7 ms·

Magic beans, Bahamian penthouses, old-fashioned fraud and other important SBF-in

102 points by _qzu4 4y ago

chollida1 4y ago
> In crypto it is common for one exchange to do all of these things, to run the exchange that matches trades and also the website that takes customer orders and also the bank that lends customers money and also the market maker that buys what customers are selling and sells what they’re buying. One thing, well there are thousands, but one thing traditional finance does far better than crypto as the above quote points out, is separation of duties. Exchanges, allow for trading. Clearing houses handle settlement. Back offices/prime brokers handle custody of assets and margin allocation for those that want to trade on margin Government and self regulating agencies handle compliance and oversite. This means that when there is a failure at one of these, the rest go on mostly unaffected. FTX was handling trading, settlement, holding of customer funds, margin allocation/loans and regulation. So when FTX failed/was found out as a fraud, the entire thing went belly up. Crypto will get there with separation, its considered a best practice, but it takes time for people to realize why traditional finance is structured the way it is. The one retort you may come up with is that the major sell side institutions do alot of these, but you'll also be aware that they are very securely firewalled away from each other. Some sell side institutions own their own trading venues, but they are ran as arms length separate companies. When Lehman went bankrupt no one who primed with them lost their shares held by Lehman as those were firewalled away from Lehman's trading business and Lehman couldn't touch them to cover its own losses. In each collapse we learn new lessons. In this latest crypto crash we learned a few things: 1) that you can't give unsecured loans to even the most blue chip of names( 3AC in this case) as everyone can go bankrupt, defi has seemed to learn this lesson and weathered the storm well 2) everyone was essentially doing the same trade, either piling into USDT's 20% farming premium or in the case of sell side institutions like Celsius, just lending out customer deposits to the big hedge funds. And when those trades stopped working, everyone lost their money at the same time and tried to recall their loans at the same time. 3) Exchange tokens are garbage. They have value as long as the exchange is going well, but as soon as the exchange has even the tiniest bit of trouble, they go to zero. And every exchange will have troubles at some point, even if they are well run and in no way fraudulent. Exchange tokens, not even once. 4) Crypto is big enough to be called its own asset class now. That's great, but just like traditional finance's asset classes, there is no such thing as diversification in a single asset class when the entire asset class is going down. or put another way. You can't have a portfolio of crypto only holdings and say you are diversified as there is no such thing in a bear market. You need to diversify across multiple asset classes if you want to preserve wealth
- ChadNauseam 4y ago
  > One thing, well there are thousands, but one thing traditional finance does far better than crypto as the above quote points out, is separation of duties. From the perspective of most technical people in crypto, FTX was traditional finance. Traditional finance doesn’t run on-chain, and you have to trust the people running it. See FTX and Coinbase for an example. In opposition to traditional finance is decentralized finance. Decentralized finance is implemented via smart contracts and cannot steal your money. See uniswap for an example. There’s a gray area in the middle with things like Tether, USDC, and rollups like zkSync where the creators have a privileged key that allows them to steal all the money deposited into it.
  - chollida1 4y ago
    Great point. I see your point but I'm having a hard time figuring out how Tether is anyway different from FTX? Both require trusting someone else and both have off chain components to how they work, it seems like a distinction without a difference here. Can you add more colour as to how those are different because I can easily see how they are very similar? I think the difference between traditional finance and FTX is the oversite piece and the separation of duties piece. Traditional finance places a large roll on oversite and compliance to the point where people complain about all the rules and regulations that have been built up to protect people, and to be fair to allow government oversite. FTX had no oversite and therefor its hard to lump it into traditional finance as compliance and oversite are bedrock must have pieces of traditional finance. Also as was my main point, traditional finance requires separation of duties, given that FTX had none of these, its very hard to call it traditional finance without destroying the meaning of the term or watering it down so much that its meaningless.
    - dzdt 4y ago
      > how Tether is anyway different from FTX So far there is only evidence that Tether has mis-appropriated SOME of the money it claims to be holding, whereas FTX lost basically ALL of the money. As long as you are optimistic on the "SOME" fraction being small in comparison to the gigantic size of Tether, you can hope that Tether is still a low risk for losing your value.
4ndrewl 4y ago
The original Magic Beans were magical!
- fbdab103 4y ago
  And ended with a burglar murdering the homeowner.
  - daveguy 4y ago
    Interesting take. From the "Jack and the Beanstalk" entry about the story at Wikipedia: """Outwitting the giant, Jack is able to retrieve many goods once stolen from his family, including a bag of gold, an enchanted goose that lays golden eggs and a magic golden harp that plays and sings by itself. Jack then escapes by chopping down the beanstalk."""
    - fbdab103 4y ago
      I am unfamiliar with that version. The rendition I recall was that the giant otherwise had no interaction with the surface world until Jack appeared.
      - ffssffss 4y ago
        Check out the "Moral perspectives" section: https://en.wikipedia.org/wiki/Jack_and_the_Beanstalk https://en.wikipedia.org/wiki/Jack_and_the_Beanstalk I think you're both right, the 1807 version published by Tabart added the moral justification for the killing of the giant which is still common today. But the story may originate in pre-history oral tradition, where it's anyone's guess whether or not Jack is a remorseless violent thief.
    - addingnumbers 4y ago
      That's all from the 1807 moralized version, the 1734 version doesn't have any golden eggs, goose, or harp. In the older version the giant swings a sword at him and dies himself instead by the protection of a magic ring Jack found on the way up. Then the giant's human servants appoint him king of the castle.
ashergill 4y ago
http://archive.today/93oq5 http://archive.today/93oq5
neonate 4y ago
http://web.archive.org/web/20221231143414/https://www.bloomberg.com/features/2022-the-crypto-story-FTX-collapse-matt-levine/ http://web.archive.org/web/20221231143414/https://www.bloomb...
dieselgate 4y ago
I’m doing an annual play through of ocarina of time right now so magic beans mean something a bit different… munch munch…!

102 points by _qzu4 4y ago

> In crypto it is common for one exchange to do all of these things, to run the exchange that matches trades and also the website that takes customer orders and also the bank that lends customers money and also the market maker that buys what customers are selling and sells what they’re buying. One thing, well there are thousands, but one thing traditional finance does far better than crypto as the above quote points out, is separation of duties. Exchanges, allow for trading. Clearing houses handle settlement. Back offices/prime brokers handle custody of assets and margin allocation for those that want to trade on margin Government and self regulating agencies handle compliance and oversite. This means that when there is a failure at one of these, the rest go on mostly unaffected. FTX was handling trading, settlement, holding of customer funds, margin allocation/loans and regulation. So when FTX failed/was found out as a fraud, the entire thing went belly up. Crypto will get there with separation, its considered a best practice, but it takes time for people to realize why traditional finance is structured the way it is. The one retort you may come up with is that the major sell side institutions do alot of these, but you'll also be aware that they are very securely firewalled away from each other. Some sell side institutions own their own trading venues, but they are ran as arms length separate companies. When Lehman went bankrupt no one who primed with them lost their shares held by Lehman as those were firewalled away from Lehman's trading business and Lehman couldn't touch them to cover its own losses. In each collapse we learn new lessons. In this latest crypto crash we learned a few things: 1) that you can't give unsecured loans to even the most blue chip of names( 3AC in this case) as everyone can go bankrupt, defi has seemed to learn this lesson and weathered the storm well 2) everyone was essentially doing the same trade, either piling into USDT's 20% farming premium or in the case of sell side institutions like Celsius, just lending out customer deposits to the big hedge funds. And when those trades stopped working, everyone lost their money at the same time and tried to recall their loans at the same time. 3) Exchange tokens are garbage. They have value as long as the exchange is going well, but as soon as the exchange has even the tiniest bit of trouble, they go to zero. And every exchange will have troubles at some point, even if they are well run and in no way fraudulent. Exchange tokens, not even once. 4) Crypto is big enough to be called its own asset class now. That's great, but just like traditional finance's asset classes, there is no such thing as diversification in a single asset class when the entire asset class is going down. or put another way. You can't have a portfolio of crypto only holdings and say you are diversified as there is no such thing in a bear market. You need to diversify across multiple asset classes if you want to preserve wealth

ChadNauseam 4y ago
> One thing, well there are thousands, but one thing traditional finance does far better than crypto as the above quote points out, is separation of duties. From the perspective of most technical people in crypto, FTX was traditional finance. Traditional finance doesn’t run on-chain, and you have to trust the people running it. See FTX and Coinbase for an example. In opposition to traditional finance is decentralized finance. Decentralized finance is implemented via smart contracts and cannot steal your money. See uniswap for an example. There’s a gray area in the middle with things like Tether, USDC, and rollups like zkSync where the creators have a privileged key that allows them to steal all the money deposited into it.
- chollida1 4y ago
  Great point. I see your point but I'm having a hard time figuring out how Tether is anyway different from FTX? Both require trusting someone else and both have off chain components to how they work, it seems like a distinction without a difference here. Can you add more colour as to how those are different because I can easily see how they are very similar? I think the difference between traditional finance and FTX is the oversite piece and the separation of duties piece. Traditional finance places a large roll on oversite and compliance to the point where people complain about all the rules and regulations that have been built up to protect people, and to be fair to allow government oversite. FTX had no oversite and therefor its hard to lump it into traditional finance as compliance and oversite are bedrock must have pieces of traditional finance. Also as was my main point, traditional finance requires separation of duties, given that FTX had none of these, its very hard to call it traditional finance without destroying the meaning of the term or watering it down so much that its meaningless.
  - dzdt 4y ago
    > how Tether is anyway different from FTX So far there is only evidence that Tether has mis-appropriated SOME of the money it claims to be holding, whereas FTX lost basically ALL of the money. As long as you are optimistic on the "SOME" fraction being small in comparison to the gigantic size of Tether, you can hope that Tether is still a low risk for losing your value.

4ndrewl 4y ago

The original Magic Beans were magical!

fbdab103 4y ago
And ended with a burglar murdering the homeowner.
- daveguy 4y ago
  Interesting take. From the "Jack and the Beanstalk" entry about the story at Wikipedia: """Outwitting the giant, Jack is able to retrieve many goods once stolen from his family, including a bag of gold, an enchanted goose that lays golden eggs and a magic golden harp that plays and sings by itself. Jack then escapes by chopping down the beanstalk."""
  - fbdab103 4y ago
    I am unfamiliar with that version. The rendition I recall was that the giant otherwise had no interaction with the surface world until Jack appeared.
    - ffssffss 4y ago
      Check out the "Moral perspectives" section: https://en.wikipedia.org/wiki/Jack_and_the_Beanstalk https://en.wikipedia.org/wiki/Jack_and_the_Beanstalk I think you're both right, the 1807 version published by Tabart added the moral justification for the killing of the giant which is still common today. But the story may originate in pre-history oral tradition, where it's anyone's guess whether or not Jack is a remorseless violent thief.
  - addingnumbers 4y ago
    That's all from the 1807 moralized version, the 1734 version doesn't have any golden eggs, goose, or harp. In the older version the giant swings a sword at him and dies himself instead by the protection of a magic ring Jack found on the way up. Then the giant's human servants appoint him king of the castle.

ashergill 4y ago

http://archive.today/93oq5 http://archive.today/93oq5

neonate 4y ago

http://web.archive.org/web/20221231143414/https://www.bloomberg.com/features/2022-the-crypto-story-FTX-collapse-matt-levine/ http://web.archive.org/web/20221231143414/https://www.bloomb...

dieselgate 4y ago

I’m doing an annual play through of ocarina of time right now so magic beans mean something a bit different… munch munch…!