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> $16 billion of dollar liabilities and assets consisting mostly of some magic beans that you invented yourself and acquired for zero dollars? WHAT? Never mind

by nullc 4y ago

> $16 billion of dollar liabilities and assets consisting mostly of some magic beans that you invented yourself and acquired for zero dollars? WHAT? Never mind the valuation of the beans; where did the money go? Exactly. This is the first time I've seen the media asking the right questions. The answer probably is in part that most of it never existed to begin with-- those 'customer' liabilities probably include the probably fictional billions in arb gains SBF claimed to have and some amount of magic beans deposited by related entities. E.g. Deposit $1 billion magic beancoins you essentially made up (or a friend made up), then trade them for "Bitcoin perpetuals" (levered paper bitcoins) with FTX itself acting as the counterparty. Now the 'customer' is owed $1bn in bitcoin on FTX's books and ftx is long a billion in magic beans. Then get your friends in the media to write glowing stories about FTX's meteoric rise and some suckers come in, deposit real bitcoin, invest money from real pension funds, etc. and the 'customer' can then withdraw some of their paper bitcoins. ... at least until the exchange runs out of anything except magic beans and someone forgets to set the switch to 'more magic'. > FTX worked fine: People liked its technology, and it seems to have made money. Well, the people who deposited there liked the 8% APY they gave people simply for depositing funds. Prudent people saw that obvious ponzi scheme marker and stayed the hell away!

esoterica 4y ago
I think you’re confused about what a liability is. If the liabilities were fake FTX would not be insolvent. Their problem is that their liabilities are real but their assets are fake.
- nullc 4y ago
  You might want to consider adopting a less condescending communication style in accordance with HN policy-- it would make it easier for both of us to learn something. I think I adequately described a credible sequence of operations, but your dismissive reply has made it impossible for me to tell which parts weren't communicated effectively. The central unanswered question is "where did the real money go?": Those ftx related magic beans were constructed for ~free. The balance sheet makes it look like billions of Bitcoin are owed, so where did they go? The idea that FTX didn't pay for the magic beans is just an assumption, but it's not necessary. They could have paid a related entity for them using the paper bitcoin traded on the site. I'm suggesting that related entities such as Alameda research and SBF personally deposited magic means and traded them for Bitcoin "perpetuals", with FTX awarding them paper Bitcoins. This creates a bitcoin liability on FTX's balance sheets even though no billions of dollars ever existed. Some amount of actual valuable assets were deposited, then withdrawn by people who traded magic beans for FTX bitcoin liability (and/or were awarded bitcoin through FTX's 8%/yr yield program on customer deposits) -- leaving FTX with a balance sheet full of huge Bitcoin liabilities. In that scenario one could go back through the transaction records and unwind some of these magic bean trades and make FTX less insolvent, but they'd still be insolvent because of the real assets that were withdrawn by parties that only brought magic beans into the picture, as well as FTX's spending, donations, bills for their designer amphetamines and cleanup services for their orgies, and other "business expenses" typical of their industry.
dibt 4y ago
> where did the money go? Isn't it obvious? It was paid to customers and others that took the money or equivalent dollar amount in assets off the exchange. Either to a bank, another exchange, on-chain self-custody, political donations, salaries, stadium naming rights, Sam's "make it all back" scheme, etc. Matt is smart, so maybe he knows, and the question is rhetorical.
- nullc 4y ago
  It's not rhetorical: The known donations, naming rights, etc. don't remotely add up to the amount of liabilities. If their balance sheet was full of some external asset that had lost a ton of value you could say, okay customer deposited Bitcoin and FTX used it to buy whatevercoin and whatever coin lost 96% of its value. The money went to the people selling whatevercoin. But in this case it's a mystery-- their balance sheet is full of magic beans but most of them are magic beans ftx and crew appear to have printed from nothing, not magic beans they would have had to buy on the market. So customers deposited real money, a bit was spent on donations/etc. And FTX created some magic beans-- so where did the money go? And my conjecture was just that a big chunk of the liabilities are also fake too-- the result of magic beans being deposited by 'customers' (really FTX insiders) and traded for paper bitcoin ('perpetuals').
  - drexlspivey 4y ago
    I think it’s fairly clear what happened: Customers deposited $8B you mark $8B of cash as assets and $8B of customer claims as liabilities. You send that cash to Alameda *off the books* because otherwise you will raise some alarms in internal procedures. Now your assets and liabilities don’t match anymore. You want to do some accounting because you are about to go bankrupt, you now end up with a $8B hole that you mark as “Hidden poorly internally labeled account”
    - nullc 4y ago
      I believe that balance sheet supposedly contains Alameda assets too, but I'm not sure there. If so there is still an interesting question of what Alameda Research did with the funds -- as the reports of their assets had them mostly holding stuff FTX related companies printed.

by nullc 4y ago

esoterica 4y ago

I think you’re confused about what a liability is. If the liabilities were fake FTX would not be insolvent. Their problem is that their liabilities are real but their assets are fake.

nullc 4y ago
You might want to consider adopting a less condescending communication style in accordance with HN policy-- it would make it easier for both of us to learn something. I think I adequately described a credible sequence of operations, but your dismissive reply has made it impossible for me to tell which parts weren't communicated effectively. The central unanswered question is "where did the real money go?": Those ftx related magic beans were constructed for ~free. The balance sheet makes it look like billions of Bitcoin are owed, so where did they go? The idea that FTX didn't pay for the magic beans is just an assumption, but it's not necessary. They could have paid a related entity for them using the paper bitcoin traded on the site. I'm suggesting that related entities such as Alameda research and SBF personally deposited magic means and traded them for Bitcoin "perpetuals", with FTX awarding them paper Bitcoins. This creates a bitcoin liability on FTX's balance sheets even though no billions of dollars ever existed. Some amount of actual valuable assets were deposited, then withdrawn by people who traded magic beans for FTX bitcoin liability (and/or were awarded bitcoin through FTX's 8%/yr yield program on customer deposits) -- leaving FTX with a balance sheet full of huge Bitcoin liabilities. In that scenario one could go back through the transaction records and unwind some of these magic bean trades and make FTX less insolvent, but they'd still be insolvent because of the real assets that were withdrawn by parties that only brought magic beans into the picture, as well as FTX's spending, donations, bills for their designer amphetamines and cleanup services for their orgies, and other "business expenses" typical of their industry.

dibt 4y ago

> where did the money go? Isn't it obvious? It was paid to customers and others that took the money or equivalent dollar amount in assets off the exchange. Either to a bank, another exchange, on-chain self-custody, political donations, salaries, stadium naming rights, Sam's "make it all back" scheme, etc. Matt is smart, so maybe he knows, and the question is rhetorical.

nullc 4y ago
It's not rhetorical: The known donations, naming rights, etc. don't remotely add up to the amount of liabilities. If their balance sheet was full of some external asset that had lost a ton of value you could say, okay customer deposited Bitcoin and FTX used it to buy whatevercoin and whatever coin lost 96% of its value. The money went to the people selling whatevercoin. But in this case it's a mystery-- their balance sheet is full of magic beans but most of them are magic beans ftx and crew appear to have printed from nothing, not magic beans they would have had to buy on the market. So customers deposited real money, a bit was spent on donations/etc. And FTX created some magic beans-- so where did the money go? And my conjecture was just that a big chunk of the liabilities are also fake too-- the result of magic beans being deposited by 'customers' (really FTX insiders) and traded for paper bitcoin ('perpetuals').
- drexlspivey 4y ago
  I think it’s fairly clear what happened: Customers deposited $8B you mark $8B of cash as assets and $8B of customer claims as liabilities. You send that cash to Alameda *off the books* because otherwise you will raise some alarms in internal procedures. Now your assets and liabilities don’t match anymore. You want to do some accounting because you are about to go bankrupt, you now end up with a $8B hole that you mark as “Hidden poorly internally labeled account”
  - nullc 4y ago
    I believe that balance sheet supposedly contains Alameda assets too, but I'm not sure there. If so there is still an interesting question of what Alameda Research did with the funds -- as the reports of their assets had them mostly holding stuff FTX related companies printed.