The "before this week" column seems to be attempting to draw sympathy by saying "but everything was fine before, seriously!" when in reality it just proved that, even in the best of worlds, they had an extremely optimistic view of the entire crypto ecosystem, including its liquidity.
I can't believe they seriously held that much of their total value in their own issued token. That's just preposterous. Imagine if JP Morgan Chase's entire value was in JP Morgan Chase stock, and they just reported that as their value in cash. It's like recursive valuation.
To call all those "Less Liquid" tokens not "Illiquid" is a mastery in self-delusion.
$2.1B SRM
$981M SOL
and then all the shitcoins built on those "technologies" where the tokens are their "shares" in those investments.
But to call those tokens valuable assumes there's value in MAPS/OXY etc.
But MAPS has a total market cap of $3.9m today - the forced liquidations in these positions will 100% crush these coins. Even SOL and SRC. Hell - other than their Robinhood position and the fiat and fiat-tokens, there's almost nothing of real value once these liquidations happen.
My guess is less than $700m recoverable, so if you get an offer for >$0.10/dollar on your deposits from a vulture bankruptcy fund, I'd take it.
MtGox went bust in 2014, and it took them seven years of legal wrangling to come up with an acceptable valuation of the tokens. But MtGox was also based in a single country (Japan) and the vast majority of its funds were in a single crypto (BTC), whose value today remains far higher than it was back in 2014 ($300 or so), which is a big incentive for everybody to come to an agreement fast. FTX will be exponentially more complex on all counts: more jurisdictions, more tokens and almost certainly severely marked down valuations.
The story is the same for all these other giants of crypto.
Binance, Tether, Bitfinex are all basing their purported asset value on holdings of multiple worthless currencies, many of which they mint and price themselves.
SOL trades $100s of millions per day, which is actually extremely liquid in investment terms. "Less than liquid" is actually quite accurate for lesser known crypto. It's how assets like syndicated debt, that trade much less often, would be described on a balance sheet. "Illiquid" would be more like equity in a private company, where there is no active secondary market at all.
Using the word "Liquid" in the context of these accounts is... I don't know? Fraudulent? I understand that in the context of real finances things might be illiquid - it might take time to sell your house, or if you're a particularly big holder of stock in a company you founded you might have liquidity problems divesting over time. But it's really just taking the piss describing a lot of this stuff as "illiquid". FTT is a coin that they have made up themselves, which they themselves own the vast majority of, and which only had value in connection to the exchange that they just bankrupted. So no, it isn't "illiquid" its "worthless". It's not just that they'll take a hair cut if they liquidate it quickly, they could never liquidate even a significant portion of this. This whole thing started when CZ tried to liquidate 500m in FTT and the whole of FTX collapsed, they're now claiming their remaining FTT tokens are worth $600m (down from $6Bn). It's just so absurd to suggest you can mark to market like that.
The whole thing that is bugging me is that they made big political donations to both D and R. They use the money they conjured out of thin air and backed politicians with it. They probably backed the politicians who were most friendly to them. Those politicians might have won and that dirty money might have done a difference.
Does that sound moral to you? I think it’s absolutely terrifying. Every candidate that received that money should have their relation to Scam Bankman-Fraud investigated. It gets worse when you realize his mother and business partner are either related to certain political parties and the SEC chairman.
Okay, but... how? How did they manage to lose so much money by running a popular exchange that should bring in tons of fees? Even if they were gambling with part of the deposits, how can they lose 90% of all assets? You'd have to be actively trying to lose money to be this bad...
The thing that I always wondered about with FTX (and Binance frankly) is how did they get so big so quickly. What did they have that caused so many people to use _their_ exchange. This is still unexplained and was a major red flag. Usually to grow that big takes many years. Just look at Coinbase.
The current holdings are valued at today / yesterday's spot rate.
Given that many of these holdings are in (comparatively) thinly traded alt-coins, as soon as you try to dispose of these levels of coins / tokens, the price will fall as supply overwhelms demand.
Of course, this is represented by the fact that many of the alt-coins are marked as relatively illiquid -- and SBF has put a lackadaisical disclaimer at the top about the shifting price.
But the reality is that regardless of how long you wait -- or how much you try to spread the disposals -- you will only ever get a percentage of the current spot rate, given the impact that the sales will always have on the price itself.
I can't shake the feeling that SBF might say... "Yes, but once we have reassured the market, etc, etc, these alt-coins might recover in value -- and then we can dispose at this level."
This is wild. My first question was: who is the CFO who signed off on this?
FTX literally has no CFO [1]. How is this possible for a billion dollar company and billions in client assets? How did the investors not insist on an adult to manage the their investment?
The CFO, and the credibility they bring to the table based on their track record and reputation, is part of the system that helps prevents situations like this.
That is literally jaw dropping. I'm almost amazed that the WSJ never picked that up. I just did a quick search on the wsj.com site and saw several articles from this past summer and none even mentioned that.
The peak market capitalisation of SRM was less than 1.5 billion (according to coinmarketcap.com ) . So how could FTX's holdings every be valued at 2.2 billion?
The only lesson I learend from this whole debacle is never trust people and organisations you know from the Internet no matter how famous or humble or good they are. Trust the tech. But never the people. Especially for financial advices.
Be it Sequoia. Or Yc. PG, Chamath, Mark Cuban ,Balaji or the Collision brothers. Tom Brady or SBF or CZ. Never fucking trust people or organisations.
They are all here for their financial upsides.
Only trust the tech. The maths. If you can't do the work you would be fucked by them.
That's all.
I am not saying PG did something shady. I am saying even a well regarded figure like him in this community should not be taken for granted unless they back their claims by sold evidence.
What I learned from this mess: nothing new. If anything this just reinforces what should already be painfully obvious: invest in real world value that you understand. I have not seen the real world value of crypto or understand how that makes makes outside of itself. Even before crypto currency markets were a thing and were like setting money on fire.
I apply that reasoning to all investments. Sure, I miss out on all the easy money hype trains, but the investment decisions are almost always safe and still better than market average.
Funny how my takeaway (as someone completely removed from the action) has been the opposite: don't trust the tech, filter for trustworthy people. Time and time again we are shown that tech is not solving the human problem of greed and malice, and some kinds of tech rather amplify it.
Why trust the tech if it is built by the same untrustworthy people?
The truth is that for something to be truly spectacular in moving humanity along, you need both tech AND people. You named a bunch of celebrities…OF COURSE you shouldn’t trust those people, you don’t even know them.
Not trusting anyone is just a good way to grow old and bitter about the social state of the world.
That sounds techno-utopian to me. You can't get around trust to people. Technology is run by people using rules and abstractions people agreed to adhere to.
If there comes a day pg makes his twitter handle pg.eth or whatever nonsense a bunch of these guys were doing, I would lose all respect for him. But without that what PG and YC have provided is incredible value. Real world tangible value. Do you remember what snakes VCs used to be before YC came to the scene? Now my only fear is that Garry Tan on the other hand is indeed deep inside these scams whether knowingly or unknowingly. I hope better heads around him keep him and YC safe.
It's kind of an interesting puzzle though. It obviously doesn't work but breaking down exactly why it doesn't is a bit nuanced.
The simplest model we can make is that the market will instantly jump either up or down. Why does the strategy not work in this case? If it jumps up you win. But if it jumps down you lose not just your stake, but you actually go into debt because of slippage. However if you add the possibility of call bankrupcy to discharge the debt, then it actually does work.
On the other hand if you use a more realistic (but not fully, of course) continous model, then it doesn't work. Why? Because there are such a high proportion of paths the price can take where it reaches your stopout before it reaches your payout. It could go down (game over) up up up, or it could go up up down up down down up down down (game over). I believe you can use martingale theory to prove that it doesn't work.
I believe it is true, and there was a good thread on twitter about Kelly optimal bets. It seems clear that SBF, and maybe therefore Alameda, didn't really understand the right hand side of the Kelly optimum.
What the fresh hell? This isn't even an actual accounting balance sheet. He was trying to convince investors to put billions of dollars of actual money into FTX, and the best he could do is the sketchiest one-page Excel ever, complete with comments like "Hidden, poorly internally labled fiat@ account" (sic) worth 8 billion and warnings about typos! No wonder CZ got cold feet.
Somehow this same level of sloppiness, disorganization and disrespect was a mark of a great disruptive innovator just two months ago.
In the Sequoia profile they greatly admire how Bankman-Fried plays League of Legends while pitching to investors, and takes naps in his office when he’s supposed to be in meetings. How surprised can they realistically act that their genius lost 8 billion dollars in a “hidden, poorly internally labeled account”.
The investment industry needs to face their role in this debacle. The Ontario teachers’ pension fund sent tens of millions to FTX with apparently no due diligence. That money ended up in the pockets of crypto insiders and also funded promotion like Super Bowl ads that sucked more retail dollars into FTX. Some of those poor FTX customers who are facing a 100% loss on their crypto “investment” may have been teachers from Ontario.
Pension funds and VCs don’t generally invest in gambling and drugs. Why do they invest in crypto?
You are implying that CZ is doing something more legit and transparent. I belive both were on the same boat and playing the same game. It is just that FTX lost the game first.
Based off the balance sheet FTX may have peaked (September 2021) with more than $100 billion of paper gains in "less liquid" assets.
Token Last wks Last wks Estimated Peak Peak Peak
value price holding price date value
FTT $5.9bn $24.00 246m $77.69 09-Sep-2021 $19bn
SRM $5.4bn $0.75 7,240m $12.50 13-Sep-2021 $90bn
SOL $2.2bn $32.00 70m $258.78 07-Nov-2021 $18bn
Just speculation, but once you've "made" $130bn you feel like a genius. You might want to start acting like a hundred billionare. Time to start throwing money around. Especially spending it on anything that helps you realise those gains.
But FTT/SOL/SRM is not very liquid. So you use your liquid assets (i.e. your customers' USD, USDT, BTC and ETH). People might wonder where you get all this cash. You don't want to admit you are using customer funds and you only have gains on tokens you printed. So pretend you're genius trader and run a highly profitable exchange.
Does he really expect anyone to believe his “poorly labeled internal ... account” story? How can you have $8 BILLION mislabeled? As in, if he transferred or loaned it to Alameda, literally no one was asking: wait, where did this sum of money, so large that it is a massive percentage of our value and could crash the company, come from? Despite all the idiocies that we’re learning about, it is still hard to believe.
Another thing is, it seems like this spreadsheet was hand-crafted by Sam Bankman-Fried just before their emergency meetings this past week. Why wasn’t this something that already existed for all top executives to see? How was it not just a printable document or report but was instead something he just typed up? Because no, it is not obvious that a balance sheet of a supposedly multi-billion dollar company would contain typos. Typos!? I mean, come on.
Then again, I have worked with people similar to how Sam Bankman-Fried seems to operate. Not the possible sociopathic tendencies he appears to have but the sort of twitchy smarts he does seem to have. People like that can sometimes think so fast with a lot of confidence that they create this wake of stuff behind them as they work. They “solve” (i.e., move through) problems so fast, that everyone gets lost in the wake and can’t catch up to find all the mistakes left behind or tie the loose ends together. They consider a problem solved if it’s essentially solved but doesn’t have details thought out or if there are possible mistakes that can be “easily” solved in ways not apparent to anyone else. If there’s no one around to slow these types of workers down, it can be complete chaos where you have one person spearheading away through the bushes, while everyone else is getting slapped in the face with the branches snapping back and thorns. At some point everyone gives up trying to follow. Then the person is off on their own where they lose sight of whatever actual problem they were solving and lose track of the bigger picture.
It is entirely possible that that is a component of what has happened here, coupled with some sociopathy, megalomania, and billions of dollars of funding in Sam Bankman-Fried’s case.
> you have one person spearheading away through the bushes, while everyone else is getting slapped in the face with the branches snapping back and thorns.
You just described me about 15 years ago. I've learned my lesson and avoid "unsupportable solutions" these days like the plague, but I still get pulled aside occasionally and get told quietly that nobody understands why I'm talking about solutions to problems that haven't even come up yet.
[+] [-] neonate|3 years ago|reply
[+] [-] Shank|3 years ago|reply
I can't believe they seriously held that much of their total value in their own issued token. That's just preposterous. Imagine if JP Morgan Chase's entire value was in JP Morgan Chase stock, and they just reported that as their value in cash. It's like recursive valuation.
[+] [-] celestialcheese|3 years ago|reply
To call all those "Less Liquid" tokens not "Illiquid" is a mastery in self-delusion.
$2.1B SRM $981M SOL
and then all the shitcoins built on those "technologies" where the tokens are their "shares" in those investments.
But to call those tokens valuable assumes there's value in MAPS/OXY etc.
But MAPS has a total market cap of $3.9m today - the forced liquidations in these positions will 100% crush these coins. Even SOL and SRC. Hell - other than their Robinhood position and the fiat and fiat-tokens, there's almost nothing of real value once these liquidations happen.
My guess is less than $700m recoverable, so if you get an offer for >$0.10/dollar on your deposits from a vulture bankruptcy fund, I'd take it.
[+] [-] rippercushions|3 years ago|reply
BTC
[+] [-] grey-area|3 years ago|reply
Binance, Tether, Bitfinex are all basing their purported asset value on holdings of multiple worthless currencies, many of which they mint and price themselves.
[+] [-] celestialcheese|3 years ago|reply
So even the less-shit coins SOL are just getting siphoned off.
I'd take $0.05/dollar now.
[+] [-] trophycase|3 years ago|reply
[+] [-] fallingknife|3 years ago|reply
[+] [-] SilverBirch|3 years ago|reply
[+] [-] irusensei|3 years ago|reply
Does that sound moral to you? I think it’s absolutely terrifying. Every candidate that received that money should have their relation to Scam Bankman-Fraud investigated. It gets worse when you realize his mother and business partner are either related to certain political parties and the SEC chairman.
[+] [-] mudrockbestgirl|3 years ago|reply
Also, where does Alameda fit into the picture?
[+] [-] bagels|3 years ago|reply
[+] [-] jjallen|3 years ago|reply
[+] [-] tasubotadas|3 years ago|reply
What was their plan? Were they blind? Were they hoping to cash out before it crashed?
Major investors usually get full visibility into the company.
[+] [-] ekpyrotic|3 years ago|reply
The current holdings are valued at today / yesterday's spot rate.
Given that many of these holdings are in (comparatively) thinly traded alt-coins, as soon as you try to dispose of these levels of coins / tokens, the price will fall as supply overwhelms demand.
Of course, this is represented by the fact that many of the alt-coins are marked as relatively illiquid -- and SBF has put a lackadaisical disclaimer at the top about the shifting price.
But the reality is that regardless of how long you wait -- or how much you try to spread the disposals -- you will only ever get a percentage of the current spot rate, given the impact that the sales will always have on the price itself.
I can't shake the feeling that SBF might say... "Yes, but once we have reassured the market, etc, etc, these alt-coins might recover in value -- and then we can dispose at this level."
And, of course, the merry-go-round starts again.
[+] [-] jmyeet|3 years ago|reply
FTX literally has no CFO [1]. How is this possible for a billion dollar company and billions in client assets? How did the investors not insist on an adult to manage the their investment?
The CFO, and the credibility they bring to the table based on their track record and reputation, is part of the system that helps prevents situations like this.
[1]: https://www.ledgerinsights.com/ftx-warning-signs-no-cfo/
[+] [-] SkipperCat|3 years ago|reply
WSJ nailed it with Theranos, missed it with FTX.
[+] [-] grey-area|3 years ago|reply
https://mobile.twitter.com/LucasNuzzi/status/159159590823988...
[+] [-] vasco|3 years ago|reply
[0] https://youtu.be/XnwRMaW-Kdc
[+] [-] Marazan|3 years ago|reply
The peak market capitalisation of SRM was less than 1.5 billion (according to coinmarketcap.com ) . So how could FTX's holdings every be valued at 2.2 billion?
[+] [-] Marazan|3 years ago|reply
[+] [-] blue_light_man|3 years ago|reply
Be it Sequoia. Or Yc. PG, Chamath, Mark Cuban ,Balaji or the Collision brothers. Tom Brady or SBF or CZ. Never fucking trust people or organisations.
They are all here for their financial upsides.
Only trust the tech. The maths. If you can't do the work you would be fucked by them.
That's all.
I am not saying PG did something shady. I am saying even a well regarded figure like him in this community should not be taken for granted unless they back their claims by sold evidence.
[+] [-] throwaway0asd|3 years ago|reply
I apply that reasoning to all investments. Sure, I miss out on all the easy money hype trains, but the investment decisions are almost always safe and still better than market average.
[+] [-] throwaway290|3 years ago|reply
[+] [-] mym1990|3 years ago|reply
The truth is that for something to be truly spectacular in moving humanity along, you need both tech AND people. You named a bunch of celebrities…OF COURSE you shouldn’t trust those people, you don’t even know them.
Not trusting anyone is just a good way to grow old and bitter about the social state of the world.
[+] [-] dgudkov|3 years ago|reply
[+] [-] ilrwbwrkhv|3 years ago|reply
[+] [-] aaronbrethorst|3 years ago|reply
[+] [-] unknown|3 years ago|reply
[deleted]
[+] [-] shapefrog|3 years ago|reply
Should we not do that because, with one voice they are all saying that you should do that?
[+] [-] thebeastie|3 years ago|reply
[+] [-] macrolime|3 years ago|reply
"this blog endorses double-or-nothing coin flips and high leverage"
https://pbs.twimg.com/media/FhaKXhRXwAEfvKD?format=jpg&name=...
[+] [-] im3w1l|3 years ago|reply
The simplest model we can make is that the market will instantly jump either up or down. Why does the strategy not work in this case? If it jumps up you win. But if it jumps down you lose not just your stake, but you actually go into debt because of slippage. However if you add the possibility of call bankrupcy to discharge the debt, then it actually does work.
On the other hand if you use a more realistic (but not fully, of course) continous model, then it doesn't work. Why? Because there are such a high proportion of paths the price can take where it reaches your stopout before it reaches your payout. It could go down (game over) up up up, or it could go up up down up down down up down down (game over). I believe you can use martingale theory to prove that it doesn't work.
[+] [-] ealexhudson|3 years ago|reply
[+] [-] rippercushions|3 years ago|reply
[+] [-] pavlov|3 years ago|reply
In the Sequoia profile they greatly admire how Bankman-Fried plays League of Legends while pitching to investors, and takes naps in his office when he’s supposed to be in meetings. How surprised can they realistically act that their genius lost 8 billion dollars in a “hidden, poorly internally labeled account”.
The investment industry needs to face their role in this debacle. The Ontario teachers’ pension fund sent tens of millions to FTX with apparently no due diligence. That money ended up in the pockets of crypto insiders and also funded promotion like Super Bowl ads that sucked more retail dollars into FTX. Some of those poor FTX customers who are facing a 100% loss on their crypto “investment” may have been teachers from Ontario.
Pension funds and VCs don’t generally invest in gambling and drugs. Why do they invest in crypto?
[+] [-] laichzeit0|3 years ago|reply
[+] [-] mayankkaizen|3 years ago|reply
[+] [-] guy_c|3 years ago|reply
But FTT/SOL/SRM is not very liquid. So you use your liquid assets (i.e. your customers' USD, USDT, BTC and ETH). People might wonder where you get all this cash. You don't want to admit you are using customer funds and you only have gains on tokens you printed. So pretend you're genius trader and run a highly profitable exchange.
[+] [-] bmitc|3 years ago|reply
Another thing is, it seems like this spreadsheet was hand-crafted by Sam Bankman-Fried just before their emergency meetings this past week. Why wasn’t this something that already existed for all top executives to see? How was it not just a printable document or report but was instead something he just typed up? Because no, it is not obvious that a balance sheet of a supposedly multi-billion dollar company would contain typos. Typos!? I mean, come on.
Then again, I have worked with people similar to how Sam Bankman-Fried seems to operate. Not the possible sociopathic tendencies he appears to have but the sort of twitchy smarts he does seem to have. People like that can sometimes think so fast with a lot of confidence that they create this wake of stuff behind them as they work. They “solve” (i.e., move through) problems so fast, that everyone gets lost in the wake and can’t catch up to find all the mistakes left behind or tie the loose ends together. They consider a problem solved if it’s essentially solved but doesn’t have details thought out or if there are possible mistakes that can be “easily” solved in ways not apparent to anyone else. If there’s no one around to slow these types of workers down, it can be complete chaos where you have one person spearheading away through the bushes, while everyone else is getting slapped in the face with the branches snapping back and thorns. At some point everyone gives up trying to follow. Then the person is off on their own where they lose sight of whatever actual problem they were solving and lose track of the bigger picture.
It is entirely possible that that is a component of what has happened here, coupled with some sociopathy, megalomania, and billions of dollars of funding in Sam Bankman-Fried’s case.
[+] [-] jiggawatts|3 years ago|reply
You just described me about 15 years ago. I've learned my lesson and avoid "unsupportable solutions" these days like the plague, but I still get pulled aside occasionally and get told quietly that nobody understands why I'm talking about solutions to problems that haven't even come up yet.