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That's been my impression of SBF since FTX collapsed. Quite book smart, but zero experience in building a major service that custodies billions in other people

That's been my impression of SBF since FTX collapsed. Quite book smart, but zero experience in building a major service that custodies billions in other peoples' money. Raw intelligence is not enough in that context. Ideally you want to have apprenticed for at least a few years at a real exchange or custodial service. Somewhere you learn all the engineering details about how to architect it with proper financial controls, safeguards, and correctness guarantees so that this kind of failure cannot happen, either via human skullduggery, mistakes, or system bugs or security vulnerabilities. Sam never had any of that. He probably got caught up in the moment, implicitly assumed he was smart enough to compensate and not need it, that money is fungible and free-flowing and he can move it around and always make more, etc. And his investors were all finance guys overly impressed with his trading ability and ignorant of the above. This is the unfortunate but unsurprising result.

deleted 3y ago
[deleted]
ants_everywhere 3y ago
> He probably got caught up in the moment, implicitly assumed he was smart enough to compensate and not need it The pop psychology term for this is the Dunning-Kruger effect.
- kuhewa 3y ago
  Not really. The Dunning Kruger effect was that those in the bottom quartile of competency greatly overestimated their own competency. He wasn't incompetent. Just had good old fashion hubris.
  - ants_everywhere 3y ago
    The person I'm responding to was making the case that he was incompetent at his job: > zero experience in building a major service that custodies billions in other peoples' money. This is exactly what the Dunning-Kruger effect describes. He was incompetent at the task he was doing and didn't know enough to be aware of his incompetence.
    - kuhewa 3y ago
      No, it's a specific phenomenon about lack of raw cognitive competence, like for general tasks in life, not lack of experience in a given domain. The point of the DK effect was even with experience, the disparity between ones competence and awareness of ones relative competence doesn't improve. The original paper opens with an anecdote about a bank robber that couldn't believe he was caught because he "wore the juice" — he was under the impression that lemon juice would make his face invisible on camera. What you might be thinking of is the smbc Mt. Stupid diagram [1] which does relate overinflated sense of know-how to a relatively low experience level. That is distinct from the DK effect in important ways. Of course it doesn't help that if you google images for DK effect 19/20 first results will be a bastardisation of the Mt Stupid comic. [1] https://www.smbc-comics.com/comic/2011-12-28 https://www.smbc-comics.com/comic/2011-12-28
      - ants_everywhere 3y ago
        > No, it's a specific phenomenon about lack of raw cognitive competence, like for general tasks in life, not lack of experience in a given domain. T This is a common misconception. Wikipedia has a pretty good write-up. Quoting the first paragraph: > The Dunning–Kruger effect is a cognitive bias in which people with limited competence in a particular domain overestimate their abilities. Some researchers also include the opposite effect for high performers: their tendency to underestimate their skills. In popular culture, the Dunning–Kruger effect is often misunderstood as a claim about general overconfidence of people with low intelligence instead of specific overconfidence of people unskilled at a particular task. The original paper [1] was explicit that this was domain-dependent. > The point of the DK effect was even with experience, the disparity between ones competence and awareness of ones relative competence doesn't improve. I don't think this is consistent with the literature. In the studies I'm familiar with, there is the classic Socrates effect that the people with the most skill are aware of how little they know and tend to underestimate their relative performance. So it improves significantly, but there's a slight over-correction. Quoting the original paper: > improving the skills of participants, and thus increasing their metacognitive competence, helped them recognize the limitations of their abilities. [0] https://en.wikipedia.org/wiki/Dunning%E2%80%93Kruger_effect https://en.wikipedia.org/wiki/Dunning%E2%80%93Kruger_effect [1] https://pubmed.ncbi.nlm.nih.gov/10626367/ https://pubmed.ncbi.nlm.nih.gov/10626367/
Geee 3y ago
It had nothing to do with engineering issues / risk. He was a scammer.
- SkyMarshal 3y ago
  It had to do with lack of internal controls that safeguard the organization and its custodied assets from both employee mistakes and fraud. That's a part of engineering high-assurance high-integrity systems and SOP at big exchanges, banks, and similar orgs.
  - Geee 3y ago
    That's true of course, but every control can be turned off. In this case, they wanted to turn every safeguard off.
  - sarchertech 3y ago
    Yeah but if you want to scam why would you want to engineer the company you are creating to prevent you from scamming.
  - resolutebat 3y ago
    SBF has just been convicted of committing intentional fraud, not just "lack of internal controls". Was it an oversight to use rand() to generate your deposit insurance figures, or add that switch to allow Alameda unlimited rights to dip into the customer fund kitty?
  - deleted 3y ago
    [deleted]
  - vkou 3y ago
    Lack of internal controls will cause some peon that you employ to steal money from you/lose your money. Lack of internal controls isn't the reason for why the CEO and owner of FTX is funneling billions of its customer dollars into a company he owns - Alameda. It's just straight up fraud.
    - 3y ago
chx 3y ago
Maybe the rubes can be exonerated for falling to the incessant hyping of crypto but a smart person should know all crypto is a scam because the Washington Post, the bloody Washington Post told you it's either a Ponzi or a pyramid scheme in 2015. In 2017 you had Preston Byrne challenging that article in that he considered the scam to be significantly different from a Ponzi and gave it a new name, a "Nakamoto scheme" (as an aside, Jorge Stolfi will continue the debate in 2020 where he considers the difference not to be significant and I find his arguments to be rather convincing). But he didn't, not for one second, challenged the fact it is a scam. Attack of the 50 Foot Blockchain came out in July 2017. There's no way to enter the crypto space without mens rea in 2019.
- mathieuh 3y ago
  As someone who’s never been into crypto, the general discourse when I look in crypto-related subreddits suggests that the very fact that mainstream media were calling it a Ponzi scheme is one of the reasons you should invest in crypto. It’s that “one simple trick (what they don’t want you to know)” kind of predatory advertising that seems to be what ensnares people. It’s adjacent to the hustle culture you see on social media where people with gleaming white teeth tell you they’ll make you rich
  - Roark66 3y ago
    As someone who made lots of money on crypto early on, then didn't touch it for many years, made lots of money again and haven't touched it since I can tell you (and others) what is a winning strategy for "investing" in crypto. Consider it a VC investment. First, you gave to either understand the underlying technology, or someone you trust have to understand it sufficiently to be able to say "this is bullshit", or "this is a great novel idea that makes a lot of sense". Then you invest a bit of your really disposable income in it and don't touch it for a couple of years. Eventually you sell once you're happy with the price, or you forget about it and check few years later. Edit: also, it really is down to luck too. An idea might be great, but the people behind it can be scammers. Etc. Crypto is(or was) a very high reward, very high risk game. And for God's sake don't invest your life's savings in crypto!
deleted 3y ago
[deleted]
kuhewa 3y ago
He wouldn't want a bunch of proper engineering because that would prevent him from betting with billions of customers' deposits that were supposed to be safe.
KRAKRISMOTT 3y ago
He was a Jane Street trader, he's not new to high finance.
- SkyMarshal 3y ago
  Trader != exchange engineer.
Kwpolska 3y ago
You don’t need a few years’ apprenticeship at a real exchange or custodial service to know that exchanges are not permitted to gamble with customer money, to spend it on private planes or arena naming rights, or to allow your other company to go into millions of debt.
_fat_santa 3y ago
IMO his downfall was thinking that he was smarter than everyone else. When you think everyone is a rube, you think you can get out of the mess you are in by just explaining yourself, writing a bunch of blog posts and tweets and going on a media blitz. And in the process of doing all of that he just dug the hole he was in 10x deeper.

deleted 3y ago

[deleted]

ants_everywhere 3y ago

> He probably got caught up in the moment, implicitly assumed he was smart enough to compensate and not need it The pop psychology term for this is the Dunning-Kruger effect.

kuhewa 3y ago
Not really. The Dunning Kruger effect was that those in the bottom quartile of competency greatly overestimated their own competency. He wasn't incompetent. Just had good old fashion hubris.
- ants_everywhere 3y ago
  The person I'm responding to was making the case that he was incompetent at his job: > zero experience in building a major service that custodies billions in other peoples' money. This is exactly what the Dunning-Kruger effect describes. He was incompetent at the task he was doing and didn't know enough to be aware of his incompetence.
  - kuhewa 3y ago
    No, it's a specific phenomenon about lack of raw cognitive competence, like for general tasks in life, not lack of experience in a given domain. The point of the DK effect was even with experience, the disparity between ones competence and awareness of ones relative competence doesn't improve. The original paper opens with an anecdote about a bank robber that couldn't believe he was caught because he "wore the juice" — he was under the impression that lemon juice would make his face invisible on camera. What you might be thinking of is the smbc Mt. Stupid diagram [1] which does relate overinflated sense of know-how to a relatively low experience level. That is distinct from the DK effect in important ways. Of course it doesn't help that if you google images for DK effect 19/20 first results will be a bastardisation of the Mt Stupid comic. [1] https://www.smbc-comics.com/comic/2011-12-28 https://www.smbc-comics.com/comic/2011-12-28
    - ants_everywhere 3y ago
      > No, it's a specific phenomenon about lack of raw cognitive competence, like for general tasks in life, not lack of experience in a given domain. T This is a common misconception. Wikipedia has a pretty good write-up. Quoting the first paragraph: > The Dunning–Kruger effect is a cognitive bias in which people with limited competence in a particular domain overestimate their abilities. Some researchers also include the opposite effect for high performers: their tendency to underestimate their skills. In popular culture, the Dunning–Kruger effect is often misunderstood as a claim about general overconfidence of people with low intelligence instead of specific overconfidence of people unskilled at a particular task. The original paper [1] was explicit that this was domain-dependent. > The point of the DK effect was even with experience, the disparity between ones competence and awareness of ones relative competence doesn't improve. I don't think this is consistent with the literature. In the studies I'm familiar with, there is the classic Socrates effect that the people with the most skill are aware of how little they know and tend to underestimate their relative performance. So it improves significantly, but there's a slight over-correction. Quoting the original paper: > improving the skills of participants, and thus increasing their metacognitive competence, helped them recognize the limitations of their abilities. [0] https://en.wikipedia.org/wiki/Dunning%E2%80%93Kruger_effect https://en.wikipedia.org/wiki/Dunning%E2%80%93Kruger_effect [1] https://pubmed.ncbi.nlm.nih.gov/10626367/ https://pubmed.ncbi.nlm.nih.gov/10626367/

Geee 3y ago

It had nothing to do with engineering issues / risk. He was a scammer.

SkyMarshal 3y ago
It had to do with lack of internal controls that safeguard the organization and its custodied assets from both employee mistakes and fraud. That's a part of engineering high-assurance high-integrity systems and SOP at big exchanges, banks, and similar orgs.
- Geee 3y ago
  That's true of course, but every control can be turned off. In this case, they wanted to turn every safeguard off.
- sarchertech 3y ago
  Yeah but if you want to scam why would you want to engineer the company you are creating to prevent you from scamming.
- resolutebat 3y ago
  SBF has just been convicted of committing intentional fraud, not just "lack of internal controls". Was it an oversight to use rand() to generate your deposit insurance figures, or add that switch to allow Alameda unlimited rights to dip into the customer fund kitty?
- deleted 3y ago
  [deleted]
- vkou 3y ago
  Lack of internal controls will cause some peon that you employ to steal money from you/lose your money. Lack of internal controls isn't the reason for why the CEO and owner of FTX is funneling billions of its customer dollars into a company he owns - Alameda. It's just straight up fraud.
  - 3y ago

chx 3y ago

Maybe the rubes can be exonerated for falling to the incessant hyping of crypto but a smart person should know all crypto is a scam because the Washington Post, the bloody Washington Post told you it's either a Ponzi or a pyramid scheme in 2015. In 2017 you had Preston Byrne challenging that article in that he considered the scam to be significantly different from a Ponzi and gave it a new name, a "Nakamoto scheme" (as an aside, Jorge Stolfi will continue the debate in 2020 where he considers the difference not to be significant and I find his arguments to be rather convincing). But he didn't, not for one second, challenged the fact it is a scam. Attack of the 50 Foot Blockchain came out in July 2017. There's no way to enter the crypto space without mens rea in 2019.

mathieuh 3y ago
As someone who’s never been into crypto, the general discourse when I look in crypto-related subreddits suggests that the very fact that mainstream media were calling it a Ponzi scheme is one of the reasons you should invest in crypto. It’s that “one simple trick (what they don’t want you to know)” kind of predatory advertising that seems to be what ensnares people. It’s adjacent to the hustle culture you see on social media where people with gleaming white teeth tell you they’ll make you rich
- Roark66 3y ago
  As someone who made lots of money on crypto early on, then didn't touch it for many years, made lots of money again and haven't touched it since I can tell you (and others) what is a winning strategy for "investing" in crypto. Consider it a VC investment. First, you gave to either understand the underlying technology, or someone you trust have to understand it sufficiently to be able to say "this is bullshit", or "this is a great novel idea that makes a lot of sense". Then you invest a bit of your really disposable income in it and don't touch it for a couple of years. Eventually you sell once you're happy with the price, or you forget about it and check few years later. Edit: also, it really is down to luck too. An idea might be great, but the people behind it can be scammers. Etc. Crypto is(or was) a very high reward, very high risk game. And for God's sake don't invest your life's savings in crypto!

deleted 3y ago

[deleted]

kuhewa 3y ago

He wouldn't want a bunch of proper engineering because that would prevent him from betting with billions of customers' deposits that were supposed to be safe.

KRAKRISMOTT 3y ago

He was a Jane Street trader, he's not new to high finance.

SkyMarshal 3y ago
Trader != exchange engineer.

Kwpolska 3y ago

You don’t need a few years’ apprenticeship at a real exchange or custodial service to know that exchanges are not permitted to gamble with customer money, to spend it on private planes or arena naming rights, or to allow your other company to go into millions of debt.

_fat_santa 3y ago

IMO his downfall was thinking that he was smarter than everyone else. When you think everyone is a rube, you think you can get out of the mess you are in by just explaining yourself, writing a bunch of blog posts and tweets and going on a media blitz. And in the process of doing all of that he just dug the hole he was in 10x deeper.