7 ms·

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

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.
  - tough 4y ago
    Fear of manual moderation bringing it down?
  - tom-thistime 4y ago
    I'm attempting to preserve a record of when the views expressed in the comment seemed popular. Opinions can change over time.
  - jjulius 4y ago
    Because it only took ~24 hours for this comment... >As someone in the industry, it's almost certainly not. ... to be proven wrong.
    - tom-thistime 4y ago
      Right. And that felt obvious at the time ... but if you don't timestamp it, who knows (later on) whether it really was obvious, or hindsight? I also thought that question (Hindsight or Not?) might be interesting to more people than just me.
- darth_aardvark 4y ago
  I fucking love this.
shorthistory 4y ago
FTT 24h volume is ~$100M according to coinmarketcap.com Alameda hold $5.8B FTT according to the article. Any market makers able to advise how much is normally held relative to daily volume/mean transaction size?
- JumpCrisscross 4y ago
  This looks more like a dealer book than a classic MM. If they’re long $5.8bn and short $5.79bn, their net position is fine. That said, they’d be carrying major counterparty risk.
  - shorthistory 4y ago
    1. They are understood to be classic MM [source?] 2. Balance sheet shows they are not classic MM 3. Counterparty is FTX 4. ...
wyxuan 4y ago
There are FTT denominated loan(s), to MIM for instance, but I’m not sure there are that many others willing to accept FTT given the thin liquidity
paulusthe 4y ago
Sure, but at some point real dollars enter the financial equation, backed by these coins, none of which are probably priced correctly to serve as collateral. The ftt coin is shady as hell though. A 40% trading rebate for holding $1m is insane; that's nothing. And it's not open to anybody touching the US - a blatant attempt to prevent US regulations, which would catch this stuff. It's very weird for exchange owners to get rich overnight. That doesn't happen in real markets, and it seems to only happen in crypto when the exchange is using customer deposits as leverage (Celsius) or trading on their own account, which means against their customers (binance, probably ftx)
- deleted 4y ago
  [deleted]
- dcist 4y ago
  The trading fees for crypto exchanges are also insane, which enriches the exchange operators.
  - from 4y ago
    If you think someone's leaving money on the table with high fees you should start your own exchange. Of course before you even got off the ground you'd have to register as a MSB, draft a very extensive compliance plan given the "high risk" nature of your industry, find a banking partner who will even consider accepting you and hopefully won't kick you out after you get too big (you may have to buy a credit union if this step doesn't work out), get a money transmitter license in every state except Montana (which by the way all require a substantial bond, application fees, and delays), find former regulators who are now $1500/hr lawyers who still have some influence at NY DFS in order to get approved in New York, get approved for ACH, spend at least $50k a month on Chainlysis and OFAC screening software in order to placate regulators, and of course you actually have to write the exchange backend too. If you want to offer leverage (you will in order to be competitive with other exchanges) you need to have a pretty sophisticated risk management system because liquidations in crypto don't work like they do anywhere else. And you have to pay a browser fingerprinting vendor $20k/mo too because your halfwit customers will get phished and cause you bad publicity if you don't stop it. You'll also need Onfido or some other identity verification company in order to satisfy 31 CFR § 1020.220. But yes, once it's all set up it's a practically license to print money.
kennend3 4y ago
> First very simple point, to become insolvent you have to actually take a loss somewhere. This has absolutely NOTHING to do with being insolvent. "Insolvency In accounting, insolvency is the state of being unable to pay the debts, by a person or company, at maturity; those in a state of insolvency are said to be insolvent. There are two forms: cash-flow insolvency and balance-sheet insolvency. " Insolvency deals with the inability to repay your debts (insufficient cash flow is the most common).
- toyg 4y ago
  - internet person says he works in the crypto space - is actually financially illiterate Checks out, sadly.
  - shorthistory 4y ago
    Why would a market maker hold so much of an asset. Market makers do not typically hold $B of anything. Alameda does not need to borrow so much FTT to make markets.
    - amluto 4y ago
      In conventional markets, market makers need the ability to sell that which they make a market in. This can be done by actually owning the asset, by having a credit relationship enabling sales without owning the asset, by naked shorting, etc. If you can’t naked short, and if sales settle effectively immediately (cryptocurrency confirmation may well be slow, but you can’t usefully sell something and buy it back using the sale proceeds without confirming or at least generating and signing the transactions), then you need access to the actual token so you can sell it. In contrast, one can make a market in EUR/USD without actually sitting on a big pile of EUR and USD. In fact, market makers are likely to target an average position of zero in every currency except their home currency unless they are also trying to make some sort of long term bet. Similarly, I doubt you’ll find that most market makers in, say, grain futures have warehouses full of grain. (Grain wants to be eaten, not hoarded for the life of a business. Also, making commodity markets is an entirely different business than growing, storing, transporting, and using commodities.) (This is not trading or market advice, obviously.)
surewhatever1 4y ago
> As someone in the industry, ... It's so delightful that the finance people are coming out all salty! The number is going down. If you organize your life around this number going up, and it goes down, everyone is going to laugh. You chose this life! There is sometimes some meaning in finance somewhere. Like some VCs can get some meaning from, a biotech investment makes a great drug that helps people. But what you chose, there is none. There will be many stages of grief, they do not happen in order or one at a time. > First very simple point, to become insolvent you have to actually take a loss somewhere. C'mon dude. Listen to yourself. It's over. This isn't peak cringe but it's getting there.
JumpCrisscross 4y ago
> the bulk of their liabilities are in the same tokens on their balance sheet Do we have evidence of this? The article says $292mm are FTT-denominated, with the rest unknown. Absent further information, it’s fair to assume some of that is dollar denominated. With less than 2% cash to cover liabilities, even a small amount of normal borrowing could render Alameda insolvent. Moreover, if the losses are entirely passed through, whose are they? That’s over $7bn of losses sitting on someone’s balance sheets. Are they distributed? Is it FTX’s?
- janmo 4y ago
  Alameda has taken loans from Voyager and BlockFi, those are in hard currencies, USD or bluechip crypto such as BTC/ETH. From Voyager's bankruptcy filing we know Alameda owes them $650m in USD, and hasn't repaid them yet, instead SBF is trying to push forward a shady deal that would allow FTX to take over Voyager's asset. Deal to which state regulators have filed and objection in bankruptcy court by the way.
janmo 4y ago
We know that on Jun 30th Alameda had $134m in liquid assets, at the same time it came out that they owe the bankrupt Voyager Digital around $650m USD. On Jul 8th Alameda research tweeted: "happy to return the Voyager loan and get our collateral back whenever works for voyager". Simple question here, how do they return $650m USD, if they only have $134m in liquid assets (cash) and the rest is in illiquid tokens such as FTT, MAPS and other tokens with fancy names and inflated marketcaps?
janmo 4y ago
"Most of the liabilities on their balance sheet are probably these token deals, rather than loans made in hard currency." No... We know that they owe $650m USD to Voyager Digital and they haven't repaid it yet, instead after failing to bail out Voyager, SBF is trying to acquire its assets with a VERY shady scheme through FTX. We also know that SBF has spent a lot of effort to bail out BlockFi, and I am confident they are one of Alameda's biggest creditor, we know that BlockFi only lends stables, BTC, ETH and a few other bluechip coins, no FTT, MAPS etc... So everything is indicating that Alameda's liabilities are in USD/BTC/ETH, while their assets are FTT, MAPS, a few SOL and other low liquidity "shitcoins". Seems like what Alameda was doing is to take out loans to pump some shitcoins and mainly its own (FTT).
- dcolkitt 4y ago
  No. The Voyager loan was denominated in crypto and at current prices represents only $200 million of liabilities (assuming they haven't already repaid). https://cointelegraph.com/news/alameda-research-happy-to-return-200m-loan-to-voyager-digital https://cointelegraph.com/news/alameda-research-happy-to-ret...
stephc_int13 4y ago
"Market Maker" How is that even legal?
- drexlspivey 4y ago
  Why would it be illegal .. ?
- renewiltord 4y ago
  Their job is to make sure that when you go to a market to buy or sell, there's some trade available for you to take. No reason for illegality.
timmaxw 4y ago
> 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. Hypothetical scenario: Alice invests $100M in seed rounds for a bunch of tokens. The token values go way up, and the holdings are nominally worth $14B. Alice borrows $7B in real dollars. Alice loses those real dollars on other bets. The nominal value of the tokens is still $14B, but Alice can't actually liquidate them for $7B in real dollars. So Alice is functionally unable to pay back the loans. So Alice took a loss somewhere (on the other bets) and is effectively insolvent, but you can't assess that just by looking at the cost basis of the tokens that Alice still holds. (I don't know if this actually describes Alameda; it's entirely possible that Alameda's loans are token-denominated as you're saying, in which case Alameda would be solvent. I'm just pointing out that it's more complicated than just looking at the cost basis.)
jjulius 4y ago
>As someone in the industry, it's almost certainly not. Oof, this aged terribly. Didn't even take 24 hours.
xerxesaa 4y ago
Given the recent events of the last 24 hours, what's your updated view on this?
- harambae 4y ago
  He was completely wrong on the situation, how many more views of his do you want? (To the credit of HN, many people thought he was wrong at the time too) https://www.coindesk.com/business/2022/11/10/sam-bankman-fried-says-his-trading-firm-alameda-research-is-winding-down/ https://www.coindesk.com/business/2022/11/10/sam-bankman-fri...
mi_lk 4y ago
with the benefit of hindsight, please tell me you wrote this just to front running the rest of us and that you don't believe any of these words

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.
- tough 4y ago
  Fear of manual moderation bringing it down?
- tom-thistime 4y ago
  I'm attempting to preserve a record of when the views expressed in the comment seemed popular. Opinions can change over time.
- jjulius 4y ago
  Because it only took ~24 hours for this comment... >As someone in the industry, it's almost certainly not. ... to be proven wrong.
  - tom-thistime 4y ago
    Right. And that felt obvious at the time ... but if you don't timestamp it, who knows (later on) whether it really was obvious, or hindsight? I also thought that question (Hindsight or Not?) might be interesting to more people than just me.
darth_aardvark 4y ago
I fucking love this.

shorthistory 4y ago

FTT 24h volume is ~$100M according to coinmarketcap.com Alameda hold $5.8B FTT according to the article. Any market makers able to advise how much is normally held relative to daily volume/mean transaction size?

JumpCrisscross 4y ago
This looks more like a dealer book than a classic MM. If they’re long $5.8bn and short $5.79bn, their net position is fine. That said, they’d be carrying major counterparty risk.
- shorthistory 4y ago
  1. They are understood to be classic MM [source?] 2. Balance sheet shows they are not classic MM 3. Counterparty is FTX 4. ...

wyxuan 4y ago

There are FTT denominated loan(s), to MIM for instance, but I’m not sure there are that many others willing to accept FTT given the thin liquidity

paulusthe 4y ago

Sure, but at some point real dollars enter the financial equation, backed by these coins, none of which are probably priced correctly to serve as collateral. The ftt coin is shady as hell though. A 40% trading rebate for holding $1m is insane; that's nothing. And it's not open to anybody touching the US - a blatant attempt to prevent US regulations, which would catch this stuff. It's very weird for exchange owners to get rich overnight. That doesn't happen in real markets, and it seems to only happen in crypto when the exchange is using customer deposits as leverage (Celsius) or trading on their own account, which means against their customers (binance, probably ftx)

deleted 4y ago
[deleted]
dcist 4y ago
The trading fees for crypto exchanges are also insane, which enriches the exchange operators.
- from 4y ago
  If you think someone's leaving money on the table with high fees you should start your own exchange. Of course before you even got off the ground you'd have to register as a MSB, draft a very extensive compliance plan given the "high risk" nature of your industry, find a banking partner who will even consider accepting you and hopefully won't kick you out after you get too big (you may have to buy a credit union if this step doesn't work out), get a money transmitter license in every state except Montana (which by the way all require a substantial bond, application fees, and delays), find former regulators who are now $1500/hr lawyers who still have some influence at NY DFS in order to get approved in New York, get approved for ACH, spend at least $50k a month on Chainlysis and OFAC screening software in order to placate regulators, and of course you actually have to write the exchange backend too. If you want to offer leverage (you will in order to be competitive with other exchanges) you need to have a pretty sophisticated risk management system because liquidations in crypto don't work like they do anywhere else. And you have to pay a browser fingerprinting vendor $20k/mo too because your halfwit customers will get phished and cause you bad publicity if you don't stop it. You'll also need Onfido or some other identity verification company in order to satisfy 31 CFR § 1020.220. But yes, once it's all set up it's a practically license to print money.

kennend3 4y ago

> First very simple point, to become insolvent you have to actually take a loss somewhere. This has absolutely NOTHING to do with being insolvent. "Insolvency In accounting, insolvency is the state of being unable to pay the debts, by a person or company, at maturity; those in a state of insolvency are said to be insolvent. There are two forms: cash-flow insolvency and balance-sheet insolvency. " Insolvency deals with the inability to repay your debts (insufficient cash flow is the most common).

toyg 4y ago
- internet person says he works in the crypto space - is actually financially illiterate Checks out, sadly.
- shorthistory 4y ago
  Why would a market maker hold so much of an asset. Market makers do not typically hold $B of anything. Alameda does not need to borrow so much FTT to make markets.
  - amluto 4y ago
    In conventional markets, market makers need the ability to sell that which they make a market in. This can be done by actually owning the asset, by having a credit relationship enabling sales without owning the asset, by naked shorting, etc. If you can’t naked short, and if sales settle effectively immediately (cryptocurrency confirmation may well be slow, but you can’t usefully sell something and buy it back using the sale proceeds without confirming or at least generating and signing the transactions), then you need access to the actual token so you can sell it. In contrast, one can make a market in EUR/USD without actually sitting on a big pile of EUR and USD. In fact, market makers are likely to target an average position of zero in every currency except their home currency unless they are also trying to make some sort of long term bet. Similarly, I doubt you’ll find that most market makers in, say, grain futures have warehouses full of grain. (Grain wants to be eaten, not hoarded for the life of a business. Also, making commodity markets is an entirely different business than growing, storing, transporting, and using commodities.) (This is not trading or market advice, obviously.)

surewhatever1 4y ago

> As someone in the industry, ... It's so delightful that the finance people are coming out all salty! The number is going down. If you organize your life around this number going up, and it goes down, everyone is going to laugh. You chose this life! There is sometimes some meaning in finance somewhere. Like some VCs can get some meaning from, a biotech investment makes a great drug that helps people. But what you chose, there is none. There will be many stages of grief, they do not happen in order or one at a time. > First very simple point, to become insolvent you have to actually take a loss somewhere. C'mon dude. Listen to yourself. It's over. This isn't peak cringe but it's getting there.

JumpCrisscross 4y ago

> the bulk of their liabilities are in the same tokens on their balance sheet Do we have evidence of this? The article says $292mm are FTT-denominated, with the rest unknown. Absent further information, it’s fair to assume some of that is dollar denominated. With less than 2% cash to cover liabilities, even a small amount of normal borrowing could render Alameda insolvent. Moreover, if the losses are entirely passed through, whose are they? That’s over $7bn of losses sitting on someone’s balance sheets. Are they distributed? Is it FTX’s?

janmo 4y ago
Alameda has taken loans from Voyager and BlockFi, those are in hard currencies, USD or bluechip crypto such as BTC/ETH. From Voyager's bankruptcy filing we know Alameda owes them $650m in USD, and hasn't repaid them yet, instead SBF is trying to push forward a shady deal that would allow FTX to take over Voyager's asset. Deal to which state regulators have filed and objection in bankruptcy court by the way.

janmo 4y ago

We know that on Jun 30th Alameda had $134m in liquid assets, at the same time it came out that they owe the bankrupt Voyager Digital around $650m USD. On Jul 8th Alameda research tweeted: "happy to return the Voyager loan and get our collateral back whenever works for voyager". Simple question here, how do they return $650m USD, if they only have $134m in liquid assets (cash) and the rest is in illiquid tokens such as FTT, MAPS and other tokens with fancy names and inflated marketcaps?

janmo 4y ago

"Most of the liabilities on their balance sheet are probably these token deals, rather than loans made in hard currency." No... We know that they owe $650m USD to Voyager Digital and they haven't repaid it yet, instead after failing to bail out Voyager, SBF is trying to acquire its assets with a VERY shady scheme through FTX. We also know that SBF has spent a lot of effort to bail out BlockFi, and I am confident they are one of Alameda's biggest creditor, we know that BlockFi only lends stables, BTC, ETH and a few other bluechip coins, no FTT, MAPS etc... So everything is indicating that Alameda's liabilities are in USD/BTC/ETH, while their assets are FTT, MAPS, a few SOL and other low liquidity "shitcoins". Seems like what Alameda was doing is to take out loans to pump some shitcoins and mainly its own (FTT).

dcolkitt 4y ago
No. The Voyager loan was denominated in crypto and at current prices represents only $200 million of liabilities (assuming they haven't already repaid). https://cointelegraph.com/news/alameda-research-happy-to-return-200m-loan-to-voyager-digital https://cointelegraph.com/news/alameda-research-happy-to-ret...

stephc_int13 4y ago

"Market Maker" How is that even legal?

drexlspivey 4y ago
Why would it be illegal .. ?
renewiltord 4y ago
Their job is to make sure that when you go to a market to buy or sell, there's some trade available for you to take. No reason for illegality.

timmaxw 4y ago

> 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. Hypothetical scenario: Alice invests $100M in seed rounds for a bunch of tokens. The token values go way up, and the holdings are nominally worth $14B. Alice borrows $7B in real dollars. Alice loses those real dollars on other bets. The nominal value of the tokens is still $14B, but Alice can't actually liquidate them for $7B in real dollars. So Alice is functionally unable to pay back the loans. So Alice took a loss somewhere (on the other bets) and is effectively insolvent, but you can't assess that just by looking at the cost basis of the tokens that Alice still holds. (I don't know if this actually describes Alameda; it's entirely possible that Alameda's loans are token-denominated as you're saying, in which case Alameda would be solvent. I'm just pointing out that it's more complicated than just looking at the cost basis.)

jjulius 4y ago

>As someone in the industry, it's almost certainly not. Oof, this aged terribly. Didn't even take 24 hours.

xerxesaa 4y ago

Given the recent events of the last 24 hours, what's your updated view on this?

harambae 4y ago
He was completely wrong on the situation, how many more views of his do you want? (To the credit of HN, many people thought he was wrong at the time too) https://www.coindesk.com/business/2022/11/10/sam-bankman-fried-says-his-trading-firm-alameda-research-is-winding-down/ https://www.coindesk.com/business/2022/11/10/sam-bankman-fri...

mi_lk 4y ago

with the benefit of hindsight, please tell me you wrote this just to front running the rest of us and that you don't believe any of these words