[HN Gopher] FTX's balance sheet was bad ___________________________________________________________________ FTX's balance sheet was bad Author : latchkey Score : 362 points Date : 2022-11-14 18:12 UTC (4 hours ago) (HTM) web link (www.bloomberg.com) (TXT) w3m dump (www.bloomberg.com) | tppiotrowski wrote: | > And another big asset is $616 million worth of the MAPS token | ($865 million "before last week"). MAPS is the token of Maps.me | 2.0, a sort of Serum spinoff that was also launched by FTX; | | I remember when maps.me added crypto and many users fled to | Organic Maps. I didn't know that FTX was behind it. | sjkoelle wrote: | ga did they add crypto? maps.me was an amazing product in 2018 | but seems to have gone south. | gadders wrote: | >> a negative $8bn entry described as "hidden, poorly internally | labled 'fiat@' account". | | Anyone else old enough to remember Nick Leeson and Error Account | 88888? | | https://www.independent.co.uk/news/business/how-account-8888... | mongol wrote: | I am old enough but I don't remember, being ignorant of it. | legitster wrote: | I often joke that crypto has been run by gold bugs who were | forced to "smoke the whole pack" on fiat currencies. So a lot of | crypto is a nihilistic homage to federal reserve systems. | | In that way, "DeFi" feels the same about the finance industry. | | It was no secret that SBF _hated_ traditional finance. And so I | assume he refused to learn anything from it. But what he ended up | creating was almost a hilarious parody of the financial system. | | That's at least how I can square the circle about how someone who | could criticize Lehman Brothers for letting themselves get | overleveraged on shady asset classes could literally have | negative 8 billion dollars in "Hidden, poorly internally labeled | 'fiat@' account" and then publicly go to Twitter to say they have | a "liquidity problem". | kuwoze wrote: | let me square it for you: | | he is a fraud | zeroclip wrote: | > In that way, "DeFi" feels the same about the finance | industry. | | How? DeFi protocols are behaving predictably and not pausing | user withdrawals or hiding billion dollar black holes in their | balances. | this_user wrote: | Yeah, the predictably get exploited, and lose everyone's | money. | [deleted] | jmull wrote: | > It was no secret that SBF hated traditional finance. | | To point out: that's part of the narrative SBF was selling. I | wouldn't take it literally. There's a certain kind of person | who can/will say anything, and seem sincere, just to get you to | part with your money. | elevenoh wrote: | jmyeet wrote: | > I often joke that crypto has been run by gold bugs | | You're not wrong. Crypto is the natural evolution of the gold | bug. | | Gold bugs funamentally don't understand the finance system. The | gold standard was never about fully backing your currency with | a global commodity (fun fact: the US dollar was never 100% | backed by gold reserves). A gold standard is actually just a | peg, a promise by the government to exchange dollars for gold | (and vice versa) at a fixed rate. And you don't technically | need _any_ gold for that. | | Yet gold bugs harp on about gold reserves and that's the least | important part of the gold standard. Either way you have a | trust issue. FDR famously performed a sovereign debt | devaluation, for example. | | Likewise, my experience with crypto people is they too | (generally, not always) don't understand why the TradFi system | is the way it is. Worse, they seem to use wilful ignorance of | that as a badge of honor (while muttering something about | "disruption"). | | So gold bugs who (rationally or irrationally) hate TradFi find | a natural home with similarly minded Crypto Andys. | kipchak wrote: | >the US dollar was never 100% backed by gold reserves | | The dollar was created by the coinage act in 1792, with | dollars being made of the equivalent amount of silver or | gold. To me this seems like practically same thing as being | 100% backed by gold reserves. | | If we're talking about paper dollars or originally "Demand | Notes" from 1861 onward that would be the case as they were | put in place because the government was broke trying to fund | the Civil War,[1] and had to issue currency on credit[2] | (about $1.5b additional in todays dollars, for comparison | there's about $51b total in 2021). | | >A gold standard is actually just a peg, a promise by the | government to exchange dollars for gold (and vice versa) at a | fixed rate. And you don't technically need any gold for that. | | Wouldn't you need enough reserves to allow anyone who | attempted to exchange their dollars for gold to do so? | Fractional banking and bank runs seem like a rough analog. | | [1]https://www.mycreditunion.gov/financial-resources/history- | un... | | [2]https://www.cs.mcgill.ca/~rwest/wikispeedia/wpcd/wp/d/Dema | nd... | lazide wrote: | Regarding gold/silver backing - yes, _if_ they let you | actually do that redemption or exchange. Something that has | historically been suspended or banned multiple times. | Including by FDR in 1933, and Nixon when the US exited the | gold standard entirely. | | [https://www.history.com/this-day-in-history/fdr-takes- | united...] | | Like Tether, if you can't actually redeem it for what it's | nominally backed by, is it really backed by it? | [deleted] | excite1997 wrote: | I think you're debating a strawman, though. Sure, there are | delusional / ignorant goldbugs who make stupid arguments, but | you can find that in pretty much any domain. There are also | reasonable people, including heterodox economists, who | understand the history of currencies and monetary systems, | and still advocate for a return to pegged currencies or for | precious metals as a part of a diversified portfolio. You | don't have to agree with them, but ad hominems are probably | unnecessary. | | I mean, it's not even that fringe is you consider that | Central Banks sure hoard a lot of gold specifically because | they see it as useful in certain (bad) economic scenarios. | notch656a wrote: | Most gold bugs I've interacted with are more interested in | replicating commodity money (i.e. gold coins for trade) than | gold standard (i.e. dollars backed by gold). | | Gold standard is dumb for reasons you say. Commodity money is | by design supposed to be 100% backed, as the gold is actually | inside the money and the face value is the weight gold inside | it. | lazide wrote: | FYI, Historically, it has been _really_ common to debase | currency by diluting or reducing the precious metal content | of coins. | | [https://en.m.wikipedia.org/wiki/Methods_of_coin_debasement | ] | notch656a wrote: | Valid, although once the gold is in my hands it's kind of | hard to debase it. Of course the weakness is that it may | be impractical to check it is debased every time you | receive it (although it is practical for large | transactions). | | Each money has its own weakness. One of the big | weaknesses with fiat and gold-backed money is that it can | be debased even while it is in your personal possession. | rsj_hn wrote: | There is a reason why there has never existed a society in | which the majority of transactions were done by people | exchanging gold or silver coins kept in little leather | pouches. It's just too impractical. | | - problems with availability - in most traditional | societies, there just weren't enough coins to meet | transaction demand, and so people transacted based on | credit or other informal ledgers. | | - problems with theft | | - problems with weight | | - problems with people shaving some of the metal off | | - problems with counterfeits -- not actually easy to test | the percentage of gold in your coin | | - problems with credit markets. Credit markets need to move | money around quickly and efficiently, and be able to raise | large sums. That's not compatible with socks filled with | gold buried under your rose bush. The money needs to be | available in the credit markets so it can be efficiently | deployed, moved around, etc. | | So from the beginning, gold was used for specialized | purposes -- e.g. to settle international trade or large | payments, rather than as a primary means of payment. | | There is no way to get around this. The moment you | introduce gold, merchants will start borrowing gold by | selling Bills of Exchange -- effectively promises to pay | gold. These bills of exchange will be more valuable if they | are bearer instruments, and so the merchant will make them | bearer instruments (to allow raising more money). Then you | get a market in which people are buying and selling bills | of exchange at a discount. Now you have a discount rate and | a money market, and all you are missing is a financial | crisis in which a large bank steps to staff their discount | window when the smaller traders are forced to close their | own. All of a sudden, you are back to credit-based money, | as the Bills of Exchange are themselves used to settle more | trade than the gold coins. It's just a lot easier to carry | a piece of paper that says "X promises to pay 1000 gold | coins next year" then it is to actually lug 1000 gold coins | around. | | The ease of convenience, the needs of merchants to tap | capital markets, will ultimately subvert whatever metallic | standard you come up with. Then, financial crises will drag | in the government to start regulating and centralizing the | capital markets. | jmyeet wrote: | What you describe has a lot of merit but it also explains | the move from silver currency to gold. Gold has a lot of | interesting properties from the point of view of coinage | and an instrument of value: | | 1. Up until the fairly recently (ie the last century) it | was the densest element anyone could get in quantity. | This was not true for silver so silver currency could | (and was) debased (like you say). This was more difficult | with gold as doing so would lower the density; | | 2. Gold has a relatively uncommon appearance. There are | very few substances that could imitate its look. Iron | pyrite (aka "fool's gold") is the common one but it's not | as dense and is harder. It's also why people would bite | into gold coins to verify it; | | 3. Shaving or cutting coins was actually more of a | feature than a bug. Consider "pieces of eight" [1]. | | Previous metals as a basis for coinage were more | important than perhaps you're giving it credit for. | Ultimately what happened was that the coins themselves | because a store of value and the metal content became | less important as counterfeiting coins wasn't typically | trivial. This of course was what ultimately led to paper | money. | | [1]: https://www.kingmanyachtcenter.com/sea-history-what- | is-a-pie... | [deleted] | notch656a wrote: | I've never stated commodity money should replace all | other form of exchange. In fact per above, you list a | system where both credit and commodity money exist in | parallel with one another. | | >It's just a lot easier to carry a piece of paper that | says "X promises to pay 1000 gold coins next year" then | it is to actually lug 1000 gold coins around. | | Not sure if you've ever carried around a gold coin, or | ~$1800 (the value of 1 oz gold coin). But the amount of | space it would take up, within factor of 2. | | ~1.8 cubic inches for the gold and 1.2 cubic inches for | the bills. So maybe 50% worse space wise for the gold, | but in any case not enough to make carrying gold much | more burdensome than cash. Sadly you can no longer obtain | large (~$1000) bills as they have been eliminated pretty | much worldwide. | sergiotapia wrote: | olalonde wrote: | > It was no secret that SBF hated traditional finance. | | Uh? The guy worked in traditional finance for a few years and | was pushing for more regulations on cryptocurrency. His parents | were compliance lawyers. He donated tons of money to the | democratic party to push for regulations. He ran a centralized | exchange. This does not exactly scream DeFi... He was just an | opportunist who saw crypto as a means to get rich quick and | apparently, getting rich from trading fees was not quick enough | for him. | | There are a lot of "gold bugs" types in crypto but they mostly | self-custody BTC and stay away from shitcoins and day trading. | chc4 wrote: | SBF (and like half the people at Alameda) worked at Jane Street | or other big name financial firms. They weren't ignorant of | traditional finance. | billsnow wrote: | He was there for only three years, and at least ignorant | about the finer points. | psychlops wrote: | His point, I believe, it that it's traditional finance | using crypto to do their usual thing. Pump and dump. | billsnow wrote: | That's not what traditional finance does... | psychlops wrote: | Where do you suppose the term comes from? | billsnow wrote: | Ok fine that's not what jane street does. | [deleted] | psychlops wrote: | Fair enough, I know very little about Jane Street other | than where they are located and that I'd never qualify to | work there. | ericd wrote: | (They're not located on Jane St) | jsemrau wrote: | Being an entry level staffer is not the same as running a | n-Billion dollar business. The higher you rise, the more | important the role of governance, compliance, and risk | management becomes. If you shortcut this you will miss an | important part of "job experience" | jjtheblunt wrote: | do you mean they were knowingly manipulative of those who | actually were ignorant of traditional finance, as a business | plan of sorts? | [deleted] | JumpCrisscross wrote: | > _worked at Jane Street or other big name financial firms. | They weren 't ignorant of traditional finance_ | | I was an options market maker. That taught me a lot about | options but little about finance. The latter comes from | curiosity and initiative, up to and including reading history | books. Given SBF was post book or whatever, the ignorance | isn't surprising. | MrMan wrote: | prop trading firm and a sell side firm or an exchange are not | structured the same way. its like calling zebra and deer and | giraffes the same animal. | saberdancer wrote: | Did you read comments Caroline made on her blog/tumblr? | | Not sure of the timeline but she was asking why not double | down on a 50/50 bet every time (if you lose) - you can earn | "infinite" money but lose only your bet. | | I am not sure working somewhere means you are an expert in | it. It's incredible these people managed to create a company | size of FTX. | gruez wrote: | >Not sure of the timeline but she was asking why not double | down on a 50/50 bet every time (if you lose) - you can earn | "infinite" money but lose only your bet. | | I'm pretty sure you're referring to this tweet | | https://twitter.com/0xHonky/status/1591630071915483136 | | In which case she wasn't the person asking the question. | Somebody else was asking it, and she was unequivocally | saying that it wouldn't work. | jonasdegendt wrote: | Rookie mistake! The trick is to double your betting amount | every time you lose the 50/50, until you win, and then | return back to your regular bet. That's how you turn a | profit. (/s) | throwaway777845 wrote: | jsemrau wrote: | > read comments Caroline made on her blog/tumblr? Isn't | that the Martingale strategy? | | > It's incredible these people managed to create a company | size of FTX. | | Didn't they got hundreds of millions in play money from | their network (school friends). This worked while | everything was going up and new cash was coming in. | DebtDeflation wrote: | >This worked while everything was going up | | "Never confuse being long in a bull market with genius." | | --John Bogle | spamizbad wrote: | Makes me wonder what's going on at Jane Street. How sure are | we they're above board? | typon wrote: | This is what I have been thinking. This whole thing has | soured in my mind: Jane Street, Effective Altruism. Crypto, | VCs, Silicon Valley culture in general I already assumed | are scummy. | ilrwbwrkhv wrote: | You got it. That is the correct line to follow. Sequoia | in particular must be heavily investigated. | neilparikh wrote: | > Effective Altruism | | The practical version of Effective Altruism for most | people is essentially "if you're well off, you should | donate a chunk of your income to buying anti-malaria bed | nets/deworming medicine/direct cash transfers for the | global poor". I don't see how that could "sour" in your | mind, seems like a fairly unreservedly good thing. | | I want to point out that there are real people [1] being | helped by Effective Altruism right now. Telling them | "sorry, can't help you any more, some rich asshole in the | US just committed a scam, and he claimed he wanted to | help you too" just seems incredibly petty and cruel to | me. | | [1] - This is also a group that traditionally doesn't | receive much attention either. | tweestuff wrote: | whimsicalism wrote: | Maybe you should spend a moment researching rather than | using some nebulous transitive property of "if they hired | this person, they must also be a scam." | | Jane St is a prop trading firm - the only money they have | to lose is their own. | paganel wrote: | One of the biggest financial frauds of this century has | just been perpetrated by two young people that used to | work for them, the questioning related to "how did Jane | Street hire these people" is perfectly logical. | hahaxdxd123 wrote: | Well the interview process is more or less "are you good | at probability puzzles and games somewhat related to | trading." | | A plausible story to me is that they were good at | whatever they screen for in the interview and then at | Jane Street they made a bunch of money. Then they | attributed too much of that to themselves and not enough | to whatever institutional processes and risk frameworks | they benefited from. They bring themselves but not those | processes to their own trading firm, and then boom! | MrMan wrote: | I worked on quant buy side for a long time and you dont | just automatically come out of these places knowing one | secret to making money trading. equally smart on paper | people might be working on message passing, risk | management, data analysis, special projects, also | trading, simulator, database, and might spend 5 years in- | house and not come away from the experience with | knowledge which by itself represented major alpha. | | for me just knowing how to setup a quant trading firm, | how to choose prime brokers, how to find and select | vendors, leased lines, how to setup paper work, cap intro | relationships, exchange memberships, FIX certs, are of | equal value as alpha tricks, and really I dont even see a | lot of evidence that the Almeda / FTX people were | particularly well-seasoned in any respect. | [deleted] | biggoodwolf wrote: | The founder of EA got SBF in. That's another can of worms | but that guy apparently changed his last name from Crouch | to McAuskil or whatever... | telotortium wrote: | How would Will MacAskill have enough sway to get SBF in | Jane Street? Also, why would that matter? I have | absolutely no reason to believe SBF couldn't pass their | interviews. | tedunangst wrote: | Did they work in the risk management back office at JS? | paganel wrote: | The Societe Generale guy that managed to lose 5 billion | euros for the bank through "breach of trust and forgery" | (to quote wikipedia [1]) didn't work in the risk | management department. I don't think that was any | consolation for the bank's stakeholders. | | [1] | https://en.wikipedia.org/wiki/J%C3%A9r%C3%B4me_Kerviel | tedunangst wrote: | Actually he had worked in compliance, and then they moved | him to front office. Extremely dangerous. Not | recommended. | | But the point is you can't infer anything about Jane | Street risk controls from people who didn't have that | role. | typon wrote: | It's not about losing other people's money only. What I'm | worried about is: are extremely over-leveraged and able | to get the returns they have by doing tax and regulatory | dodges that their competitors aren't participating in? | Did SBF learn how to operate in the financial world from | seeing how Jane Street operates? | whimsicalism wrote: | They are a high frequency market maker. They are not a | hedge fund. | | They make money from the pennies in the spread, many many | many times over. They are not making over-leveraged big | bets. | | I encourage you to talk to anyone who works in market- | making finance. | ralph84 wrote: | Being a market maker doesn't exempt a firm from blowing | itself up. See Knight Capital. | whimsicalism wrote: | Knight Capital was traded (so taking other people's | money). | | Let's also try not to conflate "blowing up" with actual | fraud. Traders are free to lose all of their own money, | and doing so is not fraud | ralph84 wrote: | Knight was the largest market maker on NASDAQ and NYSE at | the time they blew up so if you're going to use "they're | just a market maker" as a defense for JS you can't | dismiss Knight as "oh, not THAT kind of market maker." | And Knight was known for plenty of shady activity like | front running and spoofing. | whimsicalism wrote: | Knight did not blow up due to fraud, so they were not | "below board." Losing money is not against the law. | | Furthermore, Jane St _only trades their own capital_ - | ie. not capital deposited by customers in an exchange and | not capital provided by selling ownership stakes of | itself on a public market. This is a clear distinction | from Knight. | | It's as if some guy just had a bunch of money, traded it | and made some more money, hired a bunch of people to keep | trading it, and it has made a ton of great returns and | people are asking: is this a scam? | | Who would it be scamming? The only suckers are this guy. | thepasswordis wrote: | Alameda was supposedly a prop trading firm too. | whimsicalism wrote: | FTX is the one who lost their customers' money. | | Jane St is fully above board and has no such associated | firm managing customer money. | 22SAS wrote: | I work in the trading industry. These people had short | tenures at JS, especially Ellison. They weren't seasoned | senior traders making big decisions. JS, unlike Alameda, | has been in the business for 20+ years and have been very | profitable for most of their existence. | | It would be worrisome if most of Alameda was full of ex- | JS traders, who had been there for 7+ years. | wellareyousure wrote: | mediaman wrote: | I can't look at their balance sheet and conclude that they | were anything but ignorant of traditional finance. He seemed | completely unaware of duration risk, and it seems like they | have never talked to an accountant or anyone who has even the | slightest clue about what a balance sheet should remotely | look like. | | SBF worked at Jane Street, but he must have been there in a | capacity that insulated him from this sort of knowledge. At | large firms such as that there are very specialized roles | that juniors typically start within, where the visibility is | fairly limited. | dragonwriter wrote: | > I can't look at their balance sheet and conclude that | they were anything but ignorant of traditional finance. He | seemed completely unaware of duration | | SBF is notorious for advocating expected-result decision- | making with risk entirely disregarded, and essentially | saying if you aren't in the high risk range where the | median (rather than expected) result is break even or | worse, you are usually being too cautious; he's not | _ignorant_ of risk, just deliberately contemptuous towards | it being a negative factor in decisions. | | Turns out, when you chase Gambler's Ruin that hard... | HDThoreaun wrote: | They knew this balance sheet was bullshit. They were just | trying to cover up the $10 billion "loan" they gave alameda | after it blew up in the spring. I agree that alameda made | mistakes that traditional funds wouldn't, but the balance | sheet isn't one of them. | olalonde wrote: | The FTX disaster was not due to incompetence nor ignorance | but to fraud. | dragonwriter wrote: | I think SBF's public and, AFAICT, honest belief in | expected value optimization without regard to risk played | a fairly central role in every step of the fraud, and | that it constitutes a very specific form of incompetence. | olalonde wrote: | That's an extremely charitable interpretation of the | events, in my opinion. Misappropriating custodial funds | is not ever acceptable when you are running an exchange, | no matter how good your EV looks like. | | And I'm not buying into his whole effective altruism | thing. What I think is that SBF had a strong desire to | make money, ethics be damned, but had a troubled | conscience. Effective altruism gave him moral comfort and | helped him rationalize his actions. | dragonwriter wrote: | > That's an extremely charitable interpretation of the | events, in my opinion. | | Only because you seem to be reading into it a positive | moral judgement that I did not, in any way, express. | | > Misappropriating custodial funds is not ever acceptable | when you are running an exchange, no matter how good your | EV looks like. | | I didn't say it was. | | > And I'm not buying into his whole effective altruism | thing. | | SBF doesn't just advocate that method of decision-making | in the context of EA, he advocates fairly consistently | for financial and other decision-making. | olalonde wrote: | It seems I read too much in your comment. I can agree | with labeling his method of decision-making as | incompetent but I believe what happened at FTX goes | beyond that and I just hope he doesn't get away with it | by playing that card. | tick_tock_tick wrote: | Or he thought he could get away with it and grow fast | enough where it wouldn't burn him. | [deleted] | lancesells wrote: | You think this is ignorance? I know very little about | finance or the technology of finance but this is pretty | clearly fraud and criminal behavior. | | My only question is was he able to pay for his private jets | or residences in FTT? He seemed pretty convincing to a lot | of people so it would be interesting to see if everything | was paid in his own made up currency. | monetus wrote: | I don't think ignorance and fraud are mutually exclusive. | I think he has put both on display to a pretty | significant degree, personally. | bogomipz wrote: | Perhaps not ignorant but maybe inexperienced for the roles | and responsibilities they assumed at their new company? This | is from a piece about Caroline Ellison the CEO at Alameda: | | >"Before joining Alameda as a trader in March 2018, Ellison | spent 19 months as a junior trader at Jane Street after | graduating from Stanford University with a bachelor's degree | in mathematics in 2016. In a podcast two years ago, Ellison | explained that Jane Street was her first job out of college. | A diehard mathematician and Harry Potter fan born of two | economists, Ellison she hadn't wanted to go into trading but | "just didn't really know what to do" with her life. | | > "She was persuaded to join Alameda by SBF, who also | previously worked for Jane Street. When she quit Jane Street, | Ellison said she felt bad for staying such a short amount of | time. However, this feeling quickly dissipated when she | arrived at Alameda and discovered that she had "kind of more | trading experience than a lot of Alameda traders," | anyway."[1] | | And similarly for Constance Wang the FTX CEO/COO: | | >"Constance Wang joined FTX as chief operating officer in the | Bahamas in 2019. Initially, she was chief operating officer | (COO) of FTX's crypto derivatives exchange. In January 2022 | she was promoted as CEO of FTX digital markets, with | responsibility for the Bahamas HQ. An org chart published by | the Information puts her one level below Sam Bankman-Fried. | | >This looks like a big job. All the more so because Wang is | only a few years into her career. Before she joined FTX, most | of her time had been spent at Credit Suisse in Singapore. | | >Wang wasn't an MD at Credit Suisse. She wasn't even a | director or associate director. She was an analyst and she | worked at the bank for two years, first in KYC in the private | bank and then in APAC risk and controls. It was her first job | out of university. | | "Admittedly, Wang didn't go straight from Credit Suisse to | FTX - there was an eight-month detour to Huobi Global, a | crypto exchange in Singapore first. However, the fact that | this was sufficient to land her a job in her late 20s running | 'institutional clients servicing and operational procedure,' | at a fund with $1bn of revenues last year, looks slightly | questionable."[2] | | [1] https://www.efinancialcareers.com/news/2022/11/caroline- | elli... | | [2] https://www.efinancialcareers.com/news/2022/11/constance- | wan... | jnwatson wrote: | You can't make this stuff up. This would make an amazingly | funny movie. | gammarator wrote: | It's going to be one! https://theankler.com/p/hwood-ftx- | frenzy-as-michael-lewis?sd... | handspun wrote: | It's only a matter of time, Michael Lewis has been | shadowing SBF for months now. | | https://www.theguardian.com/books/2022/nov/14/ftx-crypto- | kin... | basch wrote: | https://theankler.com/p/hwood-ftx-frenzy-as-michael- | lewis?sd... | TheOtherHobbes wrote: | Meanwhile, at Credit Suisse: | | https://www.reuters.com/business/finance/spies-lies- | chairman... | | https://www.theguardian.com/news/2022/feb/21/tax-timeline- | cr... | factsarelolz wrote: | Both SBF and the other person were glorified interns and got | position based upon their parents network. | whimsicalism wrote: | Doubt it, unless you have evidence otherwise. Jane St | (unlike customer-facing finance firms, like Goldman Sachs) | does not really engage in this style of nepotism hiring | that I know of. | | More likely is that the child of prominent academics might | actually be more intelligent than average themselves and | certainly provided more opportunity to flourish. | factsarelolz wrote: | Could you detail SBF's experience that would have opened | doors to him at Jane St without nepotism? I ask because I | can't find any evidence to show how he was able to get | into that position. Thanks for the guidance and I look | forward to your reply. | 22SAS wrote: | Most of JS's trading interns and new graduate hires, are | STEM grads at HYPSM schools. SBF going to MIT gave him a | big leg up. | whimsicalism wrote: | He went to MIT and interned there. | | I'm confused as to what you are asking - Jane St | certainly hires plenty of people out of college not for | nepotism reasons. | | The fact that he did not have a prior job before college | is not evidence he was hired for nepotism. | | Let me guess - he also got into MIT through nepotism as | well. | stefan_ wrote: | His parents are professors at Stanford. So yeah, of | course he did. | eddsh1994 wrote: | What was his GPA at MIT? Did his parents jobs get his | exams marked higher? | stefan_ wrote: | Does it matter? He did an undergraduate physics degree, | the only time his name appears on Scholar is in a book of | his mom or a letter from one of their colleagues, and | when it was over he promptly went to some quant company | that gobbles up these graduates by the busload (and spits | them out again). The least important part in all of this | is the grades, or possibly even what undergraduate he | did. | whimsicalism wrote: | Can't tell if you are being earnest but as someone who | majored in CS at a HYPSM, I can tell you there is | literally no chance that this occured. | | I know kids who definitely got in because of parents | money, but it certainly did not impact their grading. | NtochkaNzvanova wrote: | I would exclude MIT from that list, but the rest of those | schools basically have a huge reputation for grade | inflation -- i.e., once you get in, you won't be given a | bad GPA because you're paying so much. Grading people | legitimately based on competence would piss of the | parents/donors too much. Curious to hear your take on | this. | whimsicalism wrote: | Gotcha and thanks for being upfront about your reasoning. | | I'll let others decide on whether they find that | reasoning convincing! | hutzlibu wrote: | You "got" a different poster, though. | asdfqweqe12 wrote: | Youre all over this thread defending Jane Street. | | > Jane St (unlike customer-facing finance firms, like | Goldman Sachs) does not really engage in this style of | nepotism hiring that I know of. | | Wow i'm sold. | whimsicalism wrote: | Because it's a comment thread I find interesting, I made | 4 or so comments related to Jane St, 2 of which are | replying to people replying to me. | | I promise you I have no affiliations with JS whatsoever, | just think that there is lots of sloppy reasoning going | on in this thread. | codehalo wrote: | >It was no secret that SBF hated traditional finance. | | That is quite odd. FTX was the very definition of traditional | finance (with or without whatever regulations you may think is | required). Maybe he was bullshitting you too? | | Crypto is now infested with Wall Streeters and VCs trying to | convert it into some grotesque form of the old system they are | familiar with and failing catastrophically. In a few years | decentralized DEXs will all but replace the centralized | exchanges. | anonporridge wrote: | This is the great thing about this whole event. | | It's a grotesque level of criminal fraud, but unlike when | that happens in traditional finance, there will be no | bailout. These fraudsters will get wiped out and there is no | one to appeal to who can save them. | fortran77 wrote: | Canadian taxpayers will, one way or another, bail out the | teacher's pension fund that invested in FTX | | https://decrypt.co/114235/ontario-teachers-95m-ftx- | pension-f... | IfOnlyYouKnew wrote: | It's a pension fund with a lot of VC deals, and a rather | profitable one at that. It can easily eat $95 million in | losses. | AnimalMuppet wrote: | These fraudsters _and others_ will get wiped out. That 's | the bummer about this whole event. | | You may feel that the others were too greedy and naive, and | therefore deserve what they get. Perhaps. But they're still | getting wiped out, and they didn't participate in the | fraud. (Unless you consider all of crypto to be a fraud...) | anonporridge wrote: | Sometimes, the best way to train children to avoid | putting their hand in the fire is not to be overbearing | and make certain they never get burned, but to let them | make that mistake and get burned a little so they | viscerally understand the consequences of doing such a | dangerous thing. If you never let them get a little | burned, then they might get terribly burned when you're | not around to pull them out. | | Losing tons of money is not the end of the world, even if | it can feel like it. It might just mean you have to | swallow your pride and go work at Walmart or McDonalds | for a while to build yourself back up. Millions of people | live that life every day. | | Stay humble. Stack sats. | selectodude wrote: | There are a lot of people who already work at McDonalds | or Walmart that watched FTX's super bowl commercial and | knew about the "whole crypto thing" that, too, are wiped | out. | | I'm enjoying this shit as much as anybody but | unsophisticated people are certainly feeling this right | now. | fredgrott wrote: | here is the problem in the a nutshell, SBF hired fraud | scammers, several bad actors from poker scams where part of | SBFs crew...indicating that something other than skill level | was the factor in hiring. | hahaxdxd123 wrote: | What does the expression "smoke the whole pack" mean? | | I Googled but there are no real results. Thanks! | ZeroGravitas wrote: | I assume this is a reference to catching a child smoking a | cigarette, and to punish them, and put them off doing it | again, the parent forces them to smoke the whole pack of | cigarettes one after another. | | This (in theory) makes them feel sick and develop an aversion | to the cigarettes. | jdminhbg wrote: | A father catches his young son sneaking a cigarette. To teach | him a lesson, he says, "You want to be a smoker, huh? Well go | ahead, smoke this whole pack!" He makes him smoke all of | them, the boy gets horribly sick from it, and never wants to | smoke again. | | Essentially it's a metaphor for forcing someone to go all-in | on something they wanted just a little taste of. | chasd00 wrote: | I think it refers to the old punishment for a kid caught | smoking. You catch a kid smoking a cigarette and then sit | there and force them to smoke one after another until the | whole pack is done. They get really really sick. | | So the analogy is take something you like and then force it | on you 24x7x365 until you hate every moment of it. | TrickyRick wrote: | I guess Web 3.0 got its Madoff 2.0 | hef19898 wrote: | Wow, imagine having _8 billion_ of customer money, negative, at a | badly labelled internal account. And now remember that Wirecard | fell over made up assets of 2 billion. | | FTX is an even bigger mess than Wirecard. | durnygbur wrote: | Wire-what? No one in Europe remembers them anymore. Germans | chase more ferociously torrent users, than the one executive | who vanished. | def_true_false wrote: | Zee Germans are currently too busy with fucking up the energy | market to the tune of 200B to care about silly stuff like | wirecard :) | gruez wrote: | >There is also an obscure $7mn holding called "TRUMPLOSE" | | https://ftx.com/trump-tokens | jefftk wrote: | "Joe Biden won the 2020 United States Presidential election: | TRUMPLOSE is redeemable for $1.00! All TRUMPLOSE balances on | FTX will be auto-redeemed for $1.00 at 11/15/2020, 9:00:00 AM." | | How can TRUMPLOSE assets still be on their balance sheet? | (Aside from "we have no idea what we're doing...") | atdrummond wrote: | It is 2024 futures, not 2020. | jefftk wrote: | I don't see anything in https://ftx.com/trump-tokens about | 2024? It's all 2020. | NoboruWataya wrote: | There is a separate TRUMP2024 token: | https://ftx.com/trade/TRUMP2024 | | TRUMPLOSE is the 2020 one, so your point stands that | there is no explanation for that account still having a | huge amount of money. That said, we now know that | internal labelling of accounts was not FTX's forte, so... | beefield wrote: | > So if for instance some company creates a token, and says that | there can be 10 billion of the token, and reserves them all for | itself, and then sells 1 million of them to outside investors for | $1 each, then the market cap of that token is $1 million ($1 | times 1 million circulating tokens), while the fully diluted | market cap is $10 billion ($1 times 10 billion total tokens), and | the issuer's 9,999,000,000 remaining tokens have a value, on this | math, of $9.999 billion. | | I have had for a while this secret plan to become the richest | person in the world by a wide margin. Because I seem to be too | lazy to actually execute it, I think it is better to just publish | it for the hope that someone else does it: | | So, the plan is to create a new cryptocurrency called Googolcoin | (GGC). The supply of the coin would be - as the name implies, | 10^100 GGC. I would pre-mine all but say 1000 of them for myself | and leave the rest for miners. Then I would start making the | market and put all of my GGC for sale, at a price of $1/GGC. Of | course, I would also put offer to buy as many GGC as anyone wants | to sell at say $0.7/GGC. Then I would go and bribe someone and | buy one GGC from me. And there you have it. My net worth would be | _orders_ of magnitude greater than all other wealth in the earth | combined! Take that, Elon. | | (If my reader at this point has not realized that the concept of | market cap for cryptocurrencies is stupidest thing since... well | previous stupidest thing, I would recommend selling your crypto | ASAP.) | [deleted] | ribosometronome wrote: | https://www.youtube.com/watch?v=iHfJRON3b-w | | Reminds me of Max Fosh briefly being the world's richest man. | alexb_ wrote: | This has got to be one of the most absurd situations I've ever | seen. Absolutely fucking insane that this could have even lasted | that long. Every single charitable interpretation of this | situation, every single possible way that they could have somehow | argued their way out of it being a clear scam, it's all just | obviously stealing. | | I think it's absolutely absurd that "smart money" was pumped into | this to the tune of billions upon billions of dollars. The | popularity of this delusion, and the madness of the billion- | dollar crowd is so much worse than anyone could have thought. | gary_0 wrote: | I still have doubts that regulators will step in and take | decisive action to prevent this kind of thing happening again. | Is fraud basically legal now? | joe_the_user wrote: | _Absolutely fucking insane that this could have even lasted | that long._ | | When things are good, Ponzi schemes appear smarter, hipper and | more profitable than ordinary businesses and so no one want to | run anything else after a bit. That's why the Fed is there to | "take away the punch bowl just when the party is getting | interesting" - because, whatever their other virtues, markets | won't stop this before disaster strikes. | lkrubner wrote: | Strongly agree. In normal times there are scammers and people | trying to set up Ponzi schemes, but they don't typically fool | sophisticated investors. These last 30 years have seen the | markets grow increasingly deranged. In that sense, Bernie | Madoff was the true visionary who set the tone for this era, | much more so than Elon Musk or Adam Neumann. | KKKKkkkk1 wrote: | _The vast majority of FTX Trading's recorded assets are either | illiquid venture capital investments [...] In all, the | spreadsheet says FTX Trading's assets were [...] $3.2bn of | illiquid private equity investments._ | | Sounds like the VCs may have managed to recoup their investments | using customer funds before the thing blew up. | xg15 wrote: | Maybe I misunderstood, but if the investments were on the | "assets" side, doesn't that mean that FTX _was_ the VC investor | here - and the "asset" is the potential of the investment to | pay off? | [deleted] | [deleted] | TacticalCoder wrote: | Now people are realizing that the scam was planned from the | beginning. Serum started trading in 2020 and was in preparation | before that. And SBF was part of it from the beginning. | | Compliance lawyer was previously involved in massive online poker | scams. Guess who's that lawyer' ex-colleague lawyer, also | involved in the scam, is working for? tether/iFinex/BitFinex. | | Go read @bitfinex'ed 's Twitter account. He's been exposing | tether / iFinex / Bitfinex / Alameda / FTX and SBF as frauds | since the very beginning. | gruez wrote: | >Go read @bitfinex'ed 's Twitter account. He's been exposing | tether / iFinex / Bitfinex / Alameda / FTX and SBF as frauds | since the very beginning. | | Seems like the account trashes mainly Tether/Bitfinex, but also | whatever other crypto company shows up in the news (eg. FTX, | Binance, or coinbase). If you trash everything, of course | you're going to turn out to be the guy who was right "since the | very beginning". It doesn't mean that you're actually a good | source or anything. | | For instance, I scrolled all the way to the bottom (to escape | all the recent FTX tweets), and found a retweet[1] portraying | FTX as some sort of predatory lender and how "SBF HAS ACTUALLY | RISKED LITTLE OR NOTHING", which we now know is the opposite of | what happened (matt levine says that the probably lost money | bailing all those companies out). | | [1] https://twitter.com/otteroooo/status/1571522943305523206 | TacticalCoder wrote: | > If you trash everything, of course you're going to turn out | to be the guy who was right "since the very beginning". | | But he _was_ right. Do you really think tether | /iFinex/Bitfinex/Deltec are nice persons playing it fair? | | It's clear he wants Bitfinex to fail and Bitfinex shall | eventually fall. | grey-area wrote: | All the companies you list are frauds, save _maybe_ coinbase. | celestialcheese wrote: | > Still it is striking that the balance sheet that FTX circulated | to potential rescuers consisted mostly of stuff it made up. Its | balance sheet consisted mostly of stuff it made up! Stuff it made | up! You can't do that! That's not how balance sheets work! That's | not how anything works! | | This is absolute gold. | | Also... | | > FTX/Alameda were funneling customer money into effective | altruism. Bankman-Fried seems to have generously funded a lot of | effective altruism charities, artificial-intelligence and | pandemic research, Democratic political candidates, etc. | | This is just catnip to the "right-wing" media machine, Even worse | is that it's not even really that far-fetched of a theory. | Billions spent influencing elections and policy over the last 3 | years, and a $10B hole of customer funds just missing. This is | just reinforcing the worst conspiracy theories out there, and I'm | sad to see it.. | | *edit, formatting | whimsicalism wrote: | Unfortunately, there is a history of this exact type of scam | among firms very, very closely associated with the Democratic | party. | | The owner of this firm probably had more pull with the higher- | ups than SBF will ultimately have - he got no jail time & a 5 | million dollar fine. He's already back to running hedge funds. | | [0]: https://en.wikipedia.org/wiki/MF_Global | TechBro8615 wrote: | The current unsubstantiated right wing rumor is that Ukraine | "invested" a bunch of the US aid money into FTX. | | I think the rumor is probably conflating "actual" ($ backed) | aid with the crypto donations individuals made through FTX at | the beginning of the war, but who knows. | smsm42 wrote: | Or more likely, it's just "everybody we hate are surely | connected and conspiring against us" type of thing, where | everything just gets dumped into one huge pot, mixed up and | served up for rage clicks. I mean, it both has words "crypto" | in it, there's billions here and billions there, shake up | weeple! | [deleted] | Aunche wrote: | > generously funded... Democratic political candidates | | This isn't the smoking gun that Republicans want to portray it | as. A third of their political spending went to Republicans. | Companies will typically donate to the incumbent party because | they're the ones who actually write the laws, so it's not | unusual for them to donate more to Democrats. | vkou wrote: | Why is a coal billionaire spending money on campaign | contributions normal, but a finance billionare doing the same | catnip for the worst right-wing conspiracy theories? [1] | | For someone who just arrived on Earth from another planet, | modern campaign financing rules are indistinguishable from | bribes, regardless of who the money goes to. | | [1] I mean, aside from the _obvious_ answer (Which is that | their guys aren 't the beneficiaries.) | ok_dad wrote: | I absolutely hate myself for replying, but in this situation | you gave, SBF may have used customer's money, but an oil/coal | baron uses their own money. | | Even if you consider billionaires to be a disgusting stain on | society, like myself, there's still a difference between | stealing money to spend on stuff (political donations or | Lambo's) and spending money/stocks you legally made in a | horrible, earth-killing industry. | | I absolutely detest greed in all it's forms, but I also don't | think people should lower their morals and ethics to match | the lowest of the low, as if they're Robin Hood (the | character, not the company). | vkou wrote: | That just makes SBF a thief, but that's not really relevant | to the core problem of pay-to-play campaign contributions. | ok_dad wrote: | The parent comment was asking what the difference was, I | said the difference was the theft. I guess I was wrong | because I looked up the right wind conspiracies and they | all seem to care only about the part to play aspects, | which is definitely very ironic considering the history | of right wing financing. | TacticalCoder wrote: | > Even worse is that it's not even really that far-fetched | | Partizan politics aside... SBF's very mom was running a | fundraising campaign. And after George Soros SBF was the | biggest donor. | | SBF had already siphoned $95m out of Canadian teachers pension | funds. | | > This is just reinforcing the worst conspiracy theories out | there | | At this point it's not just conspiracy theories anymore. | BlockFi had already reached an agreement with the SEC (and SBF | "bought" BlockFi when it was in trouble) and it's totally | obvious that FTX would have been a licensed regulated exchanges | once the current bill would have passed. | | It's an undisputable fact that the chief FTX lobbyist was an | ex-CFTC commissioner. He apparently also was an ex- colleague | of the SEC's chair, Gary Gensler. | | And as weird coincidence would have it: Gary Gensler was an ex- | colleague of Alameda's 28 years CEO's father. | | And you dare to say it's "re-inforcing conspiracy theories"? | | Let the scum of this earth be exposed for what it is. | | I'm not defending people because they happen to be leeches | close to the political party I'm voting for. | celestialcheese wrote: | I should have been more clear - this isn't a conspiracy | theory. The money disappeared and there were huge donations | to left-wing causes. It's fraud propping up political | spending. No defence and not defending them. It boils my | blood. | | The conspiracy theories I was referring too are the"jewish | space lazers, George Soros Jewish Cabal Running The World | Drinking Babies Blood" type anti-semetic conspiracies spouted | off by people like Kanye and other far-right conspiracy nuts. | | This gives them ammo and confirmation bias that the more | nutty and harmful theories have legs, and that can have real- | world, extremely dangerous outcomes. | vkou wrote: | Which left-wing political causes were championed by the ~40 | million he gave to the Republican party? | | Without digging into the minutia, it seems like a classic | example of 'pay both sides so that no matter who wins, we | get a seat at the table.' Unsurprisingly, the incumbents | got paid more. | | The causes don't seem to matter, pay to play does. | | Now, if the right is ready to embrace an end to | corporations and millionaires donating to political | campaigns, it's a fantastic idea that we should embrace. | If, of course, it's just sour grapes and complaining after | losing a midterm senate election after putting forward a | slate of some of the worst candidates they could field, I | don't have a minute of time for it. | | Given the historic track record on campaign financing, I | think it's the latter. | moralestapia wrote: | OT but also part of that newsletter (by the end), | | That take on ESG as an excuse to mask out antitrust violations, | wow, never thought of it like that. | | Agree with everyone else here, Matt Levine is top notch. | webscout wrote: | hn_throwaway_99 wrote: | The thing that this piece really got me thinking about is how | many other crypto companies are the same ponzi scheme because | they are counting made-up things as assets on their balance | sheet. | | In other words, suppose I create token SCAMMER, and I say its | supply will be capped at 1 million tokens (or 10 million, or 100 | million - that's the "nice" thing about crypto, I can kinda | choose whatever number I want), and then I'm able to sell 10 of | those tokens for $100 each. According to FTX math, I now have | $99,999,000 of assets on my balance sheet, but of course if I | actually tried to sell a lot of my "kept" tokens I would tank the | SCAMMER price. | | Even better, and I think what is probably more common in the | crypto industry: suppose I get my buddy to create a SUX2BEU | token. I tell my buddy I'll by 10 SUX2BEU tokens for $100 each if | he buys 10 of my SCAMMER tokens for $100 each. Now suddenly we | can both say we have huge assets on our balance sheets! Until, of | course, someone decides to pull aside the curtain covering the | wizard. | | So many ponzi schemes on top of ponzi schemes... | nemo44x wrote: | It's shitcoins all the way down. | waynesonfire wrote: | I think artwork also works this way. I have 10 piece of art | drawn by Mr. Artist. My friend buys a piece for 1 million | dollars, I now have ~9 million dollars of "assets". | | These shenanigans have been going on for a long time in wealthy | groups. | smsm42 wrote: | That's why you see all kinds of fintechs trying to push art | investment into the masses nowdays. They want the stupid | money. | mgraczyk wrote: | This isn't a ponzi scheme as others have pointed out. | | This is well understood and goes on all the time in NFTs, it's | usually called wash trading. | | People in crypto know this is happening. The reason they still | speculate is because it's hard to predict when it will | collapse, and some people think they have an edge predicting | that sort of thing. | twblalock wrote: | If you made a coin that was actually called ScamCoin people | would buy it, because they would believe they could sell it to | someone else for a profit. | yojo wrote: | Empirically true. See: PonziCoin | https://techweez.com/2018/01/26/ponzicoin-crypto-scheme/ | twblalock wrote: | DogeCoin was supposed to be a parody and people actually | bought it. | | Also my phone does not flag DogeCoin as a misspelled word. | | Anyone who invests in this stuff is either really dumb, or | morally impaired yet smart enough to exploit people who are | really dumb. | pram wrote: | You mean Elon? | smsm42 wrote: | Did Elon seriously invest in Doge? I was assuming he was | just having fun, in his own way. | hotpotamus wrote: | As someone who has made a bit of money in crypto, there's | no reason I can't be really dumb _and_ morally impaired, | but lucky. I will note that moral impairment and | intelligence are not highly correlated as far as I know. | Anon1096 wrote: | You're not describing a Ponzi scheme, you're describing wash | trading and fraudulent accounting. | startupsfail wrote: | It is surprising that so far there haven't been any | legislation in Europe that prohibits CO2 emissions and energy | consumption for crypto mining. Feels like a slum dunk to get | it passed and get some nice political credit for it. | ballenf wrote: | Do they need to? At typical EU energy rates, is there a | token in the world worth mining? | gruez wrote: | Yeah, seems like the carbon tax + high energy prices are | already working as intended (ie. forcing non-productive | energy consumers offline). | initplus wrote: | Europe doesn't have a large scale crypto mining industry. | Energy prices aren't competitive enough there for it to be | viable. | | Europe's hashrate could disappear overnight and barely | anyone would notice. | Gigachad wrote: | It would be a good statement and might set off a chain | reaction for other countries. At any rate, a country that | isn't very dependent on crypto mining would be a good | place to start the bans. | advisedwang wrote: | people pay in, and that money is spent on (making the project | look good|delivering a yield|paying execs|propping up a | trading company|whatever) and then the money is not there | anymore for withdrawals. That's the essence of a Ponzi scheme | and this meets that criterion. | | Sure, there's fraudlent accounting, and wash trading, and | other bullshit, but that's all just the some and mirrors that | allows the ponzi scheme to work. | basch wrote: | thats not what a ponzi scheme is. | | a ponzi scheme reports a profit, and pays out that profit | to early investors. (the payout is actually later investors | inflow.) | | the only one of the ones you mentioned that is actually a | ponzi scheme is the "delivering a yield." its the yield | delivery, aka dividend, that makes it a ponzi scheme, not | just fraudulently running away with the money. the scheme | works because people get paid out regularly, and have no | reason to believe their money isnt working for them. | Silverback_VII wrote: | You are wrong. In a ponzi people are often encouraged to | reinvest their gains. You only take the money of new | investors to pay out early investors if really necessary | (that is to maintain the illusion that the money is still | there) otherwise you use the money for something else or | yourself. | | exactly how crypto works. | felipellrocha wrote: | Just because that is a common feature of ponzi schemes, | that alone doesn't make it a ponzi scheme. A ponzi scheme | takes some sort of initial investment from new investors | and gives that back to old investors in form of "return". | Meaning, the system itself doesn't rely on any sort of | growth in order to return, only the sign up of new people | into the scheme, which is why they can seemingly deliver | such reliable returns to early investors. Eventually you | run out of new people to sign up, and the entire house of | cards falls apart very quickly. | [deleted] | rossdavidh wrote: | Paul Graham wrote an essay years ago in which he described the | moment when he realized that most of the dot-com companies in | the late 90's were selling their ads mostly to other dot-com | companies, who were buying their ads in turn. It looked like | growing revenue for everyone, but once it came time to show a | profit, all of it came crashing down... | mcintyre1994 wrote: | Ad-supported mobile games seem to work like this too, all | their ads are for other free ad-supported mobile games. Also | I downloaded a QR code scanning app and every time I tried to | scan a QR code it showed me an ad for another QR code | scanning app lol. | physicsguy wrote: | I do think of this a bit when I see startups being the main | customers of other startup's products. For e.g. I've never in | my career at big orgs and small orgs alike had authority to | just go and purchase $50/dev/month on productivity tooling | for my teams, so I've never quite worked out who is paying | for these | pewter_wiz wrote: | [deleted] | hintymad wrote: | But aren't startups doing the same thing as PG said nowadays? | That is, portfolio companies use each other's products to | boost their revenue and user base. | jonny_eh wrote: | SpaceX just bought a bunch of ads on Twitter. | | https://www.cnbc.com/2022/11/14/spacex-just-bought-a-big- | ad-... | rsynnott wrote: | In a way, that that is _notable_ today is evidence that | the dot-com advertising problem _isn't_ notable today. In | 1999 that would be just What You Did, and not really | worthy of comment. | belval wrote: | > According to internal documents viewed by CNBC, SpaceX | has spent more than $160,000 on the Twitter ad campaign | for Starlink in Australia and Spain so far. | | Your definition for "a bunch" is a bit questionable, but | good on you for posting the source. | freejazz wrote: | All this without your own definition of a "bunch"! | belval wrote: | You got me. I wonder if we did a poll, how much money is | "a bunch of money" and how much money is "a bunch of | money on ads" for people. | | I think if it had been $500k or $1M I would've called it | a bunch, but $160k seems low. | khuey wrote: | I'm no fan of Elon's recent antics but a $160k | advertising spend doesn't strike me as a "bunch" for a | major corporation. | timkam wrote: | Still, in B2B you typically want to show you have some | megacorp logos (in particular due to larger deal size and | up-sell potential), are attractive to different industries, | et cetera. So this may be a known issue, but it's also | considered when assessing startups. | tomhoward wrote: | It's a very different scenario. | | Just selling to other early-stage startups doesn't generate | much growth/revenue or make you look like a solid business | to a sophisticated investor. SaaS/B2B companies that make | it big do so because they get huge numbers of small-medium | businesses using their platform, not just startups - I.e, | Slack, Stripe, Square, Shopify, Canva, Zendesk, Zapier, | Segment. | | Having other startups using your product is a good early | source of product feedback and a strong signal to very | early-stage investors, but that alone doesn't give you the | huge growth you need for bigger funding rounds. | | It's very different to the scenario PG was describing in | the late 90s; in those days, a startup would be founded, | quickly IPO to raise several $million from unsophisticated | retail investors, then spend much of it on advertising on | Yahoo to drive traffic and artificially push the share | price up. Hence when the music stopped in 2000 all that ad | spend dried up and Yahoo's share price crashed. | | All those companies I mentioned above are going fine; | slowed growth, sure, but they have real businesses with | broad customer bases well beyond the startup ecosystem, so | they're all able to continue operating and doing OK. | rglover wrote: | Yes. Nothing has changed. It's not quite the blind leading | the blind but some variety of that idea. | | A uses B uses C | | C uses A but not B | | B uses C | | "Ooooo, A uses B I should use them for C!" | hef19898 wrote: | The lesson drawn, and a good one as an investor, was the YC | advice that start-ups should build stuff for other start-ups. | loeg wrote: | Sell shovels in a gold rush? | jgalt212 wrote: | It worked like a charm for AWS. | justinator wrote: | In what world is AWS a startup? | lazide wrote: | When AWS was starting? | Nowado wrote: | You mean when they separated internal infrastructure of | the largest ecommerce in the world to the point when it | was possible to sell it in commodified pieces to other | businesses? | vasco wrote: | That is not what happened and is a fake myth origin | story. AWS was started from scratch with a small team in | south africa. The best description of all the myths and | the real thing I've heard is here: | https://www.acquired.fm/episodes/amazon-web-services | | It sounds good to perpetuate the "but Amazon.com had | extra capacity they could sell" but it's not true. | remram wrote: | Unfortunately if the only source is this 3 hour podcast, | you are going to have trouble convincing anyone. | Nowado wrote: | There are sources, I didn't go through them yet, but they | are there. It's pages of unorganized links, but it's | something. | smachiz wrote: | I mean... a little disingenuous. AMZN was a $10-20B | publicly traded company at that time. When is it a | startup vs a product offering of an established company? | drsnow wrote: | I think it's a bit unfair to characterize every company | that is "starting" as a "startup", particularly when the | "startup" in question is/was backed by one of the largest | companies on the planet. I don't think people think of | such companies' endeavors as startups, even when they are | starting. | sillysaurusx wrote: | There is an exact answer to your question, and it has | nothing to do with the size of the company: a startup is | a company designed to grow fast. Everything we associate | with the success of a startup is a byproduct of growth. | | With that definition, AWS is a startup. So was the | iPhone. Both invented their respective markets, and had | to grow quickly to do it. If either of them had needed to | raise money from VCs, smart VCs would've invested. But | they didn't need to raise capital, since they were | already a successful company. | at-fates-hands wrote: | >> So many ponzi schemes on top of ponzi schemes... | | Isn't this what happened with Quadriga exchange? | | _The regulator said Thursday that Vancouver-based Quadriga 's | late founder Gerald Cotten committed fraud by opening accounts | under aliases and crediting himself with fictitious currency | and crypto asset balances, which he traded with unsuspecting | clients._ | | _On Thursday, the OSC attributed about $115 million of the | $169 million clients lost to Cotten 's "fraudulent" trading._ | | _Another $28 million was lost when Cotten used client assets | on three external crypto asset trading platforms without | authorization or disclosure._ | | _The OSC said he also misappropriated millions in client | assets to fund his "lavish" lifestyle and because he was in | sole control of the company ever since 2016, he "ran the | business as he saw fit, with no proper system of internal | oversight or controls or proper books and records."_ | | https://www.cbc.ca/news/business/osc-quadriga-gerald-cotten-... | gruez wrote: | That's just regular theft/embezzlement, not a ponzi. | ignoramous wrote: | See also: _Basecamp valuation tops $100,000,000,000 after bold | VC investment_ (2015), https://archive.is/A0Wb1 | drexlspivey wrote: | That's a common problem when dealing with illiquid assets and | not a characteristic of just crypto. For example a VC firm buys | 10% shares of a company valued $1B at their latest round. Then | the market tanks but no one really knows what these shares are | worth because they are not trading anywhere so you don't have a | price to mark them. As a result you mark them in your books | with the latest round price at $100m even though they might be | worth much much less. | codyb wrote: | Although, according to Matt Levine who writes Money Matters, | that can sometimes be a feature instead of a bug whereby | private firms are better able to ride bad market conditions | than public firms are. | | In some cases you could see it being positive not having your | stock price drop everytime the Fed announces a new rate | increase or jump everytime they don't (or etc etc with other | events) if your primary goal is to continue at a steady pace | to achieve some goal. | am3101 wrote: | Small note: it's Cliff Asness from AQR who came up with the | illiquidity "premium," though Levine does report it a lot. | This matters a bit bc AQR is a large hedge fund that trades | in liquids and therefore is marked frequently... there's a | bit of self-serving bias here (although may still be true). | jimbokun wrote: | Classic illiquid asset problem. | | Don't know the "real" price because it's infrequently (or | never) traded. | cbtacy wrote: | But are we really talking about "assets" here? | lazide wrote: | Good luck finding a solid definition of that term that | excludes them without excluding a whole class of other, | more traditionally recognized stuff. | | Tokens, etc. are easiest to think of as securities (aka | stock) generally, albeit securities in a more abstract | thing than a company. | IfOnlyYouKnew wrote: | No. You can't just make up the book value of your assets. You | need some sort of justification, and these are, for public | companies, strictly regulated. | Chyzwar wrote: | Company have valuation would be based on recorded revenue, | profit or at least growth rate. When buying a stake in a | company, there is a whole legal framework and due diligence. | Crypto token just have the bunch of wash trades to support | theirs valuation and no transparency. | mediaman wrote: | This is different. In the case of the VC who bought shares in | the startup, they at least have the price they paid for the | shares. | | In the case of crypto companies who create their own tokens | and then use them as collateral, they never actually paid | anything for the tokens they own. There's not even a cost | basis. It's entirely made up. | | Not only is what the crypto companies doing much worse, but | it is rare for VCs to leverage their investments in | companies. It's not like their fund is levering up 2:1 and | buying companies, like a PE fund does, because in the case of | VCs their investments are usually not producing cash flow. | But in the case of some of these crypto companies, they were | levering up using collateral of tokens they made up that they | never paid anything for. | | It's much, much worse than anything recently seen in finance. | CDOs were bad in 2008, but at least the mortgages were a | secured claim on a physical asset that someone actually paid | something for. | jmull wrote: | > ...and not a characteristic of just crypto | | That's a rather fine and unimportant distinction. | | It _is_ characteristic of crypto, just not _only_ crypto. | | And, in the case of crypto, the asset never represents | anything but itself. | worik wrote: | Oh yes. | | > in the case of crypto, the asset never represents | anything but itself. | | This is the foul taste of all crypto "assets". They are not | assets because they have no intrinsic value for anything. | | The nearest real economy analogy is the art market, which | is hopelessly inflated, utterly riddled with fraud, and | with very little intrinsic value. | | But you can hang a painting on a wall and look at it. Even | if it is a fake it still looks good on the wall. | | Crypto has none of that. All it has is the scam, the fake, | the hope of a bigger fool. | | Shame on us for letting this happen. It gives a bad name to | geeks in general and cryptography specifically. | aqme28 wrote: | You don't even need a buddy for that. Just make another | anonymous address to buy your token from yourself. Or a dozen, | it doesn't matter. | chewz wrote: | > I tried, in the previous section, to capture the horrors of | FTX's balance sheet as it spiraled into bankruptcy. But, as I | said, there is something important missing in that account. | What's missing is the money. What's missing is that FTX had at | some point something like $16 billion of customer money, but most | of its assets turned out to be tokens that it made up. It did not | pay $16 billion for those tokens, or even $1 billion, probably. 7 | Money came in, but then when customers came to FTX and pried open | the doors of the safe, all they found were cobwebs and Serum. | Where did the money go? | queuebert wrote: | Levered losses? | HDThoreaun wrote: | It went into that @fiat account which was probably Alameda | mzs wrote: | I would assume most of it was stolen. | nafix wrote: | I feel like all the news stories are ignoring some very blatant | questions like this. Maybe they are just waiting for more | details to come out? | civilized wrote: | I don't know much about Austrian economics, but the wiki article | about its "malinvestment" concept [1] sounds like it's talking | about us: | | > In Austrian business cycle theory, malinvestments are badly | allocated business investments due to artificially low cost of | credit and an unsustainable increase in money supply. Central | banks are often blamed for causing malinvestments, such as the | dot-com bubble and the United States housing bubble. Austrian | economists such as the Swedish central bank's Nobel Memorial | Prize in Economic Sciences laureate F. A. Hayek advocate the idea | that malinvestment occurs due to the combination of fractional | reserve banking and artificially low interest rates misleading | relative price signals which eventually necessitate a corrective | contraction - a boom followed by a bust. | | [1] https://en.wikipedia.org/wiki/Malinvestment | tibbydudeza wrote: | So Sam Bankman-Fried is the new Adam Neuman. Seems he decamped to | the Bahamas - is there an extradition treaty with the US ???. | jerrycruncher wrote: | SBF is more like the reverse Neumann. | | Neumann went into WeWork's endgame looking like a fool, and | emerged from it a rich wizard. | nullc wrote: | > $16 billion of dollar liabilities and assets consisting mostly | of some magic beans that you invented yourself and acquired for | zero dollars? WHAT? Never mind the valuation of the beans; where | did the money go? | | Exactly. This is the first time I've seen the media asking the | right questions. | | The answer probably is in part that most of it never existed to | begin with-- those 'customer' liabilities probably include the | probably fictional billions in arb gains SBF claimed to have and | some amount of magic beans deposited by related entities. | | E.g. Deposit $1 billion magic beancoins you essentially made up | (or a friend made up), then trade them for "Bitcoin perpetuals" | (levered paper bitcoins) with FTX itself acting as the | counterparty. Now the 'customer' is owed $1bn in bitcoin on FTX's | books and ftx is long a billion in magic beans. | | Then get your friends in the media to write glowing stories about | FTX's meteoric rise and some suckers come in, deposit real | bitcoin, invest money from real pension funds, etc. and the | 'customer' can then withdraw some of their paper bitcoins. ... at | least until the exchange runs out of anything except magic beans | and someone forgets to set the switch to 'more magic'. | | > FTX worked fine: People liked its technology, and it seems to | have made money. | | Well, the people who deposited there liked the 8% APY they gave | people simply for depositing funds. Prudent people saw that | obvious ponzi scheme marker and stayed the hell away! | dibt wrote: | > where did the money go? | | Isn't it obvious? It was paid to customers and others that took | the money or equivalent dollar amount in assets off the | exchange. Either to a bank, another exchange, on-chain self- | custody, political donations, salaries, stadium naming rights, | Sam's "make it all back" scheme, etc. | | Matt is smart, so maybe he knows, and the question is | rhetorical. | nullc wrote: | It's not rhetorical: The known donations, naming rights, etc. | don't remotely add up to the amount of liabilities. | | If their balance sheet was full of some external asset that | had lost a ton of value you could say, okay customer | deposited Bitcoin and FTX used it to buy whatevercoin and | whatever coin lost 96% of its value. The money went to the | people selling whatevercoin. | | But in this case it's a mystery-- their balance sheet is full | of magic beans but most of them are magic beans ftx and crew | appear to have printed from nothing, not magic beans they | would have had to buy on the market. | | So customers deposited real money, a bit was spent on | donations/etc. And FTX created some magic beans-- so where | did the money go? | | And my conjecture was just that a big chunk of the | liabilities are also fake too-- the result of magic beans | being deposited by 'customers' (really FTX insiders) and | traded for paper bitcoin ('perpetuals'). | drexlspivey wrote: | I think it's fairly clear what happened: | | Customers deposited $8B you mark $8B of cash as assets and | $8B of customer claims as liabilities. | | You send that cash to Alameda *off the books* because | otherwise you will raise some alarms in internal | procedures. Now your assets and liabilities don't match | anymore. | | You want to do some accounting because you are about to go | bankrupt, you now end up with a $8B hole that you mark as | "Hidden poorly internally labeled account" | esoterica wrote: | I think you're confused about what a liability is. If the | liabilities were fake FTX would not be insolvent. Their problem | is that their liabilities are real but their assets are fake. | nullc wrote: | You might want to consider adopting a less condescending | communication style in accordance with HN policy-- it would | make it easier for both of us to learn something. | | I think I adequately described a credible sequence of | operations, but your dismissive reply has made it impossible | for me to tell which parts weren't communicated effectively. | | The central unanswered question is "where did the real money | go?": Those ftx related magic beans were constructed for | ~free. The balance sheet makes it look like billions of | Bitcoin are owed, so where did they go? | | The idea that FTX didn't _pay_ for the magic beans is just an | assumption, but it 's not necessary. They could have paid a | related entity for them using the paper bitcoin traded on the | site. | | I'm suggesting that related entities such as Alameda research | and SBF personally deposited magic means and traded them for | Bitcoin "perpetuals", with FTX awarding them paper Bitcoins. | This creates a bitcoin liability on FTX's balance sheets even | though no billions of dollars ever existed. | | Some amount of actual valuable assets were deposited, then | withdrawn by people who traded magic beans for FTX bitcoin | liability (and/or were awarded bitcoin through FTX's 8%/yr | yield program on customer deposits) -- leaving FTX with a | balance sheet full of huge Bitcoin liabilities. | | In that scenario one could go back through the transaction | records and unwind some of these magic bean trades and make | FTX _less_ insolvent, but they 'd still be insolvent because | of the real assets that were withdrawn by parties that only | brought magic beans into the picture, as well as FTX's | spending, donations, bills for their designer amphetamines | and cleanup services for their orgies, and other "business | expenses" typical of their industry. | jmyeet wrote: | Forgive the repetition (I've mentioned this on other threads | about FTX and their balance sheets) but this doesn't seem to be | widely reported or known for some reason: | | 1. FTX had no CFO [1]; and | | 2. Their accounting firm is on the Metaverse [2]. | | (1) is particularly shocking because its normally the CFO's | experience and reputation that gives investors and customers | confidence in published numbers (yes, there's that awkward trust | element against that seems to be an anathema to Crypto Andys). | Even if it's not a regulatory requirement, I"m honestly shocked | that the investors (Sequoia, etc) didn't insist on an adult in | the room so they could trust the financials. | | Horrible for the customers. No sympathy for the investors. A | giant fail by the financial press for not highlighting this issue | earlier as it's a definite red flag. | | [1]: https://www.ledgerinsights.com/ftx-warning-signs-no-cfo/ | | [2]: https://www.coindesk.com/business/2022/11/11/meet-the- | metave... | nemo44x wrote: | It's even funnier and crazier than "Silicon Valley". I mean, | c'mon - the auditor was the first Metaverse financial auditing | company?! It's just so amazing and hilarious. | xg15 wrote: | - invent a currency. | | - mint one token and sell it to your friend for $1. | | - make a tweet saying that supply of your currency will be capped | at 1 billion tokens. | | - you now own $999.999.999 in assets! | | Analysts hate this one weird trick! | c7b wrote: | > It's an Excel file full of the howling of ghosts and the | shrieking of tortured souls. | | I wish I had Matt Levine's eloquence to put this madness into | words. Great analysis and I just want to add a small thing: while | a balance sheet _looks_ like a simple listing of assets and | liabilities, that 's not how you go about constructing one. Your | financial statements are the result of a sequence of double-entry | bookeeping statements, and the balance sheet is one particular | _view_ on the data processed by this formalism. There is no way | assets couldn 't add up to liability plus equity, no matter the | market fluctuations, valuation uncertainty,... (your numbers | might be out of date/incorrect, but they would still be | internally consistent). The resulting checksum mechanism is an | interesting aspect why double-entry bookeeping was such a useful | tool for merchants on busy, dirty, buzzing medieval markets. | | FTX, on the other hand, looks more like a mechanism for | funnelling cash to who knows where - that's the big question that | Matt correctly points out: where did all the money go? There's no | way you can spend $16bn on meth and yachts and mansions in the | Bahamas in the space of a few years. | thinkharderdev wrote: | From the article my bet would be that they basically vaporized | all the money bailing out bad trades at Alameda. | c7b wrote: | Maybe, but it might be worth following the money a bit | further (especially on the later transactions). Was the money | at Alameda really just lost on bad trades, or which accounts | did it end up in eventually? | | I read somewhere else that the portfolio of Alameda contained | over 400 companies that looked like little more than a | Twitter profile with a handful of followers. It's not hard to | imagine that the people behind those 'firms' were the same or | related to those who are now saying 'whoopsies, they looked | like such good trades back then, my bad'. | jb12 wrote: | Matt Levine consistently puts out such good content. His | newsletter is absolutely worth subscribing to. | PaulHoule wrote: | He wrote a whole issue of _Bloomberg Businessweek_ boosting | crypto recently that was not up to his usual standard and was | worse than the usual _Businessweek_ standards of layout and | typography. | | It seemed something a year out of sync, aimed to get 'greater | fools' to take a second look at crypto, completely divorced | from the headlines a week ago and a week hence. | legitster wrote: | ??? | | The Bloomberg crypto issue was great! What were your specific | problems with it? | | I read it cover to cover and didn't get a single sense of it | "boosting" crypto. If anything, it was really in depth and | skeptical. | PaulHoule wrote: | It's not news. Anybody who doesn't know how Bitcoin works | in 2022 is never going to understand how Bitcoin works and | they need clear messaging such as "No" or "Nothing more to | see here, move on folks." My guess is that the real | audience is blockchain enthusiasts who crave validation and | will squee on it so much that they'll buy 50 reprints. | | Why doesn't Bloomberg take an issue and reprint the first | few chapters of _Extraordinary Popular Delusions_ and add a | paragraph about each of the 20 times that people said | "it's different this time" and it wasn't? That wouldn't be | news but it would be timeless wisdom that would serve | readers well. | legitster wrote: | Ummmm. I think for the typical readership of Bloomberg - | guys in their 50s looking for cool places to park some | extra cash - a five page explainer on how smart contracts | work with some editorializing about how they will | probably never work as promised is kind of the perfect | inoculation against hype. | | If people are curious about crypto, and their only | sources of information are polemic, that seems much, much | worse for everyone. | nocoiner wrote: | If you felt that way about that issue, never ever look up the | other single-topic issue they put out a decade or so ago | about code and programming. The design of that one would | probably make your head explode. | danielodievich wrote: | I just finished reading this article and I absolutely loved | it. The layout with meme pictures was an excellent use of | that format, especially in context of all this crypto non- | ponzi-sense. Another friend of mine who doesn't know Matt was | very complimentary of it (in fact he gave me the paper | article). My wife is reading it now and enjoying it too! | | There is no accounting for taste. | PaulHoule wrote: | Memes are where neurotypicals and autists can both pretend | that they are communicating when actually they aren't. | thinkharderdev wrote: | I read that article and I wouldn't characterize it as | "boosting" crypto at all. | legitster wrote: | Never paywalled! | lokar wrote: | The email subscription is free | SnooSux wrote: | Link: https://www.bloomberg.com/account/newsletters/money-stuff | ProAm wrote: | Never subscribe to his newsletter, it's impossible to | unsubscribe when you want to. Literally have to filter it in my | mail to go to the trash as for the Bloomberg website won't let | me unsubscribe. | HDThoreaun wrote: | jpm_sd wrote: | "Its balance sheet consisted mostly of stuff it made up! Stuff it | made up! You can't do that! That's not how balance sheets work! | That's not how anything works!" | | I'm picturing Matt Levine being carted away by nice men in white | coats after finishing this paragraph | bena wrote: | Now, I'm not a money scientist or anything, but I really feel | as if Sam Bankman-Fried could have picked up a book or two on | accounting or how to manage a balance sheet before proclaiming | himself a money genius. | cma wrote: | He says in the Sequoia hagiography he never would read a | book. | bena wrote: | Yes. Yes. That's the joke here. That the guy who decried | traditional forms of communicating information and styled | himself as some sort of nu-genius philanthropist was | hoisted by his own petard. That if he had even a fraction | of the intelligence he thought he had he would have | realized that he didn't have nearly the knowledge needed to | do what he claimed he would do. | | His books are a mess because he had no idea of how to | organize them. | lazide wrote: | Why do you think he would _want to_? | | If he didn't want to be doing criminal things, he has plenty | of means and opportunity to do them non-criminally. | bewaretheirs wrote: | Unfortunately nobody has distilled accounting into a series | of six-paragraph blog posts. | | (see https://lithub.com/crypto-nerd-sam-bankman-fried-who- | just-lo...) | | "I'm very skeptical of books. I don't want to say no book is | ever worth reading, but I actually do believe something | pretty close to that," explains SBF. "I think, if you wrote a | book, you fucked up, and it should have been a six-paragraph | blog post." | baxtr wrote: | I think that's a bullshit quote. He actually said it but I | think he understood how to stir the pot: but being | eccentric and controversial. | whimsicalism wrote: | Guess he is saying his parents (both authors) fucked up in | more than the obvious way. | Scoundreller wrote: | As someone that has probably read less than 10 fictional | books in their life, I can see where he's coming from. | | Like, I'm literate and basically read stuff all day. And I | can get through a textbook as a part of a course, but force | me to read a novel and by page 7 I'm falling asleep and | losing track of the characters. | | I'm on the fence about borrowing/buying a book that was | based on a podcast series because I fear 90% of what it | covered was in the podcast. | swarnie wrote: | Why waste the time? | | The scam clearly worked without all the effort. | bmitc wrote: | I made a comment elsewhere about the balance sheet. When I | looked at it, it indeed looked like something Sam Bankman-Fried | just typed into Excel on the weekend of their emergency | meeting. | | How in the world is a balance sheet not a report that is | generated by a system, viewable by any executive? Did they not | have a CFO or any finance people or accountants? | robryan wrote: | I was thinking about this. A chartiable explaination would be | that individual companies in the group have proper balance | sheets but there was no nice collation of just the material | assets of the whole group. | lazide wrote: | For many businesses, such a thing isn't really possible | anyway (without manually maintaining a bunch of excel | sheets for instance). A _lot_ of large important things are | done by a couple of folks poking and prodding and | spreadsheets, then making decisions. | insaneirish wrote: | > How in the world is a balance sheet not a report that is | generated by a system, viewable by any executive? Did they | not have a CFO or any finance people or accountants? | | Depending on your line of business, this is actually not a | simple thing when you're trying to mark assets to market in a | meaningful way. When everything you own is liquid, it's one | thing. When things are less liquid, it's another. This is | true even of completely legitimate businesses. | bmitc wrote: | But isn't that basically the line of business of an | exchange and a trading firm, supposedly one specializing in | arbitrage? And despite its difficulty, which I can | understand, it still seems like something that should be a | bit more automated than the CEO typing them into a | spreadsheet a week before the company collapses and warning | readers of the "obvious" chance of typos. | lazide wrote: | To be fair, it's quite common for them to be generated by | someone in finance and then distributed. | | Of course, it also happens sometimes that they are cooked in | some specific way, and that is used to hide that fact. | ericd wrote: | You might be surprised at the percentage of the business | world that is run on spreadsheets. | bmitc wrote: | I'm not surprised by spreadsheets at all. They're extremely | powerful, and I know they're used heavily. But this was | clearly a document just basically made up by the CEO on the | spot. | EMM_386 wrote: | > Did they not have a CFO or any finance people or | accountants? | | Perhaps not? | | "If you take a look at the about FTX page, it shows six | senior team members: the CEO, the COO, two leaders on tech | and two on compliance and legal. Something is missing. For a | company managing billions of client funds, $16 billion | according to the Wall Street Journal (WSJ), is it not odd | that there is no Chief Financial Officer (CFO)?" | | https://www.ledgerinsights.com/ftx-warning-signs-no-cfo/ | baxtr wrote: | Anything but I fear. For Levine these kind of stories are pure | fun to dissect. | | I can wholeheartedly recommend his Newsletter. Not the first | one being so funny. | spaceman_2020 wrote: | What boggles my mind is how they lost it all. They should have | been sitting on 1000x gains. Their Solana stake alone would have | been worth billions. | dordoka wrote: | Yeah, exactly. I reckon they didn't lose it. That money was | sent somewhere else and they "covered" it up with their own | issued/invented tokens at ridiculous real cost. It would seem | plausible to think that they used Alameda as a proxy for the | real destination of all that money. | drcode wrote: | The recent crypto downturn has been unrelenting and deep: | It's totally plausible they just thought they were the kind | of geniuses who could spot the bottom of the market and | quickly bled through all the money | | but yeah, it's also possible the money just ended up at a | third unknown entity | dordoka wrote: | I agree, i wouldn't be surprised either if they were just | morons believing they were geniuses | jsemrau wrote: | Trading is easy if everything goes up. The moment in time | you are stomaching 90%+ losses your operating capital | quickly disappears. | acchow wrote: | This is satire, right? | brookst wrote: | Is it wrong that I want the crypto and NFT and GME and other | insane bullshit to continue just so we are blessed with more of | Matt Levine!s writing? Damn that guy is talented. | | So HN please go invent more multi-billion-dollar insanity that is | too crazy to even be called a scam, because the world needs more | of this great writing. | mongol wrote: | So what will happen? Will we see criminal charges and prison | times? | skizm wrote: | > FTX shot its customer money into some still-unexplained reaches | of the astral plane and was like "well we do have $5 billion of | this Serum token we made up, that's something?" No it isn't! | | The upcoming series of FTX articles will be better than the Elon | saga I think. | hn_throwaway_99 wrote: | Recommendation: If you've been following or interested in the FTX | scandal at all, read this whole brilliant post beginning to end. | Not only is the writing in Matt Levine's hilarious style (I | second all the other comments related to this!) it is also | incredibly informative as to the mechanics of all the WTFs that | actually went down. For example, I've been following this fairly | closely but I didn't really have a good understanding of how | Serum/SRM played a role, and Levine outlines this clearly. | | Really great piece, thanks for posting. | silexia wrote: | I would say Levine's proposed scenarios for how the money was | stolen are generous... he comes up with all sorts of scenarios | that make SBF and friends not sound like what they actually are | - fraudsters. | hn_throwaway_99 wrote: | Really?? That's not the impression I got at all. Statements | like "The result of adding or subtracting those numbers with | ordinary numbers is not a number; it is prison" doesn't | exactly sound like he's being generous to SBF. | rowls66 wrote: | Most financial companies have large balance sheets, a small | amount of equity that is highly leveraged, and asset values based | on many assumptions. If the assumptions change, a business can go | from everything is great to insolvent really fast. That is why | such businesses are highly regulated. With crypto we see why this | regulation is so important. | rossdavidh wrote: | That youngsters in a new, unregulated and often scammy industry | could do this, is not at all surprising. That lots of old people | with billions of dollars gave them money to lose, is what needs | explaining here. | fullshark wrote: | Explanation: Greed, FOMO, and a lack of better opportunities. | From that Sequoia profile I guess they were also just so | enchanted by some global arbitrage trade SBF did, exploiting | arbitrage being every banker's fantasy scenario. | ricardou wrote: | Time and time again it seems like the people involved in the | crypto industry are speedrunning through dynamics that are now | either clearly understood as a failing strategy, or outright | illegal. Another such example here. | nostromo wrote: | Does Sequoia do literally no due diligence on the companies they | invest in? | | This wasn't seed capital, this was $213mm. And it wasn't just a | bet that didn't turn out, it was fraudulent at its core. | enraged_camel wrote: | The piece Sequoia had on their website about SBF, which they | have since removed, described a meeting they had with SBF, and | at the end of the meeting they walked over to him and found him | playing League of Legends on his laptop. For some reason, this | made them think even more highly of him. | sandgiant wrote: | > What Sequoia was reacting to was the scale of SBF's vision. | It wasn't a story about how we might use fintech in the | future, or crypto, or a new kind of bank. It was a vision | about the future of money itself--with a total addressable | market of every person on the entire planet. | | > "I sit ten feet from him, and I walked over, thinking, Oh, | shit, that was really good," remembers Arora. "And it turns | out that that fucker was playing League of Legends through | the entire meeting." | | > "We were incredibly impressed," Bailhe says. "It was one of | those your-hair-is-blown-back type of meetings." | | https://web.archive.org/web/20221027180943/https://www.sequo. | .. | Tossrock wrote: | Playing League of Legends... in Bronze league: | https://archive.ph/gW721 | themanmaran wrote: | Echoing this question. I worked in smallcap investment banking | for several years. My bank wouldn't speak to you if you didn't | have 2-3 years of _Audited_ financials (note: not 'Reviewed' | or a 'Compilation'). Often we would request an additional audit | if we didn't recognize the firm that did the prior auditing. | | All for a valuation range of $200MM - $500MM. | | Meanwhile a hastily compiled excel sheet seems to satisfy the | largest VC's in the market? Billion dollar valuations based on | totally unsubstantiated numbers? | | Audit's are expensive (like $30-$80k). But surely better than | losing $200MM on hot air. | erostrate wrote: | It's worse than that. That spreadsheet was created _after_ | FTX became insolvent. When Sequoia invested, they probably | didn 't even have something as good as that terrible | spreadsheet. | | Or more charitably, Sequoia presented with something more | professional looking, but completely incorrect. | BrentOzar wrote: | > The result of adding or subtracting those numbers with ordinary | numbers is not a number; it is prison. | | Haven't laughed that hard in a while. | mike10921 wrote: | I missed that line while skimming the article, but that is | exactly what was going through my mind. It is mind-boggling how | this can exist on such a grand scale without any scrutiny. | Animats wrote: | The big question: Where did the somewhere between US$4 billion | and $16 billion that went to Alameda Research go? It seems that | FTX transferred most of their assets to Alameda Research, which | either lost, stole, or hid them. Has Caroline Ellison, the CEO, | been questioned yet? | moralestapia wrote: | My bet would be that they stole them. | | Before someone tries to Hanlon's razor this, these guys were | not stupid, they can pretend to be but they come from very | competitive backgrounds, they knew what was going on. | | They're going to jail. | TheOtherHobbes wrote: | I wonder how Alameda's VC investors and backers are doing? | klenwell wrote: | Did anyone else see the FTX fortune cookies? | | https://mobile.twitter.com/klenwell/status/15921781646752522... | wgd wrote: | I remember getting those once a couple of months ago. It was | so indescribably disappointing. I had never heard of FTX | before that because I don't care about crypto-BS, but I feel | like everything happening to FTX lately is a suitable | punishment for inflicting those on the world and so I'm just | sitting here with the metaphorical popcorn. | wl wrote: | Sadly, OpenFortune still exists and will happily insert | some other company's ad into your fortune cookie. | mzs wrote: | I really disliked those. I had this fun routine where I would | let my dogs pick a fortune cookie and then read the fortune | to him or her before giving the cookie to the dog as a treat. | One time Sky got, "you will live a long life and eat many | cookies." I about cried. | | These, blegh took all the fun out of it and I just stopped | getting Chinese take-out. | lukemercado wrote: | This whole article is a beauty. | | > FTX worked fine: People liked its technology, and it seems to | have made money. The problem was in its balance sheet, which | was full of snakes, and its governance, which put all the | snakes there. | | Fucking lol. | dweekly wrote: | Matt Levine is a national treasure. | guelo wrote: | The journalism I'm impressed by is coindesk's. They broke | this story and have been all over it. | JTon wrote: | I happened to catch the Odd Lots podcast episode where Matt | Levine and SBF of FTX were co-guests soon after it first came | out [1]. Matt's reactions were priceless. Well worth the | listen now, considering FTX blowup | | [1] https://www.youtube.com/watch?v=KZYqL79GDXU | bombcar wrote: | Levine has said that he was a _fan_ of SBF based on that | podcast, btw. Someone posted about it earlier today. | | https://news.ycombinator.com/item?id=33594284 | | I think people would do well to remember that Levine's job | is _NOT_ to do your due diligence for you; he 's an | entertainer. | dwohnitmok wrote: | The point about being an entertainer is a good one. | Nonetheless, after reading that I came out with more | respect for Levine. With FTX in shambles, it would've | been easy to go with the flow and lean into how he | predicted the whole thing with his Ponzi question, but | Levine instead honestly comes out and says that he | actually liked SBF more after that interview. | robocat wrote: | > he's an entertainer | | That is a gross cynical misrepresentation. | | He appears to me to be a financial geek, interested in | the mechanics of finance for its own sake, and who finds | comedy (often dark comedy) in the mechanics of our | financial systems. | | Philosophically, we can't be 100% sure of his motivations | to publish his insights, but everything of his that I | have read points to the reason primarily being that he | finds it fascinating, a nearly purposeless academic joy. | bombcar wrote: | There's nothing wrong with being an entertainer, it's | just something to keep in mind. | | In other words, don't make major financial decisions | based on Levine _not_ saying it is a good or bad idea. | HDThoreaun wrote: | I really don't think anyone was confused about yield | farming being a Ponzi. Everyone who was in it just thought | they'd get out before it blew up. Not really related to FTX | blowing up. | noelsusman wrote: | This distinction keeps getting lost in all this. | Exchanges like Celsius and Voyager were pretty explicit | about the fact that they were taking your crypto and | lending it out to people to generate yield. Anyone with a | brain should have realized that involved some risk of | losing your assets, especially when you compare their | rates to what was available elsewhere at the time. Those | exchanges blowing up because of bad loans was entirely | foreseeable and not surprising. | | But that's not why FTX blew up. They went down seemingly | due to straight up fraud and/or theft. FTX users had no | indication that FTX was doing anything other than holding | their assets and collecting transaction fees. They're | completely different situations. | rabf wrote: | Good to see a well researched accurate article on this | compared to some of the hit pieces floating around from other | "journalists". | whimsicalism wrote: | It'd have been more impressive if the article had preceded | the collapse. | | Easy to pile on after the fact. | renewiltord wrote: | I wonder if there was anyone who knew this and knew | enough to force knowledge on everyone. Binance's FTT-USDT | linear perp would have minted if you knew and could | advertise that to the world. And considering the amount | you could have minted, you could have backed account hard | with hella USDT. For that kind of information, no way | you're getting it for free. | | You're going to get that as late as possible after | someone has sold hella FTT-USDT perps and stood enough | USDT there to survive funding fee for a few weeks. | lxgr wrote: | How about (much) earlier this year? Matt Levine, in a | podcast with SBF: | | > Matt: (27:13) I think of myself as like a fairly | cynical person. And that was so much more cynical than | how I would've described farming. You're just like, well, | I'm in the Ponzi business and it's pretty good. | | https://www.bloomberg.com/news/articles/2022-04-25/sam- | bankm... | HDThoreaun wrote: | He also said he was even more bullish on FTX and SBF | after the podcast that quote came from | whimsicalism wrote: | Yes, I read the article where Matt Levine explicitly | mentions that he missed this. | jerf wrote: | There's that famous quote about the tide going out and | seeing who isn't actually wearing swim suits. I think a | similar thing applies to all the financial chicanery that | has been in play in this 0% interest rate environment. In | reality, while the financial system is irreducibly | complicated in some important ways, there's also an | important sense in which the entire thing is really built | on just some simple primitives. Basically, the financial | system can move risk spatially and temporally, and charge | a fee for the activity. That's really all it can do. I | think from the proper point of view it can't really even | do that primitive without at least some net increase in | risk, though I admit defending that mathematically would | be a challenge. (For now we could just start with the | proposition that if there was an easy way to simply | reduce overall risk, it would have already been taken, so | all in all there can't be very many such things just | lying around. And they've been building a _lot_ of things | on this primitive, so it 's not a hard guess that there's | a lot more use of the primitive than there could possibly | be opportunities for such uses to result in true net | reduction in risk, whatever exactly that may mean... I | know I'm handwaving here.) | | If you think about it mathematically, it's important to | understand that no amount of concatenation of the | primitive of "moving around risk" can do anything more | than that. And, _in particular_ , no amount of | concatenation of things that leave net risk either the | same or somewhat greater can ever end up _reducing_ the | amount of risk in the system. | | However, each such composed operation introduces a place | for someone to misprice the risk, especially as the risk | is communicated across lossy channels, let alone channels | with a certain amount of incentive to misrepresent the | risk to the buyers on the other end. So while no amount | of combination of those primitives can ever reduce risk | overall, it sure is full of opportunities to convince | people the risk has been reduced, and for them to take | various actions based on that. Combine that with one of | the most popular operations being to take a nice risk | gradient that gradually ramps up from "high probability | of small bad event" to "low probability of big bad event" | and shoving all the risk into "super low probability of | total utter unrecoverable catastrophe", and the whole | thing is just destined to explode hopelessly. | | And yet... perhaps some readers are saying _well, duh, | jerf, how else could it be_ , I would say to you I'm | firmly middle aged now, but those castles based on | financial engineering have been floating in the sky _my | entire adult life_ now, even counting the so-called | "crises" I've seen. And to the naked eye, those castles | have gotten bigger, higher, nicer, and more numerous the | entire time. It takes... something... some pretty big | cajones to stare up at those things that have been | floating in the sky for so long and saying "they can't | possibly do that forever". Especially when you may well | have bankrupted yourself seven times over trying to trade | on that presumption, even if it is in fact true in some | abstract sense. | | The financial system is rapidly simplifying. It's going | to be a painful process for quite a lot of people. A lot | of people who think they are on solid ground are going to | discover they've been herded onto the flying castles | without realizing it. It will, if nothing else, be very | educational I suppose. | chewz wrote: | Marc Cohodes had spoken to Bloomberg Crypto staff about | his suspicions of FTX - they were not interested in | following. It had been months ago. | NoboruWataya wrote: | These people are in the business of market commentary, | not market predictions. That said, Levine has been very | critical of crypto (and very entertaining about it) for a | long time now. | [deleted] | EMM_386 wrote: | I only wish he had gone into the "compliance officer was also | previously involved in massive online poker scams". | | Maybe the next one! | guynamedloren wrote: | Marc Cohodes has been sounding the alarm about FTX for a | while. Here's a snippet (from last month, before the FTX | crash) where he calls out the shady background of said | compliance officer: | | https://youtu.be/VbDiWXFxqr8?t=2348 | | The whole conversation is fascinating. | function_seven wrote: | > _If you try to calculate the equity of a balance sheet with | an entry for HIDDEN POORLY INTERNALLY LABELED ACCOUNT, | Microsoft Clippy will appear before you in the flesh, bloodshot | and staggering, with a knife in his little paper-clip hand, | saying "just what do you think you're doing Dave?" You cannot | apply ordinary arithmetic to numbers in a cell labeled "HIDDEN | POORLY INTERNALLY LABELED ACCOUNT." The result of adding or | subtracting those numbers with ordinary numbers is not a | number; it is prison._ | | I had this full quote on my clipboard. It's a masterpiece. 3 | Cuil (!?). | stephc_int13 wrote: | I wonder how the people at Sequoia feels now. I'd like to see the | comments of people who lost money in this fiasco here. | | The HN crowd is generally hostile to crypto scams, but there are | likely exceptions. | whimsicalism wrote: | I'm a crypto moderate, if such a thing exists. Given the | vitriol that I see here re:crypto (and the fact that pretty | much every thread on crypto has to get dang chiming in to | remind people to be civil & adhere to guidelines), there is | little chance that actual "crypto evangelists" are going to be | commenting here. | | Even a comment like this one will get aggressively downvoted in | the current climate. | jfghi wrote: | Given that it's a scam affecting many, vitriol is quite | appropriate. However, I've mostly seen objective reality | mislabeled as vitriol. | whimsicalism wrote: | I trust the moderators of this site to know vitriol when | they see it. | | Honestly, all you need to see is dang's comment history [0] | to see the proportionate amount of time they have to spend | moderating crypto comments. | | [0]: | https://news.ycombinator.com/posts?id=dang&next=33563869 | Semaphor wrote: | Mostly agreed, though there certainly are done evangelists, | just few and rarely high quality | wyldfire wrote: | I feel like I am slowly changing my mind about cryptocoins. | It always seemed so powerful. Bitcoin's exchange rate may | fluctuate but it has value and is nearly indestructible. You | could complain that it's overvalued but it's not at all a | ponzi scheme. Unfortunately, it seems like the only utility | that has arrived is for the black market. A bajillion new | coins have been created, some of which also have real value | and purport to improve on bitcoin. But here we are in 2022 | and while I can see some cryptocoin ATMs in supermarkets, I | doubt they're used for much beyond paying ransoms. | | Even if we move the most important/useful coins off of proof- | of-work +, I think governments around the world may move to | outlaw cryptocoins. At which point whatever modest legitimate | utility that existed will be eliminated and only the black | market will remain. | | + this seems difficult or impossible for bitcoin until/unless | it forks to something that looks completely unlike bitcoin. | whimsicalism wrote: | What is "black-market" is socially constructed and | dependent on where you are resided. | | Crypto has massive uses in evading capital controls in | countries that have traditionally had trouble managing | their own currencies, like the Turkish Lira or the Naira. | In these countries, it is often illegal to hold substantial | sums of dollars and not safe to hold these sums on your | person. | | These are "black market" uses from the perspective of the | Nigerian or Turkish government, but immensely valuable to | the user - and from my American perspective, probably a | positive use case. | burkaman wrote: | The people at Sequoia did not lose money. They are fine, and | their investors are probably fine. The people who lost money | were actual FTX users, who probably trusted FTX in part because | it was so well-marketed and endorsed by so many "trustworthy" | organizations like Sequoia. | drexlspivey wrote: | What? They bought shares in a company that went to zero, they | lost all the money. The only way their investment is worth | anything is if every single FTX customer gets their money | back because in a liquidation lenders get paid first before | equity investors. | burkaman wrote: | Yes, but the actual people involved, the employees of | Sequoia, did not lose anything. I guess the word "lose" is | ambiguous here, but I mean that they will not be personally | affected by this failure. | stephc_int13 wrote: | Well, they might consider renaming their fund going forward. | | https://www.newcomer.co/p/sequoias-bad-year-just-got-much- | wo... | stephc_int13 wrote: | I am not worried about the financials of Sequoia, but I think | this could be a big stain on their reputation. | | They've been spectacularly wrong and lazy on this one. | nullc wrote: | SBF was well liked by much of the Bitcoin haters because he | pushed many of the same sentiments. It not for the fact that | this implosion has also dragged the Bitcoin price somewhat too | you would be hearing much gloating. (well, you're probably | hearing gloating anyways because thats how social media works. | :) ). | def_true_false wrote: | It seems that being EA adjacent is not a good proxy for | competence nor trustworthiness. No one could have predicted | this. /s | | I wonder what portion of bag holders in this round were part | of the cohort that hasn't seen a crypto winter yet. | ilrwbwrkhv wrote: | As I said elsewhere. Sequoia needs to be thoroughly | investigated and charged for their crimes if found. | chasd00 wrote: | This has all the echos of Enron and Arthur Anderson. I know | Sequoia isn't an auditing firm but the warning flags and | misses on their part are so extraordinary it wouldn't | surprise me to find out there's people at Sequoia who were in | on it. | akelly wrote: | > Where did all the money go? | | One theory is that the crypto quant funds figured out how to | exploit the Alameda FTX market maker starting in 2020-2021 to | take tons of money from Alameda. But FTX couldn't just turn off | the Alameda market maker because most of the FTX trading volume, | and therefore FTX revenue, was these crypto quant funds taking | money from Alameda. So if they turned off the Alameda money | spigot then their revenue would drop off a cliff and they | wouldn't be able to raise more money from Sequoia or the UAE. And | the value of FTT was tied to the trading volume and was a huge | portion of their assets, so if volume fell they would be | insolvent. | | Basically they turned customer deposits into revenue at pennies | on the dollar. | smsm42 wrote: | That answers the question who got those 16 billions, at least. | felixbraun wrote: | And then Luna happened, sealing their fate | lend000 wrote: | This doesn't make much sense to me. I think the problem is that | arbitrage just dried up (as it does in a maturing market), and | SBF got high on his own farts and started making directional | bets. This is clear from the amount of FTT tokens that were | held by Alameda in comparison to the amount of assets a typical | market maker would hold relative to a pair's liquidity. | [deleted] | caiomassan wrote: | well, he is the 6th highest donor for the democratic party. | mikeyouse wrote: | Yep, SBF was 6th on the list of largest 2022 donors by | donating exclusively to Democrats. Guess who's 14th on that | same list donating exclusively to Republicans: | | https://www.opensecrets.org/outside-spending/top_donors | | That's right, Ryan Salame - CoCEO of FTX. Trying to make this | into a partisan thing is silly. | thinkharderdev wrote: | Holy crap this is so much worse than I could have imagined.... | neonate wrote: | https://archive.ph/4LlX8 | impulser_ wrote: | One thing I learned from this FTX situation is that VC firms are | horrible at their job. | | How does one of the world's largest VC firms, Sequoia, with 90b | dollars in assets not do simple due diligence on their | investments. | | Do VC firms not do background check on executives, or look at | financial statements of the company they put their money in? | bhk wrote: | FTX's problems were nothing that a government bailout couldn't | solve. | [deleted] | dang wrote: | Recent and related: | | _FTX balance sheet, revealed_ - | https://news.ycombinator.com/item?id=33577437 - Nov 2022 (286 | comments) | | (too many other FTXen to make a generic list) | smsm42 wrote: | It is incredible that each time I read new article on FTX I think | "well, that tops everything I've seen so far in supposedly legit | financial companies" and each next day I learn something that | totally leaves the previous one in the dust. Turns out they | didn't just used customers' money for risky investment as I | thought, they actually pretended that illiquid token they | themselves invented is a good asset to cover liabilities for | customers' money! And they actually sent balance sheet with this | to the investors trying to entice them to invest in this. No | wonder Binance run away at the first look of it. | grey-area wrote: | Binance does the same, as do Bitfinex and Tether and pretty | much the entire cryptocurrency ecosystem. | sbierwagen wrote: | Coindesk says they don't. | | There's a pretty solid 90% chance that every exchange with a | stablecoin is going to blow up, but I'd only guess a 30% | chance of Coindesk going under. ___________________________________________________________________ (page generated 2022-11-14 23:00 UTC)