Binance was threatening to dump a huge amount of FTT tokens on the market. FTX has a big+vulnerable position in FTT. FTX asked Binance to sell them the tokens for a fixed price, so as not to crash the FTT token price. Binance declined - this was yesterday/today. Of course the price of FTT crashed today. And now Binance buys FTX to help them out... smells like Binance played 4D chess all along.
> Binance was threatening to dump a huge amount of FTT tokens on the market. FTX has a big+vulnerable position in FTT. FTX asked Binance to sell them the tokens for a fixed price, so as not to crash the FTT token price. Binance declined
This makes absolutely no sense and is not how markets work. If FTX was actually willing to buy unlimited FTT at a given price, Binance could not have "crashed the price" by selling below that price — somebody would simply have bought at the Binance price and sold to FTT at their price.
What seems more likely is that FTX extended that offer only to a small portion of the tokens that Binance wanted to sell (to maintain the fiction of their price).
Isn't FTT like FTX's own issuing tokens? It's like printing one's own money. But when the backing firm fails, the printed money is worthless, just like what LUNA issued by Terra had become.
> FTX asked Binance to sell them the tokens for a fixed price, so as not to crash the FTT token price.
Why would Binance decline this opportunity? If FTX, Binance, and the market knew FTT would just crash, it sounds like a given that Binance should take advantage of the fixed price instead of losing hundreds of millions of dollars "letting the market decide".
This is my view as to what possibly happened in last 24 hours. Mind you I have no idea if its real but i am making an educated guess based on my 10+ yrs seeing such events play out several times.
1) Alameda used FTX money and balance sheet along with using $FTT to take out billions of loans and "investments" including possibly customer funds to "invest" "efficiently" into risky investments
2) He then also used a lot of it to prop the entire market up in the 1250-1350
range over months to decouple the market possibly and keep $FTT above the $22 mark which was possibly a margin level for his collateral.
3) Market rallied and everything was fine. He is up a lot but lost few between making potentially risky investments (maybe shorting?), maybe
options market making as that was his original expertise... who knows. But he clearly lost some money in there.
4) Rumors spread of balance sheet shortfall. Now mind you .. Alameda is a separate entity than FTX. So using FTX resources for trading on Alameda is a big no no.
5) CZ finds out about this. Decides to market sell his billions of $FTT position. Caroline gives up her hands and says they will buy at $22 which on the chart you can see has been the support line time and time again so clearly that line has been supported constantly..
6) The market selling pushes price below $22. Entire market and large players smell blood.. the moment the price goes below $22 the lenders market sell coins ($FTT and $SOL) for margin. This results in a loop after it breaks below $22 and goes into freefall with no support anymore
7) With no options to get more money from lenders and having no other assets to get more loans from lenders as they are already selling his assets, SBF goes to CZ and asks to bail out FTX as there is a big hole that cannot be filled anymore. CZ probably decided to take over FTX and said to SBF you have to either stop gap some of the fills from selling your assets since you did things wit the balance sheet and customer money you weren't supposed to. He probably said he will bail out FTX but NOT Alameda. Sam then either market sold everything he had...OR the lenders... Sam went to the lenders and said I am defaulting on my loans...So the lenders just market sold all the collateral. I think its most likely Sam said he is going to default on the loans and they market sold.
IF the lenders recouped 70-80% then i think its fine.
IF the lenders WERE NOT able to recoup and will have to take a write off on the loans.. we have issues. That part I am unsure about. IF a large lender goes under... then there is further contagion. The market selling off coins so quickly triggered probably more liquidations.
WHERE DO WE GO FROM HERE? We have seen bigger black swan events like in crypto past. All new concepts have days weeks like this. Stocks had it, banks had it and crypto has had it few times. There will always be new smart people to push growth and take over.
When 3AC went bust, we got to $800 on $ETH. We rebounded to 2k in time. That was close to 17-18bn. This is smaller. in time... we will be back. Not sure when.. but eventually it all comes back. Market is cyclical end of the day.
Some more background: the companies were engaged in fighting over regulations, and on a personal basis between the 2 CEOs. It went down to really childish levels at some point.
But one thing is undeniable: SBF (FTX CEO) was trying to weaponize US regulation against his biggest rival CZ (Binance CEO). CZ retaliated by selling the FTT token, exposed the fact FTX was over-leveraged, and took over.
This is, as the kids on Twitter say, the embodiment of the old "F#$k around, find out".
Along the way every FTX client who couldn't withdraw, and every crypto user losing value got screwed - but why should these 2 characters care? The space just became more centralized, and whatever smidge of trust was left after the Celsius debacle has evaporated.
For those not up to date on crypto people, SBF is Sam Bankman-Fried [1] and CZ is Changpeng Zhao [2]. I don't know why they insist on being called by their initials like they're some sort of ticker symbol.
And over-leveraged, for a brokerage, is a major problem. A brokerage is not a bank, and account-holders are not earning interest. Therefore if you are taking their funds and doing something else with them (a pre-requisite for insolvency, unless you are hacked) is a major red flag for illegality.
SBF said "We don't invest client assets (even in treasuries)". [0]
He then says the purpose of the transaction with Binance is to "clear out the liquidity crunches". [1]
How could there be a liquidity crunch if assets are not invested? You can't do a bank run on an entity that doesn't function as a bank and doesn't invest clients assets... Something is shifty.
12:38 PM · Nov 7, 2022 2) FTX has enough to cover all client holdings. [0]
4:03 PM · Nov 8, 2022 2) Our teams are working on clearing out the withdrawal backlog as is. This will clear out liquidity crunches; all assets will be covered 1:1. This is one of the main reasons we’ve asked Binance to come in. [1]
has enough to cover all client holdings ---> not enough to cover all client holding in 24 hours. Either they lost a billion or so dollars of client segregated funds in a day down the back of the sofa or it was a lie the whole time.
> SBF said "We don't invest client assets (even in treasuries)"
We know that was false when it was said, given the Alameda balance sheet. (FTX invested in Alameda which made risky loans to crypto folks and bought FTT, which FTX minted [1].)
This a.m. before securing an emergency lifeline from rival Binance, FTX was canvassing deep pockets in Silicon Valley and Wall St — think billionaires, not institutions — ppl familiar told me & @lmatsakis @SaacksAttack. Two of the ppl he was seeking more than $1bn.
> Why was there a liquidity crunch in the first place? A crypto exchange is a weird sort of business, in many ways more like a brokerage than a traditional exchange.
> A lot of FTX’s business is in perpetual futures, a leveraged product, sometimes levered 20 to 1. If you are an exchange and you are in this sort of business, you will need to come up with the extra $100 to lend to your customer. Presumably that doesn’t come from your equity: You are doing some sort of borrowing, perhaps from other customers, [2] perhaps from outside financing sources, perhaps from your affiliated hedge fund, etc. You will have some customers who owe you money, and others whom you owe money. You will be like a bank. If everyone to whom you owe money demands their money back at once, you will need to get the money back from the ones who owe you money, which might be hard. (You might not have a contractual right to demand the money back right away, or it might be rude and bad for business, or you might have to liquidate them to get the money back and that would blow up the value of your collateral.) In broad strokes this is a reasonable description of what happened to Bear Stearns, a brokerage that financed its customers’ positions.
[2] (footnote in original article): Effectively a perpetual future involves you borrowing from and lending to your customer in offsetting ways: If the price goes up, you owe money to the long and the short owes money to you. If the short doesn’t pay you, then you still owe money to the long.
You know what this makes me kind of wonder... back earlier in the year SBF made a big show of coming in and investing in a bunch of the companies that were collapsing due to the LUNA/3AC/Celsius problems. He stepped in and to some extent halted the unwinding of some of these issues. It turns out now that it's likely FTX is underwater, and Binance is basically doing the same thing - coming in, picking them up cheap and preventing them from really having to unwind.
So It's perfectly possible this action does the exact same thing as last time - simply stalls the unwinding of this catastrophe, which in the end could possibly even prove Binance insolvent. At the end of the day we just end up in a situation where Binance itself has pricing power over tonnes of coins, and if the market comes back they'll be fine, but if the market continues to slide at some point they won't be able to support the market any more.
"We’re going to look back at a generation of successful founders and VCs with the realization that all of their talent was in creating a company during the bull market." - random tweet I came across that's very relevant here.
Why is it apparently so difficult to run a solvent crypto exchange? On the face, it shouldn't be too hard, just take deposits, stick them in a wallet, and swap client balances in a database.
Is the temptation to maintain a reserve ratio < 1 just too great? Do operators try to earn small, low-risk return on client funds only to find there are no low-risk, positive-return assets in crypto? Are the extending margin to clients or explicitly stepping in as counterparty, and get exposed to losses as prices move?
Speaking with the Financial Times on July 14, Bankman-Fried stated that if FTX can become the top crypto exchange and supplant rivals such as Coinbase and Binance, the idea of purchasing giants such as Goldman Sachs and CME group is not off the table:
“If we are the biggest exchange, [buying Goldman Sachs and CME] is not out of the question at all.”
That says more about media outlets like Fortune, than "SV fintech." It seems like you're using that as a way to describe a single entity. Many people in crypto saw him as a snake.
What really amazes me about the whole thing is that after celcius and now ftx, tether manages to have peoples' trust and manages to have a bunch of apologists, to the point that in this whole threat there is 0 mention about usdt or tether, while it should at least be mentioned or discussed in here, even tho it has no direct relation, they are the org with most obscure and shady things about them, even the whole business of binance was built around their USDT pairs
it's also quite funny how Binance now acts as a total legit org that has not wrongdoings when they have shown no proof of their BUSD backings and they built their empire on top of tether
Wasn't there a post hitting the HN front page just yesterday or two days ago about how FTX was close to being illiquid, and most of the top comments were about how wrong that analysis was?
Or was that another crypto trader?
If anybody could help my sieve-like brain, that would be very appreciated :-)
I’m a little ignorant to the whole crypto ecosystem, so can someone give me a quick rundown on the chain of events that led to this? Seems a little out of left field.
BTX, from the outside looking in, looked to be one of the more well run, stable crypto exchanges. $1.02 billion in revenue with $388M in net income in 2021. They didn’t go on any crazy hiring spree when they didn’t have to. Liquidity crisis implies that people are withdrawing cash they do not have, but if so, where did it go?
This is probably going to have ripple effects in unrelated industries - FTX Foundation, presumably funded by FTX/Alameda/SBF’s personal wealth, has been been the biggest funder of AGI projects and labs this year. They were the biggest funder (in a $500M fundraise) for Anthropic, which is (atm) a non-profit AI alignment lab. They also funded a bunch of esoteric EA projects which likely rely on them for continued funding - https://ftxfuturefund.org/our-grants/
Interesting just 6 weeks ago the news was that FTX was buying Voyager Digital’s assets for 1.4 billion dollar after winning a bankruptcy auction. In July the news was that FTX provided BlockFi with a $400 million line of credit and an option to buy the company for 240 million.[1][2] Now the crypto bailout savior is being bailed out?
[+] [-] neonate|3 years ago|reply
[+] [-] kuratkull|3 years ago|reply
https://decrypt.co/113674/binance-moves-to-liquidate-its-ent...
https://decrypt.co/113788/binance-ceo-declines-alamedas-bid-...
https://decrypt.co/113866/battle-crypto-titans-ends-binance-...
[+] [-] sytelus|3 years ago|reply
[+] [-] microtherion|3 years ago|reply
This makes absolutely no sense and is not how markets work. If FTX was actually willing to buy unlimited FTT at a given price, Binance could not have "crashed the price" by selling below that price — somebody would simply have bought at the Binance price and sold to FTT at their price.
What seems more likely is that FTX extended that offer only to a small portion of the tokens that Binance wanted to sell (to maintain the fiction of their price).
[+] [-] ww520|3 years ago|reply
[+] [-] acchow|3 years ago|reply
[+] [-] purple_ferret|3 years ago|reply
Does anyone even know where it operates out of these days?
[+] [-] pbreit|3 years ago|reply
[+] [-] mekster|3 years ago|reply
https://www.coindesk.com/business/2022/11/02/divisions-in-sa...
CZ sounds smart to withdraw quickly not to be the one in a sinking boat and it did sink quickly.
[+] [-] gz5|3 years ago|reply
+ the bank (FTX) was likely massively over leveraged
+ the bank's primary assets were likely not very liquid
Both of above are speculation. However, why else be forced to sell (1) to Binance?
(1) Matt Levine makes his usual solid argument as to why the price was likely zero, other than cashing out FTX debt: https://www.bloomberg.com/opinion/authors/ARbTQlRLRjE/matthe...
[+] [-] ForHackernews|3 years ago|reply
It's not really "4D chess" to screw over your competitor to corner the market.
That's like, business 101.
[+] [-] danrocks|3 years ago|reply
Why would Binance decline this opportunity? If FTX, Binance, and the market knew FTT would just crash, it sounds like a given that Binance should take advantage of the fixed price instead of losing hundreds of millions of dollars "letting the market decide".
[+] [-] hammock|3 years ago|reply
1) Alameda used FTX money and balance sheet along with using $FTT to take out billions of loans and "investments" including possibly customer funds to "invest" "efficiently" into risky investments
2) He then also used a lot of it to prop the entire market up in the 1250-1350 range over months to decouple the market possibly and keep $FTT above the $22 mark which was possibly a margin level for his collateral.
3) Market rallied and everything was fine. He is up a lot but lost few between making potentially risky investments (maybe shorting?), maybe options market making as that was his original expertise... who knows. But he clearly lost some money in there.
4) Rumors spread of balance sheet shortfall. Now mind you .. Alameda is a separate entity than FTX. So using FTX resources for trading on Alameda is a big no no.
5) CZ finds out about this. Decides to market sell his billions of $FTT position. Caroline gives up her hands and says they will buy at $22 which on the chart you can see has been the support line time and time again so clearly that line has been supported constantly..
6) The market selling pushes price below $22. Entire market and large players smell blood.. the moment the price goes below $22 the lenders market sell coins ($FTT and $SOL) for margin. This results in a loop after it breaks below $22 and goes into freefall with no support anymore
7) With no options to get more money from lenders and having no other assets to get more loans from lenders as they are already selling his assets, SBF goes to CZ and asks to bail out FTX as there is a big hole that cannot be filled anymore. CZ probably decided to take over FTX and said to SBF you have to either stop gap some of the fills from selling your assets since you did things wit the balance sheet and customer money you weren't supposed to. He probably said he will bail out FTX but NOT Alameda. Sam then either market sold everything he had...OR the lenders... Sam went to the lenders and said I am defaulting on my loans...So the lenders just market sold all the collateral. I think its most likely Sam said he is going to default on the loans and they market sold.
IF the lenders recouped 70-80% then i think its fine.
IF the lenders WERE NOT able to recoup and will have to take a write off on the loans.. we have issues. That part I am unsure about. IF a large lender goes under... then there is further contagion. The market selling off coins so quickly triggered probably more liquidations.
WHERE DO WE GO FROM HERE? We have seen bigger black swan events like in crypto past. All new concepts have days weeks like this. Stocks had it, banks had it and crypto has had it few times. There will always be new smart people to push growth and take over.
When 3AC went bust, we got to $800 on $ETH. We rebounded to 2k in time. That was close to 17-18bn. This is smaller. in time... we will be back. Not sure when.. but eventually it all comes back. Market is cyclical end of the day.
[+] [-] unknown|3 years ago|reply
[deleted]
[+] [-] gowings97|3 years ago|reply
[deleted]
[+] [-] TravelTechGuy|3 years ago|reply
But one thing is undeniable: SBF (FTX CEO) was trying to weaponize US regulation against his biggest rival CZ (Binance CEO). CZ retaliated by selling the FTT token, exposed the fact FTX was over-leveraged, and took over.
This is, as the kids on Twitter say, the embodiment of the old "F#$k around, find out".
Along the way every FTX client who couldn't withdraw, and every crypto user losing value got screwed - but why should these 2 characters care? The space just became more centralized, and whatever smidge of trust was left after the Celsius debacle has evaporated.
[+] [-] jonas21|3 years ago|reply
[1] https://en.wikipedia.org/wiki/Sam_Bankman-Fried
[2] https://en.wikipedia.org/wiki/Changpeng_Zhao
[+] [-] appleflaxen|3 years ago|reply
[+] [-] mekster|3 years ago|reply
Alameda's balance sheet was already looking wrong in the first place.
https://www.coindesk.com/business/2022/11/02/divisions-in-sa...
[+] [-] walrus01|3 years ago|reply
Childish bullshit in the cryptocurrency market?!??! I am absolutely shocked and surprised, such a thing is completely unprecedented...
[+] [-] ucha|3 years ago|reply
He then says the purpose of the transaction with Binance is to "clear out the liquidity crunches". [1]
How could there be a liquidity crunch if assets are not invested? You can't do a bank run on an entity that doesn't function as a bank and doesn't invest clients assets... Something is shifty.
[0] https://twitter.com/sbf_ftx/status/1589598285798707202
[1] https://twitter.com/sbf_ftx/status/1590012126701441025
[+] [-] shapefrog|3 years ago|reply
4:03 PM · Nov 8, 2022 2) Our teams are working on clearing out the withdrawal backlog as is. This will clear out liquidity crunches; all assets will be covered 1:1. This is one of the main reasons we’ve asked Binance to come in. [1]
has enough to cover all client holdings ---> not enough to cover all client holding in 24 hours. Either they lost a billion or so dollars of client segregated funds in a day down the back of the sofa or it was a lie the whole time.
[+] [-] max_|3 years ago|reply
They stopped processing withdrawals according to on chain data.[0]
[0]: https://www.theblock.co/post/184176/ftx-appears-to-have-stop...
[+] [-] JumpCrisscross|3 years ago|reply
We know that was false when it was said, given the Alameda balance sheet. (FTX invested in Alameda which made risky loans to crypto folks and bought FTT, which FTX minted [1].)
[1] https://www.coindesk.com/business/2022/11/02/divisions-in-sa...
[+] [-] shapefrog|3 years ago|reply
https://twitter.com/lizrhoffman/status/1590021299295768578
He / his people didnt call me, but I would have passed anyway
[+] [-] ramish94|3 years ago|reply
There’s a reason the FDIC exists and all banks must be insured.
[+] [-] nl|3 years ago|reply
> Why was there a liquidity crunch in the first place? A crypto exchange is a weird sort of business, in many ways more like a brokerage than a traditional exchange.
> A lot of FTX’s business is in perpetual futures, a leveraged product, sometimes levered 20 to 1. If you are an exchange and you are in this sort of business, you will need to come up with the extra $100 to lend to your customer. Presumably that doesn’t come from your equity: You are doing some sort of borrowing, perhaps from other customers, [2] perhaps from outside financing sources, perhaps from your affiliated hedge fund, etc. You will have some customers who owe you money, and others whom you owe money. You will be like a bank. If everyone to whom you owe money demands their money back at once, you will need to get the money back from the ones who owe you money, which might be hard. (You might not have a contractual right to demand the money back right away, or it might be rude and bad for business, or you might have to liquidate them to get the money back and that would blow up the value of your collateral.) In broad strokes this is a reasonable description of what happened to Bear Stearns, a brokerage that financed its customers’ positions.
[2] (footnote in original article): Effectively a perpetual future involves you borrowing from and lending to your customer in offsetting ways: If the price goes up, you owe money to the long and the short owes money to you. If the short doesn’t pay you, then you still owe money to the long.
[+] [-] SilverBirch|3 years ago|reply
So It's perfectly possible this action does the exact same thing as last time - simply stalls the unwinding of this catastrophe, which in the end could possibly even prove Binance insolvent. At the end of the day we just end up in a situation where Binance itself has pricing power over tonnes of coins, and if the market comes back they'll be fine, but if the market continues to slide at some point they won't be able to support the market any more.
[+] [-] boeingUH60|3 years ago|reply
[+] [-] kristjansson|3 years ago|reply
Is the temptation to maintain a reserve ratio < 1 just too great? Do operators try to earn small, low-risk return on client funds only to find there are no low-risk, positive-return assets in crypto? Are the extending margin to clients or explicitly stepping in as counterparty, and get exposed to losses as prices move?
[+] [-] mjr00|3 years ago|reply
Never a dull moment in the world of crypto.
[+] [-] pranshum|3 years ago|reply
[+] [-] matheusmoreira|3 years ago|reply
[+] [-] epa|3 years ago|reply
[+] [-] Yizahi|3 years ago|reply
[deleted]
[+] [-] steveBK123|3 years ago|reply
SV fintech keeps reinventing all the mistakes of 19th century banking.
BNPL is the next explosion btw.
[+] [-] steveBK123|3 years ago|reply
Speaking with the Financial Times on July 14, Bankman-Fried stated that if FTX can become the top crypto exchange and supplant rivals such as Coinbase and Binance, the idea of purchasing giants such as Goldman Sachs and CME group is not off the table:
“If we are the biggest exchange, [buying Goldman Sachs and CME] is not out of the question at all.”
https://cointelegraph.com/news/billionaire-sbf-says-ftx-may-...
[+] [-] mamonster|3 years ago|reply
Another good candidate is "AI-powered" insurance i.e Lemonade.
[+] [-] dibt|3 years ago|reply
[+] [-] max_|3 years ago|reply
[+] [-] alphabetting|3 years ago|reply
https://content.fortune.com/wp-content/uploads/2022/07/COV.W...
[+] [-] firekvz|3 years ago|reply
it's also quite funny how Binance now acts as a total legit org that has not wrongdoings when they have shown no proof of their BUSD backings and they built their empire on top of tether
[+] [-] janmo|3 years ago|reply
[+] [-] JumpCrisscross|3 years ago|reply
[+] [-] perlgeek|3 years ago|reply
Or was that another crypto trader?
If anybody could help my sieve-like brain, that would be very appreciated :-)
[+] [-] majani|3 years ago|reply
[+] [-] caldarons|3 years ago|reply
https://dirtybubblemedia.substack.com/p/is-alameda-research-...
[+] [-] ramish94|3 years ago|reply
BTX, from the outside looking in, looked to be one of the more well run, stable crypto exchanges. $1.02 billion in revenue with $388M in net income in 2021. They didn’t go on any crazy hiring spree when they didn’t have to. Liquidity crisis implies that people are withdrawing cash they do not have, but if so, where did it go?
[+] [-] blueblisters|3 years ago|reply
[+] [-] bogomipz|3 years ago|reply
[1] https://www.cnbc.com/2022/09/27/bankrupt-crypto-lender-voyag...
[2] https://techcrunch.com/2022/07/01/ftx-us-deal-with-troubled-...