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>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

by 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.
  - IanCal 4y ago
    > So did Bernie. No, he just straight up didn't invest peoples money, he paid out "gains" just from other deposits. That's why it was a Ponzi scheme - that's what they are.
    - NickC25 4y ago
      Initially, he did invest their money, he just didn't get the (I believe it was) +/- 10% that he promised investors (and was getting like clockwork) before the 08 crash. Once he started not being able to make those returns did thing start to unravel. His own kids were in denial right up until the end - almost nobody, even inside Bernie's firm, knew it was fraudulent.
      - IanCal 4y ago
        He hadn't been doing any trades for 15+ years when it all fell apart.
      - JackFr 4y ago
        > almost nobody, even inside Bernie's firm, knew it was fraudulent. It’s amazing what you can fail to know when not knowing it keeps you out of jail.
        svnt 4y ago
        It helps if you sleep in fits on a beanbag and play League of Legends with every spare brain cell.
- squeaky-clean 4y ago
  The original scheme by Ponzi himself was based around profiting from arbitrage from postage stamps. He promised 50% returns within 90 days and couldn't keep up with his claims in a legitimate manner.
- deleted 4y ago
  [deleted]
jcpham2 4y ago
FWIW I have difficulty distinguishing the difference between a Ponzi scheme and "The Time Value of Money" concept itself. Every place I see that offers interest on crypto deposits, I fear they have no business plan to generate the profits to pay the interest on a deflationary fake internet money in the first place. My fear is they are just Ponzi-ing on Wayne! seeking the next highest interest rate holding the biggest bag, hoping the 'ol Time Value of Money will save their ass. The whole house of cards has a lot to do with the _velocity_ at which the money moves and whether it's stagnating or generating interest somewhere else. My rant is over. None of this stuff has affected me.
- JALTU 4y ago
  Time value of money is not the same. It’s actually simple and elegant and flexible, and to your point, you want to see the borrower have a plan, so to speak. Or cash flows. Or collateral. Or all of the above. And still, you can lose. But the concept of the price of money is separate from that.
- largepeepee 4y ago
  Simple. It is always can you trust the other party. And that's the basis of society, government and money.
- ProjectArcturis 4y ago
  >Every place I see that offers interest on crypto deposits, I fear they have no business plan to generate the profits to pay the interest on a deflationary fake internet money in the first place. You are correct. Literally every place offering high interest rates on crypto deposits is a Ponzi scheme.
- arkis22 4y ago
  The concepts bleed into each other, but Matt Levine explains it well. The Ponzi scheme is unsustainable. it gives you a solvency problem, your assets are bad and no amount of time will help. With fractional reserve banking run on banks usually come down to a liquidity problem, everyone wants their money now and you don't have all of it. So you call up someone with cash, like the FED, and theyll lend to you because you are a chartered, regulated bank. basically the difference is asset quality and proper accounting. Banks are similar to ponzis, but they are HIGHLY regulated to ensure their continued operation.
y04nn 4y ago
I find it very ironic that Satoshi created Bitcoin with the objective to be more resilient than banks, with the famous genesis block containing "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks". A decade later, the bitcoin creation generated an entire industry of "crypto banks" that are opaque, played with customers money and went bankrupt.
- zeroclip 4y ago
  Indeed, ironic. But this also laid the path for DeFi, which processes similar volumes per day as centralized exchanges, without the single counterparty risk.
- deleted 4y ago
  [deleted]
- sytelus 4y ago
  Bitcoin purists say that we shouldn't be having any "exchanges" or "crypto banks". If we have them and use them then we deserve this fate.
- rglover 4y ago
  It's a beautiful lesson in human behavior and greed. You're given a perfect form of money (Bitcoin) that you can safely hold with minimal effort and your shortsighted greed ("yield farming") forces you to lose it all to a conman. The silver lining to all of this is that people might actually start listening to Bitcoin maxi's after this year.
  - Nursie 4y ago
    > You're given a perfect form of money Ha, wow. Yeah no, Bitcoin is not a perfect form of money at all. It- - uses vast amounts of energy - can only process a few TPS - confirms slowly - has limited quantities which warps economies - is irreversible in cases of theft or fraud - is lost forever if you lose your keys And that's just off the top my head. I get what you're saying - "not your keys not your coins", but the idea that this system is somehow an optimum is just plain wrong. For those of us who do not fetishize decentralisation, those negatives are unacceptable in any form of 'money'. Even if you do believe in decentralisation, it's clear that this is far from perfect.

by shmatt 4y ago

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.
- IanCal 4y ago
  > So did Bernie. No, he just straight up didn't invest peoples money, he paid out "gains" just from other deposits. That's why it was a Ponzi scheme - that's what they are.
  - NickC25 4y ago
    Initially, he did invest their money, he just didn't get the (I believe it was) +/- 10% that he promised investors (and was getting like clockwork) before the 08 crash. Once he started not being able to make those returns did thing start to unravel. His own kids were in denial right up until the end - almost nobody, even inside Bernie's firm, knew it was fraudulent.
    - IanCal 4y ago
      He hadn't been doing any trades for 15+ years when it all fell apart.
    - JackFr 4y ago
      > almost nobody, even inside Bernie's firm, knew it was fraudulent. It’s amazing what you can fail to know when not knowing it keeps you out of jail.
      - svnt 4y ago
        It helps if you sleep in fits on a beanbag and play League of Legends with every spare brain cell.
squeaky-clean 4y ago
The original scheme by Ponzi himself was based around profiting from arbitrage from postage stamps. He promised 50% returns within 90 days and couldn't keep up with his claims in a legitimate manner.
deleted 4y ago
[deleted]

jcpham2 4y ago

FWIW I have difficulty distinguishing the difference between a Ponzi scheme and "The Time Value of Money" concept itself. Every place I see that offers interest on crypto deposits, I fear they have no business plan to generate the profits to pay the interest on a deflationary fake internet money in the first place. My fear is they are just Ponzi-ing on Wayne! seeking the next highest interest rate holding the biggest bag, hoping the 'ol Time Value of Money will save their ass. The whole house of cards has a lot to do with the _velocity_ at which the money moves and whether it's stagnating or generating interest somewhere else. My rant is over. None of this stuff has affected me.

JALTU 4y ago
Time value of money is not the same. It’s actually simple and elegant and flexible, and to your point, you want to see the borrower have a plan, so to speak. Or cash flows. Or collateral. Or all of the above. And still, you can lose. But the concept of the price of money is separate from that.
largepeepee 4y ago
Simple. It is always can you trust the other party. And that's the basis of society, government and money.
ProjectArcturis 4y ago
>Every place I see that offers interest on crypto deposits, I fear they have no business plan to generate the profits to pay the interest on a deflationary fake internet money in the first place. You are correct. Literally every place offering high interest rates on crypto deposits is a Ponzi scheme.
arkis22 4y ago
The concepts bleed into each other, but Matt Levine explains it well. The Ponzi scheme is unsustainable. it gives you a solvency problem, your assets are bad and no amount of time will help. With fractional reserve banking run on banks usually come down to a liquidity problem, everyone wants their money now and you don't have all of it. So you call up someone with cash, like the FED, and theyll lend to you because you are a chartered, regulated bank. basically the difference is asset quality and proper accounting. Banks are similar to ponzis, but they are HIGHLY regulated to ensure their continued operation.

y04nn 4y ago

I find it very ironic that Satoshi created Bitcoin with the objective to be more resilient than banks, with the famous genesis block containing "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks". A decade later, the bitcoin creation generated an entire industry of "crypto banks" that are opaque, played with customers money and went bankrupt.

zeroclip 4y ago
Indeed, ironic. But this also laid the path for DeFi, which processes similar volumes per day as centralized exchanges, without the single counterparty risk.
deleted 4y ago
[deleted]
sytelus 4y ago
Bitcoin purists say that we shouldn't be having any "exchanges" or "crypto banks". If we have them and use them then we deserve this fate.
rglover 4y ago
It's a beautiful lesson in human behavior and greed. You're given a perfect form of money (Bitcoin) that you can safely hold with minimal effort and your shortsighted greed ("yield farming") forces you to lose it all to a conman. The silver lining to all of this is that people might actually start listening to Bitcoin maxi's after this year.
- Nursie 4y ago
  > You're given a perfect form of money Ha, wow. Yeah no, Bitcoin is not a perfect form of money at all. It- - uses vast amounts of energy - can only process a few TPS - confirms slowly - has limited quantities which warps economies - is irreversible in cases of theft or fraud - is lost forever if you lose your keys And that's just off the top my head. I get what you're saying - "not your keys not your coins", but the idea that this system is somehow an optimum is just plain wrong. For those of us who do not fetishize decentralisation, those negatives are unacceptable in any form of 'money'. Even if you do believe in decentralisation, it's clear that this is far from perfect.