12 ms·

FTX held less than $1B in liquid assets against $9B in liabilities

113 points by VagueMag 4y ago

irsagent 4y ago
https://archive.ph/hfvzw https://archive.ph/hfvzw
eis 4y ago
https://archive.ph/hfvzw https://archive.ph/hfvzw
guardiangod 4y ago
Is this normal? I would assume that no bank has 100% liquid assets against liabilities (same as stuffing all your money under your mattress.) So what is the "right" ratio for an exchange? Close to 100% since you are not supposed to invest an exchange's money?
- ottumm 4y ago
  Matt Levine has an excellent overview of the liquidity / solvency question: https://www.bloomberg.com/opinion/articles/2022-11-10/ftx-is-still-looking-for-money https://www.bloomberg.com/opinion/articles/2022-11-10/ftx-is...
  - greenyoda 4y ago
    Archived copy of Levine's article, with full text: https://archive.ph/q4Z1L https://archive.ph/q4Z1L
- conorcleary 4y ago
  I think with cryptocurrencies we need to consider the sheer speed at which mass transactions can occur, and 24/7 to boot.
  - salawat 4y ago
    Technically, the problem you're restricting to cryptocurrencies is actually something finance as a whole just deal with. Everyone could withdraw all their money at the same time. What happens then? The answer is bank run. There will literally not be enough cash to do it. The entire system is running on the fact that everyone has not done that yet. Personally, I want to have it happen, just to force the system to come to terms with the fact that it isn't all just about numbers, and so that people can actually materially witness the sheer magnitude of monetary centralization created by our system. Fuck the inconvenience. If Mammon is going to fucking rule, let everyone see it's rictus. Let everyone take in what it looks like.
    - danans 4y ago
      > Personally, I want to have it happen, just to force the system to come to terms with the fact that it isn't all just about numbers, and so that people can actually materially witness the sheer magnitude of monetary centralization created by our system. The question is are you also willing to give up the easily ignored benefits of monetary centralization, which are significant and foundational to the trust that underpins technological and social progress.
      - conorcleary 4y ago
        We can have both.
- VagueMag 4y ago
  Yes, exactly. The liabilities number includes all on-exchange customer deposits and funds, which it should be theoretically possible to redeem in full at any time.
- nonstopdev 4y ago
  Fractional reserves exist in finance and are held in various assets that can be hedged and also redeemed. Based on the liabilities that FTX revealed like funding Alameda for their investments in un-hegable bets like “Donald Trump losing” is not normal where they could never get those funds back if there was a bank run.
  - VagueMag 4y ago
    Setting aside arguments about whether it actually fixes the moral hazard issues with fractional reserve banking, banks also have FDIC deposit insurance and there is an understanding of the possibility of loss of funds which exceed the insurance limit.
- mrkramer 4y ago
  >Is this normal? I would assume that no bank has 100% liquid assets against liabilities Banks are required by law to have regulatory capital[1] and reserves[2] in order to stay liquid and solvent. Longer explanation: "The reserves only provide liquidity to cover withdrawals within the normal pattern. Banks and the central bank expect that in normal circumstances only a proportion of deposits will be withdrawn at the same time, and that the reserves will be sufficient to meet the demand for cash. However, banks routinely find themselves in a shortfall situation or may experience an unexpected bank run, when depositors wish to withdraw more funds than the reserves held by the bank. In that event, the bank experiencing the liquidity shortfall may routinely borrow short-term funds in the interbank lending market from banks with a surplus. In exceptional situations, the central bank may provide funds to cover the short-term shortfall as lender of last resort. When the bank liquidity problem exceeds the central bank’s lender of last resort resources, as happened during the global financial crisis of 2007-2008, the government may try to restore confidence in the banking system, for example, by providing government guarantees[2]." If commercial bank is in trouble other commercial banks will try to help but if they can not help, central bank will try to help and if that is not possible government will step in. All in all, banking industry is tightly regulated and somewhat safe especially after 2007 fiasco. In the case of FTX, Binance said they would step in but they gave up. If FTX is profitable they can gradually loan money from private sector(banks, investment funds etc.) then start to repay their liabilities and eventually return loans. [1] https://en.wikipedia.org/wiki/Capital_requirement https://en.wikipedia.org/wiki/Capital_requirement [2] https://en.wikipedia.org/wiki/Reserve_requirement https://en.wikipedia.org/wiki/Reserve_requirement
stephc_int13 4y ago
It was all for charity. People are mean. https://twitter.com/The_Prologuist/status/1589678498549207042 https://twitter.com/The_Prologuist/status/158967849854920704...
- AmericanOP 4y ago
  Look, I’m a savvy investor who builds marketing teams and would never fall for this, but I think other people will, so I’m going to invest.
  - stephc_int13 4y ago
    The greater fool game is probably fun, but I am too dumb to play it.
  - bananapub 4y ago
    this is essentially why cryptoscams get VC money - sufficient clout and "reputation" amongst nerds is enough to make the scam work and let you get out before it's game over.
- oliwary 4y ago
  We should have trusted Larry David on FTX... https://youtu.be/noekVG8XLQI?t=45 https://youtu.be/noekVG8XLQI?t=45
  - stephc_int13 4y ago
    This is smart.
- orangepurple 4y ago
  Is this satire? I can't tell.
  - stephc_int13 4y ago
    It is not. Well, it depends on how you look at it. Define satire?
mertd 4y ago
> In all, the spreadsheet says FTX Trading’s assets were $900mn of “liquid” assets, $5.5bn of “less liquid” assets consisting of crypto tokens Aren't tokens supposed to be "liquid" or is this a different way of saying the tokens are worthless?
- michaelbuckbee 4y ago
  My understanding is that a lot of their assets were in their own cryptocoin that they borrowed against like: 1. Make million new coins called $mikecoin 2. Sell 1 $mikecoin to a friend for 1 USD 3. Claim that the "Total Market Cap" for $mikecoin is 1 million USD 4. Borrow Bitcoin or dollars against your $mikecoin reserve.
  - Geee 4y ago
    This seems to be the trick. I think this same thing also explains the high market cap of many altcoins, such as Solana. Instead of selling and crashing the price, these are held onto and used as a collateral to borrow against.
    - oldgradstudent 4y ago
      The two sentences > Instead of selling and crashing the price and > these are held onto and used as a collateral to borrow against. Are not compatible. If selling the assert crashes its price, it is a terrible collateral. I would like to see how lenders justified in writing accepting large quantities of FTT as collateral.
      - rvba 4y ago
        My understanding that it is an extension of the old joke about someone wanting to sell a dog for 1 million that was finally traded for 2 cats worth half a million each. Basically extended comment of michaelbuckbee. You have your $mikecoins "worth" 1 million and someone else makes $annacoins worth 1 million and some other party makes $bobcoins worth 1 million - and you each "lend" them to each other to make a complicated net. Then Mike, Anna and Bob just wait for some people to invest real money - and cash out. People who bought those $mikecoins, $annacoins and $bobcoins think that they can "always sell them back at the market", but the market didnt really exist. From those 1 million coins minted, maybe 250 thousand were sold, rest are held by creators to sell them to bagholders.
aeternum 4y ago
"Currently, all U.S. banks are subject to a balance sheet leverage ratio, which requires them to maintain a ratio of tier 1 capital to balance sheet assets at a minimum level of 4%. In order to be well-capitalized, banks must achieve a 5% minimum leverage ratio" So FTX had an 11% leverage ratio, pretty good.
- VagueMag 4y ago
  FTX was not an FDIC-insured bank with the ability to borrow funds at the Fed discount window, and it did not tell its customers it would be lending out their funds.
  - puchatek 4y ago
    The last sentence is crucial and probably what will get SBF in trouble.
  - aeternum 4y ago
    Yeah this is a key point, and not only did they not tell customers, their TOS was quite explicit about not loaning customer funds: "You control the Digital Assets held in your Account," says Section 8.2 of the terms. "Title to your Digital Assets shall at all times remain with you and shall not transfer to FTX Trading." The terms continue: "None of the Digital Assets in your Account are the property of, or shall or may be loaned to, FTX Trading; FTX Trading does not represent or treat Digital Assets in User’s Accounts as belonging to FTX Trading."
- ttul 4y ago
  Ahh, but FTX is not supposed to be a bank.
- tyre 4y ago
  You must consider what the banks are lending with that ratio. It’s mostly mortgages, which are far less risky than what FTX was doing.
  - bitxbitxbitcoin 4y ago
JonathanBeuys 4y ago
There should be more discussion about how to store value without counterparty risk. Most people think it is as easy as ordering a hardware wallet, following the process the wallet software suggests and - hurray! - your keys, your coins! But it is not that easy. You also have to cut the wallet manufacturer and the software developer out of the loop. I have yet to see a description on how to safely create a wallet that really does away with counterparty risk. The way I understand Bitcoins signatures, there could be a way. But it would involve to somehow put your secret key into multiple air gapped, RFC-6979 compliant hardware wallets. And then create addresses and sign transactions with those hardware wallets without ever connecting them to a computer. And compare the addresses and signatures between these wallets to make sure they match. Because otherwise, the wallets could taint the output in a way that signals data back to the manufacturer. I don't even know if there are fully operational air gapped hardware wallets on the market.
- danielvf 4y ago
  Ethereum multi-sig wallets do the trust side fantastically side very well. In addition you get ways to handle lost keys, ownership changes, and the ability to require multiple people to sign off on any action.
  - JonathanBeuys 4y ago
    What is an "Ethereum multi-sig wallet"? Is that a piece of hardware? Multiple pieces of hardware? A piece of software?
    - SparkyMcUnicorn 4y ago
      There's different ways to handle multi-sig, but https://gnosis-safe.io https://gnosis-safe.io is probably the current gold standard, and it's pretty easy to set up and use. It's a smart contract that you can add any type of owner to (regular wallet, hardware wallet, anything that can sign for transactions), then you specify how many of the owners need to sign for transactions.
smeej 4y ago
Kraken's proof-of-reserves audits are looking more and more attractive and important these days! https://blog.kraken.com/post/15002/kraken-proof-of-reserves-audit-expands-to-include-five-new-assets/ https://blog.kraken.com/post/15002/kraken-proof-of-reserves-...
- Gwypaas 4y ago
  Reserves means nothing without also knowing the liabilities. Without that it is simply more smoke and mirrors.
  - smeej 4y ago
    First, it is absolutely better to hold your own keys. That said, I don't think it's fair to say "nothing" in a situation where holding the keys means having control of the coins. FTX's problem wasn't that they had liabilities. It was that they didn't have cryptographic custody of the assets they claimed to have. They don't have the ability to make a case in court that the funds they held belong to customers and, thus, should not be considered assets that could be given to their creditors, because they don't have the assets at all. Kraken not only can prove that they have all the customer funds in the audited currencies, but also which account they belong to. If individual accountholders can prove Kraken holds not just "all customer coins" but "my specific account's coins," Kraken can also make that case in court. Whether it holds up is obviously not guaranteed, but that's not "nothing" compared to FTX's situation.
    - oldgradstudent 4y ago
      From the Kraken terms of service: > None of the Digital Assets in your Kraken Account are the property of Payward. Payward does not represent or treat assets in your Kraken Account as belonging to Payward. However, a court may disagree with Payward’s treatment of your assets and subject them to claims of Payward’s creditors. This will be tested in court. Kraken's liabilities matter.
      - smeej 4y ago
mind-blight 4y ago
10% liquid doesn't necessarily concern me when considering a bank. But, they have many more routes to liquidity than FTX (Liam from the fed, loans from other banks, etc.). And even still, 10% isn't legal for a bank if their liquid assets are too volatile. 450 mil was in SBFs Robinhood investment, and FTX clearly didn't have any other avenues towards liquidity. 10% without an out was a predictably bad idea
- sillysaurusx 4y ago
  FTX isn’t a bank. They aren’t supposed to operate as a fractional reserve. Coinbase would be crucified by the SEC if they did this.
  - SXX 4y ago
    FTX US wasn't doing it either. They did it outside of SEC jurisdiction.
    - sillysaurusx 4y ago
      Animats disagrees. https://news.ycombinator.com/item?id=33556651 https://news.ycombinator.com/item?id=33556651 SBF being a US citizen was an angle I hadn’t considered. The US does have jurisdiction over its own citizens, even if they’re operating in other countries. So the question becomes to what extent has SBF defrauded US investors.
      - nocoiner 4y ago
        There’s plenty of jurisdiction here. Assuming that there’s an indictable offense here, all SBF has to do is connect through the wrong airport one time at some point during the rest of his life, and he’ll find himself back in the US.
    - from 4y ago
      Any transaction that involves dollars involves American banks due to correspondent banking. That means there's jurisdiction in the EDNY or SDNY because that's where all the banks are. America also has jurisdiction over its citizens conduct. It may not be the SEC or even a securities fraud prosecution but if the government can find emails or logs that show intent or show that he was sending money to Alameda and trying to evade internal compliance controls he can be found guilty of wire fraud. The fact that he owns most of Alameda doesn't help him either.
AmericanOP 4y ago
323 4y ago
> and a negative $8bn entry described as “hidden, poorly internally labled ‘fiat@’ account”. > Bankman-Fried told the Financial Times the $8bn related to funds “accidentally” extended to his trading firm, Alameda, but declined to comment further. Oh look, $8bn just appeared on the balance sheet. Where did they come from? Doesn't matter, surely they are legit. I mean, I have so many billions, $8bn is pocket change. Lets use the $8bn for trading immediately.
Animats 4y ago
So now we see some numbers. Notes: Bankman-Fried personally seems to own, indirectly, about $472M (paid over $600M, so that was a loss) worth of Robinhood Financial.[1] Other documents provided to investors say that FTX US, Bankman-Fried’s onshore exchange, held $115mn of cash. Of that sum, $48mn was listed as corresponding to customer US dollar balances of $60mn. So there might be enough cash to pay off customer cash balances. Those belong to the customer, not FTX, and were supposed to be in a separate account. Here's the bankruptcy filing.[2] Case #22-11066. Money appears to be flowing out of FTX to "privileged accounts" and anonymous wallets.[3] This is now well past simple speculating with customer funds and into major criminal enterprise territory. Creditor litigation is being started up.[4] Of course. [1] https://archive.ph/o/hfvzw/https://www.sec.gov/Archives/edgar/data/1783879/000114036122018827/brhc10037465_sc13d.htm https://archive.ph/o/hfvzw/https://www.sec.gov/Archives/edga... [2] https://pacer-documents.s3.amazonaws.com/33/188448/042120640566.pdf https://pacer-documents.s3.amazonaws.com/33/188448/042120640... [3] https://btc-pulse.com/2022/11/12/ftx-withdrawals-resume-but-only-to-privileged-accounts/ https://btc-pulse.com/2022/11/12/ftx-withdrawals-resume-but-... [4] https://scott-scott.com/sec-investigation/ftx-trading-ltd/ https://scott-scott.com/sec-investigation/ftx-trading-ltd/
- pigtailgirl 4y ago
  -- a 30 year old personally has $600MM to invest in a single company? - his startup was founded in 2019 - that was crazy comp structure he had? - he comes from money? - or..? --
  - ilrwbwrkhv 4y ago
    It's all fugazie. Just ask andreessen horowitz.
  - fullsend 4y ago
    Already the world of founders, funding, and venture capital is full of incestuous relationships and shady dealings. I can’t imagine what happens when you combine that kind of capital with the utter shamelessness and obtuse financial engineering of the cryptocurrency space.
nfcampos 4y ago
Even if I take the most charitable view, ie. that everything they did was above board etc, there’s still a lesson here about diversification - a startup (ie. a private company which represents the majority of the founders assets) is already a massively concentrated, ie. not diversified, financial position - no need to compound it by making a myriad bets (through Alameda or otherwise) in in other tokens/companies in the same market, which are ultimately incredibly correlated assets. If there was no fraud, that will ultimately be the explanation for their downfall.
guywithahat 4y ago
Non-paywall link to zero hedge (which seems to be the same info) https://www.zerohedge.com/markets/ftx-held-just-900mm-liquid-assets-vs-9bn-liabilities-video-emerges-confirming-alameda-knew https://www.zerohedge.com/markets/ftx-held-just-900mm-liquid...
oldstrangers 4y ago
8 months ago I commented "Anyone else oddly skeptical of FTX? They seemingly came out of no where with ungodly amounts of money, and began slapping their name on anything and everything." Glad my BS detector works I guess.
- FerociousTimes 4y ago
  Just one glance at the founder's pics online, makes all my gut alarms go off like crazy. Sometimes, I wonder how people got easily scammed like this by these people but I just chalk to them not being hyper aware of these subconscious clues or worse not acting on their gut reaction when it fires incessantly.
- cbHXBY1D 4y ago
  I told my dad over a year ago that FTX buying stadium naming rights for a bunch of sports leagues (including one of our hometown teams) was like if there had been an Enron Stadium in 2000.
  - greenyoda 4y ago
    > if there had been an Enron Stadium in 2000 There actually was an Enron Field in Houston in 2000: > Minute Maid Park, previously named The Ballpark at Union Station, Enron Field, and Astros Field, is a retractable roof stadium in Downtown Houston, Texas, United States. It opened in 2000 as the home ballpark of Major League Baseball's Houston Astros.[1] (It was named "Enron Field" from 2000 to 2002.) [1] https://en.wikipedia.org/wiki/Minute_Maid_Park https://en.wikipedia.org/wiki/Minute_Maid_Park
celestialcheese 4y ago
How the fuck did all these high-profile investors miss this. NEA, IVP, Iconiq Capital, Third Point Ventures, Tiger Global, Altimeter Capital Management, Lux Capital, Mayfield, Insight Partners, Sequoia Capital, SoftBank, Lightspeed Venture Partners, Ribbit Capital, Temasek Holdings, BlackRock and Thoma Bravo. These aren't schleps in this list. Blackrock, Sequoia, Tiger, Lightspeed, the fucking NEA. Jesus. Did no one do _any_ due diligence?? Did they just trust the auditor Armanino and Prager Metis (who??)[1]?? At least Enron had Arthur Andersen and some cover of respectability in the audit space at the time. Irrational exuberance is really something. 1- https://www.coindesk.com/business/2022/11/11/meet-the-metaverse-night-clubloving-audit-firm-that-presided-over-ftxs-financials/ https://www.coindesk.com/business/2022/11/11/meet-the-metave...
- ourmandave 4y ago
  Makes you wonder who else in the crypto space is lying through their freakin' teeth, don't it?
  - ttul 4y ago
    Any time a company tells you you can’t have a board seat… it’s time to run.
  - cyanydeez 4y ago
    Unless it's code, all of them
- ttul 4y ago
  My guess is that either FTX did not furnish them with accurate or truthful information, or the information was correct at the time, but the lack of good governance allowed FTX to pursue some rotten strategies without the knowledge of their investors. It would not be the first time that otherwise smart people have made a bad call.
  - celestialcheese 4y ago
    The timing of the big investments back in Oct '21 for their Series B and Jan '22 for Series C makes your guess seem likely. Seems like most of the actual fraud started after the 3AC/TerraLuna blowup as SBF trying to trade out of the hole he was in.
superkuh 4y ago
So... about the same as a typical bank reserve ratio, 10%. https://en.wikipedia.org/wiki/Reserve_requirement#Reserve_requirements_by_country https://en.wikipedia.org/wiki/Reserve_requirement#Reserve_re...
- gameshot911 4y ago
  Except FTX wasn't a bank, it was an exchange.
epistasis 4y ago
This was always a Ponzi scheme, and SBF was incredibly open about it being a Ponzi scheme, and yet people still tried to beat out the Ponzi scheme. Here's SBF back in April (just a small excerpt, the full section is far more damning): > SBF: So, you know, X tokens [are] being given out each day, all these like sophisticated firms are like, huh, that's interesting. Like if the total amount of money in the box is a hundred million dollars, then it's going to yield $16 million this year in X tokens being given out for it. That's a 16% return. That's pretty good. We'll put a little bit more in, right? And maybe that happens until there are $200 million dollars in the box. So, you know, sophisticated traders and/or people on Crypto Twitter, or other sort of similar parties, go and put $200 million in the box collectively and they start getting these X tokens for it. > And now all of a sudden everyone's like, wow, people just decide to put $200 million in the box. This is a pretty cool box, right? Like this is a valuable box as demonstrated by all the money that people have apparently decided should be in the box. And who are we to say that they're wrong about that? Like, you know, this is, I mean boxes can be great. Look, I love boxes as much as the next guy. And so what happens now? All of a sudden people are kind of recalibrating like, well, $20 million, that's it? Like that market cap for this box? And it's been like 48 hours and it already is $200 million, including from like sophisticated players in it. They're like, come on, that's too low. And they look at these ratios, TVL, total value locked in the box, you know, as a ratio to market cap of the box’s token. > ... > Matt Levine: I think of myself as like a fairly cynical person. And that was so much more cynical than how I would've described farming. You're just like, well, I'm in the Ponzi business and it's pretty good. https://www.bloomberg.com/news/articles/2022-04-25/sam-bankman-fried-described-yield-farming-and-left-matt-levine-stunned https://www.bloomberg.com/news/articles/2022-04-25/sam-bankm...
- shawabawa3 4y ago
  Except in that comment he's talking about yield farming, and he's 100% right about a lot of what yield farming products did However he runs an exchange, not one of these magic boxes, and he was never saying or claiming that that was what ftx was doing
  - epistasis 4y ago
Bubble_Pop_22 4y ago
People are looking at this thing too closely. When taking the 30000ft wide view then something like this is not extraordinary , and there I say it, not even bad. Fedex was famously down to their last 5,000$ dollars and were facing bankruptcy, and the founder quite literally went to Vegas to play blackjack and won 27,000$ to save the company. Companies and entrepreneurs are supposed to take on risk, that's why bankruptcy laws and LLCs exists in the first place. To give entrepreneurs some peace of mind that if the risk doesn't pay off they only lose what they put in. The world and the US was growing much faster in the 1970s and 1980s when these sort of things happened daily. Not all donuts come out with a hole. If for every Ponzis we get a Standard Oil then it's worth it. If for every Enron we get a Microsoft then it's worth it. If for every FTX we get a Moderna then it's for sure worth it. And maybe all those positive examples were just inches away from being touted as negative examples, quite like Fedex was.
- j7ake 4y ago
  I think these exposures and bad practices are fine as long as the ones who broke laws get served justice. The worst is seeing white collar crime get let off easy while the man who steals from a bank goes to jail for long time.

113 points by VagueMag 4y ago

irsagent 4y ago

https://archive.ph/hfvzw https://archive.ph/hfvzw

eis 4y ago

https://archive.ph/hfvzw https://archive.ph/hfvzw

guardiangod 4y ago

Is this normal? I would assume that no bank has 100% liquid assets against liabilities (same as stuffing all your money under your mattress.) So what is the "right" ratio for an exchange? Close to 100% since you are not supposed to invest an exchange's money?

ottumm 4y ago
Matt Levine has an excellent overview of the liquidity / solvency question: https://www.bloomberg.com/opinion/articles/2022-11-10/ftx-is-still-looking-for-money https://www.bloomberg.com/opinion/articles/2022-11-10/ftx-is...
- greenyoda 4y ago
  Archived copy of Levine's article, with full text: https://archive.ph/q4Z1L https://archive.ph/q4Z1L
conorcleary 4y ago
I think with cryptocurrencies we need to consider the sheer speed at which mass transactions can occur, and 24/7 to boot.
- salawat 4y ago
  Technically, the problem you're restricting to cryptocurrencies is actually something finance as a whole just deal with. Everyone could withdraw all their money at the same time. What happens then? The answer is bank run. There will literally not be enough cash to do it. The entire system is running on the fact that everyone has not done that yet. Personally, I want to have it happen, just to force the system to come to terms with the fact that it isn't all just about numbers, and so that people can actually materially witness the sheer magnitude of monetary centralization created by our system. Fuck the inconvenience. If Mammon is going to fucking rule, let everyone see it's rictus. Let everyone take in what it looks like.
  - danans 4y ago
    > Personally, I want to have it happen, just to force the system to come to terms with the fact that it isn't all just about numbers, and so that people can actually materially witness the sheer magnitude of monetary centralization created by our system. The question is are you also willing to give up the easily ignored benefits of monetary centralization, which are significant and foundational to the trust that underpins technological and social progress.
    - conorcleary 4y ago
      We can have both.
VagueMag 4y ago
Yes, exactly. The liabilities number includes all on-exchange customer deposits and funds, which it should be theoretically possible to redeem in full at any time.
nonstopdev 4y ago
Fractional reserves exist in finance and are held in various assets that can be hedged and also redeemed. Based on the liabilities that FTX revealed like funding Alameda for their investments in un-hegable bets like “Donald Trump losing” is not normal where they could never get those funds back if there was a bank run.
- VagueMag 4y ago
  Setting aside arguments about whether it actually fixes the moral hazard issues with fractional reserve banking, banks also have FDIC deposit insurance and there is an understanding of the possibility of loss of funds which exceed the insurance limit.
mrkramer 4y ago
>Is this normal? I would assume that no bank has 100% liquid assets against liabilities Banks are required by law to have regulatory capital[1] and reserves[2] in order to stay liquid and solvent. Longer explanation: "The reserves only provide liquidity to cover withdrawals within the normal pattern. Banks and the central bank expect that in normal circumstances only a proportion of deposits will be withdrawn at the same time, and that the reserves will be sufficient to meet the demand for cash. However, banks routinely find themselves in a shortfall situation or may experience an unexpected bank run, when depositors wish to withdraw more funds than the reserves held by the bank. In that event, the bank experiencing the liquidity shortfall may routinely borrow short-term funds in the interbank lending market from banks with a surplus. In exceptional situations, the central bank may provide funds to cover the short-term shortfall as lender of last resort. When the bank liquidity problem exceeds the central bank’s lender of last resort resources, as happened during the global financial crisis of 2007-2008, the government may try to restore confidence in the banking system, for example, by providing government guarantees[2]." If commercial bank is in trouble other commercial banks will try to help but if they can not help, central bank will try to help and if that is not possible government will step in. All in all, banking industry is tightly regulated and somewhat safe especially after 2007 fiasco. In the case of FTX, Binance said they would step in but they gave up. If FTX is profitable they can gradually loan money from private sector(banks, investment funds etc.) then start to repay their liabilities and eventually return loans. [1] https://en.wikipedia.org/wiki/Capital_requirement https://en.wikipedia.org/wiki/Capital_requirement [2] https://en.wikipedia.org/wiki/Reserve_requirement https://en.wikipedia.org/wiki/Reserve_requirement

stephc_int13 4y ago

It was all for charity. People are mean. https://twitter.com/The_Prologuist/status/1589678498549207042 https://twitter.com/The_Prologuist/status/158967849854920704...

AmericanOP 4y ago
Look, I’m a savvy investor who builds marketing teams and would never fall for this, but I think other people will, so I’m going to invest.
- stephc_int13 4y ago
  The greater fool game is probably fun, but I am too dumb to play it.
- bananapub 4y ago
  this is essentially why cryptoscams get VC money - sufficient clout and "reputation" amongst nerds is enough to make the scam work and let you get out before it's game over.
oliwary 4y ago
We should have trusted Larry David on FTX... https://youtu.be/noekVG8XLQI?t=45 https://youtu.be/noekVG8XLQI?t=45
- stephc_int13 4y ago
  This is smart.
orangepurple 4y ago
Is this satire? I can't tell.
- stephc_int13 4y ago
  It is not. Well, it depends on how you look at it. Define satire?

mertd 4y ago

> In all, the spreadsheet says FTX Trading’s assets were $900mn of “liquid” assets, $5.5bn of “less liquid” assets consisting of crypto tokens Aren't tokens supposed to be "liquid" or is this a different way of saying the tokens are worthless?

michaelbuckbee 4y ago
My understanding is that a lot of their assets were in their own cryptocoin that they borrowed against like: 1. Make million new coins called $mikecoin 2. Sell 1 $mikecoin to a friend for 1 USD 3. Claim that the "Total Market Cap" for $mikecoin is 1 million USD 4. Borrow Bitcoin or dollars against your $mikecoin reserve.
- Geee 4y ago
  This seems to be the trick. I think this same thing also explains the high market cap of many altcoins, such as Solana. Instead of selling and crashing the price, these are held onto and used as a collateral to borrow against.
  - oldgradstudent 4y ago
    The two sentences > Instead of selling and crashing the price and > these are held onto and used as a collateral to borrow against. Are not compatible. If selling the assert crashes its price, it is a terrible collateral. I would like to see how lenders justified in writing accepting large quantities of FTT as collateral.
    - rvba 4y ago
      My understanding that it is an extension of the old joke about someone wanting to sell a dog for 1 million that was finally traded for 2 cats worth half a million each. Basically extended comment of michaelbuckbee. You have your $mikecoins "worth" 1 million and someone else makes $annacoins worth 1 million and some other party makes $bobcoins worth 1 million - and you each "lend" them to each other to make a complicated net. Then Mike, Anna and Bob just wait for some people to invest real money - and cash out. People who bought those $mikecoins, $annacoins and $bobcoins think that they can "always sell them back at the market", but the market didnt really exist. From those 1 million coins minted, maybe 250 thousand were sold, rest are held by creators to sell them to bagholders.

aeternum 4y ago

"Currently, all U.S. banks are subject to a balance sheet leverage ratio, which requires them to maintain a ratio of tier 1 capital to balance sheet assets at a minimum level of 4%. In order to be well-capitalized, banks must achieve a 5% minimum leverage ratio" So FTX had an 11% leverage ratio, pretty good.

VagueMag 4y ago
FTX was not an FDIC-insured bank with the ability to borrow funds at the Fed discount window, and it did not tell its customers it would be lending out their funds.
- puchatek 4y ago
  The last sentence is crucial and probably what will get SBF in trouble.
- aeternum 4y ago
  Yeah this is a key point, and not only did they not tell customers, their TOS was quite explicit about not loaning customer funds: "You control the Digital Assets held in your Account," says Section 8.2 of the terms. "Title to your Digital Assets shall at all times remain with you and shall not transfer to FTX Trading." The terms continue: "None of the Digital Assets in your Account are the property of, or shall or may be loaned to, FTX Trading; FTX Trading does not represent or treat Digital Assets in User’s Accounts as belonging to FTX Trading."
ttul 4y ago
Ahh, but FTX is not supposed to be a bank.
tyre 4y ago
You must consider what the banks are lending with that ratio. It’s mostly mortgages, which are far less risky than what FTX was doing.
- bitxbitxbitcoin 4y ago

JonathanBeuys 4y ago

There should be more discussion about how to store value without counterparty risk. Most people think it is as easy as ordering a hardware wallet, following the process the wallet software suggests and - hurray! - your keys, your coins! But it is not that easy. You also have to cut the wallet manufacturer and the software developer out of the loop. I have yet to see a description on how to safely create a wallet that really does away with counterparty risk. The way I understand Bitcoins signatures, there could be a way. But it would involve to somehow put your secret key into multiple air gapped, RFC-6979 compliant hardware wallets. And then create addresses and sign transactions with those hardware wallets without ever connecting them to a computer. And compare the addresses and signatures between these wallets to make sure they match. Because otherwise, the wallets could taint the output in a way that signals data back to the manufacturer. I don't even know if there are fully operational air gapped hardware wallets on the market.

danielvf 4y ago
Ethereum multi-sig wallets do the trust side fantastically side very well. In addition you get ways to handle lost keys, ownership changes, and the ability to require multiple people to sign off on any action.
- JonathanBeuys 4y ago
  What is an "Ethereum multi-sig wallet"? Is that a piece of hardware? Multiple pieces of hardware? A piece of software?
  - SparkyMcUnicorn 4y ago
    There's different ways to handle multi-sig, but https://gnosis-safe.io https://gnosis-safe.io is probably the current gold standard, and it's pretty easy to set up and use. It's a smart contract that you can add any type of owner to (regular wallet, hardware wallet, anything that can sign for transactions), then you specify how many of the owners need to sign for transactions.

smeej 4y ago

Kraken's proof-of-reserves audits are looking more and more attractive and important these days! https://blog.kraken.com/post/15002/kraken-proof-of-reserves-audit-expands-to-include-five-new-assets/ https://blog.kraken.com/post/15002/kraken-proof-of-reserves-...

Gwypaas 4y ago
Reserves means nothing without also knowing the liabilities. Without that it is simply more smoke and mirrors.
- smeej 4y ago
  First, it is absolutely better to hold your own keys. That said, I don't think it's fair to say "nothing" in a situation where holding the keys means having control of the coins. FTX's problem wasn't that they had liabilities. It was that they didn't have cryptographic custody of the assets they claimed to have. They don't have the ability to make a case in court that the funds they held belong to customers and, thus, should not be considered assets that could be given to their creditors, because they don't have the assets at all. Kraken not only can prove that they have all the customer funds in the audited currencies, but also which account they belong to. If individual accountholders can prove Kraken holds not just "all customer coins" but "my specific account's coins," Kraken can also make that case in court. Whether it holds up is obviously not guaranteed, but that's not "nothing" compared to FTX's situation.
  - oldgradstudent 4y ago
    From the Kraken terms of service: > None of the Digital Assets in your Kraken Account are the property of Payward. Payward does not represent or treat assets in your Kraken Account as belonging to Payward. However, a court may disagree with Payward’s treatment of your assets and subject them to claims of Payward’s creditors. This will be tested in court. Kraken's liabilities matter.
    - smeej 4y ago

mind-blight 4y ago

10% liquid doesn't necessarily concern me when considering a bank. But, they have many more routes to liquidity than FTX (Liam from the fed, loans from other banks, etc.). And even still, 10% isn't legal for a bank if their liquid assets are too volatile. 450 mil was in SBFs Robinhood investment, and FTX clearly didn't have any other avenues towards liquidity. 10% without an out was a predictably bad idea

sillysaurusx 4y ago
FTX isn’t a bank. They aren’t supposed to operate as a fractional reserve. Coinbase would be crucified by the SEC if they did this.
- SXX 4y ago
  FTX US wasn't doing it either. They did it outside of SEC jurisdiction.
  - sillysaurusx 4y ago
    Animats disagrees. https://news.ycombinator.com/item?id=33556651 https://news.ycombinator.com/item?id=33556651 SBF being a US citizen was an angle I hadn’t considered. The US does have jurisdiction over its own citizens, even if they’re operating in other countries. So the question becomes to what extent has SBF defrauded US investors.
    - nocoiner 4y ago
      There’s plenty of jurisdiction here. Assuming that there’s an indictable offense here, all SBF has to do is connect through the wrong airport one time at some point during the rest of his life, and he’ll find himself back in the US.
  - from 4y ago
    Any transaction that involves dollars involves American banks due to correspondent banking. That means there's jurisdiction in the EDNY or SDNY because that's where all the banks are. America also has jurisdiction over its citizens conduct. It may not be the SEC or even a securities fraud prosecution but if the government can find emails or logs that show intent or show that he was sending money to Alameda and trying to evade internal compliance controls he can be found guilty of wire fraud. The fact that he owns most of Alameda doesn't help him either.

AmericanOP 4y ago

323 4y ago

> and a negative $8bn entry described as “hidden, poorly internally labled ‘fiat@’ account”. > Bankman-Fried told the Financial Times the $8bn related to funds “accidentally” extended to his trading firm, Alameda, but declined to comment further. Oh look, $8bn just appeared on the balance sheet. Where did they come from? Doesn't matter, surely they are legit. I mean, I have so many billions, $8bn is pocket change. Lets use the $8bn for trading immediately.

Animats 4y ago

So now we see some numbers. Notes: Bankman-Fried personally seems to own, indirectly, about $472M (paid over $600M, so that was a loss) worth of Robinhood Financial.[1] Other documents provided to investors say that FTX US, Bankman-Fried’s onshore exchange, held $115mn of cash. Of that sum, $48mn was listed as corresponding to customer US dollar balances of $60mn. So there might be enough cash to pay off customer cash balances. Those belong to the customer, not FTX, and were supposed to be in a separate account. Here's the bankruptcy filing.[2] Case #22-11066. Money appears to be flowing out of FTX to "privileged accounts" and anonymous wallets.[3] This is now well past simple speculating with customer funds and into major criminal enterprise territory. Creditor litigation is being started up.[4] Of course. [1] https://archive.ph/o/hfvzw/https://www.sec.gov/Archives/edgar/data/1783879/000114036122018827/brhc10037465_sc13d.htm https://archive.ph/o/hfvzw/https://www.sec.gov/Archives/edga... [2] https://pacer-documents.s3.amazonaws.com/33/188448/042120640566.pdf https://pacer-documents.s3.amazonaws.com/33/188448/042120640... [3] https://btc-pulse.com/2022/11/12/ftx-withdrawals-resume-but-only-to-privileged-accounts/ https://btc-pulse.com/2022/11/12/ftx-withdrawals-resume-but-... [4] https://scott-scott.com/sec-investigation/ftx-trading-ltd/ https://scott-scott.com/sec-investigation/ftx-trading-ltd/

pigtailgirl 4y ago
-- a 30 year old personally has $600MM to invest in a single company? - his startup was founded in 2019 - that was crazy comp structure he had? - he comes from money? - or..? --
- ilrwbwrkhv 4y ago
  It's all fugazie. Just ask andreessen horowitz.
- fullsend 4y ago
  Already the world of founders, funding, and venture capital is full of incestuous relationships and shady dealings. I can’t imagine what happens when you combine that kind of capital with the utter shamelessness and obtuse financial engineering of the cryptocurrency space.

nfcampos 4y ago

Even if I take the most charitable view, ie. that everything they did was above board etc, there’s still a lesson here about diversification - a startup (ie. a private company which represents the majority of the founders assets) is already a massively concentrated, ie. not diversified, financial position - no need to compound it by making a myriad bets (through Alameda or otherwise) in in other tokens/companies in the same market, which are ultimately incredibly correlated assets. If there was no fraud, that will ultimately be the explanation for their downfall.

guywithahat 4y ago

Non-paywall link to zero hedge (which seems to be the same info) https://www.zerohedge.com/markets/ftx-held-just-900mm-liquid-assets-vs-9bn-liabilities-video-emerges-confirming-alameda-knew https://www.zerohedge.com/markets/ftx-held-just-900mm-liquid...

oldstrangers 4y ago

8 months ago I commented "Anyone else oddly skeptical of FTX? They seemingly came out of no where with ungodly amounts of money, and began slapping their name on anything and everything." Glad my BS detector works I guess.

FerociousTimes 4y ago
Just one glance at the founder's pics online, makes all my gut alarms go off like crazy. Sometimes, I wonder how people got easily scammed like this by these people but I just chalk to them not being hyper aware of these subconscious clues or worse not acting on their gut reaction when it fires incessantly.
cbHXBY1D 4y ago
I told my dad over a year ago that FTX buying stadium naming rights for a bunch of sports leagues (including one of our hometown teams) was like if there had been an Enron Stadium in 2000.
- greenyoda 4y ago
  > if there had been an Enron Stadium in 2000 There actually was an Enron Field in Houston in 2000: > Minute Maid Park, previously named The Ballpark at Union Station, Enron Field, and Astros Field, is a retractable roof stadium in Downtown Houston, Texas, United States. It opened in 2000 as the home ballpark of Major League Baseball's Houston Astros.[1] (It was named "Enron Field" from 2000 to 2002.) [1] https://en.wikipedia.org/wiki/Minute_Maid_Park https://en.wikipedia.org/wiki/Minute_Maid_Park

celestialcheese 4y ago

How the fuck did all these high-profile investors miss this. NEA, IVP, Iconiq Capital, Third Point Ventures, Tiger Global, Altimeter Capital Management, Lux Capital, Mayfield, Insight Partners, Sequoia Capital, SoftBank, Lightspeed Venture Partners, Ribbit Capital, Temasek Holdings, BlackRock and Thoma Bravo. These aren't schleps in this list. Blackrock, Sequoia, Tiger, Lightspeed, the fucking NEA. Jesus. Did no one do _any_ due diligence?? Did they just trust the auditor Armanino and Prager Metis (who??)[1]?? At least Enron had Arthur Andersen and some cover of respectability in the audit space at the time. Irrational exuberance is really something. 1- https://www.coindesk.com/business/2022/11/11/meet-the-metaverse-night-clubloving-audit-firm-that-presided-over-ftxs-financials/ https://www.coindesk.com/business/2022/11/11/meet-the-metave...

ourmandave 4y ago
Makes you wonder who else in the crypto space is lying through their freakin' teeth, don't it?
- ttul 4y ago
  Any time a company tells you you can’t have a board seat… it’s time to run.
- cyanydeez 4y ago
  Unless it's code, all of them
ttul 4y ago
My guess is that either FTX did not furnish them with accurate or truthful information, or the information was correct at the time, but the lack of good governance allowed FTX to pursue some rotten strategies without the knowledge of their investors. It would not be the first time that otherwise smart people have made a bad call.
- celestialcheese 4y ago
  The timing of the big investments back in Oct '21 for their Series B and Jan '22 for Series C makes your guess seem likely. Seems like most of the actual fraud started after the 3AC/TerraLuna blowup as SBF trying to trade out of the hole he was in.

superkuh 4y ago

So... about the same as a typical bank reserve ratio, 10%. https://en.wikipedia.org/wiki/Reserve_requirement#Reserve_requirements_by_country https://en.wikipedia.org/wiki/Reserve_requirement#Reserve_re...

gameshot911 4y ago
Except FTX wasn't a bank, it was an exchange.

epistasis 4y ago

This was always a Ponzi scheme, and SBF was incredibly open about it being a Ponzi scheme, and yet people still tried to beat out the Ponzi scheme. Here's SBF back in April (just a small excerpt, the full section is far more damning): > SBF: So, you know, X tokens [are] being given out each day, all these like sophisticated firms are like, huh, that's interesting. Like if the total amount of money in the box is a hundred million dollars, then it's going to yield $16 million this year in X tokens being given out for it. That's a 16% return. That's pretty good. We'll put a little bit more in, right? And maybe that happens until there are $200 million dollars in the box. So, you know, sophisticated traders and/or people on Crypto Twitter, or other sort of similar parties, go and put $200 million in the box collectively and they start getting these X tokens for it. > And now all of a sudden everyone's like, wow, people just decide to put $200 million in the box. This is a pretty cool box, right? Like this is a valuable box as demonstrated by all the money that people have apparently decided should be in the box. And who are we to say that they're wrong about that? Like, you know, this is, I mean boxes can be great. Look, I love boxes as much as the next guy. And so what happens now? All of a sudden people are kind of recalibrating like, well, $20 million, that's it? Like that market cap for this box? And it's been like 48 hours and it already is $200 million, including from like sophisticated players in it. They're like, come on, that's too low. And they look at these ratios, TVL, total value locked in the box, you know, as a ratio to market cap of the box’s token. > ... > Matt Levine: I think of myself as like a fairly cynical person. And that was so much more cynical than how I would've described farming. You're just like, well, I'm in the Ponzi business and it's pretty good. https://www.bloomberg.com/news/articles/2022-04-25/sam-bankman-fried-described-yield-farming-and-left-matt-levine-stunned https://www.bloomberg.com/news/articles/2022-04-25/sam-bankm...

shawabawa3 4y ago
Except in that comment he's talking about yield farming, and he's 100% right about a lot of what yield farming products did However he runs an exchange, not one of these magic boxes, and he was never saying or claiming that that was what ftx was doing
- epistasis 4y ago

Bubble_Pop_22 4y ago

People are looking at this thing too closely. When taking the 30000ft wide view then something like this is not extraordinary , and there I say it, not even bad. Fedex was famously down to their last 5,000$ dollars and were facing bankruptcy, and the founder quite literally went to Vegas to play blackjack and won 27,000$ to save the company. Companies and entrepreneurs are supposed to take on risk, that's why bankruptcy laws and LLCs exists in the first place. To give entrepreneurs some peace of mind that if the risk doesn't pay off they only lose what they put in. The world and the US was growing much faster in the 1970s and 1980s when these sort of things happened daily. Not all donuts come out with a hole. If for every Ponzis we get a Standard Oil then it's worth it. If for every Enron we get a Microsoft then it's worth it. If for every FTX we get a Moderna then it's for sure worth it. And maybe all those positive examples were just inches away from being touted as negative examples, quite like Fedex was.

j7ake 4y ago
I think these exposures and bad practices are fine as long as the ones who broke laws get served justice. The worst is seeing white collar crime get let off easy while the man who steals from a bank goes to jail for long time.