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> the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals. The most fascinati

> the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals. The most fascinating part of this whole story to me is just how few checks and balances there were in this company. Even without a board, did major investors not get his quarterly financials? If the leaked balance sheet was any indication of their level financial engineering capabilities, it's hard to imagine there weren't major red flags through most of 2021.

wmf 4y ago
Given what we know now, those financials were probably completely wrong.
- mattbrewsbytes 4y ago
  Yeah I’d venture a guess based on what we’re hearing that they just wrote up whatever they wanted it to look like.
kjs3 4y ago
I thought that was the whole point: unregulated (or at least extremely minimally regulated, preferably in a jurisdiction that has a looooong history of looking the other way and in a perfect world with no extradition treaties), decentralized, anonymous financial systems. It doesn't surprise me in the least that these clowns were running across the high wire without a net using other peoples money. The fascinating part to me is that anyone didn't think this was the inevitable outcome. But then I spent an hour this morning with some banking industry blockchain folks spinning this as "well obviously this debacle is great because it finally will shake out the bad actors and leave just us good-guys taking crusty old banking into the glorious crypto future". Just like they've said about every debacle since Mt Gox.
- anticrisis 4y ago
  The whole circus is a mass delusion. I would really like to see some academic studies on the phenomenon.
  - belter 4y ago
    I give you the studies: “In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule.” ― Friedrich Nietzsche
  - jeffskiling 4y ago
    Gustave Le Bon's The Crowd is pretty comic when things like this happen. Can find things straight out of the headlines but from 1895.
- CuriousCosmic 4y ago
  There's a weird split in the space in that regard. There's a lot of right-libertarian-esque "no gods or kings, only man" ethos in the cryptocurrency space but there's also been a lot of work trying to build the guard rails that are common to society into the systems. People like to joke that cryptocurrency is just right-libertarians speedrunning financial legislation history but the reality is more that a lot of the tools that governments use to make finance "safe" don't have well established parallels that work on a decentralised platform. A lot of that "speedrunning" is the people who are actually building things trying to figure out how to still have reasonable safety and stability without relying on a single government or power to enforce policy. Things like privacy preserving transactions/communication and decentralised consensus are useful and valuable features but it's taken years for game theorists and cryptographers to work out schemes that are even close to being sustainable at scale without compromising on priorities. Doubly so to build those tools for stability that are essential for a well functioning society such as the capacity for KYC, tax, and regulatory compliance without compromising on the above priorities. So in a sense that argument that "this is good because it shakes out the bad actors before they can do too much more damage" is accurate but not in the sense that it allows the "good guys" to continue in their glorious libertarian fantasy. Rather it's a good thing because it minimizes the potential damage that can be done until researchers and engineers can develop the technology to a degree that the average person could actually use it. It's a race against a regulatory clock and when it strikes midnight, unless there is a working example of a "good" and "safe" cryptocurrency, regulators will absolutely go for the throat. Unless the tech is sufficiently mature, they will divide the space into one that is illegal & only used by criminals and another which throws any semblance of decentralisation or privacy preservation out the window. This take is unfortunately fairly US- and Euro-centric but the reality is that those two sets of governments and regulatory bodies will be the ones to decide what form digital currency/digital assets take going forward.
  - kjs3 4y ago
    I didn't say this was a right-libertarian thing, so I don't want anyone to think that was my bias here. I think it's clear that there are hucksters of all stripes jumping on this bandwagon. That said, I think this is as insightful a summation of the situation I see in crypto as I've read recently. It's a race against a regulatory clock and when it strikes midnight... I may steal this gem. :-)
- DennisP 4y ago
  There was nothing decentralized about FTX. It was just a centralized exchange in the Bahamas that happened to trade crypto around. The whole point of defi is to build systems where nobody can do what FTX did. Uniswap for example doesn't even have admin functions. Nobody can move your funds on Uniswap besides you.
kevin_thibedeau 4y ago
Zero interest rates make the rich desperate to find a new money printer.
- rib3ye 4y ago
  This is the MOST underrated statement in all the threads on this whole fiasco. Government and Wall St. (but _especially_ government bare at least some responsibility for letting the pot get too big.
  - chips_n_fries 4y ago
    These are the same group of people. Low interests are working out just fine for them.
karmakurtisaani 4y ago
I think the reason is that he was seen as a financial genius boy wonder who just understood crypto better than anyone from the "old guard". So he got away with wildly inappropriate things. More generally, we (as a society) seem to be worshiping those who make a fortune, and forget that they too are just as faulty as the rest of us. Initial innovative success gets projected to mythical proportions, and once the investment streams are open there is no limit to the wealth they accumulate. Looking at you Elon and Zuck.
- colechristensen 4y ago
  In other words, the investors were stupid and deserved what they got. Customers were owed better, but large scale investors who don't do due diligence and end up losing their shirts deserve every bit of it.
  - notch656a 4y ago
    I think it's more likely that the more sophisticated investors knew there was a lot of handwaving going on and they thought they'd get through the exits with principal+profit before they became clogged. Sometimes people are known to just not ask if they think the details are odious and they want to maintain plausible deniability about knowledge of source of the profits.
  - amanj41 4y ago
    I have to agree with this. While I don't like to victim blame usually, the VCs are too much in a position of power to truly be victims here. They absolutely could have pushed for more transparency or a board and likely would have smelled smoke when there was none
    - preommr 4y ago
      > VCs are too much in a position of power to truly be victims here Sam playing league of legends during his pitch meeting with squioa capital gets memed a lot but it truly is absolutely staggering that so little common sense was applied here.
woeirua 4y ago
It was fraud all the way down.
thr0wawayf00 4y ago
When the hype train is rolling and the valuation is skyrocketing, nobody asks questions.
icedchai 4y ago
How would that help? Anyone can lie on a spreadsheet or deck.
- sarahowen62 4y ago
throwaway4good 4y ago
I think those investors got all the paperwork they wanted and it looked good.
thesausageking 4y ago
Part of my wonders if it was intentional on Sequoia's part to not take a board seat or get too involved. If they had and Alfred Lin were a director of FTX, he would've been pulled into the bankruptcy and all of the lawsuits, as well as all of the bad press. By being a passive investor, they can write off their investment and move on.
nieve 4y ago
There was a board, but "FTX’s board, though, had only three directors as of earlier this year: Mr. Bankman-Fried, an FTX employee and an Antigua lawyer who specializes in gaming."

wmf 4y ago

Given what we know now, those financials were probably completely wrong.

mattbrewsbytes 4y ago
Yeah I’d venture a guess based on what we’re hearing that they just wrote up whatever they wanted it to look like.

kjs3 4y ago

I thought that was the whole point: unregulated (or at least extremely minimally regulated, preferably in a jurisdiction that has a looooong history of looking the other way and in a perfect world with no extradition treaties), decentralized, anonymous financial systems. It doesn't surprise me in the least that these clowns were running across the high wire without a net using other peoples money. The fascinating part to me is that anyone didn't think this was the inevitable outcome. But then I spent an hour this morning with some banking industry blockchain folks spinning this as "well obviously this debacle is great because it finally will shake out the bad actors and leave just us good-guys taking crusty old banking into the glorious crypto future". Just like they've said about every debacle since Mt Gox.

anticrisis 4y ago
The whole circus is a mass delusion. I would really like to see some academic studies on the phenomenon.
- belter 4y ago
  I give you the studies: “In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule.” ― Friedrich Nietzsche
- jeffskiling 4y ago
  Gustave Le Bon's The Crowd is pretty comic when things like this happen. Can find things straight out of the headlines but from 1895.
CuriousCosmic 4y ago
There's a weird split in the space in that regard. There's a lot of right-libertarian-esque "no gods or kings, only man" ethos in the cryptocurrency space but there's also been a lot of work trying to build the guard rails that are common to society into the systems. People like to joke that cryptocurrency is just right-libertarians speedrunning financial legislation history but the reality is more that a lot of the tools that governments use to make finance "safe" don't have well established parallels that work on a decentralised platform. A lot of that "speedrunning" is the people who are actually building things trying to figure out how to still have reasonable safety and stability without relying on a single government or power to enforce policy. Things like privacy preserving transactions/communication and decentralised consensus are useful and valuable features but it's taken years for game theorists and cryptographers to work out schemes that are even close to being sustainable at scale without compromising on priorities. Doubly so to build those tools for stability that are essential for a well functioning society such as the capacity for KYC, tax, and regulatory compliance without compromising on the above priorities. So in a sense that argument that "this is good because it shakes out the bad actors before they can do too much more damage" is accurate but not in the sense that it allows the "good guys" to continue in their glorious libertarian fantasy. Rather it's a good thing because it minimizes the potential damage that can be done until researchers and engineers can develop the technology to a degree that the average person could actually use it. It's a race against a regulatory clock and when it strikes midnight, unless there is a working example of a "good" and "safe" cryptocurrency, regulators will absolutely go for the throat. Unless the tech is sufficiently mature, they will divide the space into one that is illegal & only used by criminals and another which throws any semblance of decentralisation or privacy preservation out the window. This take is unfortunately fairly US- and Euro-centric but the reality is that those two sets of governments and regulatory bodies will be the ones to decide what form digital currency/digital assets take going forward.
- kjs3 4y ago
  I didn't say this was a right-libertarian thing, so I don't want anyone to think that was my bias here. I think it's clear that there are hucksters of all stripes jumping on this bandwagon. That said, I think this is as insightful a summation of the situation I see in crypto as I've read recently. It's a race against a regulatory clock and when it strikes midnight... I may steal this gem. :-)
DennisP 4y ago
There was nothing decentralized about FTX. It was just a centralized exchange in the Bahamas that happened to trade crypto around. The whole point of defi is to build systems where nobody can do what FTX did. Uniswap for example doesn't even have admin functions. Nobody can move your funds on Uniswap besides you.

kevin_thibedeau 4y ago

Zero interest rates make the rich desperate to find a new money printer.

rib3ye 4y ago
This is the MOST underrated statement in all the threads on this whole fiasco. Government and Wall St. (but _especially_ government bare at least some responsibility for letting the pot get too big.
- chips_n_fries 4y ago
  These are the same group of people. Low interests are working out just fine for them.

karmakurtisaani 4y ago

I think the reason is that he was seen as a financial genius boy wonder who just understood crypto better than anyone from the "old guard". So he got away with wildly inappropriate things. More generally, we (as a society) seem to be worshiping those who make a fortune, and forget that they too are just as faulty as the rest of us. Initial innovative success gets projected to mythical proportions, and once the investment streams are open there is no limit to the wealth they accumulate. Looking at you Elon and Zuck.

colechristensen 4y ago
In other words, the investors were stupid and deserved what they got. Customers were owed better, but large scale investors who don't do due diligence and end up losing their shirts deserve every bit of it.
- notch656a 4y ago
  I think it's more likely that the more sophisticated investors knew there was a lot of handwaving going on and they thought they'd get through the exits with principal+profit before they became clogged. Sometimes people are known to just not ask if they think the details are odious and they want to maintain plausible deniability about knowledge of source of the profits.
- amanj41 4y ago
  I have to agree with this. While I don't like to victim blame usually, the VCs are too much in a position of power to truly be victims here. They absolutely could have pushed for more transparency or a board and likely would have smelled smoke when there was none
  - preommr 4y ago
    > VCs are too much in a position of power to truly be victims here Sam playing league of legends during his pitch meeting with squioa capital gets memed a lot but it truly is absolutely staggering that so little common sense was applied here.

woeirua 4y ago

It was fraud all the way down.

thr0wawayf00 4y ago

When the hype train is rolling and the valuation is skyrocketing, nobody asks questions.

icedchai 4y ago

How would that help? Anyone can lie on a spreadsheet or deck.

sarahowen62 4y ago

throwaway4good 4y ago

I think those investors got all the paperwork they wanted and it looked good.

thesausageking 4y ago

Part of my wonders if it was intentional on Sequoia's part to not take a board seat or get too involved. If they had and Alfred Lin were a director of FTX, he would've been pulled into the bankruptcy and all of the lawsuits, as well as all of the bad press. By being a passive investor, they can write off their investment and move on.

nieve 4y ago

There was a board, but "FTX’s board, though, had only three directors as of earlier this year: Mr. Bankman-Fried, an FTX employee and an Antigua lawyer who specializes in gaming."