4:03 PM · Nov 8, 2022 2) Our teams are working on clearing out the withdrawal backlog as is. This will clear out liquidity crunches; all assets will be covered 1:1. This is one of the main reasons we’ve asked Binance to come in. [1]
has enough to cover all client holdings ---> not enough to cover all client holding in 24 hours. Either they lost a billion or so dollars of client segregated funds in a day down the back of the sofa or it was a lie the whole time.
Literally a contradiction.
1. They have all the funds
2. Many are in cold storage or otherwise inaccessible in short term
3. Their cold storage restore process is so slow they need emergency help to provide liquidity in the meantime
Seems more like that they've either embezzled client funds or been hacked/lost some cold storage keys
It was the question that matters "how fast you can process user withdrawals and with what risk"
Sam owns 8% of Robin Hood that is worth around ~$1B - he could sell that and cover some of the gap. But what we do not know yet is the size of the gap in time and space. FTX had $6B withdrawals pending on Tuesday.
Not knowing too much about this space have you ever seen anything like this happen? A CEO using their personal wealth to cover their customers funds seems unlikely.
No, but I would love to see it happen, enforced by a court, and backed by a promise of jail time if the CEO fails to comply in a timely fashion.
He will have to buy equity or other product from FTX to infuse with cash. And if it is going bankrupt he has to stop running it to preserve the liability "shield" -- details of course depend on the country/state of organization/incorporation. I know nothing about the Bahamas.
Example: Elon for instance infused his own cash into Tesla, when it was going bankrupt. But he practically bought equity to my understanding.
Covering customer accounts is different, in a financial firm. I do not know what tools the Bahamas give to FTX. This is all uncharted territory. (Also there is legal exposure to other countries.)
Alemeda has like $14b assets and $8b in liabilities. But of that $14b, $5b are in their own token (FTT) which is kinda?? worth nothing at this very moment. So now the assets and liabilities are more equally matched, but less margin for shifting values of tokens.
I don’t know, but the derivative of their assets looks scary the last 24hr.
Disclaimer: not a crypto person
Cash is 100% liquid while a house is illiquid you might have millions US$ parked there but only if you manage to sell it, then you convert it into liquid cash.
Liquidity is a measure of how easy it'd be to trade a thing for another thing you want.
It is also very hard to trade worthless things for expensive things you want.
Insolvent institutions like to claim they are illiquid when in reality they are insolvent.
We've seen this happen over and over during the 2008 crisis.
Exchange withdrawals are one to many for btc helping keep size down and most other chains shouldn't have any issues. Don't see how FTX or really any exchange should be bottlenecked by blockchains here.
Right?
https://www.bloomberg.com/news/articles/2022-04-25/sam-bankm...
If FTX wanted protections against a bank run they could also choose to be regulated as a bank.
Cryptocons want us to both treat crypto scams as banks and not banks depending on what suits them in the moment, just like they want us to treat cryptocurrencies as assets or currencies based on what suits their argument in the moment.
All to hide the fact that it’s a mediocre technology which has been surpassed by many other technologies for most of its possible uses and is nothing more than a Ponzi scheme designed to enrich its original backers.
How many bank runs have there been in 2022 in the developed world?
The reason people don't try to pull their money out all at once is because their deposits are insured, because their bank pays into an insurance pool.
The reason people don't try to pull their money out all at once is because their deposits are insured, because their bank pays into an insurance pool.
That wouldn't be a problem for the majority of Americans
It is actually irresponsible to the users (risk management wise) to be keeping all that cash in hand 24/7. The easiest bad case example: are you keeping all your savings under your mattress?
FTX CEO litterally said that in his tweet.
Banks make similar statements all the time -- they require regular audits of assets (stress tests) and maintain some minimum levels of liquidity.
Note: There's a difference between being a custodian of customers' investments (brokerage / commercial banking) versus proactively investing customer deposits (investment banking).
From https://en.wikipedia.org/wiki/Fractional-reserve_banking:
"Fractional-reserve banking predates the existence of governmental monetary authorities"
Real regulated banks have access to the Fed to borrow in a case of a bank run.
Anyone who has more than the insured amount, or anyone who needs their money in the near future will still engage in a run.
There were several runs during the 2008 crisis, the most famous is the run on IndyMac Bank.
Shadow banks don't.
"We never block withdrawls" is the new "We don't crash ever" as seen in the Facebook movie.
If you are in the crypto exchange business you gotta do both actually. Don't crash the website and don't suspend withdrawls ever.
Short dated government bonds would be the safest. But tweet 0 he litterally says they dont do that, they keep the cash under the mattress and you can have it if you stop by. People stopped by and there was no cash under the mattress...
how many of these y'all need before you learn: all crypto is a scam. It never was anything else, it never will be anything else because it can not be anything else.
There's an awful lot of fancy piled on the simple fact that all crypto"currencies" are negative sum games. The only disagreement is whether this is an entirely new type of scam , a "Nakamoto Scheme" or the difference between these and the classic Ponzi are irrelevant like the difference between a CRT and a HDTV and then we are looking at a Ponzi.
> There's an awful lot of fancy piled on the simple fact that all "currencies" are negative sum games.
?
Note how stocks are decidedly not like this because if you undid all stock-money transactions the sum would be positive because of buybacks and dividends.
So what? I cannot see the significance of that. There are many possible measures of value.
> if you undid all transactions then nothing is left -- but with transaction fees their sum is a negative number. But you need to measure this in something.
Yes? So what's the important difference between cryptocurrencies and traditional currencies?
I would like every elected official to have all their income and spending listed on a public ledger.
True accountability of representatives to those they purport to represent will solve so many problems, both in terms of the types of people incentivized to become public servants, and also in terms of public understanding of spending and waste.
All this "crypto" is intellectual warm-up for what is to come, I'd highly suggest looking at rollups (what I would describe as ledgers within ledgers) which are delving into the true possibilities of next-to-zero cost of immutable transaction records.
They are not a scam, but they are almost completely useless
>I would like every elected official to have all their income and spending listed on a public ledger.
A public ledger is not necessarily a decentralised ledger. This could be accomplished by any bank account controlled by a US politician to send the payments made to a US goverment controlled webapp that's then publicly accessible (by FOI request, if necessary). No blockchain, no decentralised woo needed. What you have stated is a POLTICIAL problem, and those require POLITICAL solutions. No new or speculative technology, of any sort, is needed to accomplish the problem statement.
The "as is" worries me here
There’s a reason the FDIC exists and all banks must be insured.
Decentralized finance is built on chain where all assets are publicly auditable at all times.
EDIT: parent comment talked about decentralized finance, then edited to remove mentions of defi
i.e. an attempt to remove bad actors who deal in decentralized cryptocurrencies from the purity that is defi.
What are some large, successful defi organizations today?
> What are some large, successful defi organizations today?
In my opinion, if there is an organization behind it then it is, by definition, not decentralized. Yes, even the ones that operate fully on-chain.
So defi is only 100% decentralized everything, even if the financial tools are decentralized? That feels like an appeal to purity if ever there were one.
I realize I’m on the fringe a bit with this but I think it’s not because I have an extreme idea of what defi is, it’s that there have been so many grifters in the last 5 or so years that have used the buzzword “defi” to sell their shitty reincarnation of long-outlawed shady centralized financial schemes as something revolutionary that it’s shifted the public perception of the term. I’d even agree with you that it’s an appeal to purity.
And I came to the conclusion that SBF is a crook and the whole crypto space is build on thin air.
Beside, It's more the remembering of the unfolding of the Subprime crisis and the financial books I read back then that raised the red flag.
[insert coconut meme.gif here]
Insofar as you can call US Finance any better than crypto, it's because of socialized losses. IMO, bank failures are a much more appropriate solution.
The empirical rate of bank failure in the last couple decades has been slightly over 1 in 250 banks per year (that is, ~0.4%/bank/year, or "40 basis points"). This is from these two sources: https://www.fdic.gov/bank/historical/bank/ says that on average 27.3 banks per year have failed, while https://banks.data.fdic.gov/explore/historical?displayFields... says that there have been ~6500 banks covered. (I think that the probability of a massive bank failure is in fact higher than the empirical rate, due to the tail risk of catastrophic failures.)
I have not been able to find what rates JP Morgan Chase pays for their deposit insurance, but I think this page https://www.fdic.gov/deposit/insurance/historical.html suggests that the rate is between 1.5 and 40 basis points per year. Some other sources I've found do suggest that the average rate is around 5 bps/year.
Already we see that the empirical failure rate is higher than the assessment rate. (Although note that the probability was not weighted by dollars, whereas the rate is.) This is perhaps surprising, because the FDIC claims that "The FDIC receives no Congressional appropriations - it is funded by premiums that banks and savings associations pay for deposit insurance coverage." https://www.fdic.gov/about/what-we-do/index.html Perhaps this is part of the point of this comment I am replying to.
But indeed, we find that historically the FDIC's Deposit Insurance Fund has gone negative multiple times: https://www.aba.com/news-research/research-analysis/fdic-cap... https://www.fdic.gov/deposit/insurance/assuringconfidence.pd... Historically, in such a situation, the FDIC is able to borrow from the federal government. It has done so in 1990, while in 2008 it did other maneuvers that similarly show that the rate is insufficient.
As a result, it's plausible to predict: (a) the deposit insurance fund might go negative again (ie, the insurance rate is incorrect), (b) the deposit insurance fund will definitely go negative in a situation like the S&L crisis or the 2008 financial crisis (thus requiring tricks like the borrowing mentioned above), and (c) in the event of a more catastrophic failure, the insurance fund will go so far negative that it might be explicitly bailed out by the broader federal government.
Am I crazy or would 5 basis points be 0.05 cents (1/100th of a percent)
They stopped processing withdrawals according to on chain data.[0]
[0]: https://www.theblock.co/post/184176/ftx-appears-to-have-stop...
If you look at the comments on https://news.ycombinator.com/item?id=33518961 that article missed that FTX uses multiple addresses for withdrawals.
>Our teams are working on clearing out the withdrawal backlog as is. This will clear out liquidity crunches; all assets will be covered 1:1. This is one of the main reasons we’ve asked Binance to come in. It may take a bit to settle etc.
https://www.coindesk.com/business/2022/11/08/ftxs-bitcoin-ba...
https://twitter.com/lizrhoffman/status/1590021299295768578
He / his people didnt call me, but I would have passed anyway
We know that was false when it was said, given the Alameda balance sheet. (FTX invested in Alameda which made risky loans to crypto folks and bought FTT, which FTX minted [1].)
[1] https://www.coindesk.com/business/2022/11/02/divisions-in-sa...
Alameda invested in FTT which is minted by FTX which is not the same thing.
FTX issued FTT to Alameda. We have no idea what Alameda gave them as collateral, but it's clear it wasn't cash. Lending is a form of investing.
Also, FTX minted FTT out of nothing - effective cost zero - so no matter what they received in exchange, even if they had received nothing that is not an investment unless they received Alameda equity. I agree that lending is a form of investment but nothing says that they received a loan in exchange.
You could still be right, but it's all speculation :)
FTT spiraled and FTX went insolvent.
FTX U.S. is fine. To the degree Americans are hurt, it's investors in the international entity. If anyone deserves regulatory scrutiny, it's the institutional investors betting fiduciary assets on crypto.
> Cash and cash equivalents refers to the line item on the balance sheet that reports the value of a company's assets that are cash or can be converted into cash immediately.
> Cash equivalents include bank accounts and marketable securities such as commercial paper and short-term government bonds.
> Cash equivalents should have maturities of three months or less.
Don't know specifics on FTX/Alameda but this is probably normal to a degree for banks/brokers or just any regular business?
They don't "invest" client assets, not even in treasuries, ie actual investments.
They "speculate" client assets, in tokens.
> Why was there a liquidity crunch in the first place? A crypto exchange is a weird sort of business, in many ways more like a brokerage than a traditional exchange.
> A lot of FTX’s business is in perpetual futures, a leveraged product, sometimes levered 20 to 1. If you are an exchange and you are in this sort of business, you will need to come up with the extra $100 to lend to your customer. Presumably that doesn’t come from your equity: You are doing some sort of borrowing, perhaps from other customers, [2] perhaps from outside financing sources, perhaps from your affiliated hedge fund, etc. You will have some customers who owe you money, and others whom you owe money. You will be like a bank. If everyone to whom you owe money demands their money back at once, you will need to get the money back from the ones who owe you money, which might be hard. (You might not have a contractual right to demand the money back right away, or it might be rude and bad for business, or you might have to liquidate them to get the money back and that would blow up the value of your collateral.) In broad strokes this is a reasonable description of what happened to Bear Stearns, a brokerage that financed its customers’ positions.
[2] (footnote in original article): Effectively a perpetual future involves you borrowing from and lending to your customer in offsetting ways: If the price goes up, you owe money to the long and the short owes money to you. If the short doesn’t pay you, then you still owe money to the long.
He then says the purpose of the transaction with Binance is to "clear out the liquidity crunches". [1]
How could there be a liquidity crunch if assets are not invested? You can't do a bank run on an entity that doesn't function as a bank and doesn't invest clients assets... Something is shifty.
[0] https://twitter.com/sbf_ftx/status/1589598285798707202
[1] https://twitter.com/sbf_ftx/status/1590012126701441025