Yes, some skepticism is required when considering whether or not Alameda is insolvent (or at risk of becoming insolvent) but the analysis is helpful in highlighting why Alameda might be at risk.
Why do you assume that Alameda isn’t “packed to the gills” with financial gremlins?
If you asked anybody in the space about 3AC or Alameda 12 months ago, you’d have heard the same thing about them: prop trading firms that have been hugely successful investing their own money and thus have billions upon billions of self-generated money to invest. Today, 3AC is gone and we are now discovering Alameda has huge liabilities and (potentially) mostly junk assets.
What’s a bigger leap: Alameda is like 3AC, or that the information we’ve seen so far isn’t representative and actually alameda are doing great?
Any statement a bout their insolvency is a statement about their liabilities, which is just speculation.
~ P.T. Nakamoto
https://www.alameda-research.com/our-team
Whether that is true or not, I don’t know. But from their tweets and podcasts it does seem they approach things very differently and in a way that makes sense.
The CEO worked at Jane Street for less than 18 months and appears to have had a fairly junior role there. I'm sure they are smart folks but there's a limit to how much you can learn in 18 months, in your first job after college.
Sorry if my prior message was confusing, but why would a top tier company let go one of their best performers after just a half and a year out fresh of college?
Wikipedia states: ...he returned there full-time after graduating [in 2014]. In September 2017, Bankman-Fried quit Jane Street...
Seems closer to 3 years, but it doesn't state whether he started there immediately after graduating or not.
What do you suggest are the reasons for his leaving?
> Caroline Ellison, CEO > Before joining Alameda in 2018, Caroline worked at Jane Street as a trader on the equities desk.
You seem to be talking about SBF.
According to who? Themselves?
Fair point, but why do you seem to think you are defending Alameda? Collateralizing loans from fools with your own brand of worthless bullshit is the very definition of a Ponzi scheme.
The average case scenario is some of it is ponzi mixed in with other non ponzi, and in my book I'll call even a "10% ponzi", a ponzi scheme. Maybe you have a different bar to calling something a ponzi, so knock yourself out.
It's not just a problem for the bank, it's threatening to the crypto ecosystem. Just as it would be if the binance tether thing ever implodes
Right now I think that your response isn't any more credible than these other posts.
Ok, this is kind of a fair point, if these loans are collateralized by the assets, then it's the lenders who have a problem. But that does actually mean there's someone out there who is going to get absolutely mugged. It's also a bit of a question who, other than some other SBF entity, would make these loans - who is accepting FTT as collateral? It also means that you need to apply that logic to their assets, meaning their supposed $14.6Bn you probably need to regard around $12Bn minimum to be absolutely worthless.
I would absolutely not say they for sure insolvent, but these numbers do clearly look very worrying.
Can you clarify this? By “they” do you mean this Substack? I didn’t see anything about “otteroo” or Twitter insiders in a quick search of the Substack, but I didn’t exhaustively search the entire backlog.
The formula is this: 1. Create an helpful explainer thread to explain some crisis (ex-post)
2. Start to make vague predictions about relatively easy to predict things (like that Celsius is going to go down, a couple days before it technically goes down).
3. Refer your readers back to your foresightedness
4. Get extremely excited as you receive DMs from people to check out x or y.
5. Lock your eyes on a juicy new company and start to make unfounded claims about said company, referring to a sole rando as a “source” (eg Nexo is insolvent!)
6. Create an expose on your new target, run shoddy analysis based on no actual data, and throw it into a larger conspiratorial framework that starts to implicate other actors.
7. All the while, build a captive audience who doesn’t know the better and eventually use that audience to run ads or to pay for your newsletter.
8. They can run this affinity scam because 1. What they say is not falsifiable, 2. you have an infinite timescale for which to be correct about any one company going bankrupt, 3. there are people out there who are earnestly trying to learn about the market and don’t know who to turn to, and 4. if you’re wrong, you’re not accountable to your actions because there was never any actual money on the line.
There are serious issues in the industry, do not get me wrong. It’s kind of messed up that people who have no connections have to look into the void and decide whether they’re going to trust an internet rando or nobody at all. Disclosures need to be better. But the people writing these sensationalist pieces are part of the problem and not the solution.
I mean, that's the risk you run right?
Either you're a regulated system where you can avoid this kind of thing, or you're an unregulated system where you go 'screw the man', but you don't get the protections that are associated with the traditional financial system.
There's some deep irony about complaining about it; isn't the 'good' thing about crypto?
That's what people keep telling me anyway.
> I mean, that's the risk you run right?
> Either you're a regulated system where you can avoid this kind of thing, or you're an unregulated system where you go 'screw the man', but you don't get the protections that are associated with the traditional financial system.
He does not mean companies operating in the unregulated crypto space. He means the author of articles like this one.
You sound like a Scooby Doo villain. If these companies are not run well, they can be brought down by mere twitter personalities. This is a stress test. Those who are run well, will survive this.
Another analogy: If you build a house out of straw (because you cut corners) should you blame the big bad wolf who can just blow it down?
There you go, some really simple sources of information to counter your misinformation.
It's easily falsifiable by Alameda
No, the risk is to both Alameda and the lender. An undercollateralized loan doesn’t just go away. It’s partially secured and partially unsecured debt.
What does that mean? How collateralization changes Alameda risk?
https://www.investopedia.com/terms/c/collateral.asp
"In the event that the borrower does default, the lender can seize the collateral and sell it, applying the money it gets to the unpaid portion of the loan. The lender can choose to pursue legal action against the borrower to recoup any balance remaining."
The alternative means that anyone and everyone can hide anything they like behind partial information, then declare any suspicions baseless and groundless based on their own hiding of information.
I speak only to this. Whether the linked article did a good job of their analysis I don't know. I'm just saying, the idea that people are not entitled to come to conclusions based on partial information is not valid. The conclusions come to should be hedged and made with the understanding that information is partial, but there is no obligation to not come to them. Otherwise you're obligating yourself to walk naked into almost any old scam you can imagine. This idea doesn't scale out into the real world where people happily abuse this.
If it walks like a duck and quacks like a duck it’s probably a duck. Or a duck robot, or my kid running around with my phone again imitating a duck while watching duck YouTube videos.
Whatever the conclusion, state facts but don’t state conclusions as facts.
And the right thing to do is to jump to the most likely one based on the information available to you (adjusted for the consequences if you're wrong).
In this case, the most likely conclusion appears to be based on the info presented that it may be insolvent, and further, acting as if it is insolvent means you lose on limited upside if you're wrong, but avoid significant downside if you're right.
If Alameda is not a fan of this conclusion and if it's gaining traction in the community they can refute whatever might be wrong in the analysis and if nothing is wrong, provide the additional missing information that will correct the conclusion.
This is what CEOs and CFOs for public companies do everyday. Present their company's thesis to the public and refute analysts' theses where they think they're either wrong and/or don't have sufficient information. Why do you think they take so much time out of their schedules to do interviews on Bloomberg, CNBC, etc.
Alameda doesn't need to go down that route, but that doesn't mean independent analysis with conclusions based on incomplete information is a faulty process.
It’s possible to get scammed by a person that’s telling you that something is a scam. That’s an affinity scam.
I’m not trying to tell you what to think. I’m saying that there are material flaws in the analysis.
Doesn't take a genius to figure out why a hedge fund needs 7B in loans. They aren't a tech giant expanding in a new direction or acquiring competitors. It's pretty clear why a hedge fund needs a massive cash infusion. Also interesting that they collateralize the loans with Tokens majority owned by Alameda and FTX so it's unlikely were they forced to liquidate to pay off their loans that they could get any where near the quoted value of the tokens.
There are plenty of reasons why a trading firm takes loans (it's also possible the FTT is structured as a long, inflating said number)
1. I want to short X, but don't actually have X. I borrow X and sell it.
2. I want to sell X and buy a derivative paying people who are long the derivative. Goto step 2.
3. I want to trade X but don't know how ahead of time, so i need inventory of X in case I want to sell RIGHT NOW. I don't want to actually have exposure to a ton of X, so I borrow it instead. Very common for a market maker like alameda, although there's no way they actually need billions of collateral for market making purposes.
4. I can borrow X, and put it in a defi yield farm for a better rate than what I borrowed it for.
5. I have a ton of Y, and I don't have any plans to use it soon. I put Y up as collateral to borrow X which I can meaningfully trade. This gets you in a lot of trouble when Y values goes down and X doesn't. Say "Four Bullets Investments" has some BTC, they post BTC as collateral to borrow dollars, and use that to buy more BTC. Then BTC goes down a lot - oops!
Not making value judgements on what risks are and aren't entailed here, just pointing out that there are reasons aside from covering losses. 1-3+5 equally apply in tradfi as well.
The really interesting thing, which you touched upon, is to what extent are they collateralising loans with FTT. COllateralising loans with a coin you hold isn't unusual at all, but what's unusual is that the potential FTT collateral size is monstrous compared to realistic available liquidity minus alameda.
Posting BTC is one thing since there are liquid spot markets trading billions a day, not to mention derivatives. But FTT? Good luck liquidation even 10-20MM without moving markets a lot.
1. The entire Coindesk article lacks meaningful substance. For instance, we have zero idea about what those $7.4 billion of “loans” are. It’s really irresponsible to say that they’re insolvent. If you believe, so, you are applying no more rigor to your understanding of the space than the idiots who say HODL YOLO HFSP. If the liabilities are collateralized by assets on their balance sheet, then the financial risk is not to Alameda but the lender!
2. The entire article paints a dire picture based off of their appraisal of the assets. Again, nobody has any idea of what the liabilities truly are, so to speculate that Alameda is insolvent is making an unfounded leap. But the author of the article tries to lead us to believe that it’s an OK leap to make, because their assets are trash! Wrong. It’s lazy, it’s pandering to a certain crowd, and it’s dishonest.
3. Before reflecting on their extremely, extremely short handed analysis, they take their unfounded conclusions further and spin it through a prior framework that they made for Celsius, which is a totally different type of company with a totally different set of liabilities. Alameda does not lend money to retail. The author pulls a sleight of hand by taking one misleading statement, and transforming it before the reader can apply any skepticism to the original misleading statement.
4. Recently there have cropped up a set of anonymous people who purport themselves as insiders only to reveal themselves to be complete completely ignorant about the topic at hand. A lot of unsavory people have recognized there’s a cottage industry in endlessly pounding the table saying that the world is falling and that everything is a scam based off of extremely little public information and no access to any private sources. They are ambulance chasers.
5. Do you have a large contingent of people who just read the headline here, and assume, scam! And apply the pre-existing biases to the entire thing, with nothing insightful to add.
*edited some dictation/autocorrect errors