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I’d be absolutely shocked if more than 25% can be recovered. They spent multi-billions on venture investments that were not just high-risk due to their early st

I’d be absolutely shocked if more than 25% can be recovered. They spent multi-billions on venture investments that were not just high-risk due to their early stage nature but also inextricably linked to ftx by way of the cryptocurrency market as a whole and thus about as undiversified as humanly possible. There’s a few of their investments that have value and value could be recovered through sales but almost all of them are illiquid and have seen valuations collapse. Also consider that a lot of the players involved are overseas and anonymous* which makes it much more difficult to clawback relative to people onshore (like in the case of madoff).

deleted 4y ago
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nullc 4y ago
If we limit ourselves to depositor funds -- who morally ought to be superior creditors to investors-- I wouldn't be shocked if the recovery percentage was quite a bit larger than that. One thing that made 90% recoveries of Madoff possible were that they first backed out all the fake gains that the customers thought they had but never actually had. This will be harder to do with FTX, but I expect that once all the bogus margin trading on fake assets is backed out we'll find that the losses were far less substantial than the numbers being thrown around.
- phphphphp 4y ago
  I think that might have been true a year ago but at the time of FTX’s collapse, most market participants were underwater, especially the laypeople. The amount of money in the crypto market is definitely not anywhere near the supposed market cap, but if we look at USDC’s 50bn we can say with reasonable confidence that there’s at least 50bn of USD in the crypto market. If FTX was 10% of the market then 5 billion seems very plausible as a lower bound for the amount of real money value on the exchange (before backing out paper gains). That’s 5bn after people have lost >50% in the last year. There was something like 6bn withdrawn in the days before the collapse and if clawbacks could get most of it, we would at least see 0.40 on the dollar recovered… but I am very very skeptical about that happening, given FTX international was for people outside of US jurisdiction — not impossible to recover but much more difficult. I hope you’re right that it turns out that there’s only, say, 2bn of real money missing, and most people can be made mostly whole… but given the bloodbath of the last year, I fear that there’s probably more real money gone now, rather than less. A lot of people would be absolutely gleeful if you could somehow rollback the last year of trades on FTX.
  - nullc 4y ago
    My wild ass guesstimate before learning about the mobilecoin (the signal integrated crypto) apparent fraud would have been 1-2 billion lost, so I guess I should update that to 3 billion lost-- though there is probably reasonable odds on recovering the mobilecoin funds since there were probably only a few people who could have had access to enough mobilecoin to hit a billion worth even at $67/coin. It's quite possible that I'm just being bubbled/hopeful. I don't personally know anyone who lost money in FTX even though I know a lot of cryptocurrency people and I thought it was obviously sketchy from when I first heard of it, so these are probably influencing my perspective on how big it actually was. > If FTX was 10% of the market I'm dubious about 10%. We know in hindsight that FTX was faking their size in multiple respects (including e.g. faking their valuation by MTMing illiquid coins that they created and never circulated) -- probably every claim we've seen about their size based on their own figures was just lies.
this_user 4y ago
People have already looked into this, and the claims on FTX' debt were valued at 5c on the dollar. Alameda has burned through billions, and most of what was left were illiquid shitcoins and other worthless junk. Madoff, at least, was dealing with real assets.
- panarky 4y ago
  > burned through billions If Alameda lost the billions, then who won the billions? Who was on the other side of those trades?
  - sam345 4y ago
    I'd be surprised if you could claw back actual trades on an open arms-length market assuming that's what the FTX exchange was. In Madoff's case, there were no trades at all. Madoff collected the money from his investors, generated fake statements showing inflated fake balances and profitable trades (that never actually occurred) and then selectively doled out limited cash redemptions until everyone demanded their money back at once and the whole thing came crashing down. In SBF's case, it looks like SBF took money from his customers, and then bought or sold crypto in arms-length transactions on an open exchange. If that's the case it's hard to see how they can get the money back from the other side of the trades where his counterparties were buying or selling on the market in good faith. I think the only hope is that if they can somehow get the assets from his affiliated entities and/or reclaim assets that SBF and/or his companies still have control over whether on the block chain or elsewhere.
  - ericbarrett 4y ago
    Matt Levine has speculated that a bunch of the money was lost via market-making with insufficient controls (margin enforcement etc.). For example, as reported by the Financial Times (via Levine's Dec. 5 newsletter, "Crypto had a Credit Bubble"): [begin quote] In April 2021, a crypto token called MobileCoin — used for payments in the privacy-focused messaging app Signal — suddenly spiked in price from about $6 to almost $70, before crashing back down again almost as quickly. The wild moves came after a trader on FTX had built an unusually large position in the little-known token. Two people familiar with the matter said that when the price rose, the trader used the position to borrow against it on FTX, potentially a scheme to extract dollars from the exchange. Alameda was forced to step in and assume the trader’s position to protect FTX. The trading company’s loss on this deal was at least in the hundreds of millions of dollars, the people said, and as high as $1bn, according to one of the people, wiping out a large share of Alameda’s 2021 trading profits. [end quote] ...So whomever was on the other side of positions like that. Savvy outsider or well-informed insider? Who knows! Maybe it can be reclaimed, or maybe it's long dispersed down a chain of dozens of crypto exchanges, tumblers, offshore fiat accounts, and so forth. I expect we'll learn a lot more over the next few weeks as the federal case ramps up and the bankruptcy executor delivers more findings.
Panzer04 4y ago
I'd imagine there's a huge problem in that FTX did not declare bankruptcy until the vast majority of their liquid assets had been removed by the bank run. If they had declared bankruptcy before the run, most people might have gotten out with a 50% haircut. Instead, after the run, those left over will get nothing and those who got out will got 100%.
- HWR_14 4y ago
  Those who got out will be told they need to give back 50% (assuming you are right that that is how much was left).
  - TedDoesntTalk 4y ago
    Even non-US customers? How?
    - HWR_14 4y ago
      The US has an excellent record of recovering stolen money from most places you would want to live (and reciprocally of helping other countries)
      - Scoundreller 4y ago
        Maybe I wouldn’t, but at least a billion people live somewhere happily out of US extra-jurisdiction.
        oblio 4y ago
        Do you have a list with those places? Google isn't helping much.
        Cass 4y ago
        I assume they're referring to the over a billion people living in China. Whether China is a place you'd want to live depends entirely on your personal cirumstances, of course.

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nullc 4y ago

If we limit ourselves to depositor funds -- who morally ought to be superior creditors to investors-- I wouldn't be shocked if the recovery percentage was quite a bit larger than that. One thing that made 90% recoveries of Madoff possible were that they first backed out all the fake gains that the customers thought they had but never actually had. This will be harder to do with FTX, but I expect that once all the bogus margin trading on fake assets is backed out we'll find that the losses were far less substantial than the numbers being thrown around.

phphphphp 4y ago
I think that might have been true a year ago but at the time of FTX’s collapse, most market participants were underwater, especially the laypeople. The amount of money in the crypto market is definitely not anywhere near the supposed market cap, but if we look at USDC’s 50bn we can say with reasonable confidence that there’s at least 50bn of USD in the crypto market. If FTX was 10% of the market then 5 billion seems very plausible as a lower bound for the amount of real money value on the exchange (before backing out paper gains). That’s 5bn after people have lost >50% in the last year. There was something like 6bn withdrawn in the days before the collapse and if clawbacks could get most of it, we would at least see 0.40 on the dollar recovered… but I am very very skeptical about that happening, given FTX international was for people outside of US jurisdiction — not impossible to recover but much more difficult. I hope you’re right that it turns out that there’s only, say, 2bn of real money missing, and most people can be made mostly whole… but given the bloodbath of the last year, I fear that there’s probably more real money gone now, rather than less. A lot of people would be absolutely gleeful if you could somehow rollback the last year of trades on FTX.
- nullc 4y ago
  My wild ass guesstimate before learning about the mobilecoin (the signal integrated crypto) apparent fraud would have been 1-2 billion lost, so I guess I should update that to 3 billion lost-- though there is probably reasonable odds on recovering the mobilecoin funds since there were probably only a few people who could have had access to enough mobilecoin to hit a billion worth even at $67/coin. It's quite possible that I'm just being bubbled/hopeful. I don't personally know anyone who lost money in FTX even though I know a lot of cryptocurrency people and I thought it was obviously sketchy from when I first heard of it, so these are probably influencing my perspective on how big it actually was. > If FTX was 10% of the market I'm dubious about 10%. We know in hindsight that FTX was faking their size in multiple respects (including e.g. faking their valuation by MTMing illiquid coins that they created and never circulated) -- probably every claim we've seen about their size based on their own figures was just lies.

this_user 4y ago

People have already looked into this, and the claims on FTX' debt were valued at 5c on the dollar. Alameda has burned through billions, and most of what was left were illiquid shitcoins and other worthless junk. Madoff, at least, was dealing with real assets.

panarky 4y ago
> burned through billions If Alameda lost the billions, then who won the billions? Who was on the other side of those trades?
- sam345 4y ago
  I'd be surprised if you could claw back actual trades on an open arms-length market assuming that's what the FTX exchange was. In Madoff's case, there were no trades at all. Madoff collected the money from his investors, generated fake statements showing inflated fake balances and profitable trades (that never actually occurred) and then selectively doled out limited cash redemptions until everyone demanded their money back at once and the whole thing came crashing down. In SBF's case, it looks like SBF took money from his customers, and then bought or sold crypto in arms-length transactions on an open exchange. If that's the case it's hard to see how they can get the money back from the other side of the trades where his counterparties were buying or selling on the market in good faith. I think the only hope is that if they can somehow get the assets from his affiliated entities and/or reclaim assets that SBF and/or his companies still have control over whether on the block chain or elsewhere.
- ericbarrett 4y ago
  Matt Levine has speculated that a bunch of the money was lost via market-making with insufficient controls (margin enforcement etc.). For example, as reported by the Financial Times (via Levine's Dec. 5 newsletter, "Crypto had a Credit Bubble"): [begin quote] In April 2021, a crypto token called MobileCoin — used for payments in the privacy-focused messaging app Signal — suddenly spiked in price from about $6 to almost $70, before crashing back down again almost as quickly. The wild moves came after a trader on FTX had built an unusually large position in the little-known token. Two people familiar with the matter said that when the price rose, the trader used the position to borrow against it on FTX, potentially a scheme to extract dollars from the exchange. Alameda was forced to step in and assume the trader’s position to protect FTX. The trading company’s loss on this deal was at least in the hundreds of millions of dollars, the people said, and as high as $1bn, according to one of the people, wiping out a large share of Alameda’s 2021 trading profits. [end quote] ...So whomever was on the other side of positions like that. Savvy outsider or well-informed insider? Who knows! Maybe it can be reclaimed, or maybe it's long dispersed down a chain of dozens of crypto exchanges, tumblers, offshore fiat accounts, and so forth. I expect we'll learn a lot more over the next few weeks as the federal case ramps up and the bankruptcy executor delivers more findings.

Panzer04 4y ago

I'd imagine there's a huge problem in that FTX did not declare bankruptcy until the vast majority of their liquid assets had been removed by the bank run. If they had declared bankruptcy before the run, most people might have gotten out with a 50% haircut. Instead, after the run, those left over will get nothing and those who got out will got 100%.

HWR_14 4y ago
Those who got out will be told they need to give back 50% (assuming you are right that that is how much was left).
- TedDoesntTalk 4y ago
  Even non-US customers? How?
  - HWR_14 4y ago
    The US has an excellent record of recovering stolen money from most places you would want to live (and reciprocally of helping other countries)
    - Scoundreller 4y ago
      Maybe I wouldn’t, but at least a billion people live somewhere happily out of US extra-jurisdiction.
      - oblio 4y ago
        Do you have a list with those places? Google isn't helping much.
        Cass 4y ago
        I assume they're referring to the over a billion people living in China. Whether China is a place you'd want to live depends entirely on your personal cirumstances, of course.