3 ms·

Concealing from users they were gambling with their funds - and not a scam?

throw827474737 4y ago
Hey, in crypto not all is a scam. Some are a proper pyramid scheme, others outright betrayal, and few are just stupid or for fun (:
skippyboxedhero 4y ago
I would read the rest of what I said. Is NYSE a scam? Is Euronext a scam? The exchange was a legit business that was profitable...outside of fixed costs, it isn't possible to lose money with an exchange. But they were doing other stuff (broking) that did lose them money. These are two completely distinct operations though (in real finance, they are largely distinct).
- twblalock 4y ago
  As Matt Levine mentioned in his article today, no responsible bank would allow you to borrow money and give them shares of their own stock as collateral. In some cases it's illegal to do so, but even when it's legal, banks would not want the risk. FTX, on the other hand, pretty much did just that. Does that make FTX a scam? No. But when they told their customers they don't gamble with customer deposits, that was at least incomplete and misleading, and may have crossed the line into being intentionally deceptive. Of course, even if people knew about this, they probably would have used FTX anyway because people do crazy things in a bubble market.
  - skippyboxedhero 4y ago
    Right, but irresponsible banks have done that before and, at the very least, that is self-liquidating on the way down (the same with companies issuing stock to employees). And whether they are gambling with your money or not, they were a mix of a bank and an exchange...so the comparison with a bank isn't complete. They were booking derivatives trades so your money is 100% at-risk, irregardless of what they do with customer deposits. This is what prime brokers do (as Levine says in that article). The reason you don't lend against your own shares is because you won't be able to get financing and are exposed to runs. It is unrelated to the point about customers who were already at risk because they were trading derivatives issued by FTX.
  - colinmhayes 4y ago
    FTX fucked up big time, but if they didn’t allow alemeda to siphon all the customer funds away they’d still be chugging along just fine. The issue is Sam used it as his hedge funds piggy bank.
- dragonwriter 4y ago
  > outside of fixed costs, it isn't possible to lose money with an exchange It is, e.g., if the fees on the average transaction are lower than your variable costs. It is just extremely improbable for that to occur accidentally.
  - skippyboxedhero 4y ago
    So what is that? The milliseconds of CPU time cost? Only on HN.

Hey, in crypto not all is a scam. Some are a proper pyramid scheme, others outright betrayal, and few are just stupid or for fun (:

skippyboxedhero 4y ago

I would read the rest of what I said. Is NYSE a scam? Is Euronext a scam? The exchange was a legit business that was profitable...outside of fixed costs, it isn't possible to lose money with an exchange. But they were doing other stuff (broking) that did lose them money. These are two completely distinct operations though (in real finance, they are largely distinct).

twblalock 4y ago
As Matt Levine mentioned in his article today, no responsible bank would allow you to borrow money and give them shares of their own stock as collateral. In some cases it's illegal to do so, but even when it's legal, banks would not want the risk. FTX, on the other hand, pretty much did just that. Does that make FTX a scam? No. But when they told their customers they don't gamble with customer deposits, that was at least incomplete and misleading, and may have crossed the line into being intentionally deceptive. Of course, even if people knew about this, they probably would have used FTX anyway because people do crazy things in a bubble market.
- skippyboxedhero 4y ago
  Right, but irresponsible banks have done that before and, at the very least, that is self-liquidating on the way down (the same with companies issuing stock to employees). And whether they are gambling with your money or not, they were a mix of a bank and an exchange...so the comparison with a bank isn't complete. They were booking derivatives trades so your money is 100% at-risk, irregardless of what they do with customer deposits. This is what prime brokers do (as Levine says in that article). The reason you don't lend against your own shares is because you won't be able to get financing and are exposed to runs. It is unrelated to the point about customers who were already at risk because they were trading derivatives issued by FTX.
- colinmhayes 4y ago
  FTX fucked up big time, but if they didn’t allow alemeda to siphon all the customer funds away they’d still be chugging along just fine. The issue is Sam used it as his hedge funds piggy bank.
dragonwriter 4y ago
> outside of fixed costs, it isn't possible to lose money with an exchange It is, e.g., if the fees on the average transaction are lower than your variable costs. It is just extremely improbable for that to occur accidentally.
- skippyboxedhero 4y ago
  So what is that? The milliseconds of CPU time cost? Only on HN.