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I don't think this is quite right. Matt is saying that the Serum wasn't exchanged for customer money -- it was more or less created out of thin air. He suggests

by tibbar 4y ago

I don't think this is quite right. Matt is saying that the Serum wasn't exchanged for customer money -- it was more or less created out of thin air. He suggests that most of FTX's magical crypto assets like Serum were created for < 1 billion of customer money. He points out that we don't know from the balance sheet where they flushed the $16billion of investments. (It does seem like a lot of it went to Alameda, but not in exchange for Serum. And we still don't know how Alameda lost all the money it lost.)

espadrine 4y ago
Since they used Serum’s diluted market cap to justify it as an increase in assets, and focused on having more assets than liabilities, it implies they took this higher total asset balance to shoulder liabilities that their existing assets did not cover. Since every dollar they received in customer deposits appeared both in assets and liabilities, the only way they ended up with liabilities that their (non-Serum, non-FTT) assets did not cover, is by exchanging the dollars with something that lost value.
- tibbar 4y ago
  > Since every dollar they received in customer deposits appeared both in assets and liabilities, the only way they ended up with liabilities that their (non-Serum, non-FTT) assets did not cover, is by exchanging the dollars with something that lost value. That's the way it ought to work in the absence of fraud or theft. But as Matt says, the reason this balance sheet is so insane is that there's no evidence this happened. Only a very small amount of customer dollars could have been used to generate Serum. FTX invented several cryptocurrencies which, at a 10x inflated valuation, obscure the fact that they completely lost $16 billion of assets. In fact, it seems that SBF used a backdoor in his own software to secretly transfer customer funds to Alameda. There's no evidence that any sort of internal accounting actually balanced the books in the way you suggest, which is what's so insane about this whole story.
  - lazide 4y ago
    It doesn’t matter how thoroughly you do your double entry accounting if you can’t trust the statement (or there is no statement) you reconcile against. Or no one ever tries to reconcile shit. How does it go again? “ The government are very keen on amassing statistics. They collect them, add them, raise them to the nth power, take the cube root and prepare wonderful diagrams. But you must never forget that every one of these figures comes in the first instance from the village watchman, who just puts down what he damn pleases.” - Josiah Stamp
djbusby 4y ago
Alameda Research has a profile on CrunchBase, they invested in a cannabis bank for example.
meltedcapacitor 4y ago
Creating out of thin air is step 1. Step 2 is for Alameda to deposit on FTX, and then withdraw 95% of its notional value in USD or say BTC/ETH. Then on FTX they have a negative balance on this matched by a positive balance in FTT or other Sam coins. The USD or BTC/ETH withdrawn comes from someone on platform who has clicked "lend" on their positive balance of same in exchange of some yield. To be fair, any user could do that, deposit shitcoin, withdraw non-shit, up to 100% of the funds where people had clicked "lend" and that without any fraud. If the value of the shitcoin collapsed their account just got zeroed and FTX took the corresponding loss on their books. The list of shitcoins allowed in this genius scheme is still up: https://help.ftx.com/hc/en-us/articles/360031149632-Non-USD-Collateral https://help.ftx.com/hc/en-us/articles/360031149632-Non-USD-...

by tibbar 4y ago

espadrine 4y ago

Since they used Serum’s diluted market cap to justify it as an increase in assets, and focused on having more assets than liabilities, it implies they took this higher total asset balance to shoulder liabilities that their existing assets did not cover. Since every dollar they received in customer deposits appeared both in assets and liabilities, the only way they ended up with liabilities that their (non-Serum, non-FTT) assets did not cover, is by exchanging the dollars with something that lost value.

tibbar 4y ago
> Since every dollar they received in customer deposits appeared both in assets and liabilities, the only way they ended up with liabilities that their (non-Serum, non-FTT) assets did not cover, is by exchanging the dollars with something that lost value. That's the way it ought to work in the absence of fraud or theft. But as Matt says, the reason this balance sheet is so insane is that there's no evidence this happened. Only a very small amount of customer dollars could have been used to generate Serum. FTX invented several cryptocurrencies which, at a 10x inflated valuation, obscure the fact that they completely lost $16 billion of assets. In fact, it seems that SBF used a backdoor in his own software to secretly transfer customer funds to Alameda. There's no evidence that any sort of internal accounting actually balanced the books in the way you suggest, which is what's so insane about this whole story.
- lazide 4y ago
  It doesn’t matter how thoroughly you do your double entry accounting if you can’t trust the statement (or there is no statement) you reconcile against. Or no one ever tries to reconcile shit. How does it go again? “ The government are very keen on amassing statistics. They collect them, add them, raise them to the nth power, take the cube root and prepare wonderful diagrams. But you must never forget that every one of these figures comes in the first instance from the village watchman, who just puts down what he damn pleases.” - Josiah Stamp

djbusby 4y ago

Alameda Research has a profile on CrunchBase, they invested in a cannabis bank for example.

meltedcapacitor 4y ago

Creating out of thin air is step 1. Step 2 is for Alameda to deposit on FTX, and then withdraw 95% of its notional value in USD or say BTC/ETH. Then on FTX they have a negative balance on this matched by a positive balance in FTT or other Sam coins. The USD or BTC/ETH withdrawn comes from someone on platform who has clicked "lend" on their positive balance of same in exchange of some yield. To be fair, any user could do that, deposit shitcoin, withdraw non-shit, up to 100% of the funds where people had clicked "lend" and that without any fraud. If the value of the shitcoin collapsed their account just got zeroed and FTX took the corresponding loss on their books. The list of shitcoins allowed in this genius scheme is still up: https://help.ftx.com/hc/en-us/articles/360031149632-Non-USD-Collateral https://help.ftx.com/hc/en-us/articles/360031149632-Non-USD-...