Isn't FTT like FTX's own issuing tokens? It's like printing one's own money. But when the backing firm fails, the printed money is worthless, just like what LUNA issued by Terra had become.

It only matters if FTX was using FTT as a collateral for accounting purposes for a valuation that is not realistic considering the liquididty of a position size.

And of course they were, what else would they keep it pumped up for.

Yeah. I can't be bothered to verify, but i remember that Binance has a huge double-digit percentage of all FTT tokens in circulation. Dumping all of them would crash the tokens value. And since this is FTX's own token, they would hurt a lot, maybe even terminally.

Just went over the issues on the balance sheet of Alameda Research, which is SBF's trading company.

Of the $14.6 billion assets Alameda manages, almost $6 billion is FTT based. Alameda has heavy investment in Solana, Serum, and other alt-coins. It looks like the drop in their value has lowered Alameda's asset balance. Alameda borrowed FTT tokens from FTX to put them as assets in the balance sheet. The size of the asset balance is probably used to obtain loans and liquidity.

FTX issues FTT tokens (print money) => lends to Alameda to put under the asset balance => Alameda borrows money from outside against its assets or uses the asset/coins to invest in others => win with thin air!

The crashing of the FTT token not only tanked FTX, it's going to tank Alameda Research as well since its asset balance suddenly shrunk and might have liquidity problem.

The tanking of Alameda is going to another Three Arrow Capital event since Alameda invests in lots of other cryptos. It might be forced to liquidated those investments. Expect another bloodbath in the crypto space.

> The size of the asset balance is probably used to obtain loans and liquidity.

1) Lenders don’t care about the liability side?

2) How does “liquidity” differ from “loans” here? That is, when would they do this to achieve one but not the other?

1. We don't know what the lending basis for FTT from FTX vs the claimed value of FTT on Alameda's book. FTX lent FTT at $10 to Alameda and then FTT inflated to $50 would mean Alameda has $50 asset vs $10 liability.

It's reported that Alameda Research has $14.6 billion in assets and $8 billion in liabilities. Some claim that Alameda's assets are "entirely illiquid." Nobody knows how bad things are. The only thing is that FTX has stopped the withdraws.

2. Loans for long term and liquidity for short term? Like overnight lending.

Edit: add more info.

1) What is that replying to? I was asking why the borrowed FTT would make them more capable of getting loans if it came with a corresponding liability. That would only make sense if lenders didn't care about the liability balance sheet, which is ... non standard.

Edit: That is, you said the "size of the asset balance" is used to obtain loans. That makes it sound like merely increasing assets -- even if they come with liabilities, makes them more capable of getting loans.

There are DeFi protocols where you can lock-up crypto assets (eg FTT) and use those locked assets as collateral to borrow another crypto asset (eg ETH). That all happens "on chain" and there is no way for the protocol to know if there are corresponding balance sheet liabilities.

I don't know what the OP was referring to, and I don't know if this is what they were doing, but something like this could happen.

Right, but those are generally going to be on worse terms than you can get in a negotiated loan from someone who knows your entire business. So it doesn’t make much sense to negotiate an FTT loan and then use that as collateral for a less-informed loan from a smart contract.

It would be like getting a personal loan from a bank, buying jewelry with it, and then using the jewelry to get a pawn loan — a dubious strategy, since the terms on the first loan are going to be much better.

> FTX issues FTT tokens (print money) => lends to Alameda to put under the asset balance => Alameda borrows money from outside against its assets or uses the asset/coins to invest in others => win with thin air!

The Federal Reserve issues US dollars (print money) => US Treasury borrows money from The Federal Reserve, Japan, China and the UK against its assets or uses the asset/coins to invest in others => win with thin air!

Yeah but the US can destroy you diplomatically, militarily, and economically if you try anything funny.

Of course! That's why it's so important for the US to encourage the use of the USD on a global basis, and also spend billions on the US Navy.

> The Federal Reserve issues US dollars (print money) => US Treasury borrows money from The Federal Reserve, Japan, China and the UK against its assets or uses the asset/coins to invest in others => win with thin air!

Win with the largest military in the world and all tangible assets and influence the US has.

This is actually... extremely apt. It is commonly referred to technically as the dollars exhorbitant privilege. It would seem FTX managed to exploit this phenomenon on a micro scale. Until it didn't of course lol

Ultimately the fiscal operations of the U.S. government are backed by the total assets of the U.S. (public and private), which are far larger.

> Of the $14.6 billion assets Alameda manages, almost $6 billion is FTT based.

When that info was seemingly accidentally revealed, the spicy little nugget in there that made people sit up & notice was that the entire market cap of FTT tokens was well below the reported asset value of the tokens on the balance sheet.

Do keep in mind that there's a difference between liquidity and insolvency.

Some more background: the companies were engaged in fighting over regulations, and on a personal basis between the 2 CEOs. It went down to really childish levels at some point.

But one thing is undeniable: SBF (FTX CEO) was trying to weaponize US regulation against his biggest rival CZ (Binance CEO). CZ retaliated by selling the FTT token, exposed the fact FTX was over-leveraged, and took over.

This is, as the kids on Twitter say, the embodiment of the old "F#$k around, find out".

Along the way every FTX client who couldn't withdraw, and every crypto user losing value got screwed - but why should these 2 characters care? The space just became more centralized, and whatever smidge of trust was left after the Celsius debacle has evaporated.

I'm glad a big government supporter such as SBF is out of crypto leadership. Crypto is an anarchist experiment and it should remain that way

Why not both? Centralized where people trust, decentralized where people don't trust. In my interpretation, the Bitcoin white paper states that BTC is an answer to _the lack of regulation_ that allowed the fat cats to abuse the money supplies. It's kind of ironic, but to see crypto as purely anarchistic is to ignore that it is essentially _democratized_ money. Both: I use exchanges as well as cold storage.

I never understood. Where's the democracy here, exactly? A regular user cannot afford to participate in the decision making of the system in any meaningful way. In fact, today, most users don't even directly use it, instead relying on processors such as Coinbase. The "not your keys, not your coins" meme exists due to this. The original paper described a democratic system where people voted with their processors, but failed to take into account that people with more processors get more votes. I find it hard to argue that the system as it currently exists is more democratic than the currency emitted by the central bank of your country.

Arguably a lot of discussion is open to anyone (Bitcoin mailing list, Core github repo), where anyone is free to post their opinion on topics themselves.

It is not democratic as in "you have a vote to force others to comply to the majority", but more a democratic in "you can try to convince enough people that the major chain becomes how you like it, while the others run a minority fork".

People think "where the money goes, is where the miners go", but the blocksize wars showed that "where the users go, is where the miners go". Miners themselves don't decide on bitcoin rules, users do.

So I personally think that bitcoin is not necessarily democratic, but still highly people/community vs money driven.

This is a terrifying definition of democracy, "you don't get a vote but there is an informal and non-binding channel to lodge complaints."

That's not democratic at all!

Democracy can be defined as a popularity contest; democracy does not = good. When I and others say "democratized money", it's not to say it is identical to the definition of democracy as it pertains to a populous voting 1 person 1 vote. More like "money that is not controlled by a single source but rather as large a group as cares to participate who also have access to and knowledge of the tech".

Additionaly it's also different as in "the majority does not change my rules", they can be wrong in the long run and my rules become majority again.

When people say democratized anything, it comes across as meaningless marketing speak. I don't mean the traditional non-political use of the word (i.e., simply making something easily accessible to a lot of people).

It's basically trying to claim some good, without having to quantify or justify that in any way.

The US dollar is ultimately controlled by democratic institutions even if you don't count individuals using it as having any control. Therefore it is democratized money by the same vague handwaving.

> "you have a vote to force others to comply to the majority"

is less terrifying to you?

What you're arguing for is "you have a vote (well you don't, but people much richer than you do) to force others to comply to a very small minority", how is that better than majority rule?

Well there are no votes, so you can't force anyone to run anything. You run what you like and hope others do as well. As I said miners follow users, not companies.

i urge you to compare this to any presently-existing monetary system or software project

It might not be "democratic", to me personally it seems fair as you are not forced to run the rules that are imposed by others. It might not be the wise decision, but the market will decide on the "better" rules.

Do you think the 'market' can decide anything if people aren't playing by the 'rules' in the first place? The free market model does not account for widespread fraud.

> "you can try to convince enough people that the major chain becomes how you like it, while the others run a minority fork".

FWIW, that is also true for fiat. You can become an economist, or a journalist, or a politician, or a pundit, and try to convince your country to do economics differently. It's a tall order, but it's been known to succeed. If this seems harder than the equivalent for blockchains, it's only because cryptocurrencies have much fewer users, so your voice seems more powerful.

Good point. I think the subtle difference is that the traditional political democracy coerces the minority to use the system how they like it (ofc. not everywhere, maybe more on the money/legal tender side of things), whereas with Bitcoin there is no coercion by the majority. The majority would accept one set of currency, while others might use another, however markets will probably always decide on a winner when it comes to currency, which could feel as if you are "forced". Definitely a nuanced topic.

I can send Putin an email. If I'm sufficiently convincing he might decide to call off his illegal invasion of Ukraine. That doesn't change the nature of his autocracy.

I don't know if this is comparable.

Even if UN would finally vote to deem the invasion illegal (note: it apparently is not by the democratic votes of the UN), it probably wouldn't be stopped either.

I think comparing real world war scenarios with how consensus is found in decentralized open source protocols is a bit intellectually dishonest

well, honestly speaking, Bitcoin community looks to be committed to preserve 21million as max supply. That's a big promise and I love it.

> Where's the democracy here, exactly?

One dollar, one vote, just like the neofeudalists think the Founding Fathers intended.

> I find it hard to argue that the system as it currently exists is more democratic than the currency emitted by the central bank of your country.

Significantly less, as the central bank is usually at least accountable to the democratically elected government of the country.

> Crypto is an anarchist experiment

And, like every anarchist experiment before it, it failed. It continues to draw in new suckers every day, and that is a problem for society.

It doesn't matter if you didn't cause the problem. Because you live in that society, you still have to pay the cost to fix it or continue to take the losses from the problem existing.

It's the same with slavery, not educating blacks, and then not employing blacks in America. I had nothing to do with it. My family had nothing to do with it. But because I live in America, I have to either pay the cost to fix the problem or pay the ongoing cost of crime that the problem produces. Taking on the cost of problems others created is the cost of living in society, just as benefiting from the value that others create is the benefit of living in society.

The time to regulate crypto and cut our future losses was yesterday.

Every anarchist experiment failed?

The Internet's still around, buddy.

The Internet was created by DARPA and while it got a little wild in the 90s, neither its origins or current form in any way resemble anarchy.

Just because "The Internet"'s _mainstream_ may not resemble anarchy, this doesn't prohibit other parts to resemble anarchy. In fact there are a lot of examples active and thriving "on the Internet" fulfilling various definitions of anarchy.

Or it's infrastructure, or design, or all the corporate committees involved in managing it. Care to give counter examples?

p2p crypto trading, p2p mesh networking, self-hosting a website on some open-source hardware...

It's a protocol that's literally not centrally controlled. It's the definition of anarchy. Not "cosmetic anarchy."

The thing created by a US Government agency at the height of the Cold War is your example of anarchist success story?

Yes, because I'm not talking about "how it came into existence," I'm using the actual textbook definition of the word.

There is a LOT of -archy overhead to the Internet.

Sure, but I think that still fits a common definition of anarchy. The idea isn't "chaos," it's "hey, the thing still works even though there isn't a clear hierarchy."

Just because you don't see it doesn't mean it isn't there. That's like arguing "schools are anarchy, I see no hierarchy on the playground over there"

The Internet whose addresses are handed out by IANA? That Internet? Or are you talking about Web3 scamware?

>But because I live in America, I have to either pay the cost to fix the problem or pay the ongoing cost of crime that the problem produces.

The "crime" the problem produces allow a lot of white men to put their kids through college, fooling themselves into thinking they are stopping "bad guys".

If you dont keep them busy, they would create far more crime than you think black folk do. They might even start storming the White House.

To be fair to anarchists, it extremely often failed because of outside forces being violent towards them. Nothing in anarchy is inherently doomed to failure, and is a better demonstration of democracy than anything we have currently. (Because if there's anything an anarchist loves more than voting, it's one more voting round).

Calling cryptocurrencies "anarchist" is walking on the corpse of actual anarchists and taking a big, steaming shit on them. Anarcho-capitalists have nothing to do with anarchy and are just kids whose bedtime reading was, regrettably, Ayn Rand.

I guess people think Mad Max rather than "everything is run by tiny councils" when they think about anarchists.

Anarchy is defined as absence of government and authority, with unlimited personal freedom as a consequence. This is fine if you're living alone, but in groups, you have unbounded externalities. Tiny councils are tiny governments.

If you let your own ignorance define anarchy, sure.

Anarchists simply want every single thing to be voted on by the people, whether through referendum or randomly picked representatives. Anarchists agree that there should be governing bodies (merely that they shouldn't be the ones we have right now, and that they should be more representative and prevent the formation of a political class) and that authority should also be granted by these governing bodies _and_ revokable by the same. Hence, there is nothing an anarchist loves more than voting. It does not prevent living in groups, just that there are no leaders in that group.

By saying it is defined as an absence of government and authority, you're either thinking of ancaps (which are a bad right wing joke made up of said Ayn Rand readers), or dogshit propaganda fed to you. Read a bit.

> Read a bit.

Reading a bit:

1 a : absence of government

2 a : absence or denial of any authority or established order

Merriam Webster

Redefining anarchy to mean democratic government is a new one.

Last I checked, the Zapatistas are still around.

The FLDS cult is still around too and for about twice as long. Its mere existence doesn't make it a successful experiment.

Then you should clearly define "success". So far as I can tell, the Zapatistas did succeed in building the society that they wanted and kept it going for several decades now. Are you claiming that they aren't meaningfully anarchist?

Rest assured that the regulations are coming because the crypto simply did a speed-run of unregulated securities market and repeated every fraud or scam that the traditional markets went through over the history.

In the process, huge fortunes were created and libertarians were empowered(but not enough to be the main political power). Congrats to them but there's nothing anarchist left in crypto, they even end up consolidated and centralised. No interesting business models or financing came out of it except for ransomware.

The silver linings might be that the crypto regulations can be made with the current technology and globalisation in mind, hopefully.

Exactly, it's bizarre to read about the wildcat banking era in the US and why the Fed was created while simultaneously looking around at the rate of mainstream crypto scams and institutional failures nowadays.

The Fed sure isn't without its issues, but it was created to solve the exact problems that we're now seeing proliferate via the crypto space.

I don't think this is correct.

The FED was created in 1913 for a very specific reason - to counter the Panic of 1907 by creating a banker of last resort.

It did nothing to curb the banker speculation that led to the panic of 1907

Witness LTCM, Web bubble, Subprime crisis, all fueled by banks willing to lend and overextend themselves beyond margin. The 1913 ACT did not change that one bit except make the speculators never "lose"

The FED did nothing to resolve speculation, if anything, bubbles are worse and now they are worldwide thanks to them and their low rates.

in my town in the 19th and early 20th centuries there were numerous bak runs where local people were wiped out. we collectively decided to take steps to make that much much less likely to happen

> Witness LTCM, Web bubble, Subprime crisis, all fueled by banks willing to lend and overextend themselves beyond margin.

This was addressed under Glass Steagall by creating the FDIC and ushering in the fractional banking system, which kept commercial and investment banking separate and imposing liquidity requirements and a review system on banks. This legislation was later repealed during the Clinton administration and was largely seen as one of the key mistakes that led to the 2008 crisis.

That doesn't mean that the Fed is failure now and should be completely done away with. The runs we're seeing on crypto exchanges are very similar to what the Fed was created to avoid.

> This legislation was later repealed during the Clinton administration

Repealed by congress which was controlled by GOP at that time.

Regulations are coming? On a fully public ledger?

You understand that BTC, ETH, and every derivative non-privacy-coin is exactly what the regulators have been salivating for, right? Why regulate a non-repudiable chain-of-custody that mathematically proves your serfs'/slaves' assets that you can seize at will?

> libertarians were empowered(but not enough to be the main political power).

You should re-examine the GOP, particularly the tickets on today's ballots. This ain't your grandfather's GOP.

It’s always amusing to see crypto people claiming that mathematics can’t be regulated. Just like they can’t regulate chemistry, right?

Well, actually it’s always the peoples behavior that is regulated. Obviously no one can stop you mixing chemicals in private but they can totally tell you what you can and can’t do in public with it. The same thing goes for crypto, you can calculate block hash all you want but they can intervene if you engage in a business deal with someone else.

Oh and regulation doesn’t mean ban, necessarily. It means rules on how you deal with it so that the risk of unwanted consequences is reduced. You can expect to have rules on how you keep the money if you run a stablecoin for example.

Didn’t the US regulate use of a Bitcoin mixer this year? There are more reporting requirements for US citizens and entities.

Regulations aren't exclusive to the US.

Many parts of the world e.g. Australia are heavily regulated in the financial sector and will not be looking to water them down just because its 'crypto'.

> the crypto simply did a speed-run of unregulated securities market and repeated every fraud or scam that the traditional markets went through over the history.

I think the whole endeavor may end up strengthening the traditional economy - crypto space repeating centuries of fraud in a decade is effectively a booster shot - suddenly it's obvious why all those laws ended up in the books in the first place.

> and libertarians were empowered(but not enough to be the main political power)

In a sense, they've discovered a novel way of attempting to gain power - I don't think many people expected someone could wish a parallel economy into being and leverage that to for political gain.

That experiment already failed to be honest.

Cryptocurrencies were prophesized to get rid of banks. Instead exchanges reinvented banks with all the drawbacks and none of the benefits.

Cryptocurrencies were supposed to be in wide circulation just like USD, eliminating the need for fiat on/off ramps. Instead we got these centralized corporations and endless KYC/AML surveillance with none of the regulation and government backing.

Real cryptocurrency is what you have in your wallet. How many of us hold our own coins? Pretty much everyone keeps "their" coins at the exchange...

Only about 10% (2M) of bitcoin are on exchanges: https://www.coinglass.com/Balance

You also have to take the ~4M estimated coins with lost keys into account.

If these stats are correct we closer to 15%. Which is a lot. I would have expected 0.1%.

It could be less, but it's not that much. People say often that "most" coins are held on exchanges, which is far from true.

> If these stats are correct we closer to 15%. Which is a lot. I would have expected 0.1%.

That was never going to happen, too much institutional money and index funds have been super focused on trading rather than the tech, and their are ETFs that have paper BTC that can move the price at will, just as much as if a whale decides to do so--it wouldn't even take MicroStrategy's stash, it could just be Laszlo wanting to get some stuff out of cold storage and clear a couple days because the tx fee is low.

Also most of those HFT bots need to have liquidity on hand so this is part of the system, what is noteable is how little it takes to move the market these days: less than a 500 coin sell off on an exchange like Bitfinex gave us >$1000 swings. Which if you trade is what you want as volatility is where the money is made.

MTGOX taught us very early to never trust exchanges and this was after the capital controls in Cypus that made us all on edge at the time, and yet it took multiple GOXXINGS to learn (the last one still hasn't been resolved and the Japanese govt has been dragging it's feet for nearly a decade now). People who buy and keep them on exchanges are going to have to learn why self-ownership is a critical part of this ecosystem.

People may have lost untold millions/billions having sloppy OPSEC when handling BTC, but so did Turing [0] and he did it for the same reasons we have just so it's clear and goes to show how it's not a fringe idea to have self-sovereignty over one's finances, especially in uncertain times like war (and in his case peace time as they castrated for being gay despite his efforts in breaking the U-boat cryptography) and I doubt you will doubt his genius in cryptography: proving it's just as common for the super genius as it is from the layman.

This is why we have always encouraged doing small sums until you can replicate the process and then transfer the whole amount with several contingencies in place should anything happen. It's not easy or perfect, but neither is physics and we can still have re-usable first stage rockets when it was thought to be impossible.

0: https://www.iflscience.com/alan-turing-buried-his-life-savin...

No need to keep bitcoin on exchange when you can speculate on futures with far more liquidity and leverage on BitMex...er, FTX....er, Binance.

No, there's still Monero and ZCash. And most holders do have their own non-custodial wallets. Or at least wallet seeds from intermediaries like MetaMask.

The speculative frenzy with FedCoins like BTC and ETH will obviously fall to baseline, but the true use case for cryptocurrency still exists.

The coins have failed because the exchanges failed and people use them incorrectly. Got it.

The coins have failed at the moment because prices have crashed. No one was complaining about coins failing when prices were soaring.

I guess I needed a /sarc tag. The coins aren't failing. And I'd disagree that the success or failure of a cryptocurrencies isn't directly correlated with "price".

No one who was holding coins was paying attention to anyone who was telling them that the coins had failed. Do you remember 'have fun staying poor'? It was used to shut up anyone who said anything critical.

The coins failed because exchanges shouldn't even have been created in the first place. Bitcoin should have been as easy to use and ubiquitous as the US dollar. As we all know, cryptocurrency turned into stocks instead.

If not exchanges, what entity would you suggest as a way to change crypto into fiat?

Using the most successful fiat currency the world has ever known as a goal seems a bit lofty. In your view, how much time should it have taken to have been successful?

That's my point. There should never have been any need to exchange crypto into fiat. Bitcoin should have been as ubiquitous as USD. Everyone using it, pricing things in it, transacting with it, holding at least some amount of it. Exchanging for fiat should have been as easy as getting change from a store.

Like Athena, it should have been birthed as a full adult wearing armor.

"too soon to say"

> Crypto is an anarchist experiment and it should remain that way

What exactly makes it remain that way?

I don't say this as a cheap "gotcha": what's the governance structure that makes it an anarchist experiment, specifically, and not just a free-for-all?

Nothing. And that is the problem with anarchism. For some, the lack of a centralized power structure is the goal. For others, it's an opportunity.

Ha! One massive feudal lord just crushed another and all the serfs lost their money. This isn’t anarchy, it’s a monopoly

I wouldn't be so sure. The monopolist had a $100,000,000 theft last month, [1] after a $1 billion dollar loss from LUNA in the summer. [2]

[1] https://www.nytimes.com/2022/10/07/business/binance-hack.htm...

[2] https://decrypt.co/100530/binance-ceo-says-exchange-never-so...

But still, they’ve consolidated themselves in the monopoly money system, so the monopoly money they lost doesn’t matter if they control the board

> a big government supporter such as SBF

A supporter or another crook LARPing as pro-regulation because it makes some people ignore red-flags?

Constantly braying about the "the law" is part of the the main act of the highest profile scammer claiming to have created Bitcoin.

Fact is that saying a lot of vague "pro regulation" things doesn't likely subject you to any additional regulatory scrutiny, it's a free move even when you are waste deep in the cookie jar. But some people are going to notice it and consider it evidence that you're all above board.

> Constantly braying about the "the law" is part of the the main act of the highest profile scammer claiming to have created Bitcoin.

Whom are you alluding to?

Craig Wright. It's refreshing to encounter someone who hasn't seen that scammers circus.

In the latest season we find Wright trying to steal literally billions of dollars worth of Bitcoin while constantly yelling that everyone who doesn't support him is a criminal. If he weren't financially ruining people with vexatious litigation it would all be pretty funny.

An anarchist experiment that plays into capitalism's worst instincts and rapidly encountered "please give the money back to the rich people" when the first big ETH theft was pulled off.

Anarchism should be about dismantling hierarchies. Crypto has further entrenched owners against the rest.

> whatever smidge of trust

Turns out the "trustless" in crypto means "you can't trust anyone".

Also turns out that "decentralized" in practice means "centralized"

Nobody forces you to use Binance or FTX. I have been using Bitcoin for 10 years and I've always stored more 90% of my BTC in my own self-custody wallet, only used exchanges briefly.

What have you been "using" Bitcoin for, may I ask?

- Long term "Savings account" - a volatile one, of course - I buy stuff from online with it, household items (In country I live you can basically buy anything with BTC) - Travel, I book hotels/flight with it and once I rented a boat for a family trip

In addition to that I now and then try to pay with Bitcoins at other stores. Last time got excited about boltcards (https://github.com/boltcard/boltcard) there are few places in my country which accept it, but it is quite a new thing.

What country is that, if you don't mind sharing? It's the first time I hear this

I suspect one whose own banking system is on par with BTC risk-wise. (Apologies to gp if that was clueless, it just comes to mind first.)

You may not ;)

Buying MDMA safely. This isn't a joke. Drug prohibition causes harm, crypto provides a much safer way to obtain psychedelics. If all your purchases are safe for the state to be aware of, good for you.

It seems insane to me people would buy/sell drugs in a prohibition nation on a public ledger.

For whatever it's worth, the federal authorities have very little budget/mandate to prosecute darknet drug distribution offenses. They go after the darknet markets themselves, money laundering / sanctions avoidance and maybe firearms.

Meanwhile the local authorities don't know what most of those words mean.

Monero

Centralization is more efficient than consensus building.

This is true. Don't know why people are down voting you. But it calls into question why we need centralized exchanges of decentralized assets. The answer, of course, is financial speculation and sophisticated shell games that make some folks billionaires at the cost of the marks who get suckered into believing they're getting in the ground floor of the next big thing.

Only if the central entity can be trusted not to become a corrupt rent seeker.

(Looks meaningfully at TicketMaster)

I agree with this as well. Efficiency is orthogonal to desirable outcomes.

My point is that things tend towards centralization because the market rewards efficiency.

in which part of this discussion has anyone talked about something decentralized? This is about two centralized exchanges that hold custody of users cryptoassets

Future is decentralized. Even CZ knows this :)

Dexes like uniswap have been doing just fine

So few people understand this. But, don't worry. Great inventions need some time to be realized.

Can you name off the top of your head 5 great inventions that weren't immediately realized?

Notably, the internet was widely thought to be a fad for the first ~20 years.

Notably, according to crypto evangelists. No one thought the internet was a fad. It had a time when it was novel and therefore people who didn't know how to use it would make fun of it, but absolutely no one who used it thought it was a 'fad'. As soon as the first web browser became accessible to consumers the dot com era exploded. There is a difference between 'didn't hit mass adoption due to massive infrastructure needing to be built in real time' and 'we don't know what this is useful for'.

> No one thought the internet was a fad.

Wrong.

[0] 1995 Wired Magazine "Most things that succeed don’t require retraining 250 million people."

[1] 1995 NewsWeek "The Internet is a fad" https://www.peterlundell.com/the-internet-is-a-fad/

[2] 2000 Daily Mail "Internet may be just a passing fad as millions give up on it." https://regia-marinho.medium.com/internet-may-be-just-a-pass...

etc. etc.

Anyone who was a nerd in the 80s and early 90s knows that we spent the better part of two decades being told that the internet was no more revolutionary than fax machines and that most people would never use it.

Some op-ed pieces and getting mocked by people for being a nerd do not demonstrate to me a fundamental disagreement about the usefulness of the internet amongst people who understood what it was. Ignorance is annoying, but it is easily remedied by exposure and knowledge.

Contrast this with a cryptocurrency technologies, which are completely understood at this point and still lack legit real-world use at scale beyond speculation and yet it is constantly claimed that 'it just takes time for brilliant technology to find a use case'.

As far as I can recall, this has never been the case in the modern world -- every paradigm changing technology has had an immediate and obvious application where it greatly surpassed anything before it, regardless of if it took years or decades to build infrastructure and educate people on how to use it.

I suppose it depends on how you're defining the first year of the internet, but I don't remember many people thinking it was a fad. I'd say it's the one invention in my life that has actually lived up to the hype.

I’m not saying whatever that is is a great invention but

Alternating current… Computers… Smartphones… The internet…

I think you are mistaking 'waiting for technology/infrastructure to mature enough to make them accessible to everyone' with 'technology that people don't know how to do something useful with'.

Does anyone both use these and correctly report their taxes? The accounting seems like a pain.

Cointracker and Koinly both support tax reporting on swaps and liquidity providing on uniswap and many other dexes.

Oh absolutely. I would never not let the government take a slice of my hard earned money.

You mean “let the government prevent inflation”.

(If everyone pays income taxes, noone’s relative purchasing power is reduced by paying them, because you have the same % of the money supply. More or less.)

Except they are unusuable most of the time due the hogh transaction fees.

This is true for Eth, but there are many chains where DeFi exchange transaction fees are a rounding error

...yeah. That's literally the most popular slogan from the start.

"Don't trust. Verify."

Let's avoid generic flamewar tangents please, regardless of which side one's on.

https://news.ycombinator.com/newsguidelines.html

We detached this subthread from https://news.ycombinator.com/item?id=33522825.

For those not up to date on crypto people, SBF is Sam Bankman-Fried [1] and CZ is Changpeng Zhao. I don't know why they insist on being called by their initials like they're some sort of ticker symbol.

[1] https://en.wikipedia.org/wiki/Sam_Bankman-Fried

[2] https://en.wikipedia.org/wiki/Changpeng_Zhao

It’s common in many internet circles to refer to prominent people by their initials. Hackerdom has a long tradition of this: rms gls esr jwz et al. It also tends to happen in US federal politics for some reason (jfk rfk gwb fdr et al) but not to everyone.

There's a little bit of cargo-culting with the practice: I thought CZ was short for the Czech Republic. The only reason I know "SBF" is because the New Yorker obliged him in that William MacAskill piece.

Good point. Though I thought the reason was that early hackers went by their usernames, and UNIX usernames were limited to 8 characters, so they had to abbreviate.

At least the political ones (some) came about for clarification (JFK and RFK are both Kennedies, GWB is to distinguish from "Bush"). Others come from their names being long or hard to remember/pronounce/spell (I suspect this is what happened with AOC).

The Robert Caro books about Lyndon B Johnson detail his effort to force meme “LBJ” as a reference to him.

(Mostly in terms of insisting various communications employees use it in press releases and what not).

It seems he liked the iconography of it, especially in putting himself in similar company to FDR.

Both his daughters have the LBJ initials, his wife is mostly known as Lady Bird Johnson (a nickname that predates their relationship, but is not her given name)

OT: Are those books worth reading? I loved the Power Broker but the LBJ books are a whole lot to get through.

Short answer, yes.

Longer answer - from my prospective - I enjoyed the first book Path to Power the most, which revolves around LBJs early life up to becoming a US Representative. I thought it was very on par with the Power Broker. That an the Power Broker would probably be my first recommendation to an ambitious college kid who wants to know the real Politik of how the world works.

The next book Means of Assent was my least favorite of Caro’s books, but still highly enjoyable.

Master of the Senate and Passage of Power are both great. But sort of specific to LBJs spot in life. Great, but I’m not sure they sparked my thinking quite the way the Power Broker and Path to Power did.

Maybe.

The books are designed to be standalone-ish, so later volumes spend a fair bit of time repeating things from earlier books. Caro goes deep, deep into various shady acts and new scandals which were probably shocking and relevant in 1982 but less so four decades later.

Caro also touches on a lot of the same topics as The Power Broker, and the picture he paints of LBJ ends up sounding quite a lot like Robert Moses. Is it because all powerful men inevitably end up as bullying psychopaths, or does Caro have something of an axe to grind? 50/50, maybe.

Can't forget pg and sama

Fun crossover: IKE, internet key exchange had a proposed successor JFK

Who are "et" and "al"? /s

FDR went by FDR because those were his initials and ehh, people do that sometimes. Have enough presidents and sooner or later you'll get a president who does it. JFK and LBJ did it as conscious homages to FDR. There is a book "In The Shadow of FDR" about post-WW2 US politics that mentions this.

DPR fans?

Because they think the people they're most similar to are respected old-school hackers (rms, jwz, etc.) instead of carnival hucksters like P. T. Barnum.

i can just imagine jwz squirming at the idea of this and it is way too funny...

If they were imitating the older style they would use lowercase

P. T. Barnum doesn't deserve the bad reputation. See eg https://news.ycombinator.com/item?id=310056

Because Bankman-Fried is a mouthful/typeful to say every time, and Changpeng is a big, non-western name, and Zhao too common by itself.

Source: me referring to one of them in conversation a lot with no incentive to kowtow to his preferred branding.

Maybe: Crypto is full of acronyms, token tickers are a great example and apropos here --> their names have been "tokenized"...?

Ownership of personhood as documented by holding an NFT.

You've been reading the DID spec.

Which is basically an energy-wasting form of the Blue Checkmark?

With the proof of stake release for Eth, is this point still valid?

Bitcoin is still energy intensive, but that has nothing to do with NFTs.

Not even that, because that'd be a web of trust, like PGP or Keybase.

You see the same thing with Middle East Leaders - MBS, MBZ, etc.

When the names are even semi-complex and the reach is global, people default to acronyms.

Pedantic nit:

Those are initialisms. An initialism is when the individual letters are individually pronounced, like "emm-bee-ess."

An acronym is when the initial letters are pronounced as a word, e.g. SOAR ("Situation Options Act Review-and-Reassess")

The broader sense of acronym—the meaning of which includes terms pronounced as letters—is sometimes criticized, but it is the term's original meaning[1] and is in common use.Dictionary and style-guide editors are not in universal agreement on the naming for such abbreviations, and it is a matter of some dispute whether the term acronym can be legitimately applied to abbreviations which are not pronounced "as words", nor do these language authorities agree on the correct use of spacing, casing, and punctuation.

[1] https://www.oed.com/viewdictionaryentry/Entry/1844;jsessioni...).

If there's one thing I really dislike about HN culture, it's the consistent derailing of a thread to "um, actually" someone on a semantics distinction that literally nobody has ever been confused by, or to shoehorn in new terminology that doesn't improve communication in any way.

Agreed

I enjoyed reading the diversion. I don't think it derailed anything, except perhaps for your reply.

> literally nobody has ever been confused by

um, actually...

Some of the most interesting things I've read have been digressions from the main point. Your observation is a case in point: We're now talking about HN culture instead of wild times in the crypto economy. Is this a derailment? Or a digression?

It all depends upon whether people perceive it to be something that "gratifies one's intellectual curiosity," a line right from the guidelines. In your case, the difference between initialisms and acronyms (if any, see another reply) does not, and I accept that. Sorry!

Also AOC, MLK, FDR, and JFK!

With the exception that people like MBS, MBZ, AOC, etc. are objectively much more well known.

They go by acronyms on social media, namely twitter, the main place people interact with them

https://twitter.com/cz_binance

https://twitter.com/SBF_FTX

CZ is Czechia though

It will get it's acronym back shortly.

Unless it turns out that Changpeng is of the Habsburgs. Then we will have a serious clash in Europe again.

He doesn't have the chin...

pretty much everyone is a descendant of franz joseph

The acronyms are very twitter friendly.

And over-leveraged, for a brokerage, is a major problem. A brokerage is not a bank, and account-holders are not earning interest. Therefore if you are taking their funds and doing something else with them (a pre-requisite for insolvency, unless you are hacked) is a major red flag for illegality.

> It went down to really childish levels at some point.

Childish bullshit in the cryptocurrency market?!??! I am absolutely shocked and surprised, such a thing is completely unprecedented...

No flamewar please.

https://news.ycombinator.com/newsguidelines.html

Why are people trying to make up their own stories without the reason of how CZ was trying to sell FTT?

Alameda's balance sheet was already looking wrong in the first place.

https://www.coindesk.com/business/2022/11/02/divisions-in-sa...

Binance continues to amaze.

Does anyone even know where it operates out of these days?

The fabric of the internet.

They said they’d announce it shortly in July (https://decrypt.co/105376/where-is-binance-hq-ceo-cz-says-co...). Since then, nothing

They got regulatory approval to operate in Dubai and have offices there, so maybe there (https://www.coindesk.com/policy/2022/09/20/binance-secures-l...)

There is a pool of capital that pays people working for them onchain. They can also do fiat via local subsidiaries, and local contracts for compliance and litigation.

It's almost like it doesn't matter.

For accountability, it barely matters. For financial products they offer, it also barely matters. Most jurisdictions are too small to say anything and all their customers can circumvent any geo-restriction. They have distinct subsidiaries in major markets like USA.

They have a lot of positions open at their Singapore and Hong Kong... offices?

The majority of stablecoins are a scam.

I earned $1,200 from Gemini's stablecoin GUSD's interest last year. Withdrew the extra and bought some nice pendant lights for my new kitchen.

I understand many did well with Bitconnect too...

Not a stablecoin. Bitconnect is my favorite crypto scam so far! It was so obviously a scam, and the bros promoting it were even dumber than that shitcoin.

A lot of crypto projects can appear scammy because a handful of people are working on something and their token goes through the roof then crashes with no wrongdoing on the part of the project. Invest in projects, not coins!

Okay, random non sequitur

This isnt a thread about stablecoins

FTT is not a stablecoin

> smells like Binance played 4D chess all along

It's not really "4D chess" to screw over your competitor to corner the market.

That's like, business 101.

Business 101 is buy low, sell high.

Winning an evenly matched game of prisoner's dilemma with billions at stake is about as close to 4D chess there is.

Buy low esteem, sell high esteem - the concept comes from Hetty Green (long ago billionaire.)

I'm not too familiar but can you elaborate on how the screwing happened.

CZ tweeted "Oh shit, FTX is basically insolvent, we're gonna have to dump all our FTT magic beans!" or words to that effect.

Then, when FTX predictably tanked, he stepped in and generously offered to buy out FTX.

Same thing Soros did to the Bank of England's fake pound.

Typically you don't expect Bank of America and Chase to do this to each other.

...anymore.

Porsche and Volkswagen did.

Market manipulation is not exactly business 101.

I'm not sure this is market manipulation?

Depends on the intention I guess. They might have been genuinely worried that the token was going to crash and also didn't trust the counterparty to be able to pay for it. In this case it would have been a genuinely legitimate transaction.

But if dumping the whole stock was done with the intention, even partial, to crash the price, then it seems to me that it would be manipulation. Of course crypto is unregulated, so it wouldn't be illegal.

That sounds like 1D chess.

This doesn’t sound like very complicated chess. Sounds like those Hong Kong TV shows I watched when I was 13

Having lived in Hong Kong and watched some of these old shows, I concur.

Please share!

Please share these TV shows so we can all watch them and learn.

The seminal HK show about the stock market would be The Greed of Man (大時代) [1]. It's 30 years old, but classic scenes in it are still used in memes even today.

[1] https://www.imdb.com/title/tt0843185/

I don't even know where to begin looking for this. I have zero ability to read chinese, although I can understand it verbally :P

> FTX asked Binance to sell them the tokens for a fixed price, so as not to crash the FTT token price.

Why would Binance decline this opportunity? If FTX, Binance, and the market knew FTT would just crash, it sounds like a given that Binance should take advantage of the fixed price instead of losing hundreds of millions of dollars "letting the market decide".

Because they wanted to create a liquidity crisis in FTX that would force FTX to sell itself for a discount?

Presumably, it is more appealing to Binance to kill their largest competitor than it is to realize a return on a minority investment.

It depends on the fixed price offered by FTX.

If FTX could pay the current market price, then they could have absorbed whatever Binance sold on the open market.

They probably offered a deep discount.

Or maybe they offered to buy it later (when?) at a price fixed today - discounted or not. If they don’t have liquidity (why?) they cannot buy it on the market.

Illiquid means you can't sell your position without lowering the price significantly.

It could be that you need time to sell, or it could be that no one is stupid enough to buy it.

The former can be fixed with a temporary loan, the latter in bankruptcy court.

As discussed extensively elsewhere an “exchange” shouldn’t be in the business of having illiquid positions in the first place.

But here we are, and I’m not sure if FTX was offering to buy with some favorable terms regarding the time of settlement in addition to a discount. They could have bought on the open market at the discounted price but they apparently didn’t…

> Why would Binance decline this opportunity?

Given what happened, it's unclear FTX ever had the funds with which to buy Binance's FTT.

> Binance was threatening to dump a huge amount of FTT tokens on the market. FTX has a big+vulnerable position in FTT. FTX asked Binance to sell them the tokens for a fixed price, so as not to crash the FTT token price. Binance declined

This makes absolutely no sense and is not how markets work. If FTX was actually willing to buy unlimited FTT at a given price, Binance could not have "crashed the price" by selling below that price — somebody would simply have bought at the Binance price and sold to FTT at their price.

What seems more likely is that FTX extended that offer only to a small portion of the tokens that Binance wanted to sell (to maintain the fiction of their price).

My assumption when reading the quote was that it would be an off-market transaction.

Similar to how stocks can be traded in Dark Pools outside of the regular stock market.

Their point is that if you have the money to buy $1.1B of something off market, you should also have the money to buy $1.1B of something on market. Any time someone posts an ask at or below $22, you simply fill the order.

beyond the fact that the dynamics of saying "we'll take everything at a certain price up to $1.1B" will likely lead to much more than that showing up on the market and leading to a price crash anyways... I imagine that an off market transaction can involve things like not sending $1.1B in cash to the other person the same day.

If you have enough assets, everything can show up, and you just buy them out.

It's describing an arbitrage opportunity. If person A wants to buy something for $5.00, and person B will only sell for $1.00, I stand to make $4.00 per unit by simply being a middleman for the transaction. Private or public markets, the arbitrage opportunity remains the same.

FTX was not actually willing to buy, they are suffering from reduced capital position so they were bluffing

> reduced capital position

Sounds like a euphemism to me.

Alternatively FTX was confident they could make the purchase given time, but did not have the funds on hand.

Moreover, you are assuming no one else decides to sell based… one could argue publicizing their plans was meant to encourage just that…

I think what happened is that the probably wanted to buy it with their balance sheet rather than $$ which explains why this is a liquidity crisis. Say they have a $2bn in value (crypto, company assets, etc...); they can't place market orders to buy the FTT on the open-market; but they can make an off-market deal with Binance to swap these assets.

I think maybe FTX just doesn't have the money and their bluff was called

Another problem is the bank run that this narrative created.

FTX should never been in this position. They are an exchange. Nobody should be able to obliterate them by playing around with their crypto.

Hard agree. While Binance prompted the downfall, FTX created all the conditions for it by playing fast and loose with its clients' money.

They are an exchange that allows future trading and margin trading which require borrowing money/assets/coins. The FTT tokens were probably put up as collateral for loans. The drop of the FTT value probably triggers call on those loans. Thus the liquidity crisis.

that makes FTX a "shadow bank", not merely an exchange.

It makes them a brokerage, doesn’t it? Not a shadow bank.

It's worse than "shadow bank". It's bank who is allowed to print money at its whims and create any arbitrary leverage it wants.

Well, that's what the 'shadow' in 'shadow bank' means: less/different regulation than a normal bank.

That's not necessarily a bad thing, btw.

Where's the "bank" in this "shadow bank"? You're describing a casino with a money printer.

"Shadow banks" aren't necessarily "banks". See https://en.wikipedia.org/wiki/Shadow_banking_system

> The shadow banking system is a term for the collection of non-bank financial intermediaries (NBFIs) that provide services similar to traditional commercial banks but outside normal banking regulations.[1] Examples of NBFIs include insurance firms, pawn shops, cashier's check issuers, check cashing locations, payday lending, currency exchanges, and microloan organizations.[2][3] The phrase "shadow banking" is regarded by some as pejorative, and the term "market-based finance" has been proposed as an alternative.[4]

You're moving the goalposts a bit there

The phrase already existed. If there was no more to it than you could immediately guess from the words, then it would be a useless term.

What would you say a non shadow bank is? "Money printing" is "just" a reserve ratio near or less than 0.

It shouldn't work this way. Customer funds should be segregated from whatever prop trading the rest of the business is doing.

The only way this happens is if the prop trading business is over-leveraged somehow and the exchange bailed it out with FTT.

Customer deposits should meet liabilities 1:1. If they don't, somebody is lying.

> Customer deposits should meet liabilities 1:1. If they don't, somebody is lying.

That’s not how banking works. You hold illiquid assets. Sometimes they move in price. If they move enough in price you’re insolvent. Limiting bank runs is a genuinely hard problem.

Exchanges aren't banks, and crypto exchanges especially shouldn't be banks. Crypto is liquid and can be redeemed in its own denomination instantly if you hold it in a simple wallet. That's what exchanges should be doing. They shouldn't be doing fractional reserve banking, and a run shouldn't be possible. Preventing runs on a crypto exchange is exceedingly easy if the operators aren't taking risks with client funds.

Well, it seems the word 'exchange' in this case is used with a different meaning when applied to FTX than the meaning you have in mind.

Which is exactly the problem.

This should be illegal, and people who do this should go to jail.

Customer funds should be 1 to 1 backed with assets.

As long as noone is being lied to, I don't see any problems.

Case A, tell your customers that their funds have asset backing, and have asset backing: fine.

Case B: tell your customers that their funds have no asset backing, and have no asset backing: fine. (Those customers deserve what they get.)

Case C: tell your customers nothing, and do whatever you feel like: fine. (Those customers deserve what they get.)

Case D: tell your customers that their funds have asset back, and have no asset backing: bad.

Except none of these 4 cases happened with FTX.

SBF claimed that assets WERE backed, while it appears that they were not.

That would be case D, wouldn't it be?

Assets backed with lies and cryptobullshit. At least someone has had a learning opportunity.

> As long as noone is being lied to

That is exactly what is happening. There is lots of lies being told, with no transparency, and then people's money disappears.

Instead of that, if people money disappears, we should arrest the people who made it disappear.

No argument from me there. I was just narrowly addressing the point in stale2002's comment.

Though to be honest, it is well known that the long term fate of any crypto exchange is to go bust. So no one could really claim that they didn't know it was coming.

Crypto is glorified gambling. (At least so far. In principle, crypto can mature over time into something more serious.)

I don't think it can, because all those serious things already exist and require the kinds of governance that the crypto promise rails against.

In theory the eventual steady state of crypto is a fully debugged and tested perfect software system that is not exploitable.

B and C are perfectly fair game for a government to attempt to prevent, regulate, and prosecute in my book.

I don't think anyone has an inherent right to take advantage of people's ignorance solely for their own profit even if those people "deserve what they get." We make plenty of other ways of abusing people illegal, why allow that one?

I agree that if voters want to outlaw B and C, that's their prerogative. I don't see any moral imperative for that action, though.

My formulation of 'deserve what they get' was perhaps a bit snarky.

There are good reasons for people to invest in risky ventures. Eg when you invest in a startup, you might be able to get your money back, if you ask nicely, but there's no guarantee, and there's not necessarily any liquid assets backing your funds.

I think investing in risky assets should be legal.

I also think that it should be legal for people to invest in assets that have no official classification into whether they are risky or not. Ie when the company taking your funds makes no claims (as in C), in practice the customers should assume the worst.

If you want to forbid C, alas, that leads to a lot of bureaucracy. Because you have to define what an adequate level of disclosure looks like. And then there will be lots of paperwork.

As a taxpayer I don't want to see any government resources wasted on protecting greedy, stupid cryptocurrency "investors" from their own bad decisions. They deserve what they get and their losses will serve as a useful example to others.

Case D is what we are seeing over and over again, including this circumstance

No argument from me there. I was just narrowly addressing the point in stale2002's comment.

Are you saying that fractional reserve banking should be illegal, or that insolvent banks should be illegal? I think the second one already basically is. Or at least with a real bank, they get shut down and the FDIC bails the depositors out.

Educated rumor is suggesting FTX may be insolvent, not only the victim of a bank run type scenario.

That's called picking up pennies in front of a steam roller.

Your margin account should be immediately liquidated and your positions closed if the value of your collateral drops below your outstanding obligations.

You are referring to liquidity providers and market maker; they provide the liquidity (in the form of loans for margin trading, among other things), take risk in exchange for market making fee.

An exchange on the other hand is facilitating trades by matching buyers with sellers. At least that's how it works in stock markets. Even if NASDAQ were to become a market maker they would have to spin a separate entity, bring their own funds to provide liquidity. Even then I don't know if it's allowed by regulation.

> Even then I don’t know if it’s allowed by regulation

It isn’t, precisely for this reason. The US Equity and Equity Derivative markets have tried a few times to get approval for initiatives using their already existing BDs (to facilitate inter-market order routing), and in every case it’s been blocked by the regulators as too risky to the underlying business.

The issue here has more to do with the lack of a centralized C&S clearing house in crypto, and is one of the reasons counterparty risk remains such a massive issue there. Having to maintain an account at each exchange, much like you would a BD, and praying things don’t suddenly go pear shaped, strikes me as insane (and is one of the primary reasons I’ve avoided getting involved in the crypto space)

Ok. To settle once for all whether FTX is an exchange or not. Below are the services they offer.

Futures: ... with margins of up to 101x.

Leveraged Tokens: ... up to three times the leverage. ... the leveraged coins offered by FTX don’t require any margin.

Options: (standardish).

MOVE: ... wager on the price movement ... a play on volatility.

Spot Markets: ... more than 100 different spot trading pairs.

It's fine for a trading venue to list all these derivatives, the problem in this case is that the venue and issuer are the same entity. In the trad finance world this is strictly separated.

But the free market dictated that they do because that's exactly the downside of their use of a crypto coin.

How many exchanges will need to go under for the market to decide that isn't a great way to operate one? How much educating of users/customers will it take?

I was having this exact conversation with my friends y'day. An exchange marketplace shouldn't be in this position unless they are also participating in the market directly or indirectly through funds, their own and the customers' funds.

Customers' assets (either crypto or fiat/USD) should be backed 1:1. The only reason for FTX to pause withdrawals and then assure investors that their money is safe is a sign that they are using customers' assets/funds to participate in the market.

How long before SEC/regulators wake up and regulate these shadow-banks disguised as exchanges as other exchanges?

> having this exact conversation with my friends y'day

There is a strong, vested interest in portraying FTX's collapse as a one off. Binance doing them dirty doesn't cast a pall across the industry. Fundamental problems, likely replicated systemically, does.

> An exchange marketplace shouldn't be in this position unless they are also participating in the market directly or indirectly through funds, their own and the customers' funds.

Yes, although the limitation with this line of thinking is that in most market-related activities (including running an exchange) it's hard not to be structurally long the market in various important ways. For example as an exchange your commissions are going to be highly correlated with market activity and may also be per unit in some cases and so would be directly correlated with market prices in that case.

As a second-order effect, customers' trading limits are going to be affected as prices fluctuate even if you don't directly offer margin yourself, because not only does the value of the thing they've deposited with you change and therefore affect how much other stuff they can sell this for but also they may have made that deposit by pledging collateral elsewhere and borrowing against that to create margin so that margin loan will be affected.

You can definitely try harder to avoid the problem than FTX though which seems to have been pretty much all-in on it's own illiquid token (FTT) and Alameda using leverage on FTT as their main source of funding. One of the things I learned at Goldman during the crisis is that you can't rely on a mark for anything illiquid - you have to have a real liquid market price.

Sounds like a crypto ponzi scheme

> How long before SEC/regulators wake up and regulate these shadow-banks disguised as exchanges as other exchanges?

Very long in this case, as SBF was the biggest donor to the Biden campaign.

Last few weeks he was even trying to involve himself in writing the regulations he wanted, trying to kill DeFi and make it comfy for himself against other CEXes, no doubt.

Some people say that's what triggered CZ to act.

And now the whole of FTX and $8 buys you a mosquito net, what a world.

Do you have a source for the Biden funding remark? Open secrets suggests about 11M in donations came from SBF controlled entities but that’s pretty far down the list. The top contributions were from Bloomberg at 93M.

Those are for company controlled pacs as well, so not just SBF.

For individuals the best info I could find doesn’t list SBF as a major donor.

https://www.opensecrets.org/2020-presidential-race/joe-biden...

They're more a brokerage than an exchange - you can buy Bitcoin and Eth leaveraged at 20-1 through their perpetual futures. Whilst these are presumably hedged - FTX are still taking on risk.

https://ftx.com/markets/futures

https://help.ftx.com/hc/en-us/articles/360024780511-Futures-...

This is my view as to what possibly happened in last 24 hours. Mind you I have no idea if its real but i am making an educated guess based on my 10+ yrs seeing such events play out several times.

1) Alameda used FTX money and balance sheet along with using $FTT to take out billions of loans and "investments" including possibly customer funds to "invest" "efficiently" into risky investments

2) He then also used a lot of it to prop the entire market up in the 1250-1350 range over months to decouple the market possibly and keep $FTT above the $22 mark which was possibly a margin level for his collateral.

3) Market rallied and everything was fine. He is up a lot but lost few between making potentially risky investments (maybe shorting?), maybe options market making as that was his original expertise... who knows. But he clearly lost some money in there.

4) Rumors spread of balance sheet shortfall. Now mind you .. Alameda is a separate entity than FTX. So using FTX resources for trading on Alameda is a big no no.

5) CZ finds out about this. Decides to market sell his billions of $FTT position. Caroline gives up her hands and says they will buy at $22 which on the chart you can see has been the support line time and time again so clearly that line has been supported constantly..

6) The market selling pushes price below $22. Entire market and large players smell blood.. the moment the price goes below $22 the lenders market sell coins ($FTT and $SOL) for margin. This results in a loop after it breaks below $22 and goes into freefall with no support anymore

7) With no options to get more money from lenders and having no other assets to get more loans from lenders as they are already selling his assets, SBF goes to CZ and asks to bail out FTX as there is a big hole that cannot be filled anymore. CZ probably decided to take over FTX and said to SBF you have to either stop gap some of the fills from selling your assets since you did things wit the balance sheet and customer money you weren't supposed to. He probably said he will bail out FTX but NOT Alameda. Sam then either market sold everything he had...OR the lenders... Sam went to the lenders and said I am defaulting on my loans...So the lenders just market sold all the collateral. I think its most likely Sam said he is going to default on the loans and they market sold.

IF the lenders recouped 70-80% then i think its fine.

IF the lenders WERE NOT able to recoup and will have to take a write off on the loans.. we have issues. That part I am unsure about. IF a large lender goes under... then there is further contagion. The market selling off coins so quickly triggered probably more liquidations.

WHERE DO WE GO FROM HERE? We have seen bigger black swan events like in crypto past. All new concepts have days weeks like this. Stocks had it, banks had it and crypto has had it few times. There will always be new smart people to push growth and take over.

When 3AC went bust, we got to $800 on $ETH. We rebounded to 2k in time. That was close to 17-18bn. This is smaller. in time... we will be back. Not sure when.. but eventually it all comes back. Market is cyclical end of the day.

One missing piece: $1B BTC being auctioned by the IRS soon. This is such a big number that it will almost certainly be bought at a discount by an arbitrageur and liquidated on the market, so this was the impetus for the broad-market crash that killed their leveraged positions.

The 24hr BTC volume on Coinbase alone was $126B. The feds selling $1B won’t make much of a dent.

Not on coinbase alone. Coin market cap shows same volume globally

Ah yes. You are correct.

Seems more like a classic run on the bank. Made worse because:

+ the bank (FTX) was likely massively over leveraged

+ the bank's primary assets were likely not very liquid

Both of above are speculation. However, why else be forced to sell (1) to Binance?

(1) Matt Levine makes his usual solid argument as to why the price was likely zero, other than cashing out FTX debt: https://www.bloomberg.com/opinion/authors/ARbTQlRLRjE/matthe...

Conspiracy theory was expected but Alameda was spotted to have smoke up a week earlier.

https://www.coindesk.com/business/2022/11/02/divisions-in-sa...

CZ sounds smart to withdraw quickly not to be the one in a sinking boat and it did sink quickly.