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Binance was threatening to dump a huge amount of FTT tokens on the market. FTX has a big+vulnerable position in FTT. FTX asked Binance to sell them the tokens f

• sytelus 4y ago
  FTX should never been in this position. They are an exchange. Nobody should be able to obliterate them by playing around with their crypto.
  • neural_thing 4y ago
    Hard agree. While Binance prompted the downfall, FTX created all the conditions for it by playing fast and loose with its clients' money.
  • ww520 4y ago
    They are an exchange that allows future trading and margin trading which require borrowing money/assets/coins. The FTT tokens were probably put up as collateral for loans. The drop of the FTT value probably triggers calls on those loans. Thus the liquidity crisis.
    • swyx 4y ago
      that makes FTX a "shadow bank", not merely an exchange.
      • ironick09 4y ago
        It makes them a brokerage, doesn’t it? Not a shadow bank.
      • sytelus 4y ago
        It's worse than "shadow bank". It's bank who is allowed to print money at its whims and create any arbitrary leverage it wants.
        • eru 4y ago
          Well, that's what the 'shadow' in 'shadow bank' means: less/different regulation than a normal bank. That's not necessarily a bad thing, btw.
          • refulgentis 4y ago
            Where's the "bank" in this "shadow bank"? You're describing a casino with a money printer.
            • eru 4y ago
              "Shadow banks" aren't necessarily "banks". See https://en.wikipedia.org/wiki/Shadow_banking_system https://en.wikipedia.org/wiki/Shadow_banking_system > The shadow banking system is a term for the collection of non-bank financial intermediaries (NBFIs) that provide services similar to traditional commercial banks but outside normal banking regulations.[1] Examples of NBFIs include insurance firms, pawn shops, cashier's check issuers, check cashing locations, payday lending, currency exchanges, and microloan organizations.[2][3] The phrase "shadow banking" is regarded by some as pejorative, and the term "market-based finance" has been proposed as an alternative.[4]
              • headsoup 4y ago
                You're moving the goalposts a bit there
    • STRML 4y ago
      It shouldn't work this way. Customer funds should be segregated from whatever prop trading the rest of the business is doing. The only way this happens is if the prop trading business is over-leveraged somehow and the exchange bailed it out with FTT. Customer deposits should meet liabilities 1:1. If they don't, somebody is lying.
      • barry-cotter 4y ago
        > Customer deposits should meet liabilities 1:1. If they don't, somebody is lying. That’s not how banking works. You hold illiquid assets. Sometimes they move in price. If they move enough in price you’re insolvent. Limiting bank runs is a genuinely hard problem.
        • zeven7 4y ago
          Exchanges aren't banks, and crypto exchanges especially shouldn't be banks. Crypto is liquid and can be redeemed in its own denomination instantly if you hold it in a simple wallet. That's what exchanges should be doing. They shouldn't be doing fractional reserve banking, and a run shouldn't be possible. Preventing runs on a crypto exchange is exceedingly easy if the operators aren't taking risks with client funds.
          • eru 4y ago
            Well, it seems the word 'exchange' in this case is used with a different meaning when applied to FTX than the meaning you have in mind.
            • stale2002 4y ago
              Which is exactly the problem. This should be illegal, and people who do this should go to jail. Customer funds should be 1 to 1 backed with assets.
              • deleted 4y ago
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    • c-baby 4y ago
      That's called picking up pennies in front of a steam roller.
    • vkou 4y ago
      Your margin account should be immediately liquidated and your positions closed if the value of your collateral drops below your outstanding obligations.
    • vishnugupta 4y ago
      You are referring to liquidity providers and market maker; they provide the liquidity (in the form of loans for margin trading, among other things), take risk in exchange for market making fee. An exchange on the other hand is facilitating trades by matching buyers with sellers. At least that's how it works in stock markets. Even if NASDAQ were to become a market maker they would have to spin a separate entity, bring their own funds to provide liquidity. Even then I don't know if it's allowed by regulation.
      • HolyLampshade 4y ago
        > Even then I don’t know if it’s allowed by regulation It isn’t, precisely for this reason. The US Equity and Equity Derivative markets have tried a few times to get approval for initiatives using their already existing BDs (to facilitate inter-market order routing), and in every case it’s been blocked by the regulators as too risky to the underlying business. The issue here has more to do with the lack of a centralized C&S clearing house in crypto, and is one of the reasons counterparty risk remains such a massive issue there. Having to maintain an account at each exchange, much like you would a BD, and praying things don’t suddenly go pear shaped, strikes me as insane (and is one of the primary reasons I’ve avoided getting involved in the crypto space)
    • ww520 4y ago
      Ok. To settle once for all whether FTX is an exchange or not. Below are the services they offer. Futures: ... with margins of up to 101x. Leveraged Tokens: ... up to three times the leverage. ... the leveraged coins offered by FTX don’t require any margin. Options: (standardish). MOVE: ... wager on the price movement ... a play on volatility. Spot Markets: ... more than 100 different spot trading pairs.
      • wklm 4y ago
        It's fine for a trading venue to list all these derivatives, the problem in this case is that the venue and issuer are the same entity. In the trad finance world this is strictly separated.
  • deleted 4y ago
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  • mbesto 4y ago
    But the free market dictated that they do because that's exactly the downside of their use of a crypto coin. How many exchanges will need to go under for the market to decide that isn't a great way to operate one? How much educating of users/customers will it take?
  • vishnugupta 4y ago
    I was having this exact conversation with my friends y'day. An exchange marketplace shouldn't be in this position unless they are also participating in the market directly or indirectly through funds, their own and the customers' funds. Customers' assets (either crypto or fiat/USD) should be backed 1:1. The only reason for FTX to pause withdrawals and then assure investors that their money is safe is a sign that they are using customers' assets/funds to participate in the market. How long before SEC/regulators wake up and regulate these shadow-banks disguised as exchanges as other exchanges?
    • JumpCrisscross 4y ago
      > having this exact conversation with my friends y'day There is a strong, vested interest in portraying FTX's collapse as a one off. Binance doing them dirty doesn't cast a pall across the industry. Fundamental problems, likely replicated systemically, does.
    • ugh123 4y ago
      Sounds like a crypto ponzi scheme
    • seanhunter 4y ago
      > An exchange marketplace shouldn't be in this position unless they are also participating in the market directly or indirectly through funds, their own and the customers' funds. Yes, although the limitation with this line of thinking is that in most market-related activities (including running an exchange) it's hard not to be structurally long the market in various important ways. For example as an exchange your commissions are going to be highly correlated with market activity and may also be per unit in some cases and so would be directly correlated with market prices in that case. As a second-order effect, customers' trading limits are going to be affected as prices fluctuate even if you don't directly offer margin yourself, because not only does the value of the thing they've deposited with you change and therefore affect how much other stuff they can sell this for but also they may have made that deposit by pledging collateral elsewhere and borrowing against that to create margin so that margin loan will be affected. You can definitely try harder to avoid the problem than FTX though which seems to have been pretty much all-in on it's own illiquid token (FTT) and Alameda using leverage on FTT as their main source of funding. One of the things I learned at Goldman during the crisis is that you can't rely on a mark for anything illiquid - you have to have a real liquid market price.
  • helsinkiandrew 4y ago
    They're more a brokerage than an exchange - you can buy Bitcoin and Eth leaveraged at 20-1 through their perpetual futures. Whilst these are presumably hedged - FTX are still taking on risk. https://ftx.com/markets/futures https://ftx.com/markets/futures https://help.ftx.com/hc/en-us/articles/360024780511-Futures-Specs https://help.ftx.com/hc/en-us/articles/360024780511-Futures-...
• ww520 4y ago
  Isn't FTT like FTX's own issuing tokens? It's like printing one's own money. But when the backing firm fails, the printed money is worthless, just like what LUNA issued by Terra had become.
  • miohtama 4y ago
    It only matters if FTX was using FTT as a collateral for accounting purposes for a valuation that is not realistic considering the liquidity of a position size.
    • potatototoo99 4y ago
      And of course they were, what else would they keep it pumped up for.
    • deleted 4y ago
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  • kuratkull 4y ago
    Yeah. I can't be bothered to verify, but i remember that Binance has a huge double-digit percentage of all FTT tokens in circulation. Dumping all of them would crash the tokens value. And since this is FTX's own token, they would hurt a lot, maybe even terminally.
  • jimcavel888 4y ago
  • deleted 4y ago
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  • ww520 4y ago
    Just went over the issues on the balance sheet of Alameda Research, which is SBF's trading company. Of the $14.6 billion assets Alameda manages, almost $6 billion is FTT based. Alameda has heavy investment in Solana, Serum, and other alt-coins. It looks like the drop in their value has lowered Alameda's asset balance. Alameda borrowed FTT tokens from FTX to put them as assets in the balance sheet to shore it up. The size of the asset balance is probably used to obtain loans and liquidity. FTX issues FTT tokens (print money) => lends to Alameda to put under the asset balance => Alameda borrows money from outside against its assets or uses the asset/coins to invest in others => win with thin air! The crashing of the FTT token not only tanked FTX, it's going to tank Alameda Research as well since its asset balance suddenly shrunk and might have liquidity problem. The tanking of Alameda is going to another Three Arrow Capital event since Alameda invests in lots of other cryptos. It might be forced to liquidated those investments. Expect another bloodbath in the crypto space.
• purple_ferret 4y ago
  Binance continues to amaze. Does anyone even know where it operates out of these days?
  • tommek4077 4y ago
    The fabric of the internet.
  • FormerBandmate 4y ago
    They said they’d announce it shortly in July (https://decrypt.co/105376/where-is-binance-hq-ceo-cz-says-coming-due-time?amp=1 https://decrypt.co/105376/where-is-binance-hq-ceo-cz-says-co...). Since then, nothing They got regulatory approval to operate in Dubai and have offices there, so maybe there (https://www.coindesk.com/policy/2022/09/20/binance-secures-license-in-dubai-to-offer-more-crypto-services/?outputType=amp https://www.coindesk.com/policy/2022/09/20/binance-secures-l...)
  • yieldcrv 4y ago
    There is a pool of capital that pays people working for them onchain. They can also do fiat via local subsidiaries, and local contracts for compliance and litigation. It's almost like it doesn't matter. For accountability, it barely matters. For financial products they offer, it also barely matters. Most jurisdictions are too small to say anything and all their customers can circumvent any geo-restriction. They have distinct subsidiaries in major markets like USA.
  • danrocks 4y ago
    They have a lot of positions open at their Singapore and Hong Kong... offices?
• gowings97 4y ago
  • yieldcrv 4y ago
    Okay, random non sequitur This isnt a thread about stablecoins
  • andirk 4y ago
    I earned $1,200 from Gemini's stablecoin GUSD's interest last year. Withdrew the extra and bought some nice pendant lights for my new kitchen.
    • rchaud 4y ago
      I understand many did well with Bitconnect too...
      • andirk 4y ago
        Not a stablecoin. Bitconnect is my favorite crypto scam so far! It was so obviously a scam, and the bros promoting it were even dumber than that shitcoin. A lot of crypto projects can appear scammy because a handful of people are working on something and their token goes through the roof then crashes with no wrongdoing on the part of the project. Invest in projects, not coins!
  • colinmhayes 4y ago
    FTT is not a stablecoin
• ForHackernews 4y ago
  > smells like Binance played 4D chess all along It's not really "4D chess" to screw over your competitor to corner the market. That's like, business 101.
  • rchaud 4y ago
    Business 101 is buy low, sell high. Winning an evenly matched game of prisoner's dilemma with billions at stake is about as close to 4D chess there is.
    • Nomentatus 4y ago
      Buy low esteem, sell high esteem - the concept comes from Hetty Green (long ago billionaire.)
  • wesapien 4y ago
    I'm not too familiar but can you elaborate on how the screwing happened.
    • ForHackernews 4y ago
      CZ tweeted "Oh shit, FTX is basically insolvent, we're gonna have to dump all our FTT magic beans!" or words to that effect. Then, when FTX predictably tanked, he stepped in and generously offered to buy out FTX.
      • lupire 4y ago
        Same thing Soros did to the Bank of England's fake pound.
  • astrange 4y ago
    Typically you don't expect Bank of America and Chase to do this to each other.
    • hprotagonist 4y ago
• deleted 4y ago
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• pbreit 4y ago
  That sounds like 1D chess.
  • deleted 4y ago
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• acchow 4y ago
  This doesn’t sound like very complicated chess. Sounds like those Hong Kong TV shows I watched when I was 13
  • danrocks 4y ago
    Having lived in Hong Kong and watched some of these old shows, I concur.
    • kranke155 4y ago
      Please share!
  • kranke155 4y ago
    Please share these TV shows so we can all watch them and learn.
    • spacehunt 4y ago
      The seminal HK show about the stock market would be The Greed of Man (大時代) [1]. It's 30 years old, but classic scenes in it are still used in memes even today. Edit: I totally forgot to mention the "Ting Hai Effect"! [2] Wikipedia has a great summary which I'll just quote here: > The Ting Hai effect, also known as the Adam Cheng effect, is a stock market phenomenon in which there is a sudden and unexplained drop in the stock market whenever a film or a television series starring Hong Kong actor Adam Cheng is released. It still remains as a popular topic among stock brokers, years after the television drama The Greed of Man was broadcast in Hong Kong in late 1992. The effect is named after Ting Hai, the primary antagonist in the drama, who was portrayed by Cheng. [1] https://www.imdb.com/title/tt0843185/ https://www.imdb.com/title/tt0843185/ [2] https://en.wikipedia.org/wiki/Ting_Hai_effect https://en.wikipedia.org/wiki/Ting_Hai_effect
    • acchow 4y ago
      I don't even know where to begin looking for this. I have zero ability to read chinese, although I can understand it verbally :P
• danrocks 4y ago
  > FTX asked Binance to sell them the tokens for a fixed price, so as not to crash the FTT token price. Why would Binance decline this opportunity? If FTX, Binance, and the market knew FTT would just crash, it sounds like a given that Binance should take advantage of the fixed price instead of losing hundreds of millions of dollars "letting the market decide".
  • colinmhayes 4y ago
    Because they wanted to create a liquidity crisis in FTX that would force FTX to sell itself for a discount?
  • mikekoscinski 4y ago
    Presumably, it is more appealing to Binance to kill their largest competitor than it is to realize a return on a minority investment.
  • oldgradstudent 4y ago
    It depends on the fixed price offered by FTX. If FTX could pay the current market price, then they could have absorbed whatever Binance sold on the open market. They probably offered a deep discount.
    • kgwgk 4y ago
      Or maybe they offered to buy it later (when?) at a price fixed today - discounted or not. If they don’t have liquidity (why?) they cannot buy it on the market.
      • oldgradstudent 4y ago
        Illiquid means you can't sell your position without lowering the price significantly. It could be that you need time to sell, or it could be that no one is stupid enough to buy it. The former can be fixed with a temporary loan, the latter in bankruptcy court.
        • 4y ago
• microtherion 4y ago
  > Binance was threatening to dump a huge amount of FTT tokens on the market. FTX has a big+vulnerable position in FTT. FTX asked Binance to sell them the tokens for a fixed price, so as not to crash the FTT token price. Binance declined This makes absolutely no sense and is not how markets work. If FTX was actually willing to buy unlimited FTT at a given price, Binance could not have "crashed the price" by selling below that price — somebody would simply have bought at the Binance price and sold to FTT at their price. What seems more likely is that FTX extended that offer only to a small portion of the tokens that Binance wanted to sell (to maintain the fiction of their price).
  • cj 4y ago
    My assumption when reading the quote was that it would be an off-market transaction. Similar to how stocks can be traded in Dark Pools outside of the regular stock market.
    • hailwren 4y ago
      Their point is that if you have the money to buy $1.1B of something off market, you should also have the money to buy $1.1B of something on market. Any time someone posts an ask at or below $22, you simply fill the order.
      • rtpg 4y ago
        beyond the fact that the dynamics of saying "we'll take everything at a certain price up to $1.1B" will likely lead to much more than that showing up on the market and leading to a price crash anyways... I imagine that an off market transaction can involve things like not sending $1.1B in cash to the other person the same day.
        • eru 4y ago
          If you have enough assets, everything can show up, and you just buy them out.
    • 4y ago
• hammock 4y ago
  This is my view as to what possibly happened in last 24 hours. Mind you I have no idea if its real but i am making an educated guess based on my 10+ yrs seeing such events play out several times. 1) Alameda used FTX money and balance sheet along with using $FTT to take out billions of loans and "investments" including possibly customer funds to "invest" "efficiently" into risky investments 2) He then also used a lot of it to prop the entire market up in the 1250-1350 range over months to decouple the market possibly and keep $FTT above the $22 mark which was possibly a margin level for his collateral. 3) Market rallied and everything was fine. He is up a lot but lost few between making potentially risky investments (maybe shorting?), maybe options market making as that was his original expertise... who knows. But he clearly lost some money in there. 4) Rumors spread of balance sheet shortfall. Now mind you .. Alameda is a separate entity than FTX. So using FTX resources for trading on Alameda is a big no no. 5) CZ finds out about this. Decides to market sell his billions of $FTT position. Caroline gives up her hands and says they will buy at $22 which on the chart you can see has been the support line time and time again so clearly that line has been supported constantly.. 6) The market selling pushes price below $22. Entire market and large players smell blood.. the moment the price goes below $22 the lenders market sell coins ($FTT and $SOL) for margin. This results in a loop after it breaks below $22 and goes into freefall with no support anymore 7) With no options to get more money from lenders and having no other assets to get more loans from lenders as they are already selling his assets, SBF goes to CZ and asks to bail out FTX as there is a big hole that cannot be filled anymore. CZ probably decided to take over FTX and said to SBF you have to either stop gap some of the fills from selling your assets since you did things wit the balance sheet and customer money you weren't supposed to. He probably said he will bail out FTX but NOT Alameda. Sam then either market sold everything he had...OR the lenders... Sam went to the lenders and said I am defaulting on my loans...So the lenders just market sold all the collateral. I think its most likely Sam said he is going to default on the loans and they market sold. IF the lenders recouped 70-80% then i think its fine. IF the lenders WERE NOT able to recoup and will have to take a write off on the loans.. we have issues. That part I am unsure about. IF a large lender goes under... then there is further contagion. The market selling off coins so quickly triggered probably more liquidations. WHERE DO WE GO FROM HERE? We have seen bigger black swan events like in crypto past. All new concepts have days weeks like this. Stocks had it, banks had it and crypto has had it few times. There will always be new smart people to push growth and take over. When 3AC went bust, we got to $800 on $ETH. We rebounded to 2k in time. That was close to 17-18bn. This is smaller. in time... we will be back. Not sure when.. but eventually it all comes back. Market is cyclical end of the day.
• gz5 4y ago
  Seems more like a classic run on the bank. Made worse because: + the bank (FTX) was likely massively over leveraged + the bank's primary assets were likely not very liquid Both of above are speculation. However, why else be forced to sell (1) to Binance? (1) Matt Levine makes his usual solid argument as to why the price was likely zero, other than cashing out FTX debt: https://www.bloomberg.com/opinion/authors/ARbTQlRLRjE/matthew-s-levine https://www.bloomberg.com/opinion/authors/ARbTQlRLRjE/matthe...
• mekster 4y ago
  Conspiracy theory was expected but Alameda was spotted to have smoke up a week earlier. https://www.coindesk.com/business/2022/11/02/divisions-in-sam-bankman-frieds-crypto-empire-blur-on-his-trading-titan-alamedas-balance-sheet/ https://www.coindesk.com/business/2022/11/02/divisions-in-sa... CZ sounds smart to withdraw quickly not to be the one in a sinking boat and it did sink quickly.