I've seen some comments saying that this is all delayed fallout from the Luna/Terra collapse last spring, it's just that FTX had the means (its own token that it could pump and move around its own entities) to paper over the hole in its balance sheet until now. Can anyone more familiar with the situation elaborate? How much further will the contagion spread?
1. Alameda essentially needed a bailout in the spring.
2. Alameda, though, also had a large chunk of FTT coming due in the fall that was basically part of the vesting schedule of the original FTT ICO.
3. So, FTX lent Alameda customer funds in the spring.
4. In the fall, when the vested FTT paid out to Alameda, they immediately paid it back to FTX.
5. The thing that looks highly suspicious and fraudulent is that SBF tweeted out that the big FTT move that day was just normal "rotation".
Also, particularly interesting to me, the FTX-US president, Brett Harrison, resigned the day before that transaction at the end of September. He also just liked an interview on LinkedIn where Brian Armstrong (Coinbase CEO) was being interviewed, saying "not all crypto companies are like FTX, where it appears they fraudulently misappropriated customer funds".
The above is speculation, but it's based on on-chain data.
How would that play have had an effect after the bailout was repaid? I can see if there was the run while the ftts were loaned out, but why would it matter once they were returned?
It wasn’t “repaid”, the FTT was posted as collateral for the loans (customer deposits).
But still, should be fine at that point, right? The loans are nice and overcollateralized, what could go wrong?
Problem is that FTT is itself a bet on FTX. So if the news comes out that FTX and Alameda have these shady linkages, some of your customers will want to withdraw—and at the same time, FTT will fall.
Oops—the value of that collateral just crashed and now you don’t have enough assets to process the withdrawals.
Which makes FTT fall more, and more people want to withdraw.
It’s not like some fluctuation in Bitcoin price, where maybe you could get lucky and wait for it to come back up. FTT is just a bet on you, and you can’t process withdrawals, so why would that ever come back up?
Its hard to tell, but looks like the fall out is far from over. There are a lot of rumours running around so unsure what is true and what is not, but we've gotten confirmations from a lot of crypto companies to be affected one way or another. Genesis (a big OTC trading company) lost about 160M but their parent company wrote them a check. BlockFi seems to be in the hole and has closed withdrawals. Blockfolio (an FTX owned company) paused withdrawals. Anything SOL/SRM related is likely affected. Any market maker worth its salt had money on it as well... think we will see a lot of blood in the coming days/weeks.
Does anyone know the effect on Nova Labs and the Helium Network? It was my understanding that they recently switched the network from the Helium Network token (HNT) to Solana (SOL).
I was at the Jump Crypto hackathon during the terra luna depeging. Jump crypto has a unique structure because as part of their investment, they get a chunk of coins to market make with. They have no requirement to be on the long side of the market making so during the terra luna collapse they made an absolute killing (Even though terra/luna was one of their biggest investments). Also, jump has it's other business running HFT on the stock market that is much more profitable so it can always bail out it's other side.
Everyone's confidence is shook, so I expect a lot projects will be delayed due to lack of funding/interest, and volume will dry up significantly in the coming weeks/months. NFT market was never particularly liquid to begin with, so it might grind to a halt for a bit.
But there's light at the end of the tunnel, I'm sure. With regulators focusing their eyes on tokens and exchanges, NFTs might get a bit of a revival some time down the road. Especially if money starts flowing into it again looking to escape the regulatory hammer.
By their own figures, Tether is now undercapitalized and just had billions withdrawn. They made those payments. But, as Hemmingway said, bankruptcy tends to happen gradually and then all at once. Tether is in a hole. Nobody knows how close they are to not making payments. But when they implode, it will be sudden and the blast radius will be large.
Does Tether weather this squall? Based on history, probably. Based on economic fundamentals, they will sink at some point.
> By their own figures, Tether is now undercapitalized...
Where has Tether stated this? Last I heard--today--Tether has continued to claim the opposite.
(edit to add, 45 minutes later:) I see patio11 makes the same claim, but I've now read both his recent articles on this and he is making a LOT of extremely stretched assumptions to pull off this reasoning, and even then the best he has is that it must have momentarily become insolvent in the past :/. And so like, maybe they are undercapitalized... but if they are it is because they are lying, not because their own figures somehow demonstrate such.
1. Tether has attested, under penalty of perjury in response to orders by a NY court that they aren't backing USDT with dollars, they are backing it with various financial instruments.
2. Tether has claimed, prior to that, that USDT is backed by dollars.
3. Since #1, Tether has not been transparent about their backed assets. Oh, sure, they say that they own X billion dollars of <some particular asset type>, but we don't know if those are AAA assets, or utter garbage[1], or whether they are counterbalanced by liabilities.
4. So far, the track record for unaudited crypto funds is not great.
On the scale of 'Untrusted', 'Trusted', and 'Completely Trusted'[2], I would definitely put them int he 'Untrusted' category.
[1] The fact that they were even considering buying FTX leads me to believe that they have no aversion to paying good money for garbage.
[2] Promotion to the third category can only happen posthumously.
Tether might be able to plug the hole depending on how big it is if treasury rates rise fast enough for returns to paper over their previous asset allocation or mismanagement mistakes, and redemptions don’t exceed assets on hand.
The point of this article was to make the consequences of the following statement clear:
And now you know enough to understand what I'm saying with an otherwise opaque statement like "Tether is 35:1 levered on risky assets during market contagion."
Yes, if everything goes Tether's way, they can weather anything, forever. But eventually it won't, and they won't.
Scoopy in the Alchemix discord had this to say:
"If you are on any CEX or CeFi app or earn product, get out RIGHT NOW. Rumors are swirling and it is possible that none of them are solvent.
I am not kidding, really, get out now. I care too much for our community to not have said anything to warn you."
Those same network effects that propelled web3 into stratosphere are going to bring it down back to earth. Not necessarily vanquish it, but put web3 in its place, so to speak. A scenario I'd imagine where DEXes / DeFi will endure and possibly thrive, but DEXes / DeFis don't have the kind of moats to justify astronomical valuations... which is both a good and a bad thing, depending on which side of the coin you are on.
Tech VCs have already circled back to AI, so doubt private companies in need of more money can stay afloat for longer, if they weren't being careful with volatile crypto assets.
I agree with you, but context definitely matters here... With all the dominoes starting to fall, there is nothing wrong with moving funds out of exchanges or to a temp address. This seems equivalent to going cash in the equity markets as a hedge. I would go even further and claim that it would be foolhardy to not take this random Discord advice if they haven't already figured it out on their own lol.
It means there's no such thing as a free lunch (aka anything giving you "guaranteed" magically higher-than-traditional-banks interest rates is probably shit).
Every coin on every market is being driven by the same collective mania. Just Coinbase is more ethical or Eth is ideologically pure doesn't mean their value isn't determined by the same rampant speculation and outright fraud that dominates the entire space. You may not see an outright bankruptcy but prices and volumes can plummet nonetheless.
They will be fine _modulo people's interest in crypto_. The way I think about it is that their business model is taking fees off of every transactions, so as the interest tapers off so will their earnings and valuation.
What you said is all true and what everyone thoight until sometime today when they said they are cutting off withdrawals and part of the bankruptcy too.
I feel perfectly fine having my crypto stored on Coinbase’s end. As far as I know their business model makes perfect sense and they don’t take the weirdly big risks all of these falling dominoes have.
Also, if Coinbase goes bankrupt and takes everyone’s crypto with them I feel everything will crash to essentially 0.
A week ago someone could have said that about FTX. Loaning customer assets was explicitly disallowed in their TOS, and was not something I had even heard rumors they were doing (though I'm not that up on crypto rumors).
Well they can't make money because all the other exchanges offer better fees/lower spreads since they're loaning customer money out. They'll never be big enough to actually makea. profit while there are shady exchanges offering a better product(until it collapses).
There aren't many compliant exchanges operating in the US, though; Coinbase seriously even raised their fees a couple years ago because they thought they could do so, even while other exchanges are trying to lower them: they aren't merely competing on fees.
Crypto doesn’t do anything there’s no productive asset. Literally every dollar coming out is a subset of the dollars that went in.
It’s less than that even due to electric bills and all that.
Contrast that to a productive asset, like a farm. You start with land and put dollars in and you get food. And you still have the land. There’s more food than there was before.
Or if you’re one of those Elon worshippers, he starts with rocky ore and seawater or whatever and ends up with lithium battery packs.
So with that established, when you see this guy running around spending hundreds of millions of dollars the next question has to be whose dollars were those. Because they don’t have them any more and they ain’t getting them back.
I don't think people realize how big of a collapse UST was. $18 billion market cap that vanished in a week. The fact that Do Kwon is not in jail yet is astonishing to me. FTX by comparison is on the hook for $10 billion, about half of the UST collapse. Everything we're seeing is a result of Do Kwon's scamming.
Y Combinator also backed a failed company [1] that was trying to take advantage of the high APR (20%) for UST staking. [2] I don't think there has been confirmation yet about how much UST Alameda was holding, but if true, it would add more context to CZ's tweet "liquidating our FTT is just post-exit risk management, learning from LUNA. We gave support before, but we won't pretend to make love after divorce." [3]
UST wasn't a true stablecoin (it isn't like any dollars disappeared from the ecosystem), so I'd put it in the same category as the hundreds of billions in "vanished" market value that was a simple consequence of the declining value of crypto in general. Whether or not Alameda was holding a bunch of UST or Luna, is another question. SBF seemed to be pretty all in on fringe shitcoins, so I would not be surprised if they had significant exposure.
For someone that only dabbles in crypto - what are the reasons people choose to use high-risk exchanges like FTX, and buy even higher risk "sh*t coins" on them? Especially the exchange-created-and-owned coins - of which I have yet to see one actually do what it promised.
Is Coinbase just not cool anymore, or is there some advantage to using exchanges like FTX until they go belly-up?
- FTX had much bigger trading volume (which might get people better fills)
- FTX had lower fees than Coinbase
- FTX offered a lot more coins to trade than Coinbase
- FTX (like many others, but not so much Coinbase) were giving large sign up bonuses, and advertising like crazy. (Finance YouTubers like Graham Stephan, Meet Kevin, Jeremy Financial Education, Minority Mindset, etc. are taking some heat for their paid promotions they did for FTX.)
- FTX offered options on some cryptos, like Bitcoin. This seems to be kind of rare.
- FTX offered leverage (like most of the other big exchanges, but not Coinbase)
- Since FTX also set up a separate FTX.US entity, it gave the perception that it had all the same US regulation protections as Coinbase. And since FTX was much bigger than Coinbase, it gave the perception that FTX was more likely to be more solvent than Coinbase. A month ago, I suspect if you asked most crypto people which exchange was more likely to go under first, they would have all said Coinbase.
This whole industry looks very unhealthy. The large exchanges that most people use like Binance and FTX have books and operations shrouded in mystery, so nobody really knows how solvent any of these things were. FTX said they were not lending out coins (and by law, as an exchange, they are supposed to have all assets), but only after a leak revealed by Coindesk, did the public find out something was really wrong. Without that leak, FTX would still be doing business as usual.
Meanwhile, Coinbase which is a publicly traded company in the US which is many magnitudes more transparent with their books (because they are required to be), can't seem to make a profit.
The overall implication is that regular exchanges that just make money from fees are in an unsustainable business model. And all the other exchanges that are making a profit, might be doing all the shady things that FTX was caught doing.
> FTX (like many others, but not so much Coinbase) were giving large sign up bonuses, and advertising like crazy.
Any company that sponsors more than one Formula 1 team is high on my "probably not a good thing for humans" list. The shit that has taken the place of tabacco advertising is just automatically suspicious.
Coinbase doesn't offer the leverage that offshore exchanges do. FTX was popular originally because they offered 100x leverage, later reduced to a maximum of 20x. They also had better spreads, probably because they were making their own market and had inside info. I think that people generally didn't expect FTX to be high risk. It's got a profitable business, all they had to do was not embezzle customer funds.
> Coinbase doesn't offer the leverage that offshore exchanges do. FTX was popular originally because they offered 100x leverage
Sounds like a red alarm for me. There's probably a good reason domestic exchanges don't let you extend out that far... particularly on extremely volatile securities.
Definitely alarming, but mostly for counterparty risk. If the exchange is just a middle man then they can't lose as long as they're able to liquidate toxic positions before they're negative. Turns out FTX was also the market maker through alameda and because of that was hesitant to liquidate toxic positions, leading to the embezzlement to try to save alameda and the current crisis.
market making in a volatile instrument is not easy. when all instruments are .96 correlated it makes it harder to balance your book. the good thing is that its retail flow but just because its retail doesnt mean you won't lose money when the market jumps in one direction or another.
That kind of gets into philosophy of what governments are for: should they protect people who make bad decisions from themselves? Does the answer change if people are actively marketing the bad decision? Does the attempt at doing so suggest they're actively trying to keep poor people from getting rich?
(This comment is an explanation of a viewpoint, and not an endorsement.)
I see it as the government should get out of the way of those who know what they are doing and the risks.
The problem is, these exchanges do not make you go through the same "vetting" processes traditional securities brokers/exchanges do before you can leverage up to your eye balls and lose everything.
They also go out of their way to make it "fun" to trade crypto - gamification at it's best - which reduces/removes the traditional apprehension of getting in way above your abilities.
We can liken a lot of these exchanges to gambling more than investing.
That is to say, an 18 year old with $500 in total assets shouldn't be eligible to leverage 20x or more. That's just a life-changing problem waiting to happen.
In the absence of a government, people would respond to fraud using violence. The government protects embezzlers and fraudsters from the violence of those they have cheated, but in turn creates non-violent consequences for such behaviors.
All of these places were offering insane APRs as well as other perks for staking your coins. So speculators park real money, expecting that they'll be smart enough to see the crash coming and slurping up that sweet return in the meantime.
And it's glaringly obvious everyone offering these outsized returns is literally just pulling a ponzi.
FTX’s lending product was (theoretically) peer-to-peer, the rates were driven by actual borrow demand from other people.
FTX was just a tremendously better derivatives exchange than everybody else when it was launched. To this day only Okex of the major exchanges has a competitive margin system imo. Continuous pnl realization and cleaner perpetual models are icing on the cake.
Theft of user funds aside, SBF likely knows more about derivatives and trading them than most exchange operators and it shows in the design of the exchange.
"... the rates were driven by actual borrow demand from other people..."
Or, alternatively, the rates were artificially inflated by a ponzi operator interested in getting more and more people joining the pyramid. Just like Coinbase, FTX was, with 99% certainty, not profitable. Of course, the creators of the pyramid WILL profit and take resources for themselves to buy things like, let's say, a 10% stake on Robinhood, or invest in many real state properties around the world, a la Do Kwon. People are just gullible, anyone who believed on those "crypto earn" vehycles, paying 5 to 10 times the market interest rates, is probably the same people that would buy magic beans from a random dude in Times Square.
"FTX’s lending product was (theoretically) peer-to-peer"
that's the point of theoretically?
Their spot lending system didn't come out until well after they had cemented their spot as a top exchange, and if you look at the rates anytime in the last year they were well under market rate - like ~1-2% rates for most major products.
It might have been part of the scam, but this looks much more like pretty bog standard "let's go trade our users funds away".
Their little friend BlockFi was offering 8% at the end of 2021 if I'm not mistaken. That was the moment I got out of the crypto space for good, the ponzi mask was all but gone at that point. The fact that FTX bought BlockFi just cemented their ponzi friendly, to say the least, business model.
Ah yeah, I was thinking about the ftx on-exchange spot margin system.
You're definitely right that the retail lending aspects were generally somewhat scammy. I suspect those rates made more sense pre-2021 when it was very expensive and hard for crypto firms to borrow capital, but offering 8% fixed on dollars in any recent time was a loss leader at best.
It's sadly looking more like sbf was buying up these firms to do exactly as you said and grab capital to fill the whole, and hide their own liabilities to said firms.
I am convinced that him not believing in it, getting paid a boatload to do a commercial stating he doesn't believe in it, then it failing is definitely the plot for a Curb Your Enthusiasm episode.
You would be surprised how easy it is for people to get sucked into a crypto bubble vortex that makes you feel like you're missing out big time by not being invested in crypto.
I was pretty heavily involved in the personal finance community on Twitter and there's two camps.
1) VTSAX and chill (basically dump money into an ETF and forget about it)
2) Moar passive income by side hustles and crypto
The latter became more and more common and ultimately drowned out the former. I believe it's because the market was doing so well that folks' risk meter just wasn't registering.
Probably the same reason why people choose to get into MLMs.
> well that folks' risk meter just wasn't registering.
That's because they were probably still in school back in 2008. I remember the days of late October 2008 like it was yesterday, and back then I was a no-name computer programmer working for an independent mortgage broker, not a big finance schmuck from Wall Street.
That one is easy... FOMO - Fear Of Missing Out. People see the 10,000%+ returns extreme early adopters obtained and think they need to get in before the good-getting is done. Most of the time they're wrong and just throwing money into dark pits...
"Gamified" trading apps like Robin Hood have made it all too easy to feel much lower risk that it is in reality though.
For the rest, crypto can be part of a diversified investment strategy. Not all crypto is outright scams... but you do need to be able to handle the volatility.
I bought some (emphasis on the some, sadly) Bitcoin when it was $80. I’ll never get a return like that in my life. Other people are chasing that dragon. Unfortunately it leads them to burgeoning “shitcoins.”
It’s all fine if you view it like the lottery and put “fun money” into it. It’s not fine if it’s your primary investment vehicle. For what it’s worth I still think Bitcoin and Ethereum will be fine and bounce back up, eventually.
“they abolished the fundamental distinctions between investment and speculation… they ignored the price of a stock in determining whether or not it was a desirable purchase.”
Benjamin Graham & David L. Dodd, Security Analysis, 1934
Where is he a commie? EA has insanely famous liberals like Steven Pinker on their side. If that’s what you’re trying to get at. Otherwise I’m puzzled since his main focus is EA.
I know this gets into politics a bit. But when it comes to forming my worldview about these things there is usually the rational side then there is the gut instinct.
The rational side told me (and the best investors in the world) these guys were the smart people in the room, the wont do anything stupid.
Then you look at SBF: he is a major democratic donor, he supports UBI, his underlying driver is to make money to give it away, he is a vegan, he hangs around with clintons etc.
I believe ever since the bloody collapse of communism, the modern descendants of that ideology never label them selves as communists. They use different words to achieve the same end: stakeholder capitalism, effective altruism, UBI etc..
Its a huge leap and to clarify I'm not saying they are closeted or anything. I guess what I'm saying is we are living in a very weird world where nothing is as its seems.
Therefore its more important than ever to rely on ones gut instinct about a person. Its more important than ever to not disregard signals like a high iq person who is also a vegan or supports UBI.
I know this is a controversial opinion but its my 2 cents. I think the corruption of the intellect is the most fatal of threats.
The kind of damage avg people can do is often limited and can be seen from a mile away but these high iq people with a god complex can destroy entire civilisations with their good intentions. SBF is a good example, next is vitalik and Proof Of Stake ethereurm (IMO)..
I don’t think SBF really cares about UBI. That’s pretty clear via his actions.
The problem with trying to put EA alongside post communist thinking is that actually identifying socialists and communists have huge issues with EA and can’t see how EA is the same as their ideology.
Being a capitalist is one of the biggest issues. Completely supporting the current structure of society and being able to selfishly take advantage of it by making the most money possible [and donating some of it] is not close to communist ideals. It’s better than being someone who is just selfish, but EA still allows one to selfishly take advantage of capitalism and privilege without issue. In the name of supposed altruism. Just the name is troublesome. Seeing oneself as so good.
Then going as far as celebrating this selfish behavior and making that a core part of the ideology. As well as fawning over overly rich classist and uber wealthy millionaires and billionaires who donate to one of the two major party presidents is not post-communist ideology.
To give some credit to EA, actual socialists and communists are be able to view EA people as allies at times. Not more than that though.
I think there's a real chance of the entire market going pretty close to zero. The market was only ever suspended by pure belief. If the belief is shattered it's over. There's no earnings report or central bank bailout to stem the tide. The market is in freefall. And the only thing keeping from hitting zero is the collective will of those who are doggedly clinging to their sunk costs.
Alameda's bets went bad in the crypto crash earlier in the year. FTX loaned it up to $10bn in customer deposits against trumped-up collateral (its own token). Somehow, Alameda must have lost most of that money, either by using it to cover its liabilities from the crash, or making more bad bets. When it was leaked to Coin Desk that Alameda's balance sheet was padded with FTX tokens, confidence in the token rapidly collapsed. That obliterated the collateral protecting FTX's loans, ripping open a ~$10bn hole in its finances.
Predicted it, but was willing to make money off of suckers anyway, and then also caught himself with his own pants down despite knowing it was BS? Phenomenally stupid, or just plain corrupt and moderately stupid?
