Binance was threatening to dump a huge amount of FTT tokens on the market. FTX has a big+vulnerable position in FTT. FTX asked Binance to sell them the tokens for a fixed price, so as not to crash the FTT token price. Binance declined - this was yesterday/today. Of course the price of FTT crashed today. And now Binance buys FTX to help them out... smells like Binance played 4D chess all along.
I was having this exact conversation with my friends y'day. An exchange marketplace shouldn't be in this position unless they are also participating in the market directly or indirectly through funds, their own and the customers' funds.
Customers' assets (either crypto or fiat/USD) should be backed 1:1. The only reason for FTX to pause withdrawals and then assure investors that their money is safe is a sign that they are using customers' assets/funds to participate in the market.
How long before SEC/regulators wake up and regulate these shadow-banks disguised as exchanges as other exchanges?
> An exchange marketplace shouldn't be in this position unless they are also participating in the market directly or indirectly through funds, their own and the customers' funds.
Yes, although the limitation with this line of thinking is that in most market-related activities (including running an exchange) it's hard not to be structurally long the market in various important ways. For example as an exchange your commissions are going to be highly correlated with market activity and may also be per unit in some cases and so would be directly correlated with market prices in that case.
As a second-order effect, customers' trading limits are going to be affected as prices fluctuate even if you don't directly offer margin yourself, because not only does the value of the thing they've deposited with you change and therefore affect how much other stuff they can sell this for but also they may have made that deposit by pledging collateral elsewhere and borrowing against that to create margin so that margin loan will be affected.
You can definitely try harder to avoid the problem than FTX though which seems to have been pretty much all-in on it's own illiquid token (FTT) and Alameda using leverage on FTT as their main source of funding. One of the things I learned at Goldman during the crisis is that you can't rely on a mark for anything illiquid - you have to have a real liquid market price.
> having this exact conversation with my friends y'day
There is a strong, vested interest in portraying FTX's collapse as a one off. Binance doing them dirty doesn't cast a pall across the industry. Fundamental problems, likely replicated systemically, does.
> How long before SEC/regulators wake up and regulate these shadow-banks disguised as exchanges as other exchanges?
Very long in this case, as SBF was the biggest donor to the Biden campaign.
Last few weeks he was even trying to involve himself in writing the regulations he wanted, trying to kill DeFi and make it comfy for himself against other CEXes, no doubt.
Some people say that's what triggered CZ to act.
And now the whole of FTX and $8 buys you a mosquito net, what a world.
Do you have a source for the Biden funding remark? Open secrets suggests about 11M in donations came from SBF controlled entities but that’s pretty far down the list. The top contributions were from Bloomberg at 93M.
Those are for company controlled pacs as well, so not just SBF.
For individuals the best info I could find doesn’t list SBF as a major donor.
They are an exchange that allows future trading and margin trading which require borrowing money/assets/coins. The FTT tokens were probably put up as collateral for loans. The drop of the FTT value probably triggers calls on those loans. Thus the liquidity crisis.
> Customer deposits should meet liabilities 1:1. If they don't, somebody is lying.
That’s not how banking works. You hold illiquid assets. Sometimes they move in price. If they move enough in price you’re insolvent. Limiting bank runs is a genuinely hard problem.
Exchanges aren't banks, and crypto exchanges especially shouldn't be banks. Crypto is liquid and can be redeemed in its own denomination instantly if you hold it in a simple wallet. That's what exchanges should be doing. They shouldn't be doing fractional reserve banking, and a run shouldn't be possible. Preventing runs on a crypto exchange is exceedingly easy if the operators aren't taking risks with client funds.
B and C are perfectly fair game for a government to attempt to prevent, regulate, and prosecute in my book.
I don't think anyone has an inherent right to take advantage of people's ignorance solely for their own profit even if those people "deserve what they get." We make plenty of other ways of abusing people illegal, why allow that one?
I agree that if voters want to outlaw B and C, that's their prerogative. I don't see any moral imperative for that action, though.
My formulation of 'deserve what they get' was perhaps a bit snarky.
There are good reasons for people to invest in risky ventures. Eg when you invest in a startup, you might be able to get your money back, if you ask nicely, but there's no guarantee, and there's not necessarily any liquid assets backing your funds.
I think investing in risky assets should be legal.
I also think that it should be legal for people to invest in assets that have no official classification into whether they are risky or not. Ie when the company taking your funds makes no claims (as in C), in practice the customers should assume the worst.
If you want to forbid C, alas, that leads to a lot of bureaucracy. Because you have to define what an adequate level of disclosure looks like. And then there will be lots of paperwork.
As a taxpayer I don't want to see any government resources wasted on protecting greedy, stupid cryptocurrency "investors" from their own bad decisions. They deserve what they get and their losses will serve as a useful example to others.
No argument from me there. I was just narrowly addressing the point in stale2002's comment.
Though to be honest, it is well known that the long term fate of any crypto exchange is to go bust. So no one could really claim that they didn't know it was coming.
Crypto is glorified gambling. (At least so far. In principle, crypto can mature over time into something more serious.)
Are you saying that fractional reserve banking should be illegal, or that insolvent banks should be illegal? I think the second one already basically is. Or at least with a real bank, they get shut down and the FDIC bails the depositors out.
Educated rumor is suggesting FTX may be insolvent, not only the victim of a bank run type scenario.
You are referring to liquidity providers and market maker; they provide the liquidity (in the form of loans for margin trading, among other things), take risk in exchange for market making fee.
An exchange on the other hand is facilitating trades by matching buyers with sellers. At least that's how it works in stock markets. Even if NASDAQ were to become a market maker they would have to spin a separate entity, bring their own funds to provide liquidity. Even then I don't know if it's allowed by regulation.
> Even then I don’t know if it’s allowed by regulation
It isn’t, precisely for this reason. The US Equity and Equity Derivative markets have tried a few times to get approval for initiatives using their already existing BDs (to facilitate inter-market order routing), and in every case it’s been blocked by the regulators as too risky to the underlying business.
The issue here has more to do with the lack of a centralized C&S clearing house in crypto, and is one of the reasons counterparty risk remains such a massive issue there. Having to maintain an account at each exchange, much like you would a BD, and praying things don’t suddenly go pear shaped, strikes me as insane (and is one of the primary reasons I’ve avoided getting involved in the crypto space)
> The shadow banking system is a term for the collection of non-bank financial intermediaries (NBFIs) that provide services similar to traditional commercial banks but outside normal banking regulations.[1] Examples of NBFIs include insurance firms, pawn shops, cashier's check issuers, check cashing locations, payday lending, currency exchanges, and microloan organizations.[2][3] The phrase "shadow banking" is regarded by some as pejorative, and the term "market-based finance" has been proposed as an alternative.[4]
It's fine for a trading venue to list all these derivatives, the problem in this case is that the venue and issuer are the same entity. In the trad finance world this is strictly separated.
Your margin account should be immediately liquidated and your positions closed if the value of your collateral drops below your outstanding obligations.
They're more a brokerage than an exchange - you can buy Bitcoin and Eth leaveraged at 20-1 through their perpetual futures. Whilst these are presumably hedged - FTX are still taking on risk.
But the free market dictated that they do because that's exactly the downside of their use of a crypto coin.
How many exchanges will need to go under for the market to decide that isn't a great way to operate one? How much educating of users/customers will it take?
> Binance was threatening to dump a huge amount of FTT tokens on the market. FTX has a big+vulnerable position in FTT. FTX asked Binance to sell them the tokens for a fixed price, so as not to crash the FTT token price. Binance declined
This makes absolutely no sense and is not how markets work. If FTX was actually willing to buy unlimited FTT at a given price, Binance could not have "crashed the price" by selling below that price — somebody would simply have bought at the Binance price and sold to FTT at their price.
What seems more likely is that FTX extended that offer only to a small portion of the tokens that Binance wanted to sell (to maintain the fiction of their price).
Their point is that if you have the money to buy $1.1B of something off market, you should also have the money to buy $1.1B of something on market. Any time someone posts an ask at or below $22, you simply fill the order.
beyond the fact that the dynamics of saying "we'll take everything at a certain price up to $1.1B" will likely lead to much more than that showing up on the market and leading to a price crash anyways... I imagine that an off market transaction can involve things like not sending $1.1B in cash to the other person the same day.
It's describing an arbitrage opportunity. If person A wants to buy something for $5.00, and person B will only sell for $1.00, I stand to make $4.00 per unit by simply being a middleman for the transaction. Private or public markets, the arbitrage opportunity remains the same.
I think what happened is that the probably wanted to buy it with their balance sheet rather than $$ which explains why this is a liquidity crisis. Say they have a $2bn in value (crypto, company assets, etc...); they can't place market orders to buy the FTT on the open-market; but they can make an off-market deal with Binance to swap these assets.
Isn't FTT like FTX's own issuing tokens? It's like printing one's own money. But when the backing firm fails, the printed money is worthless, just like what LUNA issued by Terra had become.
Just went over the issues on the balance sheet of Alameda Research, which is SBF's trading company.
Of the $14.6 billion assets Alameda manages, almost $6 billion is FTT based. Alameda has heavy investment in Solana, Serum, and other alt-coins. It looks like the drop in their value has lowered Alameda's asset balance. Alameda borrowed FTT tokens from FTX to put them as assets in the balance sheet to shore it up. The size of the asset balance is probably used to obtain loans and liquidity.
FTX issues FTT tokens (print money) => lends to Alameda to put under the asset balance => Alameda borrows money from outside against its assets or uses the asset/coins to invest in others => win with thin air!
The crashing of the FTT token not only tanked FTX, it's going to tank Alameda Research as well since its asset balance suddenly shrunk and might have liquidity problem.
The tanking of Alameda is going to another Three Arrow Capital event since Alameda invests in lots of other cryptos. It might be forced to liquidated those investments. Expect another bloodbath in the crypto space.
> Of the $14.6 billion assets Alameda manages, almost $6 billion is FTT based.
When that info was seemingly accidentally revealed, the spicy little nugget in there that made people sit up & notice was that the entire market cap of FTT tokens was well below the reported asset value of the tokens on the balance sheet.
1. We don't know what the lending basis for FTT from FTX vs the claimed value of FTT on Alameda's book. FTX lent FTT at $10 to Alameda and then FTT inflated to $50 would mean Alameda has $50 asset vs $10 liability.
It's reported that Alameda Research has $14.6 billion in assets and $8 billion in liabilities. Some claim that Alameda's assets are "entirely illiquid." Nobody knows how bad things are. The only thing is that FTX has stopped the withdraws.
2. Loans for long term and liquidity for short term? Like overnight lending.
1) What is that replying to? I was asking why the borrowed FTT would make them more capable of getting loans if it came with a corresponding liability. That would only make sense if lenders didn't care about the liability balance sheet, which is ... non standard.
Edit: That is, you said the "size of the asset balance" is used to obtain loans. That makes it sound like merely increasing assets -- even if they come with liabilities, makes them more capable of getting loans.
There are DeFi protocols where you can lock-up crypto assets (eg FTT) and use those locked assets as collateral to borrow another crypto asset (eg ETH). That all happens "on chain" and there is no way for the protocol to know if there are corresponding balance sheet liabilities.
I don't know what the OP was referring to, and I don't know if this is what they were doing, but something like this could happen.
Right, but those are generally going to be on worse terms than you can get in a negotiated loan from someone who knows your entire business. So it doesn’t make much sense to negotiate an FTT loan and then use that as collateral for a less-informed loan from a smart contract.
It would be like getting a personal loan from a bank, buying jewelry with it, and then using the jewelry to get a pawn loan — a dubious strategy, since the terms on the first loan are going to be much better.
> FTX issues FTT tokens (print money) => lends to Alameda to put under the asset balance => Alameda borrows money from outside against its assets or uses the asset/coins to invest in others => win with thin air!
The Federal Reserve issues US dollars (print money) => US Treasury borrows money from The Federal Reserve, Japan, China and the UK against its assets or uses the asset/coins to invest in others => win with thin air!
> The Federal Reserve issues US dollars (print money) => US Treasury borrows money from The Federal Reserve, Japan, China and the UK against its assets or uses the asset/coins to invest in others => win with thin air!
Win with the largest military in the world and all tangible assets and influence the US has.
This is actually... extremely apt. It is commonly referred to technically as the dollars exhorbitant privilege. It would seem FTX managed to exploit this phenomenon on a micro scale. Until it didn't of course lol
It only matters if FTX was using FTT as a collateral for accounting purposes for a valuation that is not realistic considering the liquidity of a position size.
Yeah. I can't be bothered to verify, but i remember that Binance has a huge double-digit percentage of all FTT tokens in circulation. Dumping all of them would crash the tokens value. And since this is FTX's own token, they would hurt a lot, maybe even terminally.
The seminal HK show about the stock market would be The Greed of Man (大時代) [1]. It's 30 years old, but classic scenes in it are still used in memes even today.
Edit: I totally forgot to mention the "Ting Hai Effect"! [2] Wikipedia has a great summary which I'll just quote here:
> The Ting Hai effect, also known as the Adam Cheng effect, is a stock market phenomenon in which there is a sudden and unexplained drop in the stock market whenever a film or a television series starring Hong Kong actor Adam Cheng is released. It still remains as a popular topic among stock brokers, years after the television drama The Greed of Man was broadcast in Hong Kong in late 1992. The effect is named after Ting Hai, the primary antagonist in the drama, who was portrayed by Cheng.
There is a pool of capital that pays people working for them onchain. They can also do fiat via local subsidiaries, and local contracts for compliance and litigation.
It's almost like it doesn't matter.
For accountability, it barely matters. For financial products they offer, it also barely matters. Most jurisdictions are too small to say anything and all their customers can circumvent any geo-restriction. They have distinct subsidiaries in major markets like USA.
Depends on the intention I guess. They might have been genuinely worried that the token was going to crash and also didn't trust the counterparty to be able to pay for it. In this case it would have been a genuinely legitimate transaction.
But if dumping the whole stock was done with the intention, even partial, to crash the price, then it seems to me that it would be manipulation. Of course crypto is unregulated, so it wouldn't be illegal.
> FTX asked Binance to sell them the tokens for a fixed price, so as not to crash the FTT token price.
Why would Binance decline this opportunity? If FTX, Binance, and the market knew FTT would just crash, it sounds like a given that Binance should take advantage of the fixed price instead of losing hundreds of millions of dollars "letting the market decide".
Or maybe they offered to buy it later (when?) at a price fixed today - discounted or not. If they don’t have liquidity (why?) they cannot buy it on the market.
As discussed extensively elsewhere an “exchange” shouldn’t be in the business of having illiquid positions in the first place.
But here we are, and I’m not sure if FTX was offering to buy with some favorable terms regarding the time of settlement in addition to a discount. They could have bought on the open market at the discounted price but they apparently didn’t…
This is my view as to what possibly happened in last 24 hours. Mind you I have no idea if its real but i am making an educated guess based on my 10+ yrs seeing such events play out several times.
1) Alameda used FTX money and balance sheet along with using $FTT to take out billions of loans and "investments" including possibly customer funds to "invest" "efficiently" into risky investments
2) He then also used a lot of it to prop the entire market up in the 1250-1350
range over months to decouple the market possibly and keep $FTT above the $22 mark which was possibly a margin level for his collateral.
3) Market rallied and everything was fine. He is up a lot but lost few between making potentially risky investments (maybe shorting?), maybe
options market making as that was his original expertise... who knows. But he clearly lost some money in there.
4) Rumors spread of balance sheet shortfall. Now mind you .. Alameda is a separate entity than FTX. So using FTX resources for trading on Alameda is a big no no.
5) CZ finds out about this. Decides to market sell his billions of $FTT position. Caroline gives up her hands and says they will buy at $22 which on the chart you can see has been the support line time and time again so clearly that line has been supported constantly..
6) The market selling pushes price below $22. Entire market and large players smell blood.. the moment the price goes below $22 the lenders market sell coins ($FTT and $SOL) for margin. This results in a loop after it breaks below $22 and goes into freefall with no support anymore
7) With no options to get more money from lenders and having no other assets to get more loans from lenders as they are already selling his assets, SBF goes to CZ and asks to bail out FTX as there is a big hole that cannot be filled anymore. CZ probably decided to take over FTX and said to SBF you have to either stop gap some of the fills from selling your assets since you did things wit the balance sheet and customer money you weren't supposed to. He probably said he will bail out FTX but NOT Alameda. Sam then either market sold everything he had...OR the lenders... Sam went to the lenders and said I am defaulting on my loans...So the lenders just market sold all the collateral. I think its most likely Sam said he is going to default on the loans and they market sold.
IF the lenders recouped 70-80% then i think its fine.
IF the lenders WERE NOT able to recoup and will have to take a write off on the loans.. we have issues. That part I am unsure about. IF a large lender goes under... then there is further contagion. The market selling off coins so quickly triggered probably more liquidations.
WHERE DO WE GO FROM HERE? We have seen bigger black swan events like in crypto past. All new concepts have days weeks like this. Stocks had it, banks had it and crypto has had it few times. There will always be new smart people to push growth and take over.
When 3AC went bust, we got to $800 on $ETH. We rebounded to 2k in time. That was close to 17-18bn. This is smaller. in time... we will be back. Not sure when.. but eventually it all comes back. Market is cyclical end of the day.
One missing piece: $1B BTC being auctioned by the IRS soon. This is such a big number that it will almost certainly be bought at a discount by an arbitrageur and liquidated on the market, so this was the impetus for the broad-market crash that killed their leveraged positions.
Not a stablecoin. Bitconnect is my favorite crypto scam so far! It was so obviously a scam, and the bros promoting it were even dumber than that shitcoin.
A lot of crypto projects can appear scammy because a handful of people are working on something and their token goes through the roof then crashes with no wrongdoing on the part of the project. Invest in projects, not coins!
Some more background: the companies were engaged in fighting over regulations, and on a personal basis between the 2 CEOs. It went down to really childish levels at some point.
But one thing is undeniable: SBF (FTX CEO) was trying to weaponize US regulation against his biggest rival CZ (Binance CEO). CZ retaliated by selling the FTT token, exposed the fact FTX was over-leveraged, and took over.
This is, as the kids on Twitter say, the embodiment of the old "F#$k around, find out".
Along the way every FTX client who couldn't withdraw, and every crypto user losing value got screwed - but why should these 2 characters care? The space just became more centralized, and whatever smidge of trust was left after the Celsius debacle has evaporated.
For those not up to date on crypto people, SBF is Sam Bankman-Fried [1] and CZ is Changpeng Zhao [2]. I don't know why they insist on being called by their initials like they're some sort of ticker symbol.
The broader sense of acronym—the meaning of which includes terms pronounced as letters—is sometimes criticized, but it is the term's original meaning[1] and is in common use.Dictionary and style-guide editors are not in universal agreement on the naming for such abbreviations, and it is a matter of some dispute whether the term acronym can be legitimately applied to abbreviations which are not pronounced "as words", nor do these language authorities agree on the correct use of spacing, casing, and punctuation.
If there's one thing I really dislike about HN culture, it's the consistent derailing of a thread to "um, actually" someone on a semantics distinction that literally nobody has ever been confused by, or to shoehorn in new terminology that doesn't improve communication in any way.
Some of the most interesting things I've read have been digressions from the main point. Your observation is a case in point: We're now talking about HN culture instead of wild times in the crypto economy. Is this a derailment? Or a digression?
It all depends upon whether people perceive it to be something that "gratifies one's intellectual curiosity," a line right from the guidelines. In your case, the difference between initialisms and acronyms (if any, see another reply) does not, and I accept that. Sorry!
Because they think the people they're most similar to are respected old-school hackers (rms, jwz, etc.) instead of carnival hucksters like P. T. Barnum.
It’s common in many internet circles to refer to prominent people by their initials. Hackerdom has a long tradition of this: rms gls esr jwz et al. It also tends to happen in US federal politics for some reason (jfk rfk gwb fdr et al) but not to everyone.
There's a little bit of cargo-culting with the practice: I thought CZ was short for the Czech Republic. The only reason I know "SBF" is because the New Yorker obliged him in that William MacAskill piece.
At least the political ones (some) came about for clarification (JFK and RFK are both Kennedies, GWB is to distinguish from "Bush"). Others come from their names being long or hard to remember/pronounce/spell (I suspect this is what happened with AOC).
The Robert Caro books about Lyndon B Johnson detail his effort to force meme “LBJ” as a reference to him.
(Mostly in terms of insisting various communications employees use it in press releases and what not).
It seems he liked the iconography of it, especially in putting himself in similar company to FDR.
Both his daughters have the LBJ initials, his wife is mostly known as Lady Bird Johnson (a nickname that predates their relationship, but is not her given name)
Longer answer - from my prospective - I enjoyed the first book Path to Power the most, which revolves around LBJs early life up to becoming a US Representative. I thought it was very on par with the Power Broker. That an the Power Broker would probably be my first recommendation to an ambitious college kid who wants to know the real Politik of how the world works.
The next book Means of Assent was my least favorite of Caro’s books, but still highly enjoyable.
Master of the Senate and Passage of Power are both great. But sort of specific to LBJs spot in life. Great, but I’m not sure they sparked my thinking quite the way the Power Broker and Path to Power did.
The books are designed to be standalone-ish, so later volumes spend a fair bit of time repeating things from earlier books. Caro goes deep, deep into various shady acts and new scandals which were probably shocking and relevant in 1982 but less so four decades later.
Caro also touches on a lot of the same topics as The Power Broker, and the picture he paints of LBJ ends up sounding quite a lot like Robert Moses. Is it because all powerful men inevitably end up as bullying psychopaths, or does Caro have something of an axe to grind? 50/50, maybe.
FDR went by FDR because those were his initials and ehh, people do that sometimes. Have enough presidents and sooner or later you'll get a president who does it. JFK and LBJ did it as conscious homages to FDR. There is a book "In The Shadow of FDR" about post-WW2 US politics that mentions this.
And over-leveraged, for a brokerage, is a major problem. A brokerage is not a bank, and account-holders are not earning interest. Therefore if you are taking their funds and doing something else with them (a pre-requisite for insolvency, unless you are hacked) is a major red flag for illegality.
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.
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.
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.
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...
> 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.
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.
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.
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.
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.
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?
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.
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.
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.)
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
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.
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.
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.
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.
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.
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.
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.
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.
> 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].)
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.
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 :)
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.
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.
> 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.
> 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.
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.
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.
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.
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.
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
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!
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.
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.
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.
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?
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".
Why is it apparently so difficult to run a solvent crypto exchange? On the face, it shouldn't be too hard, just take deposits, stick them in a wallet, and swap client balances in a database.
Is the temptation to maintain a reserve ratio < 1 just too great? Do operators try to earn small, low-risk return on client funds only to find there are no low-risk, positive-return assets in crypto? Are the extending margin to clients or explicitly stepping in as counterparty, and get exposed to losses as prices move?
Probably the insolvent exchanges are able to offer lower costs and better promotions to users. For instance Coinbase has always charged way higher fees than FTX for simple buying and selling of coins.
> Why is it apparently so difficult to run a solvent crypto exchange?
Running a stock exchange is a hard business too; you are the market maker, you set the spread, and the most sophisticated investors in the world are trying to arbitrage you. Any mistake can potentially ruin you. If you do you job right you take a tiny sliver of profit from each transaction.
Now consider crypto, where your ability to pause the market or unwind clearly-erroneous transactions is reduced or removed.
> Running a stock exchange is a hard business too; you are the market maker, you set the spread, and the most sophisticated investors in the world are trying to arbitrage you
Normal markets aren’t as centralised as crypto. The exchange and market maker are separate.
This is just not the case. At least on Binance there are number of market makers other than Binance itself and there is a lot of tech built around this. I guess every major crypto exchange after MtGox is as complex as normal markets.
> pretty uncommon for exchanges to do all their market making directly
Point is, in real finance, it's pretty uncommon for exchanges to do any of their market making. Largely to ensure they can project confidence in crises. Market makers blow up. Exchanges shouldn't.
> Do exchanges in real finance even have long term customer deposits?
Not really. They used to! (A hundred+ years ago.) But we learned that an exchange blowing up is a hell of a lot worse than a bank or broker. So most systems segregate the functions. (It's also not great to have an exchange making markets and thereby having a vested directional interest.)
> Now consider crypto, where your ability to pause the market or unwind clearly-erroneous transactions is reduced or removed.
These should be quite possible, no? Exchanges have mainteinance pauses now and then, however if they had them regularly that would drive customers away. Unwinding transactions inside crypto exchanges is also not unheard of I think.
The majority of crypto exchanges failing has been due to them being hacked or assets stolen. It seems to be an ongoing problem. It's kind of inherent to crypto transfers not being reversible. In a regular stock exchange if a crook tries to transfer the assets somewhere you can freeze or reverse the transaction. Crypto not so much.
The FTX issues seem to be something else - it's a bit unclear what exactly at the moment.
I've got some assets with FTX so I'm curious. As well as holding crypto they do futures trading on it and I wouldn't be surprised if Alameda Research, their privately held prop trading fund is a counterparty to some of those and may have gone bust.
Storing money costs money: at least the bank fees, if not the negative interest rates.
Processing money costs even more money: operations must be scrutinized, international movements require validation and communication, and various AML/CFT/Fraud procedures must perform investigations etc. You have accounts in various currencies, perform conversions to maintain liquidity…
So I can see why they would start dipping their toes into investments. Once they start, they probably don’t consider enforcing Basel III to their procedures, and things just unfold.
Advertising is a market, you see ads for whoever is willing to bid the highest. It seems like Coinbase had to raise money to get big. FTX arrived to the scene later. It would be hard to compete by bootstrapping from organic growth.
The reason FTX got to #2 exchange in only 3 years is because they were using customer funds and leverage to grow rapidly. If they hadn't done this they might have been much smaller. There are hundreds of exchanges now, most work exactly as you describe but don't make headlines because they don't grow rapidly then collapse.
Asset heavy. The computer systems to run one are expensive. Compliance is expensive. Your return on assets are probably lower than 5% in a regulated market.
If you don't take extra risks to spruce up returns, you lose money.
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?
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).
> 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.
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.
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
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...
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.
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.
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).
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.
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.
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.
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
What really amazes me about the whole thing is that after celcius and now ftx, tether manages to have peoples' trust and manages to have a bunch of apologists, to the point that in this whole threat there is 0 mention about usdt or tether, while it should at least be mentioned or discussed in here, even tho it has no direct relation, they are the org with most obscure and shady things about them, even the whole business of binance was built around their USDT pairs
it's also quite funny how Binance now acts as a total legit org that has not wrongdoings when they have shown no proof of their BUSD backings and they built their empire on top of tether
>...What really amazes me about the whole thing is that after celcius and now ftx, tether manages to have peoples' trust...
I've never held/used Tether, and that won't change. There's no reason to use it. However, it's worth pointing out that Tether DID go through what FTX is going through right now. They handled it surprisingly well.
There are rumors that FTX was/is missing as much as $5 billion of customer deposits. That's what lead to their withdrawal issues.
>while it should at least be mentioned or discussed in here, even tho it has no direct relation
It's a stable coin, not a centralized exchange. No comparison. Though, both should be able to honor 100% of withdraws at any moment.
You are likely to label me as an apologist. Again, I don't trust it. I couldn't care less if it stops existing tomorrow. I just haven't seen any concrete evidence it can't honor redemptions. The opposite was proven in May and June.
Wasn't there a post hitting the HN front page just yesterday or two days ago about how FTX was close to being illiquid, and most of the top comments were about how wrong that analysis was?
Or was that another crypto trader?
If anybody could help my sieve-like brain, that would be very appreciated :-)
Cryptocurrencies were prophesized to get rid of banks. Instead exchanges reinvented banks with all the drawbacks and none of the benefits.
Cryptocurrencies were supposed to be in wide circulation just like USD, eliminating the need for fiat on/off ramps. Instead we got these centralized corporations and endless KYC/AML surveillance with none of the regulation and government backing.
Real cryptocurrency is what you have in your wallet. How many of us hold our own coins? Pretty much everyone keeps "their" coins at the exchange...
> If these stats are correct we closer to 15%. Which is a lot. I would have expected 0.1%.
That was never going to happen, too much institutional money and index funds have been super focused on trading rather than the tech, and their are ETFs that have paper BTC that can move the price at will, just as much as if a whale decides to do so--it wouldn't even take MicroStrategy's stash, it could just be Laszlo wanting to get some stuff out of cold storage and clear a couple days because the tx fee is low.
Also most of those HFT bots need to have liquidity on hand so this is part of the system, what is noteable is how little it takes to move the market these days: less than a 500 coin sell off on an exchange like Bitfinex gave us >$1000 swings. Which if you trade is what you want as volatility is where the money is made.
MTGOX taught us very early to never trust exchanges and this was after the capital controls in Cypus that made us all on edge at the time, and yet it took multiple GOXXINGS to learn (the last one still hasn't been resolved and the Japanese govt has been dragging it's feet for nearly a decade now). People who buy and keep them on exchanges are going to have to learn why self-ownership is a critical part of this ecosystem.
People may have lost untold millions/billions having sloppy OPSEC when handling BTC, but so did Turing [0] and he did it for the same reasons we have just so it's clear and goes to show how it's not a fringe idea to have self-sovereignty over one's finances, especially in uncertain times like war (and in his case peace time as they castrated for being gay despite his efforts in breaking the U-boat cryptography) and I doubt you will question his genius in cryptography and just think of him as a crypto bro: proving it's just as common for a super genius as it is from the layman to get it wrong.
We just need to make it better, and in that regard I think we have com efar but it's still too difficult and a trusted 3rd party is required: Dorsey is working on something along those lines.
This is why we have always encouraged doing small sums until you can replicate the process and then transfer the whole amount with several contingencies in place should anything happen. It's not easy or perfect, but neither is physics and we can still have re-usable first stage rockets when it was thought to be impossible.
The coins failed because exchanges shouldn't even have been created in the first place. Bitcoin should have been as easy to use and ubiquitous as the US dollar. As we all know, cryptocurrency turned into stocks instead.
If not exchanges, what entity would you suggest as a way to change crypto into fiat?
Using the most successful fiat currency the world has ever known as a goal seems a bit lofty. In your view, how much time should it have taken to surpass the dollar?
That's my point. There should never have been any need to exchange crypto into fiat. Bitcoin should have been as ubiquitous as USD. Everyone using it, pricing things in it, transacting with it, holding at least some amount of it. Exchanging for fiat should have been as easy as getting change from a store.
No one who was holding coins was paying attention to anyone who was telling them that the coins had failed. Do you remember 'have fun staying poor'? It was used to shut up anyone who said anything critical.
I guess I needed a /sarc tag. The coins aren't failing. And I'd disagree with the notion that the success or failure of a cryptocurrencies is directly correlated with "price".
No, there's still Monero and ZCash. And most holders do have their own non-custodial wallets. Or at least wallet seeds from intermediaries like MetaMask.
The speculative frenzy with FedCoins like BTC and ETH will obviously fall to baseline, but the true use case for cryptocurrency still exists.
Why not both? Centralized where people trust, decentralized where people don't trust. In my interpretation, the Bitcoin white paper states that BTC is an answer to _the lack of regulation_ that allowed the fat cats to abuse the money supplies. It's kind of ironic, but to see crypto as purely anarchistic is to ignore that it is essentially _democratized_ money. Both: I use exchanges as well as cold storage.
I never understood. Where's the democracy here, exactly? A regular user cannot afford to participate in the decision making of the system in any meaningful way. In fact, today, most users don't even directly use it, instead relying on processors such as Coinbase. The "not your keys, not your coins" meme exists due to this. The original paper described a democratic system where people voted with their processors, but failed to take into account that people with more processors get more votes. I find it hard to argue that the system as it currently exists is more democratic than the currency emitted by the central bank of your country.
Arguably a lot of discussion is open to anyone (Bitcoin mailing list, Core github repo), where anyone is free to post their opinion on topics themselves.
It is not democratic as in "you have a vote to force others to comply to the majority", but more a democratic in "you can try to convince enough people that the major chain becomes how you like it, while the others run a minority fork".
People think "where the money goes, is where the miners go", but the blocksize wars showed that "where the users go, is where the miners go". Miners themselves don't decide on bitcoin rules, users do.
So I personally think that bitcoin is not necessarily democratic, but still highly people/community vs money driven.
> "you can try to convince enough people that the major chain becomes how you like it, while the others run a minority fork".
FWIW, that is also true for fiat. You can become an economist, or a journalist, or a politician, or a pundit, and try to convince your country to do economics differently. It's a tall order, but it's been known to succeed. If this seems harder than the equivalent for blockchains, it's only because cryptocurrencies have much fewer users, so your voice seems more powerful.
Good point. I think the subtle difference is that the traditional political democracy coerces the minority to use the system how they like it (ofc. not everywhere, maybe more on the money/legal tender side of things), whereas with Bitcoin there is no coercion by the majority. The majority would accept one set of currency, while others might use another, however markets will probably always decide on a winner when it comes to currency, which could feel as if you are "forced". Definitely a nuanced topic.
Democracy can be defined as a popularity contest; democracy does not = good. When I and others say "democratized money", it's not to say it is identical to the definition of democracy as it pertains to a populous voting 1 person 1 vote. More like "money that is not controlled by a single source but rather as large a group as cares to participate who also have access to and knowledge of the tech".
When people say democratized anything, it comes across as meaningless marketing speak. I don't mean the traditional non-political use of the word (i.e., simply making something easily accessible to a lot of people).
It's basically trying to claim some good, without having to quantify or justify that in any way.
The US dollar is ultimately controlled by democratic institutions even if you don't count individuals using it as having any control. Therefore it is democratized money by the same vague handwaving.
It might not be "democratic", to me personally it seems fair as you are not forced to run the rules that are imposed by others. It might not be the wise decision, but the market will decide on the "better" rules.
Do you think the 'market' can decide anything if people aren't playing by the 'rules' in the first place? The free market model does not account for widespread fraud.
What you're arguing for is "you have a vote (well you don't, but people much richer than you do) to force others to comply to a very small minority", how is that better than majority rule?
Well there are no votes, so you can't force anyone to run anything. You run what you like and hope others do as well. As I said miners follow users, not companies.
I can send Putin an email. If I'm sufficiently convincing he might decide to call off his illegal invasion of Ukraine. That doesn't change the nature of his autocracy.
Even if UN would finally vote to deem the invasion illegal (note: it apparently is not by the democratic votes of the UN), it probably wouldn't be stopped either.
I think comparing real world war scenarios with how consensus is found in decentralized open source protocols is a bit intellectually dishonest
> Crypto is an anarchist experiment and it should remain that way
What exactly makes it remain that way?
I don't say this as a cheap "gotcha": what's the governance structure that makes it an anarchist experiment, specifically, and not just a free-for-all?
And, like every anarchist experiment before it, it failed. It continues to draw in new suckers every day, and that is a problem for society.
It doesn't matter if you didn't cause the problem. Because you live in that society, you still have to pay the cost to fix it or continue to take the losses from the problem existing.
It's the same with slavery, not educating blacks, and then not employing blacks in America. I had nothing to do with it. My family had nothing to do with it. But because I live in America, I have to either pay the cost to fix the problem or pay the ongoing cost of crime that the problem produces. Taking on the cost of problems others created is the cost of living in society, just as benefiting from the value that others create is the benefit of living in society.
The time to regulate crypto and cut our future losses was yesterday.
Just because "The Internet"'s _mainstream_ may not resemble anarchy, this doesn't prohibit other parts to resemble anarchy. In fact there are a lot of examples active and thriving "on the Internet" fulfilling various definitions of anarchy.
Sure, but I think that still fits a common definition of anarchy. The idea isn't "chaos," it's "hey, the thing still works even though there isn't a clear hierarchy."
Then you should clearly define "success". So far as I can tell, the Zapatistas did succeed in building the society that they wanted and kept it going for several decades now. Are you claiming that they aren't meaningfully anarchist?
>But because I live in America, I have to either pay the cost to fix the problem or pay the ongoing cost of crime that the problem produces.
The "crime" the problem produces allow a lot of white men to put their kids through college, fooling themselves into thinking they are stopping "bad guys".
If you dont keep them busy, they would create far more crime than you think black folk do. They might even start storming the White House.
To be fair to anarchists, it extremely often failed because of outside forces being violent towards them. Nothing in anarchy is inherently doomed to failure, and is a better demonstration of democracy than anything we have currently. (Because if there's anything an anarchist loves more than voting, it's one more voting round).
Calling cryptocurrencies "anarchist" is walking on the corpse of actual anarchists and taking a big, steaming shit on them. Anarcho-capitalists have nothing to do with anarchy and are just kids whose bedtime reading was, regrettably, Ayn Rand.
Anarchy is defined as absence of government and authority, with unlimited personal freedom as a consequence. This is fine if you're living alone, but in groups, you have unbounded externalities. Tiny councils are tiny governments.
If you let your own ignorance define anarchy, sure.
Anarchists simply want every single thing to be voted on by the people, whether through referendum or randomly picked representatives. Anarchists agree that there should be governing bodies (merely that they shouldn't be the ones we have right now, and that they should be more representative and prevent the formation of a political class) and that authority should also be granted by these governing bodies _and_ revokable by the same. Hence, there is nothing an anarchist loves more than voting. It does not prevent living in groups, just that there are no leaders in that group.
By saying it is defined as an absence of government and authority, you're either thinking of ancaps (which are a bad right wing joke made up of said Ayn Rand readers), or dogshit propaganda fed to you. Read a bit.
A supporter or another crook LARPing as pro-regulation because it makes some people ignore red-flags?
Constantly braying about the "the law" is part of the the main act of the highest profile scammer claiming to have created Bitcoin.
Fact is that saying a lot of vague "pro regulation" things doesn't likely subject you to any additional regulatory scrutiny, it's a free move even when you are waste deep in the cookie jar. But some people are going to notice it and consider it evidence that you're all above board.
Craig Wright. It's refreshing to encounter someone who hasn't seen that scammers circus.
In the latest season we find Wright trying to steal literally billions of dollars worth of Bitcoin while constantly yelling that everyone who doesn't support him is a criminal. If he weren't financially ruining people with vexatious litigation it would all be pretty funny.
Rest assured that the regulations are coming because the crypto simply did a speed-run of unregulated securities market and repeated every fraud or scam that the traditional markets went through over the history.
In the process, huge fortunes were created and libertarians were empowered(but not enough to be the main political power). Congrats to them but there's nothing anarchist left in crypto, they even end up consolidated and centralised. No interesting business models or financing came out of it except for ransomware.
The silver linings might be that the crypto regulations can be made with the current technology and globalisation in mind, hopefully.
Exactly, it's bizarre to read about the wildcat banking era in the US and why the Fed was created while simultaneously looking around at the rate of mainstream crypto scams and institutional failures nowadays.
The Fed sure isn't without its issues, but it was created to solve the exact problems that we're now seeing proliferate via the crypto space.
The FED was created in 1913 for a very specific reason - to counter the Panic of 1907 by creating a banker of last resort.
It did nothing to curb the banker speculation that led to the panic of 1907
Witness LTCM, Web bubble, Subprime crisis, all fueled by banks willing to lend and overextend themselves beyond margin. The 1913 ACT did not change that one bit except make the speculators never "lose"
The FED did nothing to resolve speculation, if anything, bubbles are worse and now they are worldwide thanks to them and their low rates.
> Witness LTCM, Web bubble, Subprime crisis, all fueled by banks willing to lend and overextend themselves beyond margin.
This was addressed under Glass Steagall by creating the FDIC and ushering in the fractional banking system, which kept commercial and investment banking separate and imposing liquidity requirements and a review system on banks. This legislation was later repealed during the Clinton administration and was largely seen as one of the key mistakes that led to the 2008 crisis.
That doesn't mean that the Fed is failure now and should be completely done away with. The runs we're seeing on crypto exchanges are very similar to what the Fed was created to avoid.
in my town in the 19th and early 20th centuries there were numerous bak runs where local people were wiped out. we collectively decided to take steps to make that much much less likely to happen
> the crypto simply did a speed-run of unregulated securities market and repeated every fraud or scam that the traditional markets went through over the history.
I think the whole endeavor may end up strengthening the traditional economy - crypto space repeating centuries of fraud in a decade is effectively a booster shot - suddenly it's obvious why all those laws ended up in the books in the first place.
> and libertarians were empowered(but not enough to be the main political power)
In a sense, they've discovered a novel way of attempting to gain power - I don't think many people expected someone could wish a parallel economy into being and leverage that to for political gain.
You understand that BTC, ETH, and every derivative non-privacy-coin is exactly what the regulators have been salivating for, right? Why regulate a non-repudiable chain-of-custody that mathematically proves your serfs'/slaves' assets that you can seize at will?
> libertarians were empowered(but not enough to be the main political power).
You should re-examine the GOP, particularly the tickets on today's ballots. This ain't your grandfather's GOP.
It’s always amusing to see crypto people claiming that mathematics can’t be regulated. Just like they can’t regulate chemistry, right?
Well, actually it’s always the peoples behavior that is regulated. Obviously no one can stop you mixing chemicals in private but they can totally tell you what you can and can’t do in public with it. The same thing goes for crypto, you can calculate block hash all you want but they can intervene if you engage in a business deal with someone else.
Oh and regulation doesn’t mean ban, necessarily. It means rules on how you deal with it so that the risk of unwanted consequences is reduced. You can expect to have rules on how you keep the money if you run a stablecoin for example.
Many parts of the world e.g. Australia are heavily regulated in the financial sector and will not be looking to water them down just because its 'crypto'.
An anarchist experiment that plays into capitalism's worst instincts and rapidly encountered "please give the money back to the rich people" when the first big ETH theft was pulled off.
Anarchism should be about dismantling hierarchies. Crypto has further entrenched owners against the rest.
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.
This is probably going to have ripple effects in unrelated industries - FTX Foundation, presumably funded by FTX/Alameda/SBF’s personal wealth, has been been the biggest funder of AGI projects and labs this year. They were the biggest funder (in a $500M fundraise) for Anthropic, which is (atm) a non-profit AI alignment lab. They also funded a bunch of esoteric EA projects which likely rely on them for continued funding - https://ftxfuturefund.org/our-grants/
Interesting just 6 weeks ago the news was that FTX was buying Voyager Digital’s assets for 1.4 billion dollar after winning a bankruptcy auction. In July the news was that FTX provided BlockFi with a $400 million line of credit and an option to buy the company for 240 million.[1][2] Now the crypto bailout savior is being bailed out?
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.
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)
Bitcoin balance on FTX Exchange have gone negative [1]. The withdrawals have been disabled on FTX. It's probably the AltCoins bought with the BTC by FTX have gone down in value and the BTC are gone for good. When people withdraw against BTC, there aren't enough.
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.
Lots of stuff changed since the Middle Ages, antibiotics took the place of leeches, we know that the Earth revolves around the Sun, we can take pictures of Black Holes...
What hasn't changed is that given the opportunity everybody wants to be a banker, invest other people's money and pocket the difference.
Remember this is a NON-BINDING letter of intent. I wouldn't be surprised at all if this doesn't actually happen and just a bunch of ballyhoo. Unlike Twitter, FTX won't be able to drag CZ down to Delaware’s Chancery Court to force him to acquire it.
Indeed. Didn't stop the market from melting down though and it looks like FTT is going to zero. Wonder what happens if they decide not to buy it after all.
> Zhao (pictured above) said Binance reached the decision after FTX asked the crypto behemoth for help. “To protect users, we signed a non-binding LOI, intending to fully acquire FTX and help cover the liquidity crunch. We will be conducting a full DD in the coming days,” he said in a tweet.
This appears to be an admission of running a fractional reserve. Otherwise where could a "liquidity crunch" come from.
Hilariously, this is the origin story of Bitcoin. Can't trust banks. Create electronic cash. Users are clueless about what to do with the cryptographic material needed to secure electronic cash. Users park funds at exchange. Exchange operator is a criminal who embezzles the money away, or an incompetent boob who just loses it. Exchange freezes withdrawals, temporarily at first, while continuing to accept deposits. Mayhem ensues. Rinse and repeat.
The entire FTX team belongs behind bars. The VC team that backed this hair-brained venture deserves everything coming to them.
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.
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?
>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.
I think the title is incorrect (someone else noted too!). It should be "Binance sends non-binding Letter of Intent [to buy] to FTX."
Less sexy, more accurate.
Also, extremely likely they are trying to consolidate power and they orchestrated this situation I'd say. This "smells" hostile takeover, but in a currency setting. a) They sold FTT in a "dumpy"/reevaluate its price way b) they were asked for a loan or partial buy to add influx c) they sent a "we will just buy you."d) They sent messages that would erode the trust to the eyes of the world.
A friend visiting from Iran and I were discussing the current wave of boycotts in Iran against companies that are controlled by the regime. He related that consensus in Iran is that after a certain size (or if in important sector) all companies are part owned if not controlled by Sepah (IRGC - a terrorist organization).
So while 'Nobitex' doesn't mention anything about who is running it on their website, you can be certain that it is a very important company as far as IRGC is concerned.
Which brings us to the legal question (IANAL) of how much legal exposure is Binance facing here, given that the Iranian-American community is gearing up to legally excise ("wipe from pages of history") all elements of IR from access to US government, commerce, academia, lobbies, communications, and of course finance, and those who support the Islamic Republic here in USA, and their terrorist IRGC will face legal consequences.
From Reuters:
"Crypto giant Binance has processed Iranian transactions with a value of $8 billion since 2018 despite U.S. sanctions intended to cut Iran off from the global financial system, blockchain data show.
"Almost all the funds, some $7.8 billion, flowed between Binance and Iran's largest crypto exchange, Nobitex, according to a review of data from leading U.S. blockchain researcher Chainalysis. Nobitex offers guidance on its website on how to skirt sanctions."
> One question that might be too early to answer is: Why was there a liquidity crunch in the first place? ... The simplest way to run the business is to take deposits from customers, buy crypto for the customers, keep everything segregated, and make money on commissions. ...
This is the only question, because it feeds into all of the other questions.
My prediction is that this deal isn't going anywhere. Where there's smoke, there's fire. And Binance is in no position to know how many skeletons are in the closets. The last thing any company wants in the current financial environment is big liabilities coming out of nowhere. And judging from the childish way in which FTX was run, there's skeletons o' plenty.
Binance wants nothing to do with the piece of hot garbage because it too is in the same position as FTX. The last thing Binance needs is an FTX landmine spooking customers and triggering Binance's own bank run.
The deal is going nowhere and FTX, along with its numbskull depositors, are dead meat.
I thought Binance essentially caused all of this by dumping (and advertising dumping) FTT tokens? And now that FTX is in distress they're going to swoop in and buy a competitor? Kind of reminds me of Luxottica buying out Oakley...
> If you are a crypto exchange and you have a liquidity crunch and you cannot process withdrawals, and you don’t get a bailout, then your future equity value is basically zero. If you tweet to all your customers “sorry we’re out of money for a bit so no more trading and we’re going to hang on to your money, but things will get better,” they will not get better.
This is incorrect and coming from Levine, it's surprising. Especially, that the crypto ecosystem had an exchange that had just that (Bitfinex) and convinced users to take up the loss and carry operations (I was one of them). The exchange is still operating and one of the major exchanges in crypto.
> You don’t have a ton of time to negotiate, and they don’t have a ton of time to do due diligence. How does the buyer know that there are no huge disasters lurking on your balance sheet? They don’t, and they don’t have much time to find out, and your liquidity crunch is not an encouraging sign. You are having a disaster now!
They probably have a good idea. Crypto balances, at least the two largest, are public. And Binance is a large (largest?) exchange, so they probably can make a good guess of their balance sheets.
> 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.
This is also incorrect. There is no borrowing in derivative futures. The writer didn't really do his research.
This is a case of cascading margin calls, but for very big guys. FTX tried to bail out some smaller guys but ended up getting margin called itself. Now Binance is picking the trade which carries itself a risk for getting margin called (ie: A liquidity crisis inside Binance).
This will be the most optimistic scenario for Crypto, as it'll wipe out the largest exchange that it is enabling this scam industry and also changing the crypto culture (no-KYC, Decentralized, Trust-less, Permission-less etc...)
Easy to do in a world of 0% interest rates, not so much now. I think the entire crypto ecosystem is about to crash and burn hard as the Fed just keeps the rate hikes coming.
This entire market sector creates nothing of value: the way to parse this is something like "Daniel Negreanu wins $15 billion pot against Phil Ivey in non-televised hand."
What if Binance looks under the hood (this is not a binding acquisition yet) and just says it's not worth it? What happens to everyone's deposit?
I find it ironic that the "decentralized" nature of crypto is becoming more and more centralized. If FTX dies, beit via acquisition or just utter collapse, Binance would be a near monopoly.
Not surprised at all. They went all-in on a disastrous Super Bowl commercial -- certainly not the only reason for their downfall but representative of leadership more concerned with image than product.
On an unrelated note, I really hope to never see this clown's (SBF) face or name in any of the Effective Altruism docs/post/communications. Really irks me to see some new age robber baron to be the face of twenty-first century altruism, notwithstanding my other issues with EA.
The name Sam Bankman-Fried came up quite a lot in Twitter v. Musk. I wonder if he ended up with a stake in the acquisition deal. If SBF was a sizable backer of the Twitter buyout, this more than anything could take Twitter out at the knees.
Could it be that it is SBF who is playing CZ by potentially involving US regulatory apparatus (CIFUS) and resulting scrutiny into Binance? In the weirdo-world-of-crypto(TM), anything is possible?
It's not even binding, so Binance could take a look under the hood and say no thanks. No idea whether FTX can cover withdrawals at this point or what the collateral damage will be.
I don't know if this is posed yet but FTX.com is different than FTX.us which GameStop Partnered with. I've seen lots of confusion and FUD arround this.
To be completely frank, it worked too (at least on me). If you asked me two weeks ago which company would go bankrupt first between FTX and Coinbase, I would be hard pressed to answer, even though we all have access to the financial documents of Coinbase and all we have from FTX is SBF glamor and hot air.
Exchanges big wallet are public info on the blockchain IIRC. The huge problem is that you'll never know if they add up because you'd need confirmation from every user of the exchange who'd have to self-declare their crypto-wealth in some sort of Slack or Telegram group so that you then can compare the 2 totals and see if x=y.
Will never happen. They are black boxes. Only them know if 1:1
Who knows, i’m just going to rant that
I never got into it, i heard about it right at the start, started looking into it, like maybe do it like i used to let idle time on seti. Maybe now i’d be a billionaire. It would seem like an odd way to be one.
But i got put off it right away by libertarian conspiracy believing types, always knew way more than me about the secret machinations of the world that are forever kept free from us, and of course, they knew something i didn’t, this secret knowledge was given away for free if you knew the right people.
In a way, i credit them with a renewed interest in programming, as this guy told me about writing a twitter bot to pump gold whenever they’re idol told them too, i did actually think to myself, this guy thinks they’re a programmer when they repurposed a script while i can actually write useful apps, so i’ll give them that.
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.
All of these folks need to be in prison along with Andreeson Horowitz. All bloody crooks the lot of them. The largest ponzi scheme in the history of humanity and they wonder why the world is not getting better.
Did AH take money from retail investors? I suppose you can claim they pumped these products. I'm not convinced it's any different than what happens with an IPO that started with VC money. I'm not saying it's good, just that it's as bad as anything that's regulated.
I have no doubt that anybody that had access to pre-release allocations were well aware of the risks. Net worth was likely checked. They don't need to be treated like a child.
Probably a civil matter anyway - no expectation of jail, which was what the parent commenter referenced.
Largest might be a stretch. I suggest spending some time reading about John Law, the South Sea Bubble, and the Mississippi Company. When you realize that all of these ponzi schemes ultimately resulted in modern central banking, you might reasonably contend that the largest ponzi scheme is still sitting right here in plain sight -- with crypto illuminating (mocking?) the essence of fiat-denominated "wealth" and "money".
Can you give us a TL;DR on how those schemes resulted in modern central banking? It's challenging to find solid info on the introduction/acceptance of central banking as the status quo. Lots of it veers hard into conspiracy theory and information that I can tell is wrong from a handful of college finance courses.
I know this is the second (or third) central banking paradigm that has existed in the US. The last one got shut down by ol' AJ, but I don't really understand how that all went down and how it's different (or similar) to what we have now.
The ~1 hour YouTube series The History of Paper Money by Extra Credit is a good, factual starting point presented in an entertaining fashion: https://www.youtube.com/watch?v=-nZkP2b-4vo
As Matt Levine just pointed out in his newsletter, FTX was doing the same to bail out other failing crypto companies in the summer. Now it needs a bail out itself.
What will happen to Binance in a few months if the system is now unwinding? That's the question right, if it's a system problem or FTX was greedy and over leveraged. For me it smells like a system issue because it's all based on funny money.
Can we perhaps take this opportunity to pour one out for Matt Levine? I can't think of any writer/journalist who can bring an often esoteric topic like present day financial shenanigans to life with such clear, intuitive and bitingly funny writing. His coverage of the whole Elon/Twitter saga alone is second to none.
Nobody forces you to use Binance or FTX. I have been using Bitcoin for 10 years and I've always stored more 90% of my BTC in my own self-custody wallet, only used exchanges briefly.
- Long term "Savings account" - a volatile one, of course
- I buy stuff from online with it, household items (In country I live you can basically buy anything with BTC)
- Travel, I book hotels/flight with it and once I rented a boat for a family trip
In addition to that I now and then try to pay with Bitcoins at other stores. Last time got excited about boltcards (https://github.com/boltcard/boltcard) there are few places in my country which accept it, but it is quite a new thing.
Buying MDMA safely. This isn't a joke. Drug prohibition causes harm, crypto provides a much safer way to obtain psychedelics. If all your purchases are safe for the state to be aware of, good for you.
For whatever it's worth, the federal authorities have very little budget/mandate to prosecute darknet drug distribution offenses. They go after the darknet markets themselves, money laundering / sanctions avoidance and maybe firearms.
Meanwhile the local authorities don't know what most of those words mean.
I think you are mistaking 'waiting for technology/infrastructure to mature enough to make them accessible to everyone' with 'technology that people don't know how to do something useful with'.
Notably, according to crypto evangelists. No one thought the internet was a fad. It had a time when it was novel and therefore people who didn't know how to use it would make fun of it, but absolutely no one who used it thought it was a 'fad'. As soon as the first web browser became accessible to consumers the dot com era exploded. There is a difference between 'didn't hit mass adoption due to massive infrastructure needing to be built in real time' and 'we don't know what this is useful for'.
Anyone who was a nerd in the 80s and early 90s knows that we spent the better part of two decades being told that the internet was no more revolutionary than fax machines and that most people would never use it.
Some op-ed pieces and getting mocked by people for being a nerd do not demonstrate to me a fundamental disagreement about the usefulness of the internet amongst people who understood what it was. Ignorance is annoying, but it is easily remedied by exposure and knowledge.
Contrast this with a cryptocurrency technologies, which are completely understood at this point and still lack legit real-world use at scale beyond speculation and yet it is constantly claimed that 'it just takes time for brilliant technology to find a use case'.
As far as I can recall, this has never been the case in the modern world -- every paradigm changing technology has had an immediate and obvious application where it greatly surpassed anything before it, regardless of if it took years or decades to build infrastructure and educate people on how to use it.
I suppose it depends on how you're defining the first year of the internet, but I don't remember many people thinking it was a fad. I'd say it's the one invention in my life that has actually lived up to the hype.
(If everyone pays income taxes, noone’s relative purchasing power is reduced by paying them, because you have the same % of the money supply. More or less.)
in which part of this discussion has anyone talked about something decentralized? This is about two centralized exchanges that hold custody of users cryptoassets
This is true. Don't know why people are down voting you. But it calls into question why we need centralized exchanges of decentralized assets. The answer, of course, is financial speculation and sophisticated shell games that make some folks billionaires at the cost of the marks who get suckered into believing they're getting in the ground floor of the next big thing.
It's a slippery slope. i've ran a few IRC and matrix channels. once the crypto people show up it all gets turned into a crypto circus. they will take over this site if it's allowed to continue. this site will literally be indistinguishble from coindesk.
Digital currency is the future even if 99% of the current ones out there are scams or scam-adjacent. To ban all talk about digital currency from a website all about the tech industry is just silly.
The guidelines don't specifically call out that case, and I don't think they need to. If someone can automate the process of generating good HN comments I don't see a problem. https://xkcd.com/810/
But clearly this particular attempt isn't doing so well.
Crypto had been interesting experiment. My take away is that there cannot be decentralized currency or finance. Dectralization does not prevent bad actors. Someone with an army and authority must be there to punish bad actors and keep them in check or otherwise they are out to con you. The argument that people just need to be smart to not get dupped does not work.
