We will not pursue the potential acquisition of FTX
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As usual, Levine put it best: “the problem is not a timing mismatch, in which FTX’s customers asked for their cash back but FTX did not have enough ready cash because it had long-term but money-good loans out. The problem is that FTX took its customers’ money and traded it for a pile of magic beans, and now the beans are worthless and there’s a huge hole in the balance sheet” [1].
Before one is insolvent, illiquidity and insolvency are circular questions of asset value. After the fact, it shouldn’t take someone more than a few minutes to come to a conclusion. (There is a deeper discussion on the folly of accepting as collateral assets correlated with confidence in oneself. I recommend reading the article.)
[1] https://www.bloomberg.com/opinion/articles/2022-11-09/bankma...
I remember a lot of hype in the dot-com era around that
"In 2001, Flooz.com was notified by the Federal Bureau of Investigation that a Russian-Filipino organized crime syndicate used $300,000 worth of Flooz and stolen credit card numbers as part of a money-laundering scheme, in which stolen credit cards were used to purchase currency and then redeemed.[2][3] Levitan has stated that fraudulent purchases accounted for 19% of consumer credit card transactions by mid-2001."
CDO-squared (CDOs of CDOs) were a problem. If you took those 60 dog-shit loans, mixed them together, and created 10 high quality loans out of them, problems began to occur.
Even then, it wasn't the CDO-squared that collapsed the whole thing. It was the CDS: the "insurance" (so to speak) on the CDO-squared that made things go haywire.
The number of big-name banks whose actions are questionable [1] - if not actually criminal - is astonishing.
[1] As reported by insider papers like the Financial Times.
Go through enough layers and you eventually hit an insurer that has zero chance of being able to cover all of the losses of everyone. It could be CDS of CDOs of CDOs, or coins being backed by other coins.
Thankfully the average person is less affected by crypto losses than mortgages, or in the case of the depression, stocks.
I remember a guy bragging about helping another firm backdate its books to get bail out money. He was bragging. Still remember his name and how he got his pill head daughter a Cush company paid job in London.
In hindsight, it should have been structured like government insurance servicers: subject to random and regular audits, with $$$ fines if they turn up anything fishy.
If you don't want corruption, engineer a system where not being corrupt is more profitable...
Don't forget through all of that madness Moody's was rating utter crap as AAA
https://en.m.wikipedia.org/wiki/Credit_rating_agencies_and_t...
The truly pernicious part is the self-financing spiral. Banks issued mortgages, which deposit cash in the home seller's account. Seller puts the cash into a money market fund. MMF gets short-term interest by financing AAA-rated securities. EU banks use this financing to buy senior tranches of MBSes. These MBS purchases allow banks to issue more mortgages by freeing up their capitalization.
Like, zero-sum alchemy will only generate small frauds and relatively limited losses. You need large amounts of leverage and some kind of self-financing spiral to generate catastrophic de-leveraging events.
https://www.cnbc.com/id/25195425
It's amazing how the government somehow managed to successfully pin all the blame on corporations for problems it helped cause. From wikipedia: https://en.wikipedia.org/wiki/Subprime_mortgage_crisis
"Lenders made loans that they knew borrowers could not afford and that could cause massive losses to investors in mortgage securities."
Of course, it was the government itself that pressured banks to make these loans in the first place. From https://www.appeal-democrat.com/thomas-sowell-government-cre...
"All this was an opening salvo in a campaign to get Congress to pass laws forcing lenders to lend to people they would not otherwise lend to and in places where they would not otherwise put their money."
Financial firms has been making tons of money during decades of increasing wealth inequality. Sure, let's talk about these congressional acts, but not going to put a lot of blame on relatively small programs that required these firms to throw back some scraps.
https://www.investopedia.com/articles/economics/09/financial...
"The seeds of the financial crisis were planted during years of rock-bottom interest rates and loose lending standards that fueled a housing price bubble in the U.S. and elsewhere.
It began, as usual, with good intentions. Faced with the bursting of the dot-com bubble, a series of corporate accounting scandals, and the September 11 terrorist attacks, the Federal Reserve lowered the federal funds rate from 6.5% in May 2000 to 1% in June 2003. 4 5 The aim was to boost the economy by making money available to businesses and consumers at bargain rates. e result was an upward spiral in home prices as borrowers took advantage of the low mortgage rates. 6
Even subprime borrowers, those with poor or no credit history, were able to realize the dream of buying a home. "
The repeated story of our government's behavior in the financial sector is:
1) act with supposedly good intentions
2) Mess everything up
3) Blame the mess on someone else and call for more government action to clean things up.
You should read "Wealth, Poverty, and Politics." It really is illuminating to learn at an academic level how wealth has been produced throughout history and some reasons why it is distributed unevenly.
https://www.amazon.com/Wealth-Poverty-Politics-Thomas-Sowell...
a: all property that has a money value or an exchangeable value
b: all material objects that have economic utility
I'm not sure what' you're talking about with regards to "ensuring" or "guarding" it. But in general, wealth is produced in various forms by people. That's generally the goal of work! Just as important, wealth decays over time. And, like with everything else in this universe, everything related to the production and maintenance of wealth is unevenly distributed, including:
1) Physical resources
2) knowledge and skills
3) cultural and moral values
4) geopolitical landscape
5) personality and personal productive capacity
6) social circumstances
7) dumb luck
Given that none of this is evenly distributed between individuals, groups, nations, etc., it's absurd to expect wealth to be evenly distributed, even in a hypothetically just world. In fact, based on what we know, we should expect differential wealth to be a simple and indisputable fact of life.
In a functioning economy, people earn money by creating value for others. This generally means that even as the rich get richer, so do the poor. It is hardly disputable that capitalism has done more to lift more people out of poverty than any other economic system. Also, because wealth decays, to maintain wealth one must invest it to produce more of it. It is through this investment that society can benefit as a whole.
The problems with wealth redistribution include:
1) By taking wealth from people who know generally able to best produce it, you reduce their ability to invest wealth to produce more of it. All of society suffers for this as overall wealth decreases for everyone.
2) When giving wealth to people who aren't producing anything, they take the wealth and spend it without creating any more wealth. Overall wealth decreases for everyone. It is hardly disputable that welfare programs in Western countries have led to far more dependence and far more able-bodied people not working than before these programs existed.
It is not an accident that wealth redistribution makes countries poorer, ultimately harming the poor that the redistribution is meant to help. We should be focusing less on wealth equity and more on wealth production and maintenance.
https://www.northwood.edu/afeu/when-free-to-choose/how-to-en...
One of the preconditions of the level of prosperity we experience today is government stability and essentially British or Western European laws and cultural and Christian values. As those things erode, prosperity decreases. And, there is a great threat of worldwide prosperity taking a nosedive on many fronts, including the global ESG movement, WEF great reset, socialist/communist/fascist/authoritarian government movements, etc. We are very fortunate to have experienced the overall wealth that we do today, and, unfortunately, it's probably only going to get worse from here the way things are going.
I’ve been beating this drum for more than 10 years. The big story of the financial crisis is that while there was fraud and corruption at the margins, the bulk of the economic dislocation was caused by well intentioned people making good faith decisions that in hindsight proved very foolish. People who had no business buying a home or taking out that loan were. Banks were making the loans not just because there was a global capital glut chasing returns, the credit tranching structures were working, and the ever rising house prices hid any risk. No one in the industry had seen house prices broadly go down in generations. In retrospect there were a number of systemic issues that now seem obvious, but having been there it wasn’t that obvious at the time.
I agree with that. But that comes about because we've arranged our economic activity into monolithic 'corporations' that are immortal, have the legal status of persons, and are compelled to chase shortsighted profit above all else, show no remorse, and any moral wrongdoing is just a slight financial risk to be approached like any other monetary risk.
All the humans working for the oil industry today are making good faith decisions but together they work for a massive unstoppable inhuman juggernaut that is destroying our climate while fighting every attempt to rein it in with every means possible at its disposal.
And yes I can call corporations greedy. They have demanded to be treated as people in the courts of law so I'll judge them as people
Capitalism is great, but it only works when founded on a strong moral framework. Christianity served that purpose for the history of capitalism. However, once you abandon or corrupt your morality, then you'll see the majority of corporations do evil things, no matter whether they claim to only care about profits, or whether they claim that they also want to save the environment and bring about equity, inclusivity, or whatever Marxist Utopian ideal is in vogue at the moment.
The public has been treating their Senators and Representatives like celebrities.
Electoral turnovers flush corruption; we really need to stop being ruled by pudding brains with no skin in the future game who LARP concern while doing nothing but living easy: https://www.nber.org/papers/w29766
And the government didn’t force banks to buy loans from originators who were known to fake documents, and then give them 120 LTV loans.
Money. They need some g/d m/fing money. Maybe they need it as arms-length loans on legitimately illiquid capital. Maybe they need underpriced loans for the risk of the business. Maybe they just need a giant dump of free cash.
But it’s money they need. To weasel it away as “liquidity” is to assume something you probably have no way of knowing until later.
It was particularly dubious in the case of FTX, whose assets were in popular cryptocurrencies, which are traded every millisecond. You can absolutely find a buyer instantly! At about the same price it traded for five minutes ago! Just not at the price you need it to be.
“No, no, the fair market price is actually much higher, it’s just that there’s only one guy who would actually buy it all right now!” No. Stop. We already have a word for an asset that exactly one person wants to pay a positive price for: worthless (because they only have to outbid everyone else).
Sorry, /rant
In my case I deposited some USDC coins and have asked them to return said USDC coins but it seems no. I think theft is a more accurate term. As in we stole some customer funds to gamble with and having lost them need more funds to cover it up. Not really "liquidity".
If a bank holds short term debt, due in one week, but a customer is withdrawing funds now, the bank needs liquidity — they need dollars today, and all they have is dollars next week. If a dealer owes a customer 500 BTC that they’re trying to withdraw today, they need liquid Bitcoins, not money. There are many ways a financial company can fail, and lumping them all together as “money” loses all nuance and understanding.
If you agree with that, you're agreeing with my original comment, even and especially if you (correctly) believe that some problems are rightly called "liquidity crises".
As it turns out, FTX was not merely illiquid; no amount of time or low-interest loans would have coordinated the cash flows, and yet every apologist was happy to identify the core deficiency as one of "liquidity", rather than honestly say what they could reasonably have known, at the time, from their perspective: no money, with specifics to be filled in later.
>If a dealer owes a customer 500 BTC that they’re trying to withdraw today, they need liquid Bitcoins, not money.
Even granting the tenuous propositions that Bitcoin isn't a money nor could be purchased therewith, the right diagnosis still wouldn't be "they don't have enough liquidity", but rather "they don't have enough Bitcoin", since the former is specifically making a (bold, overconfident) assertion that the exchange is good for the money if only they could get a few loans. That assertion was false, and almost certainly lacked sufficient basis from its proponent even at the time.
this is extremely stupid. you can't just sell arbitrary amounts of coin without moving the market a ton and paying a fortune in slippage. they do need liquidity.
You can absolutely find a buyer instantly! At about the same price it traded for five minutes ago, actually scratch that, it even worse, it is that price MINUS SLIPPAGE! Just not at the price you need it to be.
> I think of myself as like a fairly cynical person. And that was so much more cynical than how I would've described farming. You're just like, well, I'm in the Ponzi business and it's pretty good.
I suppose he was right ;)
https://www.bloomberg.com/news/articles/2022-04-25/sam-bankm...
And if they do, they must have equity value to back it up - aka, the bank's share holders lose value _first_ when shit hits the fan, before customer deposits. Then lastly, the gov't has put up guarantees on the deposits in case bank equity cannot cover customer deposits when shit hits the fan.
Crypto has none of the above - so basically, it is exactly what happened in the early days of the US financial system - i'm talking in the 1800's!
Let's hope all those celebrities who made adds got paid in real cash!
At this point it looks like Tom Brady is going to be playing football well into his 50s.
What FTX did is much worse. They spent their customer’s money on stupid shit like the Miami Heat stadium, political donations, and charity work (which was legitimately really good but not their choice to make), and then replenished their own coffers by making their own crypto out of nothing and assigning it to themselves. They essentially stole their customer’s money.
While there's a ton of nuance here, in the general case it doesn't work how you've implied.
When you take out a mortgage, the bank doesn't take a bunch of money other people have deposited. It's literally created out of thin air and marked as a liability on their balance sheet. This is how the majority of money is created in a fractional reserve banking system.
Nope. This is the toy model of money and banking taught in high school.
When a bank makes a loan, it creates money. The fact that there are stabilising deposits is a fortunate convenience. This is why leveraged finance is inherently unstable. The BoE had a good paper about this.
The bank must reach some level of capital requirement to make this loan. In other words, if the bank does not have enough reserves, they cannot make this loan.
The bank can use customer deposits as part of their reserves. They can also borrow from another bank (presumably, paying them interest). Lastly, i think central banks also have a reserve borrowing method (but not sure about this).
No, they don’t. We force them to through fiat. But credit isn’t created from money—credit is money. Left to their own devices, financial systems create as much credit as the market will bear, then the market shifts, money vanishes and voila, a panic.
"we force them through fiat", is just the same as "we force everybody to not murder and steal".
But - what stops banks from creating infinite money? There is a byzantine system of rules laid out by the Basel Accords and national regulators within that. That system limits the activities a bank can conduct, lays out rules for the way it must go about business it can conduct, and sets capital requirements.
There is nothing close to a full reserve and the system is not defined in those terms. Rather, there are ratios. If you have so many AAA rated treasuries posted with your central bank, then you can grow your balance sheet by X. But for B rated investments, you can only grow your balance sheet by Y. When a commercial bank issues a loan, it literally creates money.
The fact that a bank takes an illiquid asset - your promise to pay them back - and turns it into a liquid claim on themselves is not creating money out of "thin air". Your promise to pay the bank is not "thin air" as you will quickly find out if you break your promise.
I assume they would know.
Everyone always brings up the fact that banks create money out of thin air when issuing loans. Nobody ever mentions that the inverse happens again at the other side.
I'm not sure how much it's because everyone just parrots the factoid that "banks create money" without understanding it, or they are deliberately trying to mislead people into distrusting the banking system.
When a bank lends money to you, it's net neutral. A $100,000 mortgage creates a -$100,000 position on the bank's liabilities list and a $100,000 deposit in your bank account. They create $100K in new money to fund this loan collateralized by both the reserves on deposit at the bank and by the property which you purchased. As you repay that balance, the money that was created to fund your loan blinks out of existence. It is the constant origination of new loans and the constant repayment of old debt which defines the supply of money in the economy - which is why interest rates matter. Neat huh.
I would argue that your balance is both an asset and a liability as defined by your bank's reserve requirements. Your mortgage is net neutral to the bank except for the interest paid on it, which is an annuity of sorts with a net present value offset by the difference between projected recovery rates and your risk of default. The value there is itself created in the origination and underwriting process.
We'll I'll just ask two: Suppose to buy my house the seller wants cash. I take out my cash and give it to the seller. Ok fine, but the bank is creating money out of thin air, where does the cash come from if lots of people do the same?
Follow up: more realistically, I wire money to the seller, what actually happens between the banks? It seems like bank A creates money from nothing and sends it to bank B, what is stopping bank A from sending out an infinite amount of money to other banks?
the cash comes from the gov't printing it. It's a mere fraction of all spendable money. Banks store some amount of it, just for such cases where you wish to withdraw it.
If everyone demands their deposit as cash, the bank would run out of physical notes very quickly. They would, in all likelihood, ask the central bank to print the cash (in exchange for the reserves they hold at the CB), in order to fulfill the withdrawal. This might take days, weeks even, depending on how many notes are to be printed. Note that this isn't printing new money - it's merely transforming digitally stored money into physical paper.
> I wire money to the seller
Bank A would have an account within Bank B, and vice versa. At the end of the day, these banks "settle" their accounts; aka, if there's more money in Account A (in Bank B), it means Bank A has sent more money to Bank B, and Bank B needs to owe Bank A. This is basically how international transfers work. For local banks, it's likely that the Central Bank would clear these transfers up (aka, Central Banks are the banks for banks).
> what is stopping bank A from sending out an infinite amount of money to other banks?
The same reason why a bank cannot just create infinite money and spend it on hookers and blow. They are creating money only via lending, and there are laws regarding how much they're allowed to lend out (called reserve requirements).
I thought "reserve" literally meant to set aside part of your assets.
If I have to set aside, X% of the money I create, how does that stop me from creating infinite money? I just create enough to reserve part of it.
but you cannot create enough, because before you created, you did not have enough reserve to legally create the loan. The newly created loan cannot be part of the reserve to which you count towards your original reserve requirement to qualify to make the new loans!
otherwise, this would just be a loophole in the reserve requirement laws.
And these monies are not cash - they are loans. If these loans default, and the bank somehow cannot collect the collateral for it, the bank will lose equity. Aka, the shareholders of the bank takes the loss. If this loss is great enough, the bank becomes insolvent. That's why banks do not lend to risky people, or takes a larger collateral.
On a financial statement of a real, 120 year old bank on sec.gov, loans are in the asset section of the "Consolidated Statements of Condition". The deposits are in the liabilities section, and there are no negative numbers in either part.
>and a $100,000 deposit in your bank account.
Is that what happened the last time you applied for a mortgage?
Only the central bank can create money out of thin air.
To take a very simplistic example, let's say we start with an empty economy, no money anywhere. The central bank creates 100 out of thin air and buys something from an individual. That individual places the money as deposit with bank A. Now bank A has 100 deposit liabilities, and 100 cash (deposit at central bank).
Now another individual can borrow from bank A and place the money with bank B, so now bank A has a 100 deposit liability and 100 loan asset. Bank B has a 100 deposit liability and 100 cash asset (deposit at central bank). This is the money multipler, m2 = 300, 100 in bank A, 100 in bank B and 100 at central bank, whereas the central bank only has created 100 of m1. However bank A cannot make a new loan out of thin air, it doesn't have cash anymore. The capacity to make loans is with bank B, where the cash is.
It is not the case that banks can make loans with no consideration for their funding and liquidity position, just by creating two accounting entries, only the central bank can do that.
I wouldn't exactly call a residential mortgage a gamble.
Not the loan for my car either, the bank has first priority in both and demands I insurance them for the full value and for all eventualities.
The original comment that I answered is technically false if there exist a single mortgage that isn't a gamble.
Now, if only a single such mortgage existed you’d still have a point, but the fact is millions of loans are given and paid back every year without any complications at all: there is plenty of income and plenty of security for very many loans.
IIRC, what Lehman did was to deliberately trade in bundles of sub prime loans.
“There’s no risk here” is what causes financial crises and bank runs, which is the larger point.
It means the bank can be sure to recover their money and their costs.
That isn't a gamble.
If you loan someone money to buy a house, you are betting that either they will be able to pay or that the market will appreciate enough that all of the costs of foreclosure and resale will be less than the sale price of the house.
Both things being false at the same time in 2008 ruined Lehman brothers because they had the same thought you’re expressing here. Their gamble didn’t pay off.
During the subprime crisis, the entire US market went down by 30% and in some places sales basically halted for months. Many thousands of people lost homes, and almost all of them had equity on paper before the bubble popped.
Individual actions also matter. Maybe the reason you can’t pay your bank is because you developed a mental illness or drug problem, and they now need to replace a large amount of damage before anyone will pay what you paid.
Those aren’t constant high risks but they are why smart bankers calculate the odds and plan for what they’ll do when something inevitably goes wrong.
Just because the odds are currently in their favour, doesn't make it not a gamble.
Cryptocurrencies were meant to put an end to such things. Ironic how corporations ended up reinventing it all on top of crypto. Exchanges are everything that's wrong with this space.
Exchanges have provided the necessary convenience for mass adoption, providing a way to get your magic beans in exchange for real money without much hassle. Decentralized systems are inherently more complicated than centralized ones and have a harder time gaining traction in the general population (see Mastodon's adoption in the wake of Twitter's turmoil).
Crypto is Gentoo. Centralized exchanges are macOS. There's a reason about 10 people use Gentoo. Most people couldn't care less about recompiling their kernel by hand every 10 business days even if when you squint at it from across the room it could be better. They just want to use their computer. Ditto people wanting to etch their recovery phrase onto aluminum and hide it under their birdbath. Blaming the user will only get you so far.
> Cryptocurrencies were meant to put an end to such things.
There's a boatload of very good reasons they didn't and won't. I'm not saying they'll disappear, I've been around this space for like 7 years. I know better than to plant the flag. With that said, there's no reason more people will proportionally use crypto in real life - in the fullness of time - than use Gentoo in real life. What that translates to in price, who knows, and frankly who cares?
Yeah, well, Communism was meant to put an end to poverty and class injustice. Brexit was meant to restore glory to Britain. The Catholic Church was mean to put an end to vice. Things don't always do what they say on the tin.
As the Bible puts it: "For every tree is known by its own fruit".
Specifically, if the fruit seems consist of nothing but speculative bubbles and billion dollar frauds then that may be the true nature of the tree.
Exchanges are the space. Without them, there's no way for people to buy into the system with real money in the first place!
Exchanges are popular because it's easy, and also it allows you to trade _fast_. And then the exchanges figured out that they could be holding onto your cash and/or crypto, rather than, you know, actually be _just_ a location for which exchanges happen.
Of course there is: mining. It's a very simple proceds: fiat => energy => processor => cryptocurrency.
Yet another thing that failed. Everyone was supposed to be able to mine cryptocurrency using their own computers. Instead things got so competitive that massive centralized operations using specialized hardware became the norm.
Yup. Just yet another bank leveraging its fractional reserve. They just can't resist, can they? Actually I'm not even sure they're fractional in the case of cryptocurrency exchanges. Wouldn't be surprised if they were gambling with their entire reserves.
Binance doesn't even have physical headquarters in any country in this world - and the reason is that they are being actively investigated or banned almost everywhere.
No regulations, no protections, only idiots "invest" in this garbage.
It's just one scam after another
But I wouldn't call people idiots that invest but uninformed and/or desperate and/or uncaring. If someone has an extra $1000 in the bank they think what's the worst that can happen? It's a mistake but you can see how these exchanges are worth billions all of a sudden and the dollars being pulled in to make these billionaires have to come from someone else.
If Binance goes, crypto isn't coming back.
This was FTX and Alameda like a week ago.
EDIT: I just checked and FTX was only founded 3 years ago
I’ve never touched Bitfinex/FTX/Binance or any exchange that allows options or leverage. I am a US citizen. Bitstamp Gemini or Coinbase are the only ones I’ll touch
And I’m pissed off that coinbase removed the BTC/USDC trading pair because it had low volume
Why will I not touch them? That’s a long story but I see history repeating itself - fractional reserve Bitcoin banks paying ponzi interest
DCA-ing since then, selloff at the top in 2021, pull my limit sell orders, let it crash.
Doing it again now, kinda hard not to take advantage of deflationary 4-year super cycles
However there wasn’t really any competition. Bitstamp and handful of crap exchanges. Coinbase was an OTC frontend.
If you want to get maximum value in exchange for doing more legwork and probably assuming more risk, Ebay or Facebook groups.
I believe "crypto" will always be around. It's an MLM for the digital age. It will always be nonsense.
Bitcoin, however, I do believe is different.
So, I'm not sure "an order of magnitude larger" is necessarily an accurate description. Wouldn't say it's inaccurate either, but just missing some nuance.
Interesting statement for a decentralized asset
I don’t know much about the topic and sometimes I get confused with the concepts crypto, currency, non fungible, token and I call it asset asset to generalize. So, what makes a crypto to be a crypto?
As you soon as someone creates an exchange - and especially as soon as they start packaging funds into absolutely any kind of financial instrument/service - they've effectively reinvented deregulated banking with no deposit protection and extra risk.
But is "decentralized"...
Whenever news like these occur there is always a bunch of "I knew it would all fall down" self-validation comments in HN. Yet it really doesn't fall down, after over a decade. Perhaps it's time to consider that you are looking at the wrong thing and barking at the wrong tree.
Of all these collapses there is 0 decentralized exchanges (i.e. on-chain) involved. Pretty much because they can't, by design. That's the value proposition. Unstoppable exchanges, transparent, publicly verifiable, highest availability.
What you have seen all this year is more and more validation that centralized finance is problematic by design (3AC, Celsius, BlockFi, FTX...) while decentralized finance comes unscathed (Uniswap, Aave, Curve, MakerDAO...).
Also, cryptography isn’t going anywhere.
It has many applications far beyond cryptos lol
It is one of the toughest licenses to get in the world, so I would be surprised if BUSD somehow collapses.
https://paxos.com/2022/04/07/busd-issued-by-paxos-on-ethereu...
Tl;Dr: Paxos issues something called BUSD on Ethereum, which is regulated. Binance issues something that's kinda sorta related but not really, that's fully unregulated, only usable in their private chain, ALSO called BUSD, that is just monopoly money. They happen to have the same name, but hey, you fell for it!
Related quote from the link:
"Paxos issues two US dollar-backed stablecoins – Pax Dollar (USDP) and Binance USD (BUSD) – that are overseen by the NYDFS. These two tokens are very similar in design and reserve operations because they are regulated. Paxos and NYDFS agreed to the terms of the token in advance of issuing – this includes the stipulation that USDP and BUSD only be issued by Paxos on the ethereum blockchain at this time.
Our marketing partner for BUSD – Binance – issues a token on its BNB smart chain called Binance-Peg BUSD ... Note that Binance-Peg BUSD is strictly a Binance product; it is not issued by Paxos nor regulated by the NYDFS."
Binance pegged USD is not printed out of thin air. It is a bridged token from Ethereum to other blockchains. Because how smart contracts work, Binance cannot manipulate Binance pegged USD supply unless they seriously break BNB Chain.
You can verify the reserves and bridges here:
https://www.binance.com/en/assets-proof
If you do not believe this web page, you can also run your own node and ask it directly using JSON-RPC API.
Thus any Binance pegged USD (and other bridged tokens) are 1:1 backed by matching token on Ethereum chain. Binance pegged USD is not different from any other bridged token on other bridges and chains and there is no reason to suspect any foul play here.
Because it is transparent and on-chain there cannot be fraud. There could be, however, technical issues and hacks with the bridges.
The reason why Paxos do not directly issue tokens on other chains is that they 1) likely do not have infrastructure for it yet 2) they are limited by commercial agreements or agreements with a regulator.
Yet ? We are talking multiple tens of Billions of $ and supposedly they don't have infrastructure YET ?
I don't know anything about the coin itself, but all of this sure smells like the small print that some will find very relevant when the time comes.
> Yet ? We are talking multiple tens of Billions of $ and supposedly they don't have infrastructure YET ?
These up billions of $$ of customers money which they make a kind of commission on. The commission is not going to be billions but rather millions; and crypto/blockchain infrastructure/developers are very expensive.
Glad they failed me though, life turned out pretty great without me gambling on meme coins.
That's not an indication of anything wrong with Binance. A more plausible explanation is that the laws are too oppressive "almost everywhere".
If you have $100k at Binance, is there any reason to believe you could withdraw it tomorrow? Any contract you may have with Binance is made with a local shell company that could just as well be a hot dog stand. Any money you’ve sent them is effectively nowhere.
FTX was supposed to be above the board and they collapsed in a day. A few months ago FTX was the white knight buying out distressed crypto companies. Why would Binance do any better?
But yeah, they are probally the most shady ones, but the fact they actually have no offices and no govs after them, makes it easier to hide your operations, its the same for tether that has managed to get so big with absolutely no offices, no employees or anything.
Both are best friends.
In fact it seemed like all it took was a public quarrel with the founder of another exchange to start the ball rolling toward total collapse -- again, because it was all based on personal credibility.
If I buy and sell a coin from myself with monopoly money for ever increasing prices - is it really worth anything?
Obviously there are some inflows into crypto. But it's about 0.00001% of the daily volume.
True there isn't much intrinsic value to the 0s and 1s making up a bitcoin but there aren't much to the the 0s and 1s making up the US$ or similar in your bank account.
That happened after they were buying stadiums and had a Larry David spot on the superbowl. They were the archetypal dumb money, top of the bubble, company. No one should be surprised they couldn’t handle a financial stress test. Sam was great at PR and maybe not much else?
This year this guy has been on every major podcast being touted as a genius philanthropist / “good” capitalist. Remember he just crashed TWO companies. Alameda and FTX. The bubble keeps popping. I’m curious who’s next. This almost certainly will ripple beyond crypto to general tech companies given how.. all the top VCs have billion dollar funds in crypto as my “exhibit A”
Similarly, Sam's fund Alameda was delta-neutral until some time in 2021, which is something that also could have profitably continued in perpetuity, but they got greedy and started making directional bets with leverage.
They were making insanely leveraged bets on real assets.
FTX seems to me to much closer to Madoff.
They were printing their own Monopoly money and pretending it was worth billions.
Fraud? Yes. But users weren’t buying into a ponzi, they were using a centralized exchange product with the understanding that reserves were whole, when in reality they were secretly fractional reserves.
> In August 2007 most of the big quant funds lost double digit percentages in a few days when someone had to unwind a portfolio and statarb strategies stopped working.
If your strategy works for years and then a single event erases all the historical profits and puts you in the red, your strategy always sucked because it ignored tail events.
wikipedia says he turned it down due to risks involved
They held a huge supply of an illiquid asset that they made the market on. No surprise that they would offer a high price and then say "these are worth a lot." This happened with beanie baby sellers: they would corner the market on one model and the jack the price. The problem is that nobody else thought they were worth that much.
Then, FTX made it worse by allowing people to borrow against them at the valuation of "a lot," and borrowing against them at the same valuation.
It seems naive to me.
Exchanges could practice provable solvency ( https://eprint.iacr.org/2015/1008.pdf ), but they aggressively do not-- in part because they don't want to bring customers attention to the potential issue (and they rightfully reason that once customers are concerned no amount of technical solution will likely satisfy them).
But FTX wasn't really an exchange-- it was a scamcoin casino primarily trading in highly leveraged proxy assets ("perpetuals") as a bucketshop.
(for a less quippy answer: they could show their fiat liabilities through these means and have a third party bank attest to their fiat account assets (or an encryption of their fiat assets). At least then you'd be trusting some established bank and not just some sketchy cryptocurrency industry company)
Where were their profits derived? Was it from taking their slice of every transaction? Or selling their freshly minted coins? If it was the latter, that only works for so long, just ask the Fed.
Is there any reason to believe there were any profits ever?
Unfortunately, they got greedy and started lending money (to themselves in Alameda, where it was gambled away)
Edit: nvm I guess this thread is about FTX's original business model
FTX was probably hugely profitable before they started stealing.
Turns out, they were a Monopoly money printing machine.
If you have a subscription I recommend it. - https://www.bloomberg.com/opinion/articles/2022-11-09/bankma...
This is not accurate. The ToS for FTX explicitly said that customer funds would not be used for investment purposes. While it didn't explicitly say it wouldn't be used for lending, it was a broad assumption in the industry that the exchange was solvent and could back user assets on a 1:1 basis.
It is widely believed now that Alameda went deep underwater during the collapse of the Luna ponzi (this one was quite literally structured like a ponzi) and borrowed a large amount from FTX to bail themselves out of it. In the wake of this, FTX had a shortage of hard assets and a fat bag of FTT that the loan was issued against, which is what exposed them acutely to a bank run and/or price decrease in FTT.
Anyone in crypto who makes this assumption about any other entity in crypto is either brand spanking new or a fool.
Folks who have been in the industry for 10 years, many very publicly cynical, had assets on FTX. It was viewed by many as the safest CEX in the industry.
I'm a bit more paranoid, so I maintain self-custody 100% of the time unless I'm using an on/off-ramp, but some very bright, very oldschool folks got caught up in this one.
And derivative trading shouldn’t be based on lending out customer funds. The exchange should lend out their own funds. They charge a lot of interest for the leverage, and they don’t even take the risk on their own money?
What are the chances he never intended to buy FTX, just to destroy it after their public back and forth? It's almost like a reverse Musk - he sent a purchase offer with an option to back out no matter what
CZ knew from day 1 all he needed to do was crash FTT just enough, and the rest would happen organically
My concern is how much funding FTX and SBF in particular were giving to EA/AGI Safety research labs and charities. There’s going to be some significant knock on effects there when the money is no longer available.
If they are not part of a university, it is probably pretty sketchy anyhow.
Did a malicious AI orchestrate this downfall?
Not to defend him and I also agree that Binance benefited by killing its biggest enemy while still suffering himself as industry collapsed, but if this event didn't happen today, much worse would have happened in the future affecting literally everyone much worse.
You can download it as a CSV - I'd also take screenshots to be on the safe side.
Save yourself a potential headache when you come to do your taxes down the line.
Wells Fargo isn't going to go out of business if the CEO of Bank of America insults it on Twitter. But even if it did, there is FDIC insurance for deposits, and nobody whose balances were under the insurance limits will lose a penny.
FTX succeeded solely based on the reputation and personal credibility of its founder. One tweet from the CEO of a rival exchange and the whole thing came crashing down, taking a significant bite out of the value of many cryptocurrencies. So, even people who didn't have accounts at FTX are hurt by their assets losing value.
https://twitter.com/cz_binance/status/1589283421704290306
For context this tweet is referring to reports that a very large percentage of Alameda's holdings are FTT.
In that context, it’s not so surprising that a tweet had the effect it had.
This is why so many people compare crypto to the pre-regulation banks, and why they predict a similar fate for the exchanges.
Meanwhile, FTX is still operating (!), accepting new users and accepting customer deposits even though it is insolvent. If you haven't been following the crypto news much or aren't on Twitter, you will have received ZERO direct communication from FTX that they are insolvent (not even an email). This is coming from someone who went on the record[0] trying to lobby, blaming the financial industry for lack of transparency and taking on too much risk and publicly lying that FTX doesn't use customer funds to trade (tweets have since been deleted)[1]
[0] https://twitter.com/HaloCrypto/status/1590417311839981569
[1] https://cointelegraph.com/news/ftx-founder-sam-bankman-fried...
FTX wasn't a scam either. Their business was a licence to print money but, as so often happens in finance, managed to spin shit from gold.
If they were serious they would have hired portfolio managers with decades of experience.
Its the same thing as three arrows capital, random people ending up with a bunch of capital, overestimating their intelligence due to a bull market run, and ending up with nothing
so "If they wanted you, they got in touch." seems true to me
you make it sound like a prestigious elite club. it was a scam, and it should be called out as such.
also again i personally know two people that received stingy offers from them
Debate old as time. I agree with you but this happens every cycle. RenTech doesn't have "real finance people" either. Maybe the problem was that they just had the wrong people, not their level of realness.
And Alameda seemed to be mainly people from Jane Street? There is a difference between trading firms with good tech (Jane Street) and firms taking prop risk (DE Shaw)...just based on what has been released, I agree that they didn't seem to know what they were doing. Unfortunately, the market doesn't know you went to MIT.
And they wouldn't have hired PMs with decades of experience, because no PM with decades of experience would have worked there.
What do you mean by this? What is DE Shaw doing that Jane Street isn't?
Run by people with 1-2 years experience in shops that run a market neutral profile , in an environment where they believed the underlying asset goes up every single day.
Is NYSE a scam? Is Euronext a scam? The exchange was a legit business that was profitable...outside of fixed costs, it isn't possible to lose money with an exchange. But they were doing other stuff (broking) that did lose them money. These are two completely distinct operations though (in real finance, they are largely distinct).
FTX, on the other hand, pretty much did just that.
Does that make FTX a scam? No. But when they told their customers they don't gamble with customer deposits, that was at least incomplete and misleading, and may have crossed the line into being intentionally deceptive.
Of course, even if people knew about this, they probably would have used FTX anyway because people do crazy things in a bubble market.
And whether they are gambling with your money or not, they were a mix of a bank and an exchange...so the comparison with a bank isn't complete. They were booking derivatives trades so your money is 100% at-risk, irregardless of what they do with customer deposits. This is what prime brokers do (as Levine says in that article).
The reason you don't lend against your own shares is because you won't be able to get financing and are exposed to runs. It is unrelated to the point about customers who were already at risk because they were trading derivatives issued by FTX.
It is, e.g., if the fees on the average transaction are lower than your variable costs. It is just extremely improbable for that to occur accidentally.
Only on HN.
FTX’s financial black hole leaves Binance balking at rescue plan - https://news.ycombinator.com/item?id=33535161 - Nov 2022 (353 comments)
Isn't the collapse of FTX in some ways evidence in favor of decentralized currency rather than against it? As evidenced by 2008, firms gambling with other people's money doesn't seem to be specific to DeFi.
If coin exchanges had some legal obligation to just be wallet and marketplace services instead of investment engines, could that help prevent this sort of fiasco (and the 2008 one) happening in the future? On the other hand, perhaps this solution could be equally applicable to traditional banks.
DeFi had no problems throughout these past few days. No Dex ever had withdrawals/transactions take longer than seconds, as always. No Dex ever used user funds secretly (impossible on a public ledger), etc.
The lesson here is that TradFi is not safe. Not your keys, not your coins.
- Bugs in the code means all capital may be lost. That's potentially worse.
- The profit margins aren't nearly as high. If you're a centralized entity or a bank you can do all kinds of shady stuff behind the scenes with customer funds to fill your own pockets. It has happened over and over again both in TradFi and CeFi. In DeFi, you can't do that since it's fully transparent and backed. Good for the consumer, but not not as good for business growth. Many traditional finance entities have become as big as they are because they did shady stuff but didn't get caught. I'm just not talking about crypto exchanges here, but also traditional banks.
That's the problem, though. Crypto has wild gains because it's an unregulated wild west. And for the same reason it's full of pyramid schemes etc. As soon as you regulate, you fix the problems but head to centralisation and it becomes a boring service without big profits.
How do you even mess it up this badly?
Knowing when to stop is genius.
Meanwhile, some how magic internet money (abracadabra.money), with people bitching about their bad debt on chain for months is still solvent, while ftx is dumpsterfire...
So perhaps not surprisingly, Uniswap - which is a preeminent DeFi app - now has deeper liquidity on many important trading pairs than the largest CEXes:
Estimated 6 Billion USD of a hole on the FTX side.
I wonder what's going on / will happen in countries where governments (or citizens en masse) have endorsed / adopted cryptocurrencies?
I will make an exception to this: if they do not manage to make everyone whole or if there is public outrage that overwhelms his purchased politicians then it is over and multiple people will do time.
Even if the loss was manageable, I suspect that Binance never intended to do any deal. They had absolutely no incentive to do so.
People will simply lose faith in crypto entirely and avoid the whole market.
Only if you cherry pick when you imagine you would have entered/exited the market
It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way--in short, the period was so far like the present period that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only."
Big if true
https://fred.stlouisfed.org/series/M2SL
Might of USA and all that? Yes I’ve heard all that before. Rome, France, England…
https://en.wikipedia.org/wiki/Debasement
https://en.wikipedia.org/wiki/Assignat
https://en.wikipedia.org/wiki/The_Great_Debasement
History is more on the side of it happening than not.
“The root problem with conventional currency is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.” -Satoshi Nakamoto
Is this true? Of all the years that various countries have used traditional fiat currency, has debasement happened more years than it hasn't? I don't think so but I'm not certain.
Obviously, nobody can predict the future here, and history tells us that all empires come to an end at some point. But we're watching crypto speed-run through all of the issues that the American banking system had in the Free Banking era leading up to the creation of the Fed. Operating in this trustless crypto system still makes it possible for people in control to do stupid things which threaten the viability of the entire system.
Personally, I think cases like this prove that wealth concentration in the hands of the few leads to these situations. It's a not a government problem, it's a concentration of wealth and power problem. Individuals shouldn't have this much money or power to act so recklessly, but we accept the outcome as a consequence of our winner-take-all culture.
Do you know of any currency over the past 200 years that has suffered deflation throughout that period?
I don't mean "occasionally has one year with deflation", I mean, the real value of 1 unit of that currency 200 years ago was less than what it is today.
You are wrong.
The economist that agree with that view are also wrong, or they are biased by conflicts of interest.
The central banks that support and propagate that view, have a significant conflict of interest as well.
I heavily recommend you consider the incentives of the people teaching that view, and that you re-think from the most elementary of economic principles how exactly that would work.
There is no long term benefit to monetary inflation.
I cannot repeat this enough, monetary inflation, just like monetary deflation, is a distortion on the market, and like any other distortions on the market, it has a net negative expected value.
Of course this negative expected value is distributed throughout the entire economy, whereas the benefits are concentrated on one entity, the issuer of the currency, which is the central bank and the state by association.
With a bit more manpower, they could make the UI more usable to the general public. I wish there was an iOS/Android version too.
Hodl Hodl https://hodlhodl.com/
Robosats https://learn.robosats.com/
Yep: as a set of primitives on which to build sorting mechanisms for fools and money.
That's not exactly "absolutely nothing", to use the parent's phrase.
Honestly I'm sick of hearing it; yes we know, all money is made up, that's not an interesting point anymore. Society is okay with that, but it doesn't mean you can just make up another currency, that's not how it works.
Crypto still doesn't have that, and that matters. To what degree is up for debate, but it does matter. Only governments apparently can get away with the unbacked currency, because they otherwise back it with enforced societal rules (a.k.a. laws).
Per Mark Blyth
Money, to be useful is what Economists call three things; ♦ A Unit of Account ♦ A Unit of Exchange ♦ A Store of Value: A hedge against uncertainty Crypto is not money, so what is it? Is what the Chinese Central Bank characterized three years ago as Digital Gambling Asset
Sure some corporations have things like CompanyX dollars that they could give out to employees who then redeem them for something. But in these situations those dollars are back by nothing.
The contract I have with my plumber to plumb my toilet is not something you can use to buy lunch.
That's a very deep level. At the practical level, USD is viable because court judgements in the US can be settled in dollars (e.g. if somebody is held responsible for killing your goats, you can't demand to be paid back in goats), and US taxes are owed in dollars.
At the deepest level, taxes and courts are maintained by the US government, which I suppose you can say is protected by the US military?
Saying that the high dollar is protected by the US military makes more sense. But the dollar itself is protected by the magnitude and reach of the entire US government, which is only partially maintained and extended by killing people.
While this is true in theory I trust the Swiss National Bank (in my case) significantly more than all those two bit shysters running crypto exchanges, while being extremely economical with the truth in all their communications.
Maybe ftx would have been a top 10 exchange, instead of the third largest.
Maybe alameda would have been a standard successful prop shop (though they were really struggling as trading got more competitive).
He would have just been worth a few billion.
But here we are now.
I have a lot of friends on the inside and nobody knew at all. These friends knowingly kept money there confident the rumors weren’t true. I don’t know how much all of alameda knew but I don’t think the rank and-file knew the full story.
And how do you even lose 8bn? Did alameda become a shop making leveraged long crypto bets? Using a shitcoin as collateral? I know they’re smarter than that, so what happened????
I haven’t seen any data on it
I obviously don’t get to look at balance sheets or daily pnl or anything though so it’s all second hand and lagged.
Google is showing down 30% over the last 4 days. https://www.google.com/search?q=MSTR&sourceid=chrome&ie=UTF-...
At the same time, if you are talking MSTR, Saylor must be concerned.
Essentially an exchange can be summed up as total crypto assets minus total crypto liabilities. If that number is negative then the exchange is just gone, no point in buyout.
The exception is binance which is basically AWS for crypto exchanges. https://cloud.binance.com/
Congrats on Binance for dodging the bullet
Did SBF/FTX break the law and will see jail time?
Or did they break regulations and will receive a fine?
Or is it just a tough cookies situation?
There are so many laws, so many jurisdictions involved, and so much complexity and ambiguity that it seems basically certain laws were broken. So, we have broken laws and injured parties - seems correct to pursue criminal charges.
"Matt: (27:13) I think of myself as like a fairly cynical person. And that was so much more cynical than how I would've described farming. You're just like, well, I'm in the Ponzi business and it's pretty good."
https://www.bloomberg.com/news/articles/2022-04-25/sam-bankm...
Plenty of people read/listened to that. Perhaps nobody called it, but a lot of people aren't shocked.
I think more people have "called" the collapse of Tether, but you know, eventually maybe they will be right?
There are very few successfully distributed systems I can think of. Bittorrent is on. I guess we could argue some markets in the economic sense are distributed. But in reality even both of those are part-centralised.
Just turns out centralisation is usually more efficient and more convenient.
It seems completely insane to use FTT token as collateral in the way FTX did.
https://www.bloomberg.com/opinion/articles/2022-11-09/bankma...