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Crypto trading firm Alameda Research might be insolvent

256 points by janmo 4y ago

HelloNurse 4y ago
> Total liabilities: $8 billion, of which $7.4 billion is “loans,” $7.4 billion's worth of fools. What a large market!
- janmo 4y ago
  They only had $154m in cash equivalent, the rest of their assets was in illiquid crap.
  - HelloNurse 4y ago
    Of course. The problem is lending genuine money to an organization designed around turning money (in the best case) into illiquid crap.
jqpabc123 4y ago
Who needs government regulation? Crypto investors do if they don't want to get swindled. Laws don't prevent crime and regulation is no guarantee either but it does act as a deterrent to the most blatant scams.
- cryptoanon 4y ago
  How is that related to this article?
  - jqpabc123 4y ago
    They chose the crypto market for their "flywheel" scheme. Why? Crypto attracts scammers like flies to crap. And a big part of the reason is the lack of regulation and transparency.
boeingUH60 4y ago
"Only when the tide goes out do you discover who has been swimming naked." - Warren Buffett.
pixelpoet 4y ago
I'm continually surprised by how many "major" crypto firms I've never heard of before (being familiar with the space) suddenly are regarded as big names when they go under. Wake me up when it's Kraken or something, i.e. a company someone may actually have heard of.
- paulgb 4y ago
  Alameda is closely tied to FTX, which is big enough to have an arena in Miami named after it. > This purported leak of Alameda’s financials demonstrates that the firm’s largest asset is its holdings of “FTX Token (FTT),” issued by none other than SBF’s FTX Exchange.
- phphphphp 4y ago
  I'm not sure if this is sarcasm or not, but just in case it's sincere: Alameda are considered a lynch-pin of the crypto industry, they're holding up pretty much everything... and by extension, FTX is far more important than Kraken. If Alameda implode, it'll be far worse than 3AC's implosion. I don't think it's possible to kill the crypto industry, but Alameda's implosion would be the most likely event to cause it.
  - chinathrow 4y ago
    > I don't think it's possible to kill the crypto industry, but Alameda's implosion would be the most likely event to cause it. As a bystander, it's hard to grasp the likeliness of this happenning, can someone elaborate on what would be able to trigger it?
    - phphphphp 4y ago
      Hard to say, because we can only speculate on the true state of Alameda. Sam Bankman-Fried owns both Alameda and FTX and so while they’re separate entities, they are co-mingled in many ways. Assuming FTX is a profitable enterprise (a big question in the current market) then any problems Alameda faces could be addressed by SBF leveraging FTX in some way to bail Alameda out… but it’s also plausible that FTX is dependent upon Alameda and that Alameda’s faltering could take down FTX. My guess is that an Alameda implosion is unlikely because, as far as I can tell, they’re not engaging in fraudulent behaviour, just crypto hubris… and so, worst case, they have to scale back their activity… but if they are reliant on third-party capital, and the current economic trend continues… it seems plausible that could trigger major problems in the crypto world.
aljungberg 4y ago
If those loans are no-recourse loans with this FTT token as collateral, then should the token crash the liability just "disappears". The collateral will be sold to cover the loan. If the collateral is now worthless that was the risk the lender agreed to take on when issuing a no-recourse loan. If they are Defi loans for example, they're pretty much automatically no-recourse loans.
- cryptoanon 4y ago
  Exactly. It seems like the author has very limited insight in the space. It makes you curious how they could come to such a headline/conclusion, when they spend the entire article, talking about the assets instead of the liabilities!
  - automatic6131 4y ago
    >It seems like the author has very limited insight in the space. lol. Lmao, even.
    - gjvc 4y ago
      You ought to know by now that HN readers are experts on everything.
- NotYourLawyer 4y ago
  Are no-recourse loans typical in this space? Seems insane.
- josu 4y ago
  Unless their liabilities are also in FTT.
- jevgeni 4y ago
  that kind of a dynamic is not unique to crypto.
cryptoanon 4y ago
I really do not like this article and the discourse here for several reasons: 1. The entire Coindesk article lacks meaningful substance. For instance, we have zero idea about what those $7.4 billion of “loans” are. It’s really irresponsible to say that they’re insolvent. If you believe, so, you are applying no more rigor to your understanding of the space than the idiots who say HODL YOLO HFSP. If the liabilities are collateralized by assets on their balance sheet, then the financial risk is not to Alameda but the lender! 2. The entire article paints a dire picture based off of their appraisal of the assets. Again, nobody has any idea of what the liabilities truly are, so to speculate that Alameda is insolvent is making an unfounded leap. But the author of the article tries to lead us to believe that it’s an OK leap to make, because their assets are trash! Wrong. It’s lazy, it’s pandering to a certain crowd, and it’s dishonest. 3. Before reflecting on their extremely, extremely short handed analysis, they take their unfounded conclusions further and spin it through a prior framework that they made for Celsius, which is a totally different type of company with a totally different set of liabilities. Alameda does not lend money to retail. The author pulls a sleight of hand by taking one misleading statement, and transforming it before the reader can apply any skepticism to the original misleading statement. 4. Recently there have cropped up a set of anonymous people (otteroooo on Twitter, this guy) who purport themselves as insiders only to reveal themselves to be complete completely ignorant about the topic at hand. A lot of unsavory people have recognized there’s a cottage industry in endlessly pounding the table saying that the world is falling and that everything is a scam based off of extremely little public information and no access to any private sources. They are ambulance chasers. 5. We have a large contingent of people who just read the headline here, and assume, scam! And apply the pre-existing biases to the entire thing, with nothing insightful to add. *edited some dictation/autocorrect errors
- PragmaticPulp 4y ago
  > 4. Recently they have cropped up a set of anonymous people who purport themselves to be insiders only to reveal complete ignorance about the topic at hand (otteroo on Twitter, for instance). Can you clarify this? By “they” do you mean this Substack? I didn’t see anything about “otteroo” or Twitter insiders in a quick search of the Substack, but I didn’t exhaustively search the entire backlog.
ecommerceguy 4y ago
I'm curious, does a definitive list of crypto scams exist?
- acc_297 4y ago
  scam is hard to define and people have different definitions subject to some bias but here is maybe what you're after https://web3isgoinggreat.com/ https://web3isgoinggreat.com/
- paulgb 4y ago
  Although the name is about web3, https://web3isgoinggreat.com/ https://web3isgoinggreat.com/ is pretty comprehensive in covering all areas of crypto.
lm28469 4y ago
Crypto bros caught once again speed running the invention money and its associated scams/schemes
gitfan86 4y ago
So BTC has been wash traded at 20k for several months now. It is very possible because below 15k loans automatically get called in. Which causes a cascade of defaults and then liquidation of assets.
deleted 4y ago
[deleted]
michael_j_ward 4y ago
What the argument misses / why FTT is different than Terra 1) Alameda Research owns FTX, one of the largest and arguably most important crypto exchanges. 2) FTX offers fee discounts to FTT-stakers and additional discounts if you pay in FTT. [0] 3) Trading volume on FTX thus creates an organic demand cycle for FTT. The large firms will buy, stake, and then continuously refresh their supply. 4) The vast majority of the volume at FTT will be in margined accounts at FTX. I am uncertain if the volume analysis would capture FTT movements in (3). Now, there's clearly financial alchemy going (giving away real economic value to boost an asset that you can then get leverage on) but that'd be better for Matt Levine or someone to flesh out. [0] https://help.ftx.com/hc/en-us/articles/360024479432-Fees https://help.ftx.com/hc/en-us/articles/360024479432-Fees
- gus_massa 4y ago
  The problem with Terra was that the stakers got a guaranteed* 20% anual interest in dollars*. You can take a look at all the fine print and implementation details, or be a naysayer like me and read the 20% and claim it will collapse. I can't find the details about FTT/FTX. How high is the guaranteed* anual interest in dollars*? * With some mild assumptions, like the coins doesn't crash miserably. Past performance does not guarantee future results. YMMV. Note: This year with a 7% inflation rate perhaps a 20% is not too unrealistic as in usual years with a 2% inflation.
  - michael_j_ward 4y ago
    heh - you're obviously correct and now I'm kicking myself for forgetting the #1 difference. FTT does not offer any sort of interest like Terra did. The benefits of holding are strictly discounted use of the FTX platform [0] [0] https://help.ftx.com/hc/en-us/articles/360052410392-FTT-Staking https://help.ftx.com/hc/en-us/articles/360052410392-FTT-Stak...
SevenNation 4y ago
What a lot of people don't understand is that the last cycle isn't over until idiotic enterprises like this self-destruct.
tiku 4y ago
Might be. Since when do we allow such posts with bold claims only?
vgatherps 4y ago
EDIT: Should preface all of this by being very, very, clear that we don’t know what the liabilities are so can’t judge too much. It’s fun to assume their liabilities are cash, but if they’ve borrowed 2.5bn of “unspecified crypto” as in the report and still have the same “unspecified crypto” borrow is healthy whether or not the price changes. I this it’s extremely unlikely all their liabilities are cash. Surprise surprise, who would have guessed that the trading firm running an exchange might have some special relationship? It’s possible that the FTT is also a liability, loaned from FTX. The book still isn’t great but is much healthier in that case. It’s also possible that many of the unspecified crypto collateral is directly borrowed, instead of bought with borrowed cash. It still leaves a few questions: * Are they taking delta risks with borrowing funds or not? Borrowing to send into defi/basis has a very different risk profile than taking bets on price. * is tether cash, or “unspecified crypto held”? Is USDC/BUSD crypto held? Is DAI? * What lender would bother with the whole FTT song-and-dance instead of just admitting they’re giving out effectively uncollateralized loans * Are lenders in a situation where they know the collateral is no good, but they also know that calling the loans/selling will force the worst case, so they hold on hoping for a way out? * I doubt any lenders are taking significant maps/oxy/fida collateral. Mega shitcoins from day1 * Is this an arrangement that “made more sense” back in the bull market and now lenders want to call loans and avoid pissing off sbf? * is sbf so interested in rescuing underwater lenders since he doesn’t want them to potentially liquidate giant ftt holdings? It’s hard to come to any serious conclusions here without knowing the nature of their liabilities and the assets backing those (if any). But then again what’s the risk? If you made the coin and basically get to chose the price, why not transmute that into cash? Lending to someone is an implicit OTC bid, and alameda surely gets a better deal in the lending markets than they would selling on exchange. You don’t even get the price impact unless the lenders try to liquidate.
- janmo 4y ago
  We know from the Voyager Digital CH11 filing that Alameda owes them $650m USD, and has not repaid them so far, instead FTX the exchange affiliated to Alameda is trying to acquire Voyager digital assets. I presume that a lot is also owed to BlockFi, which explains why SBF is trying to bail them out so that he doesn't have to repay them.
LatteLazy 4y ago
The title is contradicted by the article itself: if 88% of the firms equity were suddenly worthless (the worst car scenario), that would mean 12% remained. So they're not insolvent...
- rippercushions 4y ago
  The definition of insolvency is not being able to pay your debts. Alameda claims $14.6B in assets vs $8B debts, which means they're solvent. If they actually only have 12% of $14.6 = $1.8B, they're way mucho insolvent.
  - LatteLazy 4y ago
    Only the 5.8bn in FTT is being claimed to be worthless. Not the full 14.6bn in assets. If that's true (and the article itself lists reasons it isn't true!?), that still leaves 8.8bn in other assets, vs 8.0bn in debts. The article itself says the same when it says 88% of equity. Equity is assets less debts. So as long as they have any equity left at all, they're not insolvent.
    - adamsmith143 4y ago
      You assume that during a firesale they would actually get value approaching what they claim is worth 14.6B. Since FTX and Alamaeda are by far the largest holders of FTT and significant holders of Solana they will destroy the market for both if they had to sell. It's likely the real value of their assets is far lower, as the other commenter suggested.
      - LatteLazy 4y ago
        I'm just taking the numbers from the article itself and the assumption that FTT specifically is worthless (extreme enough on it's own). If you assume a fire-sale on everything, then everyone is insolvent all the time...
        4y ago
Mistletoe 4y ago
This might explain why Sam Trabucco the former co-CEO abruptly left out of the blue a few months ago… https://fortune.com/crypto/2022/08/25/sam-trabucco-quits-co-ceo-sam-bankman-fried-alameda-research/ https://fortune.com/crypto/2022/08/25/sam-trabucco-quits-co-... For those not in the know, Alameda is THE trading firm in crypto that everyone always assumes is causing liquidations. For them to be insolvent would be a huge deal. It’s crazy to watch greed pollute the minds of crypto trading firms like Three Arrows Capital and Alameda. Zhu Su put it best in his own tweet long ago before the greed set in and he needed more and more gains. https://twitter.com/zhusu/status/1092305648904065024 https://twitter.com/zhusu/status/1092305648904065024 “Bad TA (technical analysis) is not just marginally bad--it can mean being net down trading an asset that has gone 1,500x and is still 250x from start date.” “For much of 2017, Buy and Hold was actually the best performing strategy since Jan1 2013 of ALL TA strategies possible. This can easily become the case again if we go on a bull run at some point.” Crypto gains are so large that there is no need to go crazy with trading and leverage and the crashes every four years are actually a great boon as long as you realize they will never go away.
- polygamous_bat 4y ago
  Am I correct in understanding your argument that "so long as numbers keep going up, all will be fine"? Because there is a possibility that crypto never gains back the hype as late 2020, and Bitcoin never reaches the high of $69K ever again, in which case people who "bought and hold" at that time (including those who were encouraged to be "brave" by Matt Damon in a crypto.com ad) will never see (a portion of) their money again.
  - reidjs 4y ago
    The solution to that is to not invest (or gamble) more than you are willing to lose and not to take financial advice from movie stars.
    - polygamous_bat 4y ago
      Your response reads the same as "the solution to global warming is stopping fossil fuel use". Sure, you aren't technically wrong, but there are billion dollar corporations out there whose sole existence relies on your "solution" not catching on.
stephc_int13 4y ago
Being an avid HN reader, I've been loosely following the crypto/NFT market with various sentiments oscillating between disbelief and facepalm. The real question would be: is there anything that is not a scam in this market?
- rufusroflpunch 4y ago
  Owning and holding Bitcoin is not a scam. That's about it.
  - kayamon 4y ago
    Not your keys not your coins. If you put your money in someone else's bank then they'll loan that money out against your will.
  - mritchie712 4y ago
    It'd be pretty easy to create a "defi credit union" that's not a scam, it'd just be hard to cut thru all the noise. Give 3% to 5% yields on saving, lend at 8% to 12%. The problem is people see "230% yields" (which are scams) and wouldn't know your legit 5% yield is for real.
    - shawabawa3 4y ago
      There are tons of legit projects that do exactly that The most well known is probably Maker https://makerdao.com/en/ https://makerdao.com/en/ But there's also Aave, Benqi, and a bunch of others.
      - mritchie712 4y ago
        yeah, I'm with you, it's just hard to tell which ones are reputable
    - JumpCrisscross 4y ago
      > be pretty easy to create a "defi credit union" that's not a scam, it'd just be hard to cut thru all the noise. Give 3% to 5% yields on saving, lend at 8% to 12% This is a bank. Running a bank is not easy.
xch 4y ago
Good
FortiDude 4y ago
Why is it so difficult for trading companies to simply keep the money in the reserve and never touch it unless your client wants to liquidate his share? I know, having that huge pile of cash and not doing anything with it can lead to huuuuuge temptations, but that's what I'm paying the company to do. If I wanted to invest my funds into something I would move my money to a separate investment account that the institution can play with as they please (with some client-defined risk restrictions) and give me a percentage of profits
- thr0wawayf00 4y ago
  Because they don't make as much money that way. History has repeatedly shown us that asking companies to voluntarily forgo profit-earning opportunities does not work. Companies exist to make money and this why regulators like the FDIC exist, to ensure that financial institutions are liquid enough when things go south. This is simply not something that financial institutions are capable of doing themselves.
  - yellowapple 4y ago
    This doesn't even seem like a financial regulation issue. More like a "I'm paying you to store my stuff so please store my stuff" issue. If I paid for a storage unit and the company running it sold all the stuff in it while promising "don't worry, when you want your stuff back we'll buy it back for you", I'd be pretty peeved.
- boeingUH60 4y ago
  “Huuuuge temptations” is the answer. At that level, the temptation is too much to bear except enforced by an external hand. That’s why there are regulations against playing with customer’s deposits in the traditional banking sector, or else greed will make banking executives do similar things as the crypto companies.
dcolkitt 4y ago
As someone in the industry, it's almost certainly not. First very simple point, to become insolvent you have to actually take a loss somewhere. They may have a lot of junk tokens on their balance sheet, and these tokens may be overmarked, but Alameda's cost basis (most of them were from seed rounds) is still way below their current value. With Three Arrows it was very obvious where the loss was from, they were hyper-bullish and doubling down on BTC all the way from $69,000 to $18,000 using leverage. By contrast Alameda is notorious for being dollar maxis, constantly taking money off the table, and very rarely having any sort of long-term major beta exposure. (A big reason they have a reputation as mercenaries in the space.) The second point is that the bulk of their liabilities are in the same tokens on their balance sheet. This is particularly true for the FTT token, almost certainly the FTT on their balance sheet is simply a loan from FTX (which is essentially the same org) to Alameda to make a market on FTT on FTX. Regardless if FTT collapses, it wouldn't matter cause insolvency both the asset and liability side of the balance sheet would go down. Most likely this is true for much of the rest of their liabilities. Crypto trading firms like Alameda make a huge proportion of their revenue from being "paid market makers" for specific token projects. It's very hard for new tokens to bootstrap liquidity. So the typical arrangement is a token project will "lend" Alameda something like 5% of the supply, which Alameda will use to be a market maker in that token at all of the major venues. Most of the liabilities on their balance sheet are probably these token deals, rather than loans made in hard currency.
- tom-thistime 4y ago
  On 2022 11/4 7:50 am Pacific, this was the top-ranked comment on this article on HN.
  - dekervin 4y ago
    Why do you timestamp it ?
    - forgotmypw17 4y ago
      I think it is because the comment ranking changes over time, and there is no way (without access to the raw data) to see what comment was ranked where at a given time.
jwmoz 4y ago
Alameda completely rinsed retail with their systems and FTX. I've seen their deck and their equity curve is basically a steep linear line upwards.
mytmpaccount 4y ago
This makes sense to me in the sense that as far as I can tell SBF and Alameda's claims for the origin of their wealth is obviously false: He claims he made billions of dollars on an arbitrage with Korean exchanges and the rest of the world. Price differences existed, but with extremely small volume. If he claimed to have made millions from it I would have been highly skeptical, but billions? And during a major crypto down market to boot-- not a time when any idiot in the space could accidentally make a fortune just by having exposure. But if that trade wasn't real where did the money come from? One possible answer is that the money never was: maybe it was always just marked up balance sheets holding multiple times the circulating market of illiquid and close traded tokens-- all a great big fake it until you make it. [Apologies for the throwaway account, but I don't want to risk taking more retaliation from crypto scammers]
adam_arthur 4y ago
Huh, you don't say
aaroninsf 4y ago
Analysis in this thread supports the conclusion that as in the headline, they MIGHT be insolvent; and it is not irrational to believe that they are. IMO the important thing is that unwinding the specifics to answer this, e.g. guessing what liquidation of their collateralized debt would mean, and running the numbers of what dogfooded assets are actually worth on the market (specifically should they as the dog not be certain to be able to support valuation...), etc ad nauseum, is itself so murky (and typical of "difi") as to make a more important assertion, this industry continues to a clown show grift and bad faith, and even well-intended good-faith participants have little to no chance of ever knowing where they stand or having any security. One of the few satisfactions of the looming economic apocalypse is going to watch this particular wing of the house of cards fold instantly.

256 points by janmo 4y ago

HelloNurse 4y ago

> Total liabilities: $8 billion, of which $7.4 billion is “loans,” $7.4 billion's worth of fools. What a large market!

janmo 4y ago
They only had $154m in cash equivalent, the rest of their assets was in illiquid crap.
- HelloNurse 4y ago
  Of course. The problem is lending genuine money to an organization designed around turning money (in the best case) into illiquid crap.

jqpabc123 4y ago

Who needs government regulation? Crypto investors do if they don't want to get swindled. Laws don't prevent crime and regulation is no guarantee either but it does act as a deterrent to the most blatant scams.

cryptoanon 4y ago
How is that related to this article?
- jqpabc123 4y ago
  They chose the crypto market for their "flywheel" scheme. Why? Crypto attracts scammers like flies to crap. And a big part of the reason is the lack of regulation and transparency.

boeingUH60 4y ago

"Only when the tide goes out do you discover who has been swimming naked." - Warren Buffett.

pixelpoet 4y ago

I'm continually surprised by how many "major" crypto firms I've never heard of before (being familiar with the space) suddenly are regarded as big names when they go under. Wake me up when it's Kraken or something, i.e. a company someone may actually have heard of.

paulgb 4y ago
Alameda is closely tied to FTX, which is big enough to have an arena in Miami named after it. > This purported leak of Alameda’s financials demonstrates that the firm’s largest asset is its holdings of “FTX Token (FTT),” issued by none other than SBF’s FTX Exchange.
phphphphp 4y ago
I'm not sure if this is sarcasm or not, but just in case it's sincere: Alameda are considered a lynch-pin of the crypto industry, they're holding up pretty much everything... and by extension, FTX is far more important than Kraken. If Alameda implode, it'll be far worse than 3AC's implosion. I don't think it's possible to kill the crypto industry, but Alameda's implosion would be the most likely event to cause it.
- chinathrow 4y ago
  > I don't think it's possible to kill the crypto industry, but Alameda's implosion would be the most likely event to cause it. As a bystander, it's hard to grasp the likeliness of this happenning, can someone elaborate on what would be able to trigger it?
  - phphphphp 4y ago
    Hard to say, because we can only speculate on the true state of Alameda. Sam Bankman-Fried owns both Alameda and FTX and so while they’re separate entities, they are co-mingled in many ways. Assuming FTX is a profitable enterprise (a big question in the current market) then any problems Alameda faces could be addressed by SBF leveraging FTX in some way to bail Alameda out… but it’s also plausible that FTX is dependent upon Alameda and that Alameda’s faltering could take down FTX. My guess is that an Alameda implosion is unlikely because, as far as I can tell, they’re not engaging in fraudulent behaviour, just crypto hubris… and so, worst case, they have to scale back their activity… but if they are reliant on third-party capital, and the current economic trend continues… it seems plausible that could trigger major problems in the crypto world.

aljungberg 4y ago

If those loans are no-recourse loans with this FTT token as collateral, then should the token crash the liability just "disappears". The collateral will be sold to cover the loan. If the collateral is now worthless that was the risk the lender agreed to take on when issuing a no-recourse loan. If they are Defi loans for example, they're pretty much automatically no-recourse loans.

cryptoanon 4y ago
Exactly. It seems like the author has very limited insight in the space. It makes you curious how they could come to such a headline/conclusion, when they spend the entire article, talking about the assets instead of the liabilities!
- automatic6131 4y ago
  >It seems like the author has very limited insight in the space. lol. Lmao, even.
  - gjvc 4y ago
    You ought to know by now that HN readers are experts on everything.
NotYourLawyer 4y ago
Are no-recourse loans typical in this space? Seems insane.
josu 4y ago
Unless their liabilities are also in FTT.
jevgeni 4y ago
that kind of a dynamic is not unique to crypto.

cryptoanon 4y ago

I really do not like this article and the discourse here for several reasons: 1. The entire Coindesk article lacks meaningful substance. For instance, we have zero idea about what those $7.4 billion of “loans” are. It’s really irresponsible to say that they’re insolvent. If you believe, so, you are applying no more rigor to your understanding of the space than the idiots who say HODL YOLO HFSP. If the liabilities are collateralized by assets on their balance sheet, then the financial risk is not to Alameda but the lender! 2. The entire article paints a dire picture based off of their appraisal of the assets. Again, nobody has any idea of what the liabilities truly are, so to speculate that Alameda is insolvent is making an unfounded leap. But the author of the article tries to lead us to believe that it’s an OK leap to make, because their assets are trash! Wrong. It’s lazy, it’s pandering to a certain crowd, and it’s dishonest. 3. Before reflecting on their extremely, extremely short handed analysis, they take their unfounded conclusions further and spin it through a prior framework that they made for Celsius, which is a totally different type of company with a totally different set of liabilities. Alameda does not lend money to retail. The author pulls a sleight of hand by taking one misleading statement, and transforming it before the reader can apply any skepticism to the original misleading statement. 4. Recently there have cropped up a set of anonymous people (otteroooo on Twitter, this guy) who purport themselves as insiders only to reveal themselves to be complete completely ignorant about the topic at hand. A lot of unsavory people have recognized there’s a cottage industry in endlessly pounding the table saying that the world is falling and that everything is a scam based off of extremely little public information and no access to any private sources. They are ambulance chasers. 5. We have a large contingent of people who just read the headline here, and assume, scam! And apply the pre-existing biases to the entire thing, with nothing insightful to add. *edited some dictation/autocorrect errors

PragmaticPulp 4y ago
> 4. Recently they have cropped up a set of anonymous people who purport themselves to be insiders only to reveal complete ignorance about the topic at hand (otteroo on Twitter, for instance). Can you clarify this? By “they” do you mean this Substack? I didn’t see anything about “otteroo” or Twitter insiders in a quick search of the Substack, but I didn’t exhaustively search the entire backlog.

ecommerceguy 4y ago

I'm curious, does a definitive list of crypto scams exist?

acc_297 4y ago
scam is hard to define and people have different definitions subject to some bias but here is maybe what you're after https://web3isgoinggreat.com/ https://web3isgoinggreat.com/
paulgb 4y ago
Although the name is about web3, https://web3isgoinggreat.com/ https://web3isgoinggreat.com/ is pretty comprehensive in covering all areas of crypto.

lm28469 4y ago

Crypto bros caught once again speed running the invention money and its associated scams/schemes

gitfan86 4y ago

So BTC has been wash traded at 20k for several months now. It is very possible because below 15k loans automatically get called in. Which causes a cascade of defaults and then liquidation of assets.

deleted 4y ago

[deleted]

michael_j_ward 4y ago

What the argument misses / why FTT is different than Terra 1) Alameda Research owns FTX, one of the largest and arguably most important crypto exchanges. 2) FTX offers fee discounts to FTT-stakers and additional discounts if you pay in FTT. [0] 3) Trading volume on FTX thus creates an organic demand cycle for FTT. The large firms will buy, stake, and then continuously refresh their supply. 4) The vast majority of the volume at FTT will be in margined accounts at FTX. I am uncertain if the volume analysis would capture FTT movements in (3). Now, there's clearly financial alchemy going (giving away real economic value to boost an asset that you can then get leverage on) but that'd be better for Matt Levine or someone to flesh out. [0] https://help.ftx.com/hc/en-us/articles/360024479432-Fees https://help.ftx.com/hc/en-us/articles/360024479432-Fees

gus_massa 4y ago
The problem with Terra was that the stakers got a guaranteed* 20% anual interest in dollars*. You can take a look at all the fine print and implementation details, or be a naysayer like me and read the 20% and claim it will collapse. I can't find the details about FTT/FTX. How high is the guaranteed* anual interest in dollars*? * With some mild assumptions, like the coins doesn't crash miserably. Past performance does not guarantee future results. YMMV. Note: This year with a 7% inflation rate perhaps a 20% is not too unrealistic as in usual years with a 2% inflation.
- michael_j_ward 4y ago
  heh - you're obviously correct and now I'm kicking myself for forgetting the #1 difference. FTT does not offer any sort of interest like Terra did. The benefits of holding are strictly discounted use of the FTX platform [0] [0] https://help.ftx.com/hc/en-us/articles/360052410392-FTT-Staking https://help.ftx.com/hc/en-us/articles/360052410392-FTT-Stak...

SevenNation 4y ago

What a lot of people don't understand is that the last cycle isn't over until idiotic enterprises like this self-destruct.

tiku 4y ago

Might be. Since when do we allow such posts with bold claims only?

vgatherps 4y ago

EDIT: Should preface all of this by being very, very, clear that we don’t know what the liabilities are so can’t judge too much. It’s fun to assume their liabilities are cash, but if they’ve borrowed 2.5bn of “unspecified crypto” as in the report and still have the same “unspecified crypto” borrow is healthy whether or not the price changes. I this it’s extremely unlikely all their liabilities are cash. Surprise surprise, who would have guessed that the trading firm running an exchange might have some special relationship? It’s possible that the FTT is also a liability, loaned from FTX. The book still isn’t great but is much healthier in that case. It’s also possible that many of the unspecified crypto collateral is directly borrowed, instead of bought with borrowed cash. It still leaves a few questions: * Are they taking delta risks with borrowing funds or not? Borrowing to send into defi/basis has a very different risk profile than taking bets on price. * is tether cash, or “unspecified crypto held”? Is USDC/BUSD crypto held? Is DAI? * What lender would bother with the whole FTT song-and-dance instead of just admitting they’re giving out effectively uncollateralized loans * Are lenders in a situation where they know the collateral is no good, but they also know that calling the loans/selling will force the worst case, so they hold on hoping for a way out? * I doubt any lenders are taking significant maps/oxy/fida collateral. Mega shitcoins from day1 * Is this an arrangement that “made more sense” back in the bull market and now lenders want to call loans and avoid pissing off sbf? * is sbf so interested in rescuing underwater lenders since he doesn’t want them to potentially liquidate giant ftt holdings? It’s hard to come to any serious conclusions here without knowing the nature of their liabilities and the assets backing those (if any). But then again what’s the risk? If you made the coin and basically get to chose the price, why not transmute that into cash? Lending to someone is an implicit OTC bid, and alameda surely gets a better deal in the lending markets than they would selling on exchange. You don’t even get the price impact unless the lenders try to liquidate.

janmo 4y ago
We know from the Voyager Digital CH11 filing that Alameda owes them $650m USD, and has not repaid them so far, instead FTX the exchange affiliated to Alameda is trying to acquire Voyager digital assets. I presume that a lot is also owed to BlockFi, which explains why SBF is trying to bail them out so that he doesn't have to repay them.

LatteLazy 4y ago

The title is contradicted by the article itself: if 88% of the firms equity were suddenly worthless (the worst car scenario), that would mean 12% remained. So they're not insolvent...

rippercushions 4y ago
The definition of insolvency is not being able to pay your debts. Alameda claims $14.6B in assets vs $8B debts, which means they're solvent. If they actually only have 12% of $14.6 = $1.8B, they're way mucho insolvent.
- LatteLazy 4y ago
  Only the 5.8bn in FTT is being claimed to be worthless. Not the full 14.6bn in assets. If that's true (and the article itself lists reasons it isn't true!?), that still leaves 8.8bn in other assets, vs 8.0bn in debts. The article itself says the same when it says 88% of equity. Equity is assets less debts. So as long as they have any equity left at all, they're not insolvent.
  - adamsmith143 4y ago
    You assume that during a firesale they would actually get value approaching what they claim is worth 14.6B. Since FTX and Alamaeda are by far the largest holders of FTT and significant holders of Solana they will destroy the market for both if they had to sell. It's likely the real value of their assets is far lower, as the other commenter suggested.
    - LatteLazy 4y ago
      I'm just taking the numbers from the article itself and the assumption that FTT specifically is worthless (extreme enough on it's own). If you assume a fire-sale on everything, then everyone is insolvent all the time...
      - 4y ago

Mistletoe 4y ago

This might explain why Sam Trabucco the former co-CEO abruptly left out of the blue a few months ago… https://fortune.com/crypto/2022/08/25/sam-trabucco-quits-co-ceo-sam-bankman-fried-alameda-research/ https://fortune.com/crypto/2022/08/25/sam-trabucco-quits-co-... For those not in the know, Alameda is THE trading firm in crypto that everyone always assumes is causing liquidations. For them to be insolvent would be a huge deal. It’s crazy to watch greed pollute the minds of crypto trading firms like Three Arrows Capital and Alameda. Zhu Su put it best in his own tweet long ago before the greed set in and he needed more and more gains. https://twitter.com/zhusu/status/1092305648904065024 https://twitter.com/zhusu/status/1092305648904065024 “Bad TA (technical analysis) is not just marginally bad--it can mean being net down trading an asset that has gone 1,500x and is still 250x from start date.” “For much of 2017, Buy and Hold was actually the best performing strategy since Jan1 2013 of ALL TA strategies possible. This can easily become the case again if we go on a bull run at some point.” Crypto gains are so large that there is no need to go crazy with trading and leverage and the crashes every four years are actually a great boon as long as you realize they will never go away.

polygamous_bat 4y ago
Am I correct in understanding your argument that "so long as numbers keep going up, all will be fine"? Because there is a possibility that crypto never gains back the hype as late 2020, and Bitcoin never reaches the high of $69K ever again, in which case people who "bought and hold" at that time (including those who were encouraged to be "brave" by Matt Damon in a crypto.com ad) will never see (a portion of) their money again.
- reidjs 4y ago
  The solution to that is to not invest (or gamble) more than you are willing to lose and not to take financial advice from movie stars.
  - polygamous_bat 4y ago
    Your response reads the same as "the solution to global warming is stopping fossil fuel use". Sure, you aren't technically wrong, but there are billion dollar corporations out there whose sole existence relies on your "solution" not catching on.

stephc_int13 4y ago

Being an avid HN reader, I've been loosely following the crypto/NFT market with various sentiments oscillating between disbelief and facepalm. The real question would be: is there anything that is not a scam in this market?

rufusroflpunch 4y ago
Owning and holding Bitcoin is not a scam. That's about it.
- kayamon 4y ago
  Not your keys not your coins. If you put your money in someone else's bank then they'll loan that money out against your will.
- mritchie712 4y ago
  It'd be pretty easy to create a "defi credit union" that's not a scam, it'd just be hard to cut thru all the noise. Give 3% to 5% yields on saving, lend at 8% to 12%. The problem is people see "230% yields" (which are scams) and wouldn't know your legit 5% yield is for real.
  - shawabawa3 4y ago
    There are tons of legit projects that do exactly that The most well known is probably Maker https://makerdao.com/en/ https://makerdao.com/en/ But there's also Aave, Benqi, and a bunch of others.
    - mritchie712 4y ago
      yeah, I'm with you, it's just hard to tell which ones are reputable
  - JumpCrisscross 4y ago
    > be pretty easy to create a "defi credit union" that's not a scam, it'd just be hard to cut thru all the noise. Give 3% to 5% yields on saving, lend at 8% to 12% This is a bank. Running a bank is not easy.

xch 4y ago

Good

FortiDude 4y ago

Why is it so difficult for trading companies to simply keep the money in the reserve and never touch it unless your client wants to liquidate his share? I know, having that huge pile of cash and not doing anything with it can lead to huuuuuge temptations, but that's what I'm paying the company to do. If I wanted to invest my funds into something I would move my money to a separate investment account that the institution can play with as they please (with some client-defined risk restrictions) and give me a percentage of profits

thr0wawayf00 4y ago
Because they don't make as much money that way. History has repeatedly shown us that asking companies to voluntarily forgo profit-earning opportunities does not work. Companies exist to make money and this why regulators like the FDIC exist, to ensure that financial institutions are liquid enough when things go south. This is simply not something that financial institutions are capable of doing themselves.
- yellowapple 4y ago
  This doesn't even seem like a financial regulation issue. More like a "I'm paying you to store my stuff so please store my stuff" issue. If I paid for a storage unit and the company running it sold all the stuff in it while promising "don't worry, when you want your stuff back we'll buy it back for you", I'd be pretty peeved.
boeingUH60 4y ago
“Huuuuge temptations” is the answer. At that level, the temptation is too much to bear except enforced by an external hand. That’s why there are regulations against playing with customer’s deposits in the traditional banking sector, or else greed will make banking executives do similar things as the crypto companies.

dcolkitt 4y ago

As someone in the industry, it's almost certainly not. First very simple point, to become insolvent you have to actually take a loss somewhere. They may have a lot of junk tokens on their balance sheet, and these tokens may be overmarked, but Alameda's cost basis (most of them were from seed rounds) is still way below their current value. With Three Arrows it was very obvious where the loss was from, they were hyper-bullish and doubling down on BTC all the way from $69,000 to $18,000 using leverage. By contrast Alameda is notorious for being dollar maxis, constantly taking money off the table, and very rarely having any sort of long-term major beta exposure. (A big reason they have a reputation as mercenaries in the space.) The second point is that the bulk of their liabilities are in the same tokens on their balance sheet. This is particularly true for the FTT token, almost certainly the FTT on their balance sheet is simply a loan from FTX (which is essentially the same org) to Alameda to make a market on FTT on FTX. Regardless if FTT collapses, it wouldn't matter cause insolvency both the asset and liability side of the balance sheet would go down. Most likely this is true for much of the rest of their liabilities. Crypto trading firms like Alameda make a huge proportion of their revenue from being "paid market makers" for specific token projects. It's very hard for new tokens to bootstrap liquidity. So the typical arrangement is a token project will "lend" Alameda something like 5% of the supply, which Alameda will use to be a market maker in that token at all of the major venues. Most of the liabilities on their balance sheet are probably these token deals, rather than loans made in hard currency.

tom-thistime 4y ago
On 2022 11/4 7:50 am Pacific, this was the top-ranked comment on this article on HN.
- dekervin 4y ago
  Why do you timestamp it ?
  - forgotmypw17 4y ago
    I think it is because the comment ranking changes over time, and there is no way (without access to the raw data) to see what comment was ranked where at a given time.

jwmoz 4y ago

Alameda completely rinsed retail with their systems and FTX. I've seen their deck and their equity curve is basically a steep linear line upwards.

mytmpaccount 4y ago

This makes sense to me in the sense that as far as I can tell SBF and Alameda's claims for the origin of their wealth is obviously false: He claims he made billions of dollars on an arbitrage with Korean exchanges and the rest of the world. Price differences existed, but with extremely small volume. If he claimed to have made millions from it I would have been highly skeptical, but billions? And during a major crypto down market to boot-- not a time when any idiot in the space could accidentally make a fortune just by having exposure. But if that trade wasn't real where did the money come from? One possible answer is that the money never was: maybe it was always just marked up balance sheets holding multiple times the circulating market of illiquid and close traded tokens-- all a great big fake it until you make it. [Apologies for the throwaway account, but I don't want to risk taking more retaliation from crypto scammers]

adam_arthur 4y ago

Huh, you don't say

aaroninsf 4y ago

Analysis in this thread supports the conclusion that as in the headline, they MIGHT be insolvent; and it is not irrational to believe that they are. IMO the important thing is that unwinding the specifics to answer this, e.g. guessing what liquidation of their collateralized debt would mean, and running the numbers of what dogfooded assets are actually worth on the market (specifically should they as the dog not be certain to be able to support valuation...), etc ad nauseum, is itself so murky (and typical of "difi") as to make a more important assertion, this industry continues to a clown show grift and bad faith, and even well-intended good-faith participants have little to no chance of ever knowing where they stand or having any security. One of the few satisfactions of the looming economic apocalypse is going to watch this particular wing of the house of cards fold instantly.