“we’ll clear out liquidity crunches” - they have everyone’s money if they get more money from someone else.

Giving them the benefit of doubt, this is not a contradiction. The statement means that they have enough illiquid assets to cover the withdrawal that they are working on converting into liquidity.

But they're meant to store the customer assets in a cold wallet. They're not meant to invest them in illiquid assets that would need to be liquidated to give people their money. If it's not a contradiction, it's an intentionally misleading statement to avoid admitting they let Alameda Research invest the money when the entities are supposed to be completely separated.

The extremely charitable read is that

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

In that scenario they could point to some of the wallets to help calm the fears the money isn't available. Or they could approach a number of different lenders who would be comfortable lending at high interest rates if the money is there but slow to access. They only sell if we're in the non-charitable case.

The normal way to handle this would be insurance or a line of credit, not selling your company to your competitor overnight.

They're totally solvent but no one is willing to lend them money?

“Every banker knows that if he has to prove that he is worthy of credit, however good may be his arguments, in fact his credit is gone.”

FTX/Alameda holds tons of illiquid FTT tokens that they cannot sell and which Binance was dumping. Thus, they might have not technically lied. But they were still wrong from the accounting perspective - they surely understood that FTT token cannot be used to cover gaps in large scale.

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.

> Sam owns 8% of Robin Hood that is worth around ~$1B - he could sell that and cover some of the gap.

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.

Free Jon Corzine!

> have you ever seen anything like this happen? A CEO using their personal wealth to cover their customers funds

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.

This isn’t a thing, limited liability (which is the fundamental principle that distinguishes corporations from partnerships) prevents this. The only way would be if SBF was charged with defrauding FTX

That can't happen directly (I think). Mingling breaks the limited liability mantle.

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.)

IMO this would contradict what the GP comment asserts: that SBF said "We don't invest client assets (even in treasuries)".

I thought FTX Alemeda (the trading side) invested into their own token, which is tanking thus causing problems.

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

What do you mean illiquid? Worthless?

Illiquid just means that you can't cash it in quickly.

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.

> 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.

Agreed, but in this case these tokens have suddenly become 'illiquid' because they have just become worthless. It seems that here the term 'illiquid' is being used as a euphemism.

There is a time delta between the statements, assets worth $10B on one day could be worth $5b the next

It’s not a contradiction. It’s easy to have illiquid funds. For example cold storage or locked funds.

But cold storage and locked funds lead to you taking out a loan or just saying "sorry, it's going to be a while, our funds are locked". You know what you don't do if your funds are illiquid? Sell to your competitor over night.