ethereum, LINK, and Bitcoin. Everything else is a distraction.
Humans are messy, so the solution we’ve arrived at is a database enforced by a complicated legal system + state power/violence (and arguably private power/violence via the mob). This works pretty well and powers trillions of dollars around the world.
Crypto is a fundamental misunderstanding of what makes modern finance hard. It’s not about trust, it’s about enforcement. I don’t need to trust my bank, but I need to trust that somebody will make things right if my bank takes my money. That allows me to trust my bank with my life savings, even though I’ve never met my banker or even know a single employee at the bank.
Crypto is missing this point and it’s why, despite following it since the beginning, I’ve never thought it has a future. It’s fundamentally solving the wrong problem.
Of course, this still falls short because no amount of mathematics will bridge that gap. At some point, the financial system (whether classical or based on blockchains) has to interact with the mind boggling mess of the real world. In the real world, 2+2 is not certain or deterministic at all. It can be debated, social implications weighed and the judge might say it's 4 and a bit, or slightly more than a pie.
In some sense it feels like crypto would work perfectly in a world that is completely deterministic, measurable and is populated wholly by algorithms interacting with each other. The second order question then is: would such a world even need crypto?
Though that raises the interesting question, why were so many folks, some of them quite credible, boosting cryptocurrencies the idea regardless?
i don’t think you can really say this until the DNMs meaningfully shrink in size.
US govt has had like one major success that i know of in shutting down DNMs — Silk Road — since then there’s always been a dozen or so in operation that serve most/all the big countries whose govt you would expect to track crypto.