6 ms·

>ponzi scheme This is not a ponzi scheme. This is a good old "not firewalling your customer's money and your investment money" that everyone suffered from in 2

>ponzi scheme This is not a ponzi scheme. This is a good old "not firewalling your customer's money and your investment money" that everyone suffered from in 2008. The situation is cataphoric enough without people mis-using terms.

VHRanger 4y ago
They used FTT as collateral for loans used on trading activities that boosted FTT value It's not literally a Ponzi, but it's Ponzi adjacent behavior, like what Bill Hwang did.
- quickthrowman 4y ago
  Bill Hwang lied about his market exposure to the brokers who sold him the equity swaps. It was just garden variety fraud with no ponzi adjacent behavior at all.
  - Kstarek 4y ago
    He actually didn't lie lol, they knew they just didn't care as he was a very profitable customer
- colinmhayes 4y ago
  Bill hwang didn’t even take investor money. How did you come to the conclusion that his behavior was ponzi adjacent?
deleted 4y ago
[deleted]
NovemberWhiskey 4y ago
>"not firewalling your customer's money and your investment money" that everyone suffered from in 2008 ... cite for this, please. I don't recall there being any significant client money problems in that period.
- oldgradstudent 4y ago
  I don't think this was a major problem in the 2008 crisis. John Corzine's MF Global was a well known case in 2011. https://en.wikipedia.org/wiki/MF_Global https://en.wikipedia.org/wiki/MF_Global
- guardiangod 4y ago
  You are right. Even though there were cases in 2008 they weren't significant contributors to the great recession.
shmatt 4y ago
>The first $10,000 USD value in your deposit wallets will earn 8% APY (This is what FTX was offering customers) And now we know the accounts weren't actually covered by real money (or "value" as they called it). So when person X was asking FTX for their money back, FTX would send person X+1's money to cover Sounds like a Ponzi to me
- CamelCaseName 4y ago
  It's only a ponzi scheme if you have no underlying business but transferring money between people. Presumably FTX expected that its risky bets would pay off and that return would then fund the interest promised. Otherwise, would you consider corporate debt a ponzi scheme?
  - jazzyjackson 4y ago
    > fund the interest promised. IMO this is key, the interest being paid out to account holders was not profits from any underlying business, it was just paid out from new "customer" deposits. If a corporation is in debt and paying back interest, it's sustainable as long as the business actually has a plan to grow. If your business is acquiring new users to pay out obscene interest rates to your early adopters, that's a ponzi (mr ponzi himself didn't mean to scam anyone either way by the way, until he realized his postage-arbitrage plans were going south and he scrambled not to break his promises)
  - NickC25 4y ago
    >Presumably FTX expected that its risky bets would pay off and that return would then fund the interest promised. So did Bernie. >Otherwise, would you consider corporate debt a ponzi scheme? Depends on what you count as corporate debt. I'd have no problem buying the debt of a mature, massive company like Apple or Microsoft, because they have hard assets, steady cashflows, successful products on the market. The debt of a zombie corporation with a useless product that was only sustainable due to 0% interest rates? No thanks. Is that a ponzi scheme? Probably not the classical definition of one, but it's ponzi-adjecent.
    - 4y ago
jrm4 4y ago
What makes it not a ponzi? Is the idea that "the possibility that number may go up" the only thing to distinguish it?
- oldgradstudent 4y ago
  According to Wikipedia a Ponzi scheme > is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. So if they are paying yield while actually losing money and covering it up by recruiting new clients then it's a Ponzi scheme.
- colinmhayes 4y ago
  So my understanding is that alameda needed more capital to fund its operations that had a track record of success, so sbf created ftx and gave customer assets to alameda to invest. So the business thesis here isn’t “use new user money to pay old users” it’s “steal all the users money to invest and hope the investments continue to be profitable.” I guess they started ponzi-ing once alameda went bust but that wasn’t the original plan, although that’s probably true for most ponzi’s.
steveBK123 4y ago
Even in 2008 that is not what happened. Tell me which retail brokerages lost their customers assets because they gambled them away? There is no glossing over the fact that all these crypto explosions are a result of largely re-implementing a pre-Fed, pre-FDIC, pre Great Depression style banking system with all its long-patched defects.
- arcticbull 4y ago
  ... except in a way that fundamentally prevents the patches and even lauds the defects.
  - steveBK123 4y ago
    Yes, exactly.. this is the end state for crypto rather than a step towards being a normal market that normal people can use
    - topranks 4y ago
      Yep. One can argue whether or not the whole point of creating it was to enable such schemes, but they certainly are an inevitable result.
- new2this 4y ago
  >Tell me which retail brokerages lost their customers assets because they gambled them away? Banks are required to keep a percentage of deposits in risk free assets as part of the Basel Accord[1]. Banks were marking risky assets such as Super Senior tranches of CDO's as risk free when, guess what, they were actually super risky. When the value of those tranches dropped, the banks lost tons of value and all of the sudden couldn't cover their debts because they were gambling with what should have been cash. So to answer your question: all of the banks (who were dealing in CDO's) did this. https://en.wikipedia.org/wiki/Basel_III#US_version_of_the_Basel_Liquidity_Coverage_Ratio_requirements https://en.wikipedia.org/wiki/Basel_III#US_version_of_the_Ba...

VHRanger 4y ago

They used FTT as collateral for loans used on trading activities that boosted FTT value It's not literally a Ponzi, but it's Ponzi adjacent behavior, like what Bill Hwang did.

quickthrowman 4y ago
Bill Hwang lied about his market exposure to the brokers who sold him the equity swaps. It was just garden variety fraud with no ponzi adjacent behavior at all.
- Kstarek 4y ago
  He actually didn't lie lol, they knew they just didn't care as he was a very profitable customer
colinmhayes 4y ago
Bill hwang didn’t even take investor money. How did you come to the conclusion that his behavior was ponzi adjacent?

deleted 4y ago

[deleted]

NovemberWhiskey 4y ago

>"not firewalling your customer's money and your investment money" that everyone suffered from in 2008 ... cite for this, please. I don't recall there being any significant client money problems in that period.

oldgradstudent 4y ago
I don't think this was a major problem in the 2008 crisis. John Corzine's MF Global was a well known case in 2011. https://en.wikipedia.org/wiki/MF_Global https://en.wikipedia.org/wiki/MF_Global
guardiangod 4y ago
You are right. Even though there were cases in 2008 they weren't significant contributors to the great recession.

shmatt 4y ago

>The first $10,000 USD value in your deposit wallets will earn 8% APY (This is what FTX was offering customers) And now we know the accounts weren't actually covered by real money (or "value" as they called it). So when person X was asking FTX for their money back, FTX would send person X+1's money to cover Sounds like a Ponzi to me

CamelCaseName 4y ago
It's only a ponzi scheme if you have no underlying business but transferring money between people. Presumably FTX expected that its risky bets would pay off and that return would then fund the interest promised. Otherwise, would you consider corporate debt a ponzi scheme?
- jazzyjackson 4y ago
  > fund the interest promised. IMO this is key, the interest being paid out to account holders was not profits from any underlying business, it was just paid out from new "customer" deposits. If a corporation is in debt and paying back interest, it's sustainable as long as the business actually has a plan to grow. If your business is acquiring new users to pay out obscene interest rates to your early adopters, that's a ponzi (mr ponzi himself didn't mean to scam anyone either way by the way, until he realized his postage-arbitrage plans were going south and he scrambled not to break his promises)
- NickC25 4y ago
  >Presumably FTX expected that its risky bets would pay off and that return would then fund the interest promised. So did Bernie. >Otherwise, would you consider corporate debt a ponzi scheme? Depends on what you count as corporate debt. I'd have no problem buying the debt of a mature, massive company like Apple or Microsoft, because they have hard assets, steady cashflows, successful products on the market. The debt of a zombie corporation with a useless product that was only sustainable due to 0% interest rates? No thanks. Is that a ponzi scheme? Probably not the classical definition of one, but it's ponzi-adjecent.
  - 4y ago

jrm4 4y ago

What makes it not a ponzi? Is the idea that "the possibility that number may go up" the only thing to distinguish it?

oldgradstudent 4y ago
According to Wikipedia a Ponzi scheme > is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. So if they are paying yield while actually losing money and covering it up by recruiting new clients then it's a Ponzi scheme.
colinmhayes 4y ago
So my understanding is that alameda needed more capital to fund its operations that had a track record of success, so sbf created ftx and gave customer assets to alameda to invest. So the business thesis here isn’t “use new user money to pay old users” it’s “steal all the users money to invest and hope the investments continue to be profitable.” I guess they started ponzi-ing once alameda went bust but that wasn’t the original plan, although that’s probably true for most ponzi’s.

steveBK123 4y ago

Even in 2008 that is not what happened. Tell me which retail brokerages lost their customers assets because they gambled them away? There is no glossing over the fact that all these crypto explosions are a result of largely re-implementing a pre-Fed, pre-FDIC, pre Great Depression style banking system with all its long-patched defects.

arcticbull 4y ago
... except in a way that fundamentally prevents the patches and even lauds the defects.
- steveBK123 4y ago
  Yes, exactly.. this is the end state for crypto rather than a step towards being a normal market that normal people can use
  - topranks 4y ago
    Yep. One can argue whether or not the whole point of creating it was to enable such schemes, but they certainly are an inevitable result.
new2this 4y ago
>Tell me which retail brokerages lost their customers assets because they gambled them away? Banks are required to keep a percentage of deposits in risk free assets as part of the Basel Accord[1]. Banks were marking risky assets such as Super Senior tranches of CDO's as risk free when, guess what, they were actually super risky. When the value of those tranches dropped, the banks lost tons of value and all of the sudden couldn't cover their debts because they were gambling with what should have been cash. So to answer your question: all of the banks (who were dealing in CDO's) did this. https://en.wikipedia.org/wiki/Basel_III#US_version_of_the_Basel_Liquidity_Coverage_Ratio_requirements https://en.wikipedia.org/wiki/Basel_III#US_version_of_the_Ba...