It's important for the business that the insurance fund is safe. If you look closely you will find that it is unsafe. But if people believe it is safe you won't need the insurance fund, so do whatever you need to to inspire confidence in the insurance fund.
(All things SBF may have told himself.)
I feel like justice is being done here, but there's a sense in which SBF and his cohort are the victims here. A world of zero interest rate incentives/people, a trendy money machine in crypto, a general sense that old people/regulations are impoverishing us all with their nervous sclerosis, all created an environment where--in hindsight--this was inevitable. If not FTX then someone else.
I think people are 100% right to call out the press/publications/investors/regulators who flat out encouraged this charade to continue well beyond the point where it was an obvious scam, and I think we really need to examine the VC culture of "find (or create) a young megalomaniac, give them tons of money, ... profit". How do we think these things will turn out? Will we spend billions of dollars building Uber, which at this point is an app that shows you ads and incidentally hails a cab? Will we spend billions of dollars building trash companies that scam people? Will we spend billions of dollars building Airbnb, which was pretty ruinous for cities and at this point not even a good business? Will we spend billions of dollars building e-scooter companies that exist essentially to create tons of e-waste that litters our sidewalks and landfills?
It's nuts. Please just fund day care.
It's undeniable he committed fraud, repeatedly lied to his clients and tried to make them give him money by telling them tales that weren't true.
But it also seems likely he thought he was clever/lucky enough that it would all work out in the end.
That makes the intent different, and culpability is always about intent.
In fact SBF reminds me more of Billy McFarland (of Fyre Festival fame) than of Madoff.
What on earth is the difference between this and Madoff?
>But it also seems likely he thought he was clever/lucky enough that it would all work out in the end.
What on earth is the difference between this and Madoff?
>That makes the intent different
Why do you assume bad intent in one case and none in the other? SBF stole customer money and used it for political donations during one of the most heated, divisive, controversial elections in recent American history. He's the sitting President's largest donator, and he's going to prison for fraud. The potential consequences here are massive.
Those investments were fraudulent because they were made without the consent of the people providing the money, but they were investments nonetheless: SBF was buying assets, not just pissing money away in jets and catering (although he also did that).
In Madoff's case there were no assets at all. It was not possible for Madoff to convince himself he was doing something that may become viable, given enough time. It was possible for SBF.
I think that's a pretty big difference.
(Also, campaign finance violations are not part of the trial that just ended, at all.)
> You cannot apply ordinary arithmetic to numbers in a cell labeled “HIDDEN POORLY INTERNALLY LABELED ACCOUNT.” The result of adding or subtracting those numbers with ordinary numbers is not a number; it is prison.
This wasn’t a case of poor engineering practices or poor internal controls. It wasn’t a mistake. It was all very intentional
Lack of internal controls isn't the reason for why the CEO and owner of FTX is funneling billions of its customer dollars into a company he owns - Alameda.
It's just straight up fraud.
You should probably let some other adult, (and the FBI) know if the owner asks you to do that, but you can't physically stop him. It's his company. He has complete power over it. It's not a democracy, there's no checks and balances on the power of an owner-CEO.
That people just accept that founder CEOs are allowed to do everything with their companies, and their companies money, is troubling. Because, as soon as said company is a seperate legal entity, it is the companies assets and not the founders anymore.
Maybe even CompSci graduates shoupd get some basics of business, legal and ethics during their studies.
That's a bit like:
"The bank robbers' mistake was a lack of internal control and security advisors who could have safeguarded them from robbing banks"
That's a pretty big caveat, though.
The pop psychology term for this is the Dunning-Kruger effect.
> zero experience in building a major service that custodies billions in other peoples' money.
This is exactly what the Dunning-Kruger effect describes. He was incompetent at the task he was doing and didn't know enough to be aware of his incompetence.
What you might be thinking of is the smbc Mt. Stupid diagram [1] which does relate overinflated sense of know-how to a relatively low experience level.
That is distinct from the DK effect in important ways. Of course it doesn't help that if you google images for DK effect 19/20 first results will be a bastardisation of the Mt Stupid comic.
This is a common misconception. Wikipedia has a pretty good write-up. Quoting the first paragraph:
> The Dunning–Kruger effect is a cognitive bias in which people with limited competence in a particular domain overestimate their abilities. Some researchers also include the opposite effect for high performers: their tendency to underestimate their skills. In popular culture, the Dunning–Kruger effect is often misunderstood as a claim about general overconfidence of people with low intelligence instead of specific overconfidence of people unskilled at a particular task.
The original paper [1] was explicit that this was domain-dependent.
> The point of the DK effect was even with experience, the disparity between ones competence and awareness of ones relative competence doesn't improve.
I don't think this is consistent with the literature. In the studies I'm familiar with, there is the classic Socrates effect that the people with the most skill are aware of how little they know and tend to underestimate their relative performance. So it improves significantly, but there's a slight over-correction.
Quoting the original paper:
> improving the skills of participants, and thus increasing their metacognitive competence, helped them recognize the limitations of their abilities.
[0] https://en.wikipedia.org/wiki/Dunning%E2%80%93Kruger_effect
It’s that “one simple trick (what they don’t want you to know)” kind of predatory advertising that seems to be what ensnares people.
It’s adjacent to the hustle culture you see on social media where people with gleaming white teeth tell you they’ll make you rich
Consider it a VC investment. First, you gave to either understand the underlying technology, or someone you trust have to understand it sufficiently to be able to say "this is bullshit", or "this is a great novel idea that makes a lot of sense".
Then you invest a bit of your really disposable income in it and don't touch it for a couple of years. Eventually you sell once you're happy with the price, or you forget about it and check few years later.
Edit: also, it really is down to luck too. An idea might be great, but the people behind it can be scammers. Etc. Crypto is(or was) a very high reward, very high risk game.
And for God's sake don't invest your life's savings in crypto!
Arguably the entire monetary system is also kind of like that - but it's got the benefit of true utility outside of speculation. It's a shame that most of the interesting crypto-as-money stuff - smart contracts, accessible to everyone financial APIs, pseudo-anonymous payments etc, has been completely dwarfed by the crypto-as-investment situation. Maybe it'll shake itself out long term, but I suspect the fundamental problems of unregulated "money" will be inescapable.
It turns out there's a reason we have financial regulation.
That's about as big as it gets, and pretty well explains the long legs this con continues to have. A lot of marks out there.
The only thing bigger would be an interstellar "galactic-coin". God. I can only imagine the carnage. Seems like a great premise for a sci fi story.
The ones I think are truly scams are the "stablecoins" and "exchange tokens", which are nothing more than a fiat currency offered by an entity smaller than a government with less accountability than a government, and no way to ensure the value/supply/demand of their coin. So yes, I think FTX was a scam to the extent that they traded FTT while printing or consuming it however they liked.
Also I did put investment in quotes. I don't consider it an investment like stocks of a well established company, but if you put money in a security and you can reasonably expect some return at some risk it is an investment.the main difference is that with gambling you play against "a house". A single entity that controls "the market". With crypto, you can take your security and sell it to anyone, or buy stuff with it.
And no, I haven't robbed anyone, I haven't forced anyone into it to buy at gunpoint. I haven't bought in by using secret knowledge. And If you think crypto is both a gamble and a ponzi I wonder what do you think about forex. If anything that looks a lot more like betting as 99% of forex "brokers" don't actually buy/sell for you, but you bet against them.
On Forex I lost £3500 when the UK brexit referendum went the other way than I predicted. Was I "robbed". No, I made a bad "investing" decision.
Have you never lost at a stock market either?
> Then you invest a bit of your really disposable income in it
Sorry, but I find it a bit funny that in your "winning strategy" you seem to invest on the second step regardless if you in the first step ended in the "this is bullshit" or not. (full disclosure, so far, every crypto thing I have seen has fallen to the "this is bullshit" bucket in my opinion. But I guess my "if it looks, walks and smells like bullshit, don't touch it with a ten foot pole" is not a winnig strategy.)
Perhaps this is my failure to express this clearly, but I thought it obvious you don't invest if you think it's bullshit.
> all crypto is a scam
Most people think SBF spent all his customers' deposits on private jets and luxury condos, and blew the rest on shitcoin bets that went bad.
But despite the insinuations of prosecutors, the PJ trips just don't add up to much in the scheme of things, and the real estate is still there and can be sold.
Yes, some shitcoin bets were bad, but they're offset by investments that paid off like the Anthropic stake.
It's likely that the only haircut depositors will have to take is the billion dollars in bankruptcy lawyer billings.
> the bloody Washington Post told you it's either a Ponzi or a pyramid scheme in 2015
If you put in $10K when WaPo told you it was a Ponzi, you'd have $1.6M today.
Maybe next time the bloody Washington Post gives you investment advice, you should do the opposite.
I did and I had significant losses. What does that say about your statement?
https://www.washingtonpost.com/news/wonk/wp/2015/06/08/bitco...
> The thing is, I don't actually use it. I just hoard it. I'm waiting for some greater fools to push up the price by using theirs.
Holding is about the same thing as buying but with no transaction cost.
This is the fuel that drove crypto. Yes it's a scam; I'm just hoping others will buy in after me and I can cash out with their money.
Obviously there's still investment bubbles - but underlying it all is ownership in a corporation.
Fundamentals define a floor for stock price, but above that it's all vibes. Which is fine, as long as we're on the same page.
On the other hand, buying crypto"currency" becomes ... just that. It sits there until you sell it to someone else.
In other words, if you rolled back all transactions in a stock ever made you'd end up with a positive sum totaling dividends paid out. If you rolled back all Bitcoin transactions you'd end up with a big fat zero. Minus, in both cases, transaction fees but while it's a mere convenience for stocks it's inherent in Bitcoin which makes it a negative sum game and as such a scam.
Yet we didn't conclude only from this all crypto is a ponzi.
That all crypto is a scam clearly comes from the fact it is a negative sum game. When you have a game where you can tell which set of players in total are going to lose and which set of players in total are going to win without knowing the rules of the game -- that's clearly a scam. All you need here is any commodity with baked in transaction fees. The exact same would be true if you traded with plastic poker chips but you needed to pay someone a fee whenever you bought or sold one. Indeed, reviewing the process with such chips makes it more clear, stripped of high tech mumbo jumbo.
Stolfi argues all crypto is a Ponzi because 1) people invest into it because they expect good profits, and 2) that expectation is sustained by such profits being paid to those who choose to cash out. However, 3) there is no external source of revenue for those payoffs. Instead, 4) the payoffs come entirely from new investment money, 5) while the operators take away a portion of this money. Our argument in the previous section was 3-5, you need to add 1 and 2 for it to become a Ponzi. https://ic.unicamp.br/~stolfi/bitcoin/2020-12-31-bitcoin-pon...
> gold has a source of revenue besides the investors; namely, the purchases by consumers like jewelers and industry, who take gold out of the market (2/3 of the production) for uses other than re-sale. When one buys 1 oz of gold, one gets a chip of a metal that one can sell to those consumers, and thus obtain some money that does not come from other investors.
The argument for crypto, etc is the same. There are consumers who want to make purchases, use contracts, etc.
There's a seller for every buyer, and the company does not care about it any more than having happy owners is good.
Investment in the form of bonds is another thing entirely, that's purely capital.
In 1999 Harry Markopolos had informed the SEC Madoff was running a fraud. Yet it took until the 2008 financial crisis for Madoff to be exposed. I am sure you've made quite some money if you invested with him in this time period.
Nevertheless not all cryptocurrencies satisfy the above. The prime example being Ether. In the last year it has experienced -0.186% circulating supply inflation (i.e. it's non-dilutive to its holders) [1]. While the network has captured around USD 6.5M per day ~ 2400M per year in fees due to its usage as settlement layer which are paid to its stakers. Basically, it's cash-flow positive and does not rely on greater fools to sustain its economics.
[1] https://ultrasound.money/ [2] https://charts.coinmetrics.io/crypto-data/?config=JTdCJTIybm...
Additionally, the fees of the network can only be paid in ETH, which means that any use of the network implies ETH demand.
Whether people transacting on the network care strongly about the costs vs alternatives to create a proper link with fiat is not so easy to show because there isn't always a direct 1-to-1 correspondence between services (and there are switching costs, too) - so the "inherently priced in fiat" is tough to show, I think. Also, being priced in fiat might still not create demand for Ether from fiat holders - that comes from outside demand as per the above.
Demand to settle a transaction on the network is demand for ETH. Because the base_fee of a transaction is burnt, destroyed, so ETH needs to be acquired to use it as a settlement layer. Much in the same way to how heating your house with a gas boiler is demand for gas. Similarly, when natural gas prices skyrocket (cue Ukraine invasion), alternative forms of heating start to look more attractive, and consumers may change their behaviors lowering the thermostats. In the case of Ethereum, alternative settlement layers will look more attractive or some users may lower their use. The same mechanisms are in place. I agree though that the relationship is not linear, that's not what I implied. Simply that the revenues of the network are priced in fiat, because the price is set by an auction to include your transaction on the scarce blockspace. And given at least some users will be sensitive to the price of the transaction in USD they will, at the margin, set the prices for a transaction in USD and therefore the fee revenues of the network.
By the way I appreciate you engaging rationally on this topic in HN. Not a common sight when discussing anything related to crypto but much appreciated.
I agree that there can be some link based on the utility of the network and with less of a speculative frenzy it might actually be stronger now. Not dissimilar to (other?) commodities, which have some link to economic activity but are not directly producing the activity themselves (and they can also have speculative phases). And commodities also have conceptual issues around their use in long-term investment for that reason (but at the same time they exist and trade).
Mere intelligence is not enough in that context. Ideally you want to have apprenticed for at least a few years at a real exchange or custodial service. Somewhere you learn all the engineering details about how to architect it with proper financial controls, safeguards, and correctness guarantees so that this kind of failure cannot happen, either via human skullduggery, mistakes, or system bugs or security vulnerabilities.
Sam never had any of that. He probably got caught up in the moment, implicitly assumed he was smart enough to compensate and not need it, and his investors were all finance guys overly impressed with his trading ability and ignorant of the above. This is the unfortunate but unsurprising result.