3 ms·

For 1, I think the obvious answer was that the Fed, thanks to ZIRP, created an environment where investors were clamoring for investment opportunities. This gav

by rcme 4y ago

For 1, I think the obvious answer was that the Fed, thanks to ZIRP, created an environment where investors were clamoring for investment opportunities. This gave high-growth companes, like FTX was on paper, a lot of leverage with the terms of investment.

tyre 4y ago
> like FTX was on paper FTX was high-growth in practice too. FTX was a phenomenal business. It wasn’t like most crypto projects that are scams; their business and profits were genuinely massive. What they did was take consumer funds and loan them out without real collateral. That’s bad and dumb and illegal, but doesn’t change the fact that the growth and economics of FTX were real.
- zaphar 4y ago
  Ahhhh yes, The this was a great business if only they hadn't thrown all the money out the window argument. If a business is throwing money out the window then it doesn't matter how good the rest of the business is. The company is a bad business. FTX was high growth but apparently 0 profit which does not make a business good. Claims that, if only they hadn't been crooks and/or incompetent, this would have been great doesn't change the fact that they were, in fact, either highly incompetent or crooks.
- pclmulqdq 4y ago
  Crypto exchanges, like other platforms, grow because there is capital that wants to trade there. This means that they have the same bootstrapping problem as a competitor to Uber or Facebook. FTX's solution to that problem was Alameda Research, which traded huge volumes on their exchange. That, in turn, made the exchange look big enough to be a serious player, which drove customers and more growth. The "phenomenal" part of FTX's business was the fraud.
carlosdp 4y ago
Yea this is almost certainly the correct answer. I think any founders that raised a round in the last 2 years can easily understand how this happened. Especially to Sequoia, which felt like they were behind in crypto investments (while a16z was getting into all the "big winners"). Lots of pressure to deploy capital, and like the other commentor pointed out, there was a massive a amount of real revenue being made by FTX. That likely also contributed to the lack of scrutiny. Who in their right mind would commit such massive and blatant fraud, when if they simply didn't touch client funds in any weird/illegal way, they would still be an insanely rich billionaire!
- __derek__ 4y ago
  > Especially to Sequoia, which felt like they were behind in crypto investments (while a16z was getting into all the "big winners"). Sequoia had other peers that resisted this temptation, though, so the "blame ZIRP" argument isn't sufficient.
jmyeet 4y ago
VCs have a fiduciary responsibility to their investors (technically, Limited Partners or LPs). Those investors could have a valid cause of action that the VCs were reckless and negligent in how they handled the FTX investment with no oversight.

by rcme 4y ago

tyre 4y ago

> like FTX was on paper FTX was high-growth in practice too. FTX was a phenomenal business. It wasn’t like most crypto projects that are scams; their business and profits were genuinely massive. What they did was take consumer funds and loan them out without real collateral. That’s bad and dumb and illegal, but doesn’t change the fact that the growth and economics of FTX were real.

zaphar 4y ago
Ahhhh yes, The this was a great business if only they hadn't thrown all the money out the window argument. If a business is throwing money out the window then it doesn't matter how good the rest of the business is. The company is a bad business. FTX was high growth but apparently 0 profit which does not make a business good. Claims that, if only they hadn't been crooks and/or incompetent, this would have been great doesn't change the fact that they were, in fact, either highly incompetent or crooks.
pclmulqdq 4y ago
Crypto exchanges, like other platforms, grow because there is capital that wants to trade there. This means that they have the same bootstrapping problem as a competitor to Uber or Facebook. FTX's solution to that problem was Alameda Research, which traded huge volumes on their exchange. That, in turn, made the exchange look big enough to be a serious player, which drove customers and more growth. The "phenomenal" part of FTX's business was the fraud.

carlosdp 4y ago

Yea this is almost certainly the correct answer. I think any founders that raised a round in the last 2 years can easily understand how this happened. Especially to Sequoia, which felt like they were behind in crypto investments (while a16z was getting into all the "big winners"). Lots of pressure to deploy capital, and like the other commentor pointed out, there was a massive a amount of real revenue being made by FTX. That likely also contributed to the lack of scrutiny. Who in their right mind would commit such massive and blatant fraud, when if they simply didn't touch client funds in any weird/illegal way, they would still be an insanely rich billionaire!

__derek__ 4y ago
> Especially to Sequoia, which felt like they were behind in crypto investments (while a16z was getting into all the "big winners"). Sequoia had other peers that resisted this temptation, though, so the "blame ZIRP" argument isn't sufficient.

jmyeet 4y ago

VCs have a fiduciary responsibility to their investors (technically, Limited Partners or LPs). Those investors could have a valid cause of action that the VCs were reckless and negligent in how they handled the FTX investment with no oversight.