7 ms·

My thoughts are that FTX was maybe a legitimate business, but then Alameda was his trading baby that just happened to be run by kids, including himself, that ha

by bmitc 4y ago

My thoughts are that FTX was maybe a legitimate business, but then Alameda was his trading baby that just happened to be run by kids, including himself, that have no idea what they're doing and was losing money left and right. Then using FTX customer funds was viewed as just a "let's move these funds over to get our trading back on track and when we do, we'll move them back". That's my honest guess if I'm being generous as to their intentions and thought process. Not saying it isn't criminal though, because I think it is. It's also a complete guess as an outsider to all this.

Hippocrates 4y ago
That’s my guess too but the size of the hole (8bn+) makes it hard to imagine it could all be lost in trading, either in a big bang, or gradually for years.
- nu11ptr 4y ago
  As I understand it, their primary "trade" was to buy and hold FTT. Suddenly FTT's value went "poof" and the rest is is history.
  - brianbreslin 4y ago
    I think that would only explain $4B or so, they said their hole was $10B. Or do we think the FTT leverage multiplied the exposure?
    - wj 4y ago
      I don’t even understand why FTT existed? I also don’t understand why there are competing cryptocurrencies? Without governments and borders, shouldn’t one standard currency be enough? (Technical challenges aside)
      - lazide 4y ago
        Why are there multiple racecar teams? If there is a standard set of rules, why can't there be a standard car that hits the maximum ideal speed around a track, and a standard racer to do it? Or even just automate it?
      - nemothekid 4y ago
        >I also don’t understand why there are competing cryptocurrencies? A lot of these "competing cryptocurrencies" are just financial instruments, kind of like you could have stock in a company, but you can also trade options and futures of the same underlying stock.
        lottin 4y ago
        Crypto-currencies have no underlying. A crypto-currency is like a bunch of imaginary confetti. Why is every crypto organisation is issuing its own brand of confetti? It's a legitimate question. It's exactly the same confetti.
        tartoran 4y ago
        It’s not even real confetti, it’s digital copies.
        rnk 4y ago
        Of course they do it because they can manufacture something that people will pay for out of nothing, and then can use that for other things that get them real value.
        mortehu 4y ago
        One third of FTX fees were used to buy and burn FTT tokens. This is nearly the same as stock buybacks, and makes it a security, i.e. an instrument that derives its value from the success of a business.
        4y ago
georgeglue1 4y ago
My understanding is that Alameda was a market maker, which should have less exposure to down / upswings. What kind of bets was Alameda making? Why would it need so much leverage? I understand why loaning money to Alameda could be rationalized a risky, but not sketchy move (if Alameda posted collateral, paid reasonable terms like anyone else would, etc.).
- jeffreyrogers 4y ago
  They have been taking directional bets since 2020 at least: https://twitter.com/AlamedaTrabucco/status/1385180941186789384 https://twitter.com/AlamedaTrabucco/status/13851809411867893...
AYBABTME 4y ago
I think they thought they were honest and doing things properly, and didn't realize that their holding of FTT was making them as bad as the other frauds before. I think these ouroboros are complex enough that even main players don't necessarily understand the position they've put themselves in.
- lazide 4y ago
  If by 'they thought they were honest and doing things properly' you think the same for Madoff, then oof. Actions and results matter. Intentions can easily be bullshit and delusion. If someone is committing multi-billion dollar fraud, there is a line that was crossed a LONG time ago.
  - adastra22 4y ago
    I read him as saying they thought they were doing honest things.
    - lazide 4y ago
      I was referring to the same miscreants as the poster was. It’s only plausible to a certain point that they were unknowingly bad actors. They’d have to willingly be deluding themselves. No one commits multi-billion dollar fraud accidentally. They’d have to turn a blind eye to something any reasonable person would consider a ‘are we the baddies’ moment. Or two. Or dozens. As to if it’s documented? One can hope, but I’m not holding my breath. I’m sure there have been many shredder parties (or digital equivalents) happening in many places since the news broke.
      - adastra22 4y ago
        Oh you’d be surprised. I think most people are capable of this kind of fraud. It’s human nature to judge others by their actions, but judge yourself by your intentions.
        4y ago
timmytokyo 4y ago
Seeing these kids talk puts it even more into perspective. Just watch this video of Caroline Ellison, CEO of Alameda. https://www.youtube.com/watch?v=aW6SqLXw944 https://www.youtube.com/watch?v=aW6SqLXw944
- bmitc 4y ago
  I made a comment on that video elsewhere. It’s pretty clear they were way out of their league in more ways than one. They’re the type of people that are too smart for their own good where they can’t even see how idiotic they’re being. Or maybe they’re just spoiled. Or maybe they just think they’re smart. It’s interesting to me that Jane Street prides themselves on their hiring process, but they apparently hire folks like this. Other than people losing money, I am super glad these reality checks are happening. But I wish they’d happen to more as well, e.g., Musk and Trump.
  - shorthistory 4y ago
    I agree, it reflects VERY poorly on Jane Street. They like to give the impression they hire Ultra Mega Geniuses who have done the IMO (who cares if you did the IMO at age 17...?)
    - rnk 4y ago
      What is the imo? There are many imo things. International mathematical olympiad?
      - paganel 4y ago
        Most probably. Web searching for that Caroline Ellison young lady I found some articles describing her as a young math prodigy when she was in highschool (or something like that).
    - jefftk 4y ago
      How does it reflect poorly on Jane Street? These are people who left, after not very long. If your thesis is "they were inexperienced and operating without sufficient supervision" then that's a big part of what the structure of a place like Jane Street gets you.
aqme28 4y ago
My impression is that Alameda was also a legitimate business that also made a lot of money with a lot of leverage for a while, but eventually the tide turned or it had one bad leveraged trade and poof.
ChrisMarshallNY 4y ago
That sounds like some of the thinking that went into these historic arbitrage disasters. Some young kid thought he knew better than his elders, and was doing arbitrage, which is moving around vast amounts of money, for very small gains (but safe ones). They had all this money at their disposal, and just knew that these stuffy old farts were "missing the boat," so they figured that they'd just use a bit, to make a small bet, and put it back... https://en.wikipedia.org/wiki/Nick_Leeson https://en.wikipedia.org/wiki/Nick_Leeson https://www.youtube.com/watch?v=NkQ58I53mjk https://www.youtube.com/watch?v=NkQ58I53mjk
tootie 4y ago
Whenever I see this kind of fervor and people getting rich off of it I liken it to pro wrestling. Everybody puts on the same show and lots of people cheer because they love the act and lots of people cheer because they think it's real. It's possible Alameda thought that wrestling was real.

by bmitc 4y ago

Hippocrates 4y ago

That’s my guess too but the size of the hole (8bn+) makes it hard to imagine it could all be lost in trading, either in a big bang, or gradually for years.

nu11ptr 4y ago
As I understand it, their primary "trade" was to buy and hold FTT. Suddenly FTT's value went "poof" and the rest is is history.
- brianbreslin 4y ago
  I think that would only explain $4B or so, they said their hole was $10B. Or do we think the FTT leverage multiplied the exposure?
  - wj 4y ago
    I don’t even understand why FTT existed? I also don’t understand why there are competing cryptocurrencies? Without governments and borders, shouldn’t one standard currency be enough? (Technical challenges aside)
    - lazide 4y ago
      Why are there multiple racecar teams? If there is a standard set of rules, why can't there be a standard car that hits the maximum ideal speed around a track, and a standard racer to do it? Or even just automate it?
    - nemothekid 4y ago
      >I also don’t understand why there are competing cryptocurrencies? A lot of these "competing cryptocurrencies" are just financial instruments, kind of like you could have stock in a company, but you can also trade options and futures of the same underlying stock.
      - lottin 4y ago
        Crypto-currencies have no underlying. A crypto-currency is like a bunch of imaginary confetti. Why is every crypto organisation is issuing its own brand of confetti? It's a legitimate question. It's exactly the same confetti.
        tartoran 4y ago
        It’s not even real confetti, it’s digital copies.
        rnk 4y ago
        Of course they do it because they can manufacture something that people will pay for out of nothing, and then can use that for other things that get them real value.
        mortehu 4y ago
        One third of FTX fees were used to buy and burn FTT tokens. This is nearly the same as stock buybacks, and makes it a security, i.e. an instrument that derives its value from the success of a business.
        4y ago

georgeglue1 4y ago

My understanding is that Alameda was a market maker, which should have less exposure to down / upswings. What kind of bets was Alameda making? Why would it need so much leverage? I understand why loaning money to Alameda could be rationalized a risky, but not sketchy move (if Alameda posted collateral, paid reasonable terms like anyone else would, etc.).

jeffreyrogers 4y ago
They have been taking directional bets since 2020 at least: https://twitter.com/AlamedaTrabucco/status/1385180941186789384 https://twitter.com/AlamedaTrabucco/status/13851809411867893...

AYBABTME 4y ago

I think they thought they were honest and doing things properly, and didn't realize that their holding of FTT was making them as bad as the other frauds before. I think these ouroboros are complex enough that even main players don't necessarily understand the position they've put themselves in.

lazide 4y ago
If by 'they thought they were honest and doing things properly' you think the same for Madoff, then oof. Actions and results matter. Intentions can easily be bullshit and delusion. If someone is committing multi-billion dollar fraud, there is a line that was crossed a LONG time ago.
- adastra22 4y ago
  I read him as saying they thought they were doing honest things.
  - lazide 4y ago
    I was referring to the same miscreants as the poster was. It’s only plausible to a certain point that they were unknowingly bad actors. They’d have to willingly be deluding themselves. No one commits multi-billion dollar fraud accidentally. They’d have to turn a blind eye to something any reasonable person would consider a ‘are we the baddies’ moment. Or two. Or dozens. As to if it’s documented? One can hope, but I’m not holding my breath. I’m sure there have been many shredder parties (or digital equivalents) happening in many places since the news broke.
    - adastra22 4y ago
      Oh you’d be surprised. I think most people are capable of this kind of fraud. It’s human nature to judge others by their actions, but judge yourself by your intentions.
      - 4y ago

timmytokyo 4y ago

Seeing these kids talk puts it even more into perspective. Just watch this video of Caroline Ellison, CEO of Alameda. https://www.youtube.com/watch?v=aW6SqLXw944 https://www.youtube.com/watch?v=aW6SqLXw944

bmitc 4y ago
I made a comment on that video elsewhere. It’s pretty clear they were way out of their league in more ways than one. They’re the type of people that are too smart for their own good where they can’t even see how idiotic they’re being. Or maybe they’re just spoiled. Or maybe they just think they’re smart. It’s interesting to me that Jane Street prides themselves on their hiring process, but they apparently hire folks like this. Other than people losing money, I am super glad these reality checks are happening. But I wish they’d happen to more as well, e.g., Musk and Trump.
- shorthistory 4y ago
  I agree, it reflects VERY poorly on Jane Street. They like to give the impression they hire Ultra Mega Geniuses who have done the IMO (who cares if you did the IMO at age 17...?)
  - rnk 4y ago
    What is the imo? There are many imo things. International mathematical olympiad?
    - paganel 4y ago
      Most probably. Web searching for that Caroline Ellison young lady I found some articles describing her as a young math prodigy when she was in highschool (or something like that).
  - jefftk 4y ago
    How does it reflect poorly on Jane Street? These are people who left, after not very long. If your thesis is "they were inexperienced and operating without sufficient supervision" then that's a big part of what the structure of a place like Jane Street gets you.

aqme28 4y ago

My impression is that Alameda was also a legitimate business that also made a lot of money with a lot of leverage for a while, but eventually the tide turned or it had one bad leveraged trade and poof.

ChrisMarshallNY 4y ago

That sounds like some of the thinking that went into these historic arbitrage disasters. Some young kid thought he knew better than his elders, and was doing arbitrage, which is moving around vast amounts of money, for very small gains (but safe ones). They had all this money at their disposal, and just knew that these stuffy old farts were "missing the boat," so they figured that they'd just use a bit, to make a small bet, and put it back... https://en.wikipedia.org/wiki/Nick_Leeson https://en.wikipedia.org/wiki/Nick_Leeson https://www.youtube.com/watch?v=NkQ58I53mjk https://www.youtube.com/watch?v=NkQ58I53mjk

tootie 4y ago

Whenever I see this kind of fervor and people getting rich off of it I liken it to pro wrestling. Everybody puts on the same show and lots of people cheer because they love the act and lots of people cheer because they think it's real. It's possible Alameda thought that wrestling was real.