4 ms·
There’s a Bloomberg article that goes over why this is a bit more nuanced than “gambling with customers funds”. In short, it’s either one or both of poor risk m
by cellis 4y ago
There’s a Bloomberg article that goes over why this is a bit more nuanced than “gambling with customers funds”. In short, it’s either one or both of poor risk management ( margin traders can’t post collateral and the collateral they had was FTT which went to zero ) and black swan bank runs ( Binance CEO tweets about risky FTT causing bank run causing further drops ). In fact “gambling with customer funds” was by design. Coinbase, to their credit, lost business to the cexes and FTXs for not allowing derivative and defi lending / margin trading. So the customers should have known the fatalistic game they played.
If you have a subscription I recommend it.
- https://www.bloomberg.com/opinion/articles/2022-11-09/bankman-fried-s-ftx-had-a-death-spiral-before-binance-deal https://www.bloomberg.com/opinion/articles/2022-11-09/bankma...
- wfleming 4y agoFWIW you can subscribe to Matt Levine’s column as email newsletter without being a Bloomberg subscriber. (That doesn’t help for reading already-published columns, but of course there are other ways around paywalls.)
- xwolfi 4y agoI bit the bullet and pay for Bloomberg now, it's too good too consistently.
- mumbisChungo 4y ago>In fact “gambling with customer funds” was by design. This is not accurate. The ToS for FTX explicitly said that customer funds would not be used for investment purposes. While it didn't explicitly say it wouldn't be used for lending, it was a broad assumption in the industry that the exchange was solvent and could back user assets on a 1:1 basis. It is widely believed now that Alameda went deep underwater during the collapse of the Luna ponzi (this one was quite literally structured like a ponzi) and borrowed a large amount from FTX to bail themselves out of it. In the wake of this, FTX had a shortage of hard assets and a fat bag of FTT that the loan was issued against, which is what exposed them acutely to a bank run and/or price decrease in FTT.
- uncletammy 4y ago> ... it was a broad assumption in the industry that the exchange was solvent and could back user assets on a 1:1 basis. Anyone in crypto who makes this assumption about any other entity in crypto is either brand spanking new or a fool.
- mumbisChungo 4y agoUnfortunately this is not true in this case. Folks who have been in the industry for 10 years, many very publicly cynical, had assets on FTX. It was viewed by many as the safest CEX in the industry. I'm a bit more paranoid, so I maintain self-custody 100% of the time unless I'm using an on/off-ramp, but some very bright, very oldschool folks got caught up in this one.
- colinmhayes 4y agoRight so they didn’t invest customer assets, they just loaned them to themselves in exchange for their own token so that they could invest the customer assets.
- brobinson 4y agohttps://archive.ph/CxJqM https://archive.ph/CxJqM
- potatototoo99 4y agoThe issue wasn't the bank run. FTX could just have halted withdrawals, CEX do it all the time. The issue was FTT collaterized loans or equivalent, because they gambled too hard. And I doubt their users were aware of the risks, sBF himself guaranteed on Twitter the day before.
- netheril96 4y agoBank runs are wrong for exchanges. They never should have fractional reserves. And derivative trading shouldn’t be based on lending out customer funds. The exchange should lend out their own funds. They charge a lot of interest for the leverage, and they don’t even take the risk on their own money?
- nr2x 4y agoBloomberg is currently the only news source I feel makes me smarter after I read an article.