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“The issue here is that making money by holding onto assets you can’t fundamentally make money by holding is hard.” They can make plenty of money through volum

“The issue here is that making money by holding onto assets you can’t fundamentally make money by holding is hard.” They can make plenty of money through volume (fees), while holding the crypto 1:1. Sounds relatively easy to me. That’s the baffling thing about FTX/Alameda. FTX on its own could be a nice profitable business, yet it seems they got greedy by lending customer funds to the hedge fund-y sister company.

lazide 4y ago
Not as easily (short term) as they can by walking away with billions in the raw money though. And fees get competitive, it’s inevitably a race to the bottom, where firms need to spend a lot of money competing on things like long term reputation. Meanwhile if they screw up in their security, they’re also liable for huge multiples of those fees in losses. And if someone pops up that charges less fees, and seems ok enough, a lot of the money moves there quickly, until there is a scandal anyway. It requires a mature organization who has strong controls and bulletproof working processes to avoid losing multiple years in fees by accident too. Not saying you’re wrong - it’s where things inevitably end up when it’s heavily regulated and watched so all the other alternatives are hard (and result in major prison time). Usually. But it should be noted that brick and mortar banks gave up on that model a very long time ago, favoring explicitly loaning out customer funds (fractional reserve banking) because it’s more sustainable for them.
viscanti 4y ago
> FTX on its own could be a nice profitable business Not really. Their tech stack was too slow so other Market Makers weren't willing to come over (the price can change and leave them fulfilling sales at bad prices too frequently). So they had Alameda be their market maker and they were constantly burning money doing that. Maybe they believed there would be enough liquidity if they scaled more and it was an investment in their future (a very charitable view) and it was fine to borrow funds in the short term and then that got away from them. But from what we've heard of their tech stack, they weren't ever going to be viable because they couldn't support what HFT would need.
KaiserPro 4y ago
> while holding the crypto 1:1. You can only do that if you are holding exclusivly onto one asset. The relative values of different tokens change over time. So if you want 1:1, you need to have a robust mechanism for doing that. But you won't want to because that'll burn through transaction fees for no real gain. > FTX on its own could be a nice profitable business That requires fees, and given the number of exchanges that do it for free, so long as you keep your wallet with them, its not going to make you money. Sure you can do market making, or arbitrage, but that's still risky and you don't make that much money doing it. <0.1% on each transaction.

lazide 4y ago

Not as easily (short term) as they can by walking away with billions in the raw money though. And fees get competitive, it’s inevitably a race to the bottom, where firms need to spend a lot of money competing on things like long term reputation. Meanwhile if they screw up in their security, they’re also liable for huge multiples of those fees in losses. And if someone pops up that charges less fees, and seems ok enough, a lot of the money moves there quickly, until there is a scandal anyway. It requires a mature organization who has strong controls and bulletproof working processes to avoid losing multiple years in fees by accident too. Not saying you’re wrong - it’s where things inevitably end up when it’s heavily regulated and watched so all the other alternatives are hard (and result in major prison time). Usually. But it should be noted that brick and mortar banks gave up on that model a very long time ago, favoring explicitly loaning out customer funds (fractional reserve banking) because it’s more sustainable for them.

viscanti 4y ago

> FTX on its own could be a nice profitable business Not really. Their tech stack was too slow so other Market Makers weren't willing to come over (the price can change and leave them fulfilling sales at bad prices too frequently). So they had Alameda be their market maker and they were constantly burning money doing that. Maybe they believed there would be enough liquidity if they scaled more and it was an investment in their future (a very charitable view) and it was fine to borrow funds in the short term and then that got away from them. But from what we've heard of their tech stack, they weren't ever going to be viable because they couldn't support what HFT would need.

KaiserPro 4y ago

> while holding the crypto 1:1. You can only do that if you are holding exclusivly onto one asset. The relative values of different tokens change over time. So if you want 1:1, you need to have a robust mechanism for doing that. But you won't want to because that'll burn through transaction fees for no real gain. > FTX on its own could be a nice profitable business That requires fees, and given the number of exchanges that do it for free, so long as you keep your wallet with them, its not going to make you money. Sure you can do market making, or arbitrage, but that's still risky and you don't make that much money doing it. <0.1% on each transaction.