The Demise of the FTX Crypto Exchange

How not to buy a brick in a box off the back of a truck.
Anaxagoras
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The Demise of the FTX Crypto Exchange

Post by Anaxagoras »

FTX’s Balance Sheet Was Bad (Matt Levine in Bloomberg)
If a troubled company has a few days to beg potential investors for a bailout before it files for bankruptcy, and it sends those investors its balance sheet so they can consider investing, and they all pass, and then the company files for bankruptcy, of course the balance sheet was bad. That is not a state of affairs that is consistent with a pristine fortress balance sheet.

But there is a range of possible badness, even in bankruptcy, and the balance sheet that Sam Bankman-Fried’s failed crypto exchange FTX.com sent to potential investors last week before filing for bankruptcy on Friday is very bad. It’s an Excel file full of the howling of ghosts and the shrieking of tortured souls. If you look too long at that spreadsheet, you will go insane.
I quite like this bit:
If you try to calculate the equity of a balance sheet with an entry for HIDDEN POORLY INTERNALLY LABELED ACCOUNT, Microsoft Clippy will appear before you in the flesh, bloodshot and staggering, with a knife in his little paper-clip hand, saying “just what do you think you’re doing Dave?”
Sam Bankman-Fried, the disgraced boy king of crypto, explained (Vox)
A week ago, Sam Bankman-Fried was the boy-wonder face of crypto: A 30-year-old who founded one of the biggest cryptocurrency exchanges in the world, a celebrated philanthropist worth an estimated $16 billion, and a major Democratic donor who quickly found favor in Washington. By Friday, he was at the center of an epic flameout that left his empire and his image as an uncannily sharp, altruistic billionaire in ruins.

In the annals of crypto disasters, the tale of Bankman-Fried may go down as one of the most jaw-dropping. He resigned from his crypto exchange, FTX, as it collapsed from a domino effect of a surge in customers trying to withdraw their funds, and the company filed for bankruptcy. The Wall Street Journal has reported that Bankman-Fried may have illegally taken about $10 billion in FTX customers’ funds for his trading firm, Alameda Research, whose future is also in peril. And Bankman-Fried is now worth close to nothing.

The downfall of FTX isn’t a typical story of crypto’s volatility or investor risk-taking; it didn’t crumble due to bad luck, but what now appears to be unsustainable layers of deception. On the surface, FTX appeared to be thriving — in the past year, it made several high-profile acquisitions and bailed out other failing crypto companies. In reality, it was drowning in debt. At least $1 billion in customer funds is reportedly missing. The stunning contrast between image and reality has resulted in Bankman-Fried facing a reputational fall from grace swifter than any in recent memory. According to reporting from several news outlets, the DOJ and SEC are investigating FTX, and his friends and admirers in crypto, philanthropic, and political circles have quickly begun distancing themselves from the man widely dubbed the king of crypto.

A senior Democratic strategist who wished to maintain anonymity to protect their clients told Vox that politicians who’ve received donations from Bankman-Fried, who spent around $40 million during the midterm election cycle, are considering returning that money.
In the last year, Bankman-Fried had soared to buzzy prominence as a paragon of how the ultra-rich, who have seemingly endless wealth, might use it for good. He’s been the subject of countless profiles; he was on the cover of Fortune’s September issue. The media portrayed him as an unassuming, nerdy savant, frequently noting his down-to-earthness, his messy mop of hair, his penchant for wearing T-shirts and shorts, his Toyota Corolla. Investors were enamored of the fact that he wasn’t a buttoned-up entrepreneur; he played computer games during pitch meetings, and like other modern-day founders, his eccentricities were taken as proof of his distinct genius.

Bankman-Fried, meanwhile, came off as a billionaire refreshingly unimpressed by the glitz and pomp of a typical billionaire’s lifestyle. The FTX Foundation, Bankman-Fried’s philanthropic arm, says it has donated over $190 million to date. (Disclosure: Future Perfect, Vox’s effective altruism-inspired vertical, received a grant in 2022 from Building a Stronger Future, the Bankman-Frieds’ family foundation.)
Oh dear, that's a lot of money to give away, but apparently that's not what bankrupted them. It was the misuse of customer funds.

Apparently, until all this went down, he had a sterling public image. Sort of like Barry Madoff. Madoff at least managed to make his Ponzi scheme last quite a bit longer I think.
Doctor X
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Re: The Demise of the FTX Crypto Exchange

Post by Doctor X »

He stole more than Bernie Madoff.

He gave more to Democrat politicians.

Will he do as much time?

– J.D.
Pyrrho
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Re: The Demise of the FTX Crypto Exchange

Post by Pyrrho »

Did Paulie get his cut?
Billy Batts
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Re: The Demise of the FTX Crypto Exchange

Post by Billy Batts »

Fuck'm, I've gotta get what's coming to me!
Anaxagoras
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Re: The Demise of the FTX Crypto Exchange

Post by Anaxagoras »

I've been reading more about the founder of this exchange, Sam Bankman-Fried, and the philanthropy he was so prominent in.

The do-gooder movement that shielded Sam Bankman-Fried from scrutiny
When FTX founder Sam Bankman-Fried was a junior at MIT, he met William MacAskill, one of the founders of effective altruism, a philosophical movement that believes rationality is key to doing maximum good in the world.

For more than a decade, the EA community, as it’s known, has attracted bright young students from elite colleges like Oxford and Stanford, encouraging them to take lucrative jobs in finance and tech so they can amass wealth and donate it to efficient charities. EA’s emphasis on measurable impact has attracted billionaire tech philanthropists like Facebook co-founder Dustin Moskovitz, who helped finance a tightknit web of nonprofits and academic institutes to grow the movement even as its priorities shifted from helping the world’s poor to combating more theoretical risks, such as the rise of a hostile advanced artificial intelligence.

Bankman-Fried made an ideal recruit for MacAskill’s “earning-to-give” pitch. Bankman-Fried had been raised as a utilitarian — a doctrine holding that the most ethical choice is the one that does the most good for the most people — and was already interested in protesting factory farming. MacAskill, an Oxford philosophy professor, encouraged him instead to pursue a high-paying job in finance.
During Bankman-Fried’s ascent, media portrayals invariably noted that the crypto wunderkind drove a Toyota Corolla and planned to give his billions away, even as he courted celebrities and Washington power brokers. Indeed, his proximity to EA’s brand of self-sacrificing overthinkers often helped deflect the kind of scrutiny that might otherwise greet an executive who got rich quick in an unregulated offshore industry.

Now EA is at a crossroads. Money expected to fund the next phase of growth has evaporated, while questions have arisen about whether money already donated to speculative EA projects was unethically obtained. EA leaders also face questions about what they knew about the business dealings of a billionaire whose reputation they helped burnish. Meanwhile FTX’s collapse has raised existential concerns: In its current state, would EA survive its own calculation as a force for good?

On Nov. 11, the day FTX filed for bankruptcy, MacAskill said in a Twitter thread: “For years, the EA community has emphasized the importance of integrity, honesty, and the respect of common-sense moral constraints. If customer funds were misused, then Sam did not listen; he must have thought he was above such considerations. A clear-thinking EA should strongly oppose ‘ends justify the means’ reasoning.”

“If this is what happened,” MacAskill continued, “then I cannot in words convey how strongly I condemn what they did. I had put my trust in Sam, and if he lied and misused customer funds he betrayed me, just as he betrayed his customers, his employees, his investors, & the communities he was a part of.”
Doctor X
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Re: The Demise of the FTX Crypto Exchange

Post by Doctor X »

He was the second-biggest donor to Democrats next only to George Soros, yes.

– J.D.
Anaxagoras
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Re: The Demise of the FTX Crypto Exchange

Post by Anaxagoras »

Apparently against what any lawyer would tell you, he has been talking to reporters:

Sam Bankman-Fried tries to explain himself

He says that he used "shibboleths" to gain trust. Talking a lot about "effective altruism", which is an actual philosophy.

Apparently he lives in the Bahamas. Does the reach of the Justice Dept. extend to the Bahamas?
Anaxagoras
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Re: The Demise of the FTX Crypto Exchange

Post by Anaxagoras »

His parents are both law professors at Stanford.
Doctor X
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Re: The Demise of the FTX Crypto Exchange

Post by Doctor X »

Anaxagoras wrote: Sun Nov 20, 2022 6:34 am Apparently against what any lawyer would tell you, he has been talking to reporters:
Gif of a rōnin available on request.

– J.D.
Ben Trovado
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Re: The Demise of the FTX Crypto Exchange

Post by Ben Trovado »

I had several friends talk to me about crypto, but I continually treated them like tulip bulbs. Great if you manage to sell before it craps out.

I don't trust a market where I don't understand where the value is supposedly coming from.

"It's up 30% just in 2 months," they would say.

"Yeah? Why?"

" . . . . "

"If you don't know why it increases, how will you know what will end it?"
Anaxagoras
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Re: The Demise of the FTX Crypto Exchange

Post by Anaxagoras »

Ben Trovado wrote: Sun Nov 20, 2022 8:13 pm I had several friends talk to me about crypto, but I continually treated them like tulip bulbs. Great if you manage to sell before it craps out.

I don't trust a market where I don't understand where the value is supposedly coming from.

"It's up 30% just in 2 months," they would say.

"Yeah? Why?"

" . . . . "

"If you don't know why it increases, how will you know what will end it?"
I feel the same way. Its value changes depending on how people feel about it. There's no intrinsic value. They may counter that a dollar/yen/euro has no intrinsic value either, but those currencies are backed by governments and have a long history of being fairly predictable. They may lose value due to inflation, but not 75% of their value in a year, like bitcoin has since last year.
Pyrrho
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Re: The Demise of the FTX Crypto Exchange

Post by Pyrrho »

There is this thing called "due diligence".
Hotarubi
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Re: The Demise of the FTX Crypto Exchange

Post by Hotarubi »

Everyone always blames the dues.