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Sam Bankman-Fried Described Yield Farming and Left Matt Levine Stunned

133 points by webmaven 4y ago

tluyben2 4y ago
Nothing new; just a lovely pass-the-turd fast so you don’t get caught in the inevitable crash.
darawk 4y ago
What farming actually is is companies using their equity directly as marketing incentives. In principle, there is nothing really wrong with this, although usually companies don't find that to be the most efficient way to use their equity. The problem with farming was that, in many, but not all, cases, the equity in question had no value. It isn't true that they were all ponzi schemes, though. Many of the tokens did generate and continue to generate quite significant revenue for their holders, e.g. Compound. You can argue that the entire space is a ponzi, but within that space, Compound (among several others) is a legitimate service provider to the casino, and earns real income for doing so. Farming is really no different from startups paying early employees in options. Its just that the companies were a lot dumber, and it was a lot easier to participate.
- mywaifuismeta 4y ago
  While the analogy is correct, a key difference is that startups are illiquid by definition. Founders can't just cash out and are thus incentivized by build something of value. With protocols, there is no incentive to build something of value. Instead, the incentive is to building something that looks valuable on the surface to generate liquidity and cash out at the best point.
  - Jommi 4y ago
    "What are secondaries?"
    - mywaifuismeta 4y ago
      Not for super early stage. Crypto projects cash out after a few months or so. That's pre-seed/seed startups.
      - Jommi 4y ago
        But you used a binary term "illiquid" rather than opting for something more open like "most illiquid". Just wanted to make a clarificaiton for other readers. Are you aware that most crypto projects also opt into vesting patterns - and this is an increasing trend overall? Another thing that might be interesting to you is that in most countries we have close to no public information if founders sell on secondaries. Your C-Suite might have maximized their secondaries in mutliple rounds and you wouldn't even know that incentives have changed. In Crypto this is fully transparent and there are people bringing these to light on a consistent basis. Some stuff to think about!
    - api 4y ago
      Secondaries are rare until series A or later.
vsnf 4y ago
The shock in Matt's voice was hilarious on the podcast. It's in the article, but here is is for anyone looking for it: > 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.
- s1artibartfast 4y ago
  FYI, the timestamps in the article are about 2 minutes earlier than the actual track, so this would be somewhere around 29 minutes
lordnacho 4y ago
DeFi/crypto detractors will say "but there's nothing backing it" which is not entirely crazy. After all you could just print out bits of paper and exchange them for money, so long as someone is willing to play that game with you. Blockchain is no different, it's just a clever way to record who has what. So why do people put billions in crypto but not in random bits of paper such as Pokemon cards? Liquidity. This is the magic of the IPO: bits of paper that give you dividend rights to a business suddenly become worth multiples more when it becomes easy to trade them. I'll take a punt on your crappy taxi app if I can jump out of that bet for a small fee. The motivation? Other people will think the same. Crypto has reinvented the financial system, particularly the part where you can split risks and trade them. There's a whole industry of liquidity providers who basically transport risk across venues and risk classes: prices for the same thing need to be approximately the same across venues, returns for riskier things need to be higher than returns for less risky things. Things that are a bag of risk need to cost something similar to the sum of things in the bag. This is the exact same as in the traditional financial market: ETFs are bags of stocks, high yield bonds are for riskier issuers, and you can buy the same stock on many exchanges at more or less the same price. A lot of these trades are really just relative value arbs: something is worth x here, so I can offer it at x + 1 there. When some guy gives it to me at x, I sell it to the other guy at x + 1. If some guy gives me a bag for X + Y, I sell the X to one guy for X + 1 and I sell the Y for Y + 1. But the liquidity is what allows people to stick loads of money in. They see that you can have a punt on something and get your money back for low slippage, so they give it a go. Whether that's in one scheme or another doesn't matter, but this "put money in a box" analogy is quite apt. Maybe your mechanism is a DAO, maybe it's an AMM, maybe it's some option vault. As long as there's a financial sense in which it can be glued to the rest of the ecosystem, someone will have a go at it.
- puranjay 4y ago
  imo, this liquidity is precisely what's stifling widespread crypto adoption. Speculators kill long term growth of any project and punish actual users the most. GameFi is the perfect example - prices go up as speculators pile in. Actual gamers suddenly can't afford to play (which is why you have gaming "scholarships" - an absurd idea). Most projects that have earmarked tokens for their employees suffer as well. As the token goes through the speculative pump and dump, employees with locked in tokens can watch their networth go from millions to nothing - without being able to do anything about it. Employees constantly jump ship because after the dump, they realize that their locked in tokens are worth very little - and when the vesting ends, they market dump it all to get whatever profit they can. As the price craters, the project finds it harder and harder to attract new talent. I've seen this happen with so many projects that I now appreciate why we don't have exchanges for new businesses. Can you imagine what the startup world would be like if every startup was listed on a stock exchange immediately after it was founded? You'd have speculators pumping up the stock price based on rumor and/or fact ("YC invested! Sequoia is in!"). Employee vested ESOPs would go from millions to nothing and hiring future employees would be extremely hard since their ESOPs would be worth nothing.
thematrixturtle 4y ago
> SBF: Well, okay. So you've got this boxes and it’s kind of dumb, but like what's the end game, right? This box is worth zero obviously. It blows my mind that the people profiting from this are publicly describing the scheme like this, and nobody seems to care.
- ackbar03 4y ago
  They are describing this from the perspective of an exchange however. Also most of the initial guys came from Jane Street which is a market maker. While I haven't personally worked at a market maker before, I suspect these guys are less fascinated by crytpocurrencies themselves but by how there is suddenly a whole new class of assets that is ballooning and ripe for market makers. As market makers, they are also understandably less concerned about what an underlying asset itself really is worth, or what it even is, but more about facilitating transactions and arbitraging away inefficiencies. (for example, in the podcast he repeats a few times, "who are we to question what it's worth if the markets have spoken"). So from that perspective I can sort of understand why he described it that way.
- Melting_Harps 4y ago
  > It blows my mind that the people profiting from this are publicly describing the scheme like this, and nobody seems to care. This is the same guy the media and lots of HN were parroting his 'Bitcoin has no future' artile recently, when it should have been caveated as 'No future as a pump and dump' token for DeFi scams. Which is true, their is really no way to do that in the BTC ecosystem, and for good reason. Wrapping and all that was the closest thing, and to be honest it was short-lived. Sam is a clear example of what happened from 2014 onward, billionaires made from the least interesting aspects of this ecosystem, which incidentally is also why most of VC has poured into this space. Honestly, their is no value in ~95% of alts, they are the 'pink sheets' of the crypto currency space.
- onlyrealcuzzo 4y ago
  Nobody cares if the make money. Everyone is still filled with hope. They'll care if/when they lose.
- 4y ago
puranjay 4y ago
All crypto degens know when SBF is in a farm. The price pumps initially since SBF going into a new farm means a) buy pressure, and b) the farm is "safe" for others to buy into. And then SBF starts farming and dumping. People who don't understand the mechanics can be left holding the bag. As an example, this is the classic "SBFed" yield farm coin chart: https://www.coingecko.com/en/coins/big-data-protocol https://www.coingecko.com/en/coins/big-data-protocol
mywaifuismeta 4y ago
It's kind of a Ponzi scheme, but not really since it's not (usually) orchestrated by one malicious entity. Instead, it's a collaborative community effort with the community doing marketing and driving the price. In other words, the dirty work if customer acquisition and advertising is outsourced. It's not so different from crazy startup valuations that are often a result of market forces and competition, with the hope of exiting through acquisition to generate returns before anyone notices not much of value actually exists. It's a fun game to play, just like casinos are fun. In 99.9% of cases nothing of value is behind these protocols.
- Jabbles 4y ago
  Sick of people calling everything in crypto a Ponzi scheme. Some crypto projects are pump and dump schemes, while others are pyramid schemes. Others are just standard issue fraud. Others are just middlemen skimming of the top. Stop glossing over the diversity in the industry. https://twitter.com/patdennis/status/1518637225789042688 https://twitter.com/patdennis/status/1518637225789042688
  - CryptoPunk 4y ago
  - mywaifuismeta 4y ago
    What I don't like about this terminology is that I associate these "schemes" with a malicious actor. Someone trying to scam you. But often that's not the case with these crypto projects. Often, nobody is explicitly trying to scam anyone, but everyone looks out for themselves first and wants to make money, which inevitably results in other people losing money if they are too late. If a traditional startup is valued at $10M, I'm sure many founders would choose abandon it and take $5M in cash if only they could. The difference is that the liquidity is not there, so the option doesn't exist. In crypto, protocol founders may not start the project with the goal of abandoning it, but once they can choose between cashing out with $5M by abandoning it, they take that route because they can. People then call this a "rug pull" or "ponzi scheme" but I don't think the intentions are the same.
wcerfgba 4y ago
Subjective theory of value + Speculation + Unregulated markets = Ponzi schemes
- Destiner 4y ago
  Is it "unregulated markets" that make all the difference somehow? Aren't $tsla, $zm, $coin ponzis as well?
perihelions 4y ago
It's a Ponzi scheme. He doesn't even seem to push back against the "Ponzi" phrasing. Also -- this is merely a footnote -- his Ponzi scheme is currently the 3rd-largest political donation source in the USA. https://www.opensecrets.org/outsidespending/summ.php?GoToPage=%2Foutsidespending%2Fsumm.php%3Fcycle%3D2022%26chrt%3DV%26disp%3DO%26type%3DA https://www.opensecrets.org/outsidespending/summ.php?GoToPag... https://www.nbcnews.com/politics/2022-election/-crypto-cash-floods-democratic-primaries-rankling-lawmakers-rcna26463 https://www.nbcnews.com/politics/2022-election/-crypto-cash-...
- api 4y ago
  Regulatory capture by a Ponzi scheme was just added to my "list of things that could legitimately destroy the USA from within." Did Bernie Madoff ever do this? I feel like he did, but maybe not so effectively or at such scale.
  - throwaway_1928 4y ago
    Madoff was different in that he successfully hid the fact that his was a ponzi scheme for 40 years. This interview with SBF suggests crypto does not even try and hide it.
  - rjeli 4y ago
    Albania did, and it led to a civil war.
  - acjohnson55 4y ago
    This has happened a number of times in this country. One major example is MLM, which was fully legitimized in 70s and 80s, after spending some time in a legal gray area. Ever since, the industry has expanded, even though it largely functions as wealth transfer from late arrivals to early incumbents, with a sprinkling of sustainable external commerce.
- axg11 4y ago
  Calling it a Ponzi scheme is uninteresting and not really the point here. Was GameStop a Ponzi scheme when the stock price soared? I think the interesting part here is the relation to bitcoin and a new theory on how to price things. It’s traditionally been assumed that the price of an asset is related to the underlying value it has or the value it generates (eg cash flow). SBF is pointing out that’s not a complete method of pricing assets in today’s world. You also have to factor in “collective agreements”. Bitcoin is the clearest example of an asset price that is driven by collective agreement. The collective agreement is enshrined in code and algorithms.
the_imp 4y ago
When farming tulips, at least you could get pretty flowers from them.
drumhead 4y ago
I heard this for the first time last week and I couldnt believe the business model. Its effectively a ponzi scheme but the scheme originater was just so relaxed about it as if it was nothing to be concerned about and was perfectly normal. I think in the Cryto world though the participants, on buy and sell sides, are all fully aware though, all they seem to be concerned with is how much of a speculative boost it will give to the coin price so they can land a 1000% gain in a few days/weeks/months and then cash out leaving someone else holding the baby.
Jommi 4y ago
He is not really describing yield-farming here, he is describing what kind of price action happens when anyone can create a global, liquid, unregulated with just a computer as a tool. In the US, people can get 100-500$ just by creating a new bank account and deposting money into it. Some people do that, but then immedietly remove the funds once the bonus is paid out. In reality, yield farming is just that, except in crypto: https://www.reddit.com/r/churning/ https://www.reddit.com/r/churning/ It's people chasing bank / credit card marketing bonuses without really any thought of actually using those banks/credit cards in the long term. This is the correct analogy.
- gregsadetsky 4y ago
  To my knowledge, credit card / bank signup bonus are not marketed / packaged as asset classes. Learning that a non-crypto investment instrument was based on bank signup bonuses would be shocking to most, no? To me, that’s the source of the astonishment in the podcast. If what we’re talking about is built on non-sustainable foundations, fine. Call it that. But that’s the opposite of an investment opportunity.
  - Jommi 4y ago
    Yes, indeed this is credit card / bank signup bonus but it's actually giving you equity in the bank instead of pure USD. Yield farming is usualled called "mercenary" because of this, as instead of specualting, some instantly just sell whatever "equity" or token back into USD. Some prefer to keep the token and speculate on its value. Everyone is making their own decisions. >Learning that a non-crypto investment instrument was based on bank signup bonuses would be shocking to most, no? What do you mean by this?
    - gregsadetsky 4y ago
      As far as I understand (and from an extremely cursory google search), (crypto) yield farming is described as "An investing strategy". Not as a bonus on top of something else. i.e. the "bonus" is the only point. Your argument (again, afaik) was that yield farming should be likened to bank sign up bonuses. If I follow that argument: If someone were to tell me in the non-crypto world that there was a new "Investment strategy" and when I asked what it was based on, the answer was that my money would be used to pay people to open bank accounts to get the sign up bonus and that part of those bonuses would trickle back to me (making this, in some sense, "an investment strategy") -- I would run away. But maybe I'm taking the analogy too far :-)
lizknope 4y ago
This video was from a month ago and is about the same podcast with Sam Bankman-Fried. The way he describes the box and how it isn't a Ponzi scheme is just ridiculous Crypto CEO Accidentally Describes Ponzi Scheme https://www.youtube.com/watch?v=C6nAxiym9oc https://www.youtube.com/watch?v=C6nAxiym9oc
epmatsw 4y ago
Odd Lots is also a really excellent podcast, even outside of this episode. Their coverage of the past couple years of supply chain issues has been so cool.
sudden_dystopia 4y ago
I found the conversation around valuation the most interesting. Especially how the crypto valuation world has spilled over in to the stock market. It’s been my theory that traditional valuation methods are dying in certain areas because they rely on rational markets, and when you have a bunch of retail investors, the markets become irrational and harder to value/predict.
Kiro 4y ago
Aren't automatic market makers with yield farming a thing outside crypto? Let's say Uniswap but with USD and GBP. Are those Ponzi schemes as well?
- SideburnsOfDoom 4y ago
  > Aren't automatic market makers with yield farming a thing outside crypto Are they the main thing, or the only thing, outside of crypto? Is there much more to the market than that, outside of crypto?
mthehacker 4y ago
I want to be the emporer's tailor.
phoe-krk 4y ago
> One takeaway from this whole conversation is that DeFi might be more similar to Bitcoin than a lot of people thought, deriving its value from collective agreement that the ‘thing’ (in this case the box, or yield-farming protocol) is worth something rather than deriving value from a fundamental usefulness.
benlivengood 4y ago
It's possible to describe some of these tokens as lotteries or games of chance as well; people have been buying negative-expected-value lottery tickets for decades now and it's mostly treated as normal.
isitmadeofglass 4y ago
It’s a Ponzi scheme, but he’s not afraid or shamed to blatantly state it because the gains and the responsibility for it are distributed. They are betting that when the crash comes they can throw their arms in the air and say “well that was to bad, sell pressure outweighed buy pressure as the value went to zero, but that’s not our fault” all the while everyone who ever put money in the box have been slowly draining the excess. Naturally those in the know and on the inside have had the best oppotunity to drain the spoils, but in principle anyone could have done it all along. And so it goes that it’s not their fault and they didn’t mislead anyone. It’s just a Ponzi scheme going Ponzi, with everyone who joined up being partially to blame all on their own. I hope it doesn’t go down like that, but that’s what it looks like.
gavinray 4y ago
This wasn't how I had yield-farming described to me by people very knowledgeable on it The way I had it described involved at least 2 types of coins, with varying rates on different platforms. And a sort of cyclical loop where you were borrowing on one platform + token, to buy more of another (different) token, with a price inequality between them that facilitated this loop infinitely. It was described to me as blatantly "degenerate" and "the equivalent of a money-printing machine/a bug in game code." I don't see anything wrong with it. Money isn't about ethics, and the people who explained this to me make several times my annual income from doing this. Personally, I don't want to invest the free time to try to keep up with all this crypto stuff.

133 points by webmaven 4y ago

Nothing new; just a lovely pass-the-turd fast so you don’t get caught in the inevitable crash.

What farming actually is is companies using their equity directly as marketing incentives. In principle, there is nothing really wrong with this, although usually companies don't find that to be the most efficient way to use their equity. The problem with farming was that, in many, but not all, cases, the equity in question had no value. It isn't true that they were all ponzi schemes, though. Many of the tokens did generate and continue to generate quite significant revenue for their holders, e.g. Compound. You can argue that the entire space is a ponzi, but within that space, Compound (among several others) is a legitimate service provider to the casino, and earns real income for doing so. Farming is really no different from startups paying early employees in options. Its just that the companies were a lot dumber, and it was a lot easier to participate.

mywaifuismeta 4y ago
While the analogy is correct, a key difference is that startups are illiquid by definition. Founders can't just cash out and are thus incentivized by build something of value. With protocols, there is no incentive to build something of value. Instead, the incentive is to building something that looks valuable on the surface to generate liquidity and cash out at the best point.
- Jommi 4y ago
  "What are secondaries?"
  - mywaifuismeta 4y ago
    Not for super early stage. Crypto projects cash out after a few months or so. That's pre-seed/seed startups.
    - Jommi 4y ago
      But you used a binary term "illiquid" rather than opting for something more open like "most illiquid". Just wanted to make a clarificaiton for other readers. Are you aware that most crypto projects also opt into vesting patterns - and this is an increasing trend overall? Another thing that might be interesting to you is that in most countries we have close to no public information if founders sell on secondaries. Your C-Suite might have maximized their secondaries in mutliple rounds and you wouldn't even know that incentives have changed. In Crypto this is fully transparent and there are people bringing these to light on a consistent basis. Some stuff to think about!
  - api 4y ago
    Secondaries are rare until series A or later.

vsnf 4y ago

The shock in Matt's voice was hilarious on the podcast. It's in the article, but here is is for anyone looking for it: > 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.

s1artibartfast 4y ago
FYI, the timestamps in the article are about 2 minutes earlier than the actual track, so this would be somewhere around 29 minutes

lordnacho 4y ago

DeFi/crypto detractors will say "but there's nothing backing it" which is not entirely crazy. After all you could just print out bits of paper and exchange them for money, so long as someone is willing to play that game with you. Blockchain is no different, it's just a clever way to record who has what. So why do people put billions in crypto but not in random bits of paper such as Pokemon cards? Liquidity. This is the magic of the IPO: bits of paper that give you dividend rights to a business suddenly become worth multiples more when it becomes easy to trade them. I'll take a punt on your crappy taxi app if I can jump out of that bet for a small fee. The motivation? Other people will think the same. Crypto has reinvented the financial system, particularly the part where you can split risks and trade them. There's a whole industry of liquidity providers who basically transport risk across venues and risk classes: prices for the same thing need to be approximately the same across venues, returns for riskier things need to be higher than returns for less risky things. Things that are a bag of risk need to cost something similar to the sum of things in the bag. This is the exact same as in the traditional financial market: ETFs are bags of stocks, high yield bonds are for riskier issuers, and you can buy the same stock on many exchanges at more or less the same price. A lot of these trades are really just relative value arbs: something is worth x here, so I can offer it at x + 1 there. When some guy gives it to me at x, I sell it to the other guy at x + 1. If some guy gives me a bag for X + Y, I sell the X to one guy for X + 1 and I sell the Y for Y + 1. But the liquidity is what allows people to stick loads of money in. They see that you can have a punt on something and get your money back for low slippage, so they give it a go. Whether that's in one scheme or another doesn't matter, but this "put money in a box" analogy is quite apt. Maybe your mechanism is a DAO, maybe it's an AMM, maybe it's some option vault. As long as there's a financial sense in which it can be glued to the rest of the ecosystem, someone will have a go at it.

puranjay 4y ago
imo, this liquidity is precisely what's stifling widespread crypto adoption. Speculators kill long term growth of any project and punish actual users the most. GameFi is the perfect example - prices go up as speculators pile in. Actual gamers suddenly can't afford to play (which is why you have gaming "scholarships" - an absurd idea). Most projects that have earmarked tokens for their employees suffer as well. As the token goes through the speculative pump and dump, employees with locked in tokens can watch their networth go from millions to nothing - without being able to do anything about it. Employees constantly jump ship because after the dump, they realize that their locked in tokens are worth very little - and when the vesting ends, they market dump it all to get whatever profit they can. As the price craters, the project finds it harder and harder to attract new talent. I've seen this happen with so many projects that I now appreciate why we don't have exchanges for new businesses. Can you imagine what the startup world would be like if every startup was listed on a stock exchange immediately after it was founded? You'd have speculators pumping up the stock price based on rumor and/or fact ("YC invested! Sequoia is in!"). Employee vested ESOPs would go from millions to nothing and hiring future employees would be extremely hard since their ESOPs would be worth nothing.

thematrixturtle 4y ago

> SBF: Well, okay. So you've got this boxes and it’s kind of dumb, but like what's the end game, right? This box is worth zero obviously. It blows my mind that the people profiting from this are publicly describing the scheme like this, and nobody seems to care.

ackbar03 4y ago
They are describing this from the perspective of an exchange however. Also most of the initial guys came from Jane Street which is a market maker. While I haven't personally worked at a market maker before, I suspect these guys are less fascinated by crytpocurrencies themselves but by how there is suddenly a whole new class of assets that is ballooning and ripe for market makers. As market makers, they are also understandably less concerned about what an underlying asset itself really is worth, or what it even is, but more about facilitating transactions and arbitraging away inefficiencies. (for example, in the podcast he repeats a few times, "who are we to question what it's worth if the markets have spoken"). So from that perspective I can sort of understand why he described it that way.
Melting_Harps 4y ago
> It blows my mind that the people profiting from this are publicly describing the scheme like this, and nobody seems to care. This is the same guy the media and lots of HN were parroting his 'Bitcoin has no future' artile recently, when it should have been caveated as 'No future as a pump and dump' token for DeFi scams. Which is true, their is really no way to do that in the BTC ecosystem, and for good reason. Wrapping and all that was the closest thing, and to be honest it was short-lived. Sam is a clear example of what happened from 2014 onward, billionaires made from the least interesting aspects of this ecosystem, which incidentally is also why most of VC has poured into this space. Honestly, their is no value in ~95% of alts, they are the 'pink sheets' of the crypto currency space.
onlyrealcuzzo 4y ago
Nobody cares if the make money. Everyone is still filled with hope. They'll care if/when they lose.
4y ago

puranjay 4y ago

All crypto degens know when SBF is in a farm. The price pumps initially since SBF going into a new farm means a) buy pressure, and b) the farm is "safe" for others to buy into. And then SBF starts farming and dumping. People who don't understand the mechanics can be left holding the bag. As an example, this is the classic "SBFed" yield farm coin chart: https://www.coingecko.com/en/coins/big-data-protocol https://www.coingecko.com/en/coins/big-data-protocol

mywaifuismeta 4y ago

It's kind of a Ponzi scheme, but not really since it's not (usually) orchestrated by one malicious entity. Instead, it's a collaborative community effort with the community doing marketing and driving the price. In other words, the dirty work if customer acquisition and advertising is outsourced. It's not so different from crazy startup valuations that are often a result of market forces and competition, with the hope of exiting through acquisition to generate returns before anyone notices not much of value actually exists. It's a fun game to play, just like casinos are fun. In 99.9% of cases nothing of value is behind these protocols.

Jabbles 4y ago
Sick of people calling everything in crypto a Ponzi scheme. Some crypto projects are pump and dump schemes, while others are pyramid schemes. Others are just standard issue fraud. Others are just middlemen skimming of the top. Stop glossing over the diversity in the industry. https://twitter.com/patdennis/status/1518637225789042688 https://twitter.com/patdennis/status/1518637225789042688
- CryptoPunk 4y ago
- mywaifuismeta 4y ago
  What I don't like about this terminology is that I associate these "schemes" with a malicious actor. Someone trying to scam you. But often that's not the case with these crypto projects. Often, nobody is explicitly trying to scam anyone, but everyone looks out for themselves first and wants to make money, which inevitably results in other people losing money if they are too late. If a traditional startup is valued at $10M, I'm sure many founders would choose abandon it and take $5M in cash if only they could. The difference is that the liquidity is not there, so the option doesn't exist. In crypto, protocol founders may not start the project with the goal of abandoning it, but once they can choose between cashing out with $5M by abandoning it, they take that route because they can. People then call this a "rug pull" or "ponzi scheme" but I don't think the intentions are the same.

wcerfgba 4y ago

Subjective theory of value + Speculation + Unregulated markets = Ponzi schemes

Destiner 4y ago
Is it "unregulated markets" that make all the difference somehow? Aren't $tsla, $zm, $coin ponzis as well?

perihelions 4y ago

It's a Ponzi scheme. He doesn't even seem to push back against the "Ponzi" phrasing. Also -- this is merely a footnote -- his Ponzi scheme is currently the 3rd-largest political donation source in the USA. https://www.opensecrets.org/outsidespending/summ.php?GoToPage=%2Foutsidespending%2Fsumm.php%3Fcycle%3D2022%26chrt%3DV%26disp%3DO%26type%3DA https://www.opensecrets.org/outsidespending/summ.php?GoToPag... https://www.nbcnews.com/politics/2022-election/-crypto-cash-floods-democratic-primaries-rankling-lawmakers-rcna26463 https://www.nbcnews.com/politics/2022-election/-crypto-cash-...

api 4y ago
Regulatory capture by a Ponzi scheme was just added to my "list of things that could legitimately destroy the USA from within." Did Bernie Madoff ever do this? I feel like he did, but maybe not so effectively or at such scale.
- throwaway_1928 4y ago
  Madoff was different in that he successfully hid the fact that his was a ponzi scheme for 40 years. This interview with SBF suggests crypto does not even try and hide it.
- rjeli 4y ago
  Albania did, and it led to a civil war.
- acjohnson55 4y ago
  This has happened a number of times in this country. One major example is MLM, which was fully legitimized in 70s and 80s, after spending some time in a legal gray area. Ever since, the industry has expanded, even though it largely functions as wealth transfer from late arrivals to early incumbents, with a sprinkling of sustainable external commerce.
axg11 4y ago
Calling it a Ponzi scheme is uninteresting and not really the point here. Was GameStop a Ponzi scheme when the stock price soared? I think the interesting part here is the relation to bitcoin and a new theory on how to price things. It’s traditionally been assumed that the price of an asset is related to the underlying value it has or the value it generates (eg cash flow). SBF is pointing out that’s not a complete method of pricing assets in today’s world. You also have to factor in “collective agreements”. Bitcoin is the clearest example of an asset price that is driven by collective agreement. The collective agreement is enshrined in code and algorithms.

the_imp 4y ago

When farming tulips, at least you could get pretty flowers from them.

drumhead 4y ago

I heard this for the first time last week and I couldnt believe the business model. Its effectively a ponzi scheme but the scheme originater was just so relaxed about it as if it was nothing to be concerned about and was perfectly normal. I think in the Cryto world though the participants, on buy and sell sides, are all fully aware though, all they seem to be concerned with is how much of a speculative boost it will give to the coin price so they can land a 1000% gain in a few days/weeks/months and then cash out leaving someone else holding the baby.

Jommi 4y ago

He is not really describing yield-farming here, he is describing what kind of price action happens when anyone can create a global, liquid, unregulated with just a computer as a tool. In the US, people can get 100-500$ just by creating a new bank account and deposting money into it. Some people do that, but then immedietly remove the funds once the bonus is paid out. In reality, yield farming is just that, except in crypto: https://www.reddit.com/r/churning/ https://www.reddit.com/r/churning/ It's people chasing bank / credit card marketing bonuses without really any thought of actually using those banks/credit cards in the long term. This is the correct analogy.

gregsadetsky 4y ago
To my knowledge, credit card / bank signup bonus are not marketed / packaged as asset classes. Learning that a non-crypto investment instrument was based on bank signup bonuses would be shocking to most, no? To me, that’s the source of the astonishment in the podcast. If what we’re talking about is built on non-sustainable foundations, fine. Call it that. But that’s the opposite of an investment opportunity.
- Jommi 4y ago
  Yes, indeed this is credit card / bank signup bonus but it's actually giving you equity in the bank instead of pure USD. Yield farming is usualled called "mercenary" because of this, as instead of specualting, some instantly just sell whatever "equity" or token back into USD. Some prefer to keep the token and speculate on its value. Everyone is making their own decisions. >Learning that a non-crypto investment instrument was based on bank signup bonuses would be shocking to most, no? What do you mean by this?
  - gregsadetsky 4y ago
    As far as I understand (and from an extremely cursory google search), (crypto) yield farming is described as "An investing strategy". Not as a bonus on top of something else. i.e. the "bonus" is the only point. Your argument (again, afaik) was that yield farming should be likened to bank sign up bonuses. If I follow that argument: If someone were to tell me in the non-crypto world that there was a new "Investment strategy" and when I asked what it was based on, the answer was that my money would be used to pay people to open bank accounts to get the sign up bonus and that part of those bonuses would trickle back to me (making this, in some sense, "an investment strategy") -- I would run away. But maybe I'm taking the analogy too far :-)

lizknope 4y ago

This video was from a month ago and is about the same podcast with Sam Bankman-Fried. The way he describes the box and how it isn't a Ponzi scheme is just ridiculous Crypto CEO Accidentally Describes Ponzi Scheme https://www.youtube.com/watch?v=C6nAxiym9oc https://www.youtube.com/watch?v=C6nAxiym9oc

epmatsw 4y ago

Odd Lots is also a really excellent podcast, even outside of this episode. Their coverage of the past couple years of supply chain issues has been so cool.

sudden_dystopia 4y ago

I found the conversation around valuation the most interesting. Especially how the crypto valuation world has spilled over in to the stock market. It’s been my theory that traditional valuation methods are dying in certain areas because they rely on rational markets, and when you have a bunch of retail investors, the markets become irrational and harder to value/predict.

Kiro 4y ago

Aren't automatic market makers with yield farming a thing outside crypto? Let's say Uniswap but with USD and GBP. Are those Ponzi schemes as well?

SideburnsOfDoom 4y ago
> Aren't automatic market makers with yield farming a thing outside crypto Are they the main thing, or the only thing, outside of crypto? Is there much more to the market than that, outside of crypto?

mthehacker 4y ago

I want to be the emporer's tailor.

phoe-krk 4y ago

> One takeaway from this whole conversation is that DeFi might be more similar to Bitcoin than a lot of people thought, deriving its value from collective agreement that the ‘thing’ (in this case the box, or yield-farming protocol) is worth something rather than deriving value from a fundamental usefulness.

benlivengood 4y ago

It's possible to describe some of these tokens as lotteries or games of chance as well; people have been buying negative-expected-value lottery tickets for decades now and it's mostly treated as normal.

isitmadeofglass 4y ago

It’s a Ponzi scheme, but he’s not afraid or shamed to blatantly state it because the gains and the responsibility for it are distributed. They are betting that when the crash comes they can throw their arms in the air and say “well that was to bad, sell pressure outweighed buy pressure as the value went to zero, but that’s not our fault” all the while everyone who ever put money in the box have been slowly draining the excess. Naturally those in the know and on the inside have had the best oppotunity to drain the spoils, but in principle anyone could have done it all along. And so it goes that it’s not their fault and they didn’t mislead anyone. It’s just a Ponzi scheme going Ponzi, with everyone who joined up being partially to blame all on their own. I hope it doesn’t go down like that, but that’s what it looks like.

gavinray 4y ago

This wasn't how I had yield-farming described to me by people very knowledgeable on it The way I had it described involved at least 2 types of coins, with varying rates on different platforms. And a sort of cyclical loop where you were borrowing on one platform + token, to buy more of another (different) token, with a price inequality between them that facilitated this loop infinitely. It was described to me as blatantly "degenerate" and "the equivalent of a money-printing machine/a bug in game code." I don't see anything wrong with it. Money isn't about ethics, and the people who explained this to me make several times my annual income from doing this. Personally, I don't want to invest the free time to try to keep up with all this crypto stuff.