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  • Bankman-Fried: I don't know of FTX deposits being used to pay Alameda creditors -ABC News

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Added at 7:42am

I'm pretty sure I understand what happened with the FTX blowup...

1. Alameda was allowed to trade on the FTX platform without liquidation constraints (ie no margin call)
2. Alameda's positions went bad.
3. Alameda's positions went from bad to worse, and the losses were sitting on the FTX exchange.

It's that simple. No funds were "transferred" to Alameda -- they sucked up the customer funds via a huge loss in their FTX trading account.

Credit to Patrick Boyle for cracking the code.
I feel personally duped by SBF. If you had asked me a month ago who the most robust people in the industry were, SBF would've topped that list given his prior experience at Jane Street.

These interviews he is doing are making complete mockery of regulators, his investors, and anybody who had a business relationship with the guy. Not exactly sure if he has some wild angle going here, but my main takeaway is he had no fucking idea what he was doing and either didn't know, or purposefully ignored, some of the most basic tenants of risk management and financial markets.

Here's the full Dealbook interview from last night, grab some popcorn for this one:
Inserted Video
Quoting Goat
I'm pretty sure I understand what happened with the FTX blowup... 1. Alameda was allowed to trade on the FTX platform without liquidation constraints (ie no margin call) 2. Alameda's positions went bad. 3. Alameda's positions went from bad to worse, and the losses were sitting on the FTX exchange. It's that simple. No funds were "transferred" to Alameda -- they sucked up the customer funds via a huge loss in their FTX trading account. Credit to Patrick Boyle for cracking...
And if this^ is indeed the turn of events, FTX US customers will be made whole. The media's been conflating the FTX International and FTX US entities, but I'm pretty sure there's a firewall between them. Ie, the US regulators did their job.
Quoting Goat
I'm pretty sure I understand what happened with the FTX blowup... 1. Alameda was allowed to trade on the FTX platform without liquidation constraints (ie no margin call) 2. Alameda's positions went bad. 3. Alameda's positions went from bad to worse, and the losses were sitting on the FTX exchange. It's that simple. No funds were "transferred" to Alameda -- they sucked up the customer funds via a huge loss in their FTX trading account. Credit to Patrick Boyle for cracking...
Interesting - this makes sense and seems somewhat similar to my understanding of the issue.

As much as SBF caveats his recent statements to blissfully ignore liquidity (1, 2, 3), and with credit to a finance professional whose name I forgot, I'm thinking it was something like the following:

1) FTX creates FTT token
2) Alameda buys large amount of FTT token at a low cost and deposits at FTX
3) Price of token goes up, in-part to FTX and Alameda's control of the outstanding supply
4) Alameda borrows liquid assets against their FTT token deposits (i.e. FTX customer deposits)
5) Alameda viciously spends the liquid assets on illiquid "VC" investments, which are probably as close to perfectly correlated as you can find, and those investments get crushed
6) CoinDesk article breaks, calling FTT's valuation into question and essentially collapsing the collateral (with CZ putting the final nail in the casket)
Quoting yieldjunkie
If you had asked me a month ago who the most robust people in the industry were, SBF would've topped that list given his prior experience at Jane Street
I'm with you. Sam is a great actor. However, had I known he was running a prop desk out the back of FTX, I would have immediately known trouble was brewing.
Quoting yieldjunkie
{quote} Interesting - this makes sense and seems somewhat similar to my understanding of the issue. As much as SBF caveats his recent statements to blissfully ignore liquidity (1, 2, 3), and with credit to a finance professional whose name I forgot, I'm thinking it was something like the following:...
This is logical and realistic, but the Patrick Boyle explanation is a lot simpler, requires less fraud, and is more like other trading blowups where a broker or bank is carrying a huge unrealized loss. If Alameda was allowed to go negative on FTX (ie the "secret exemption" John Ray pointed out), the whole situation is elegantly explained. The FTT issues are merely an explanation of how Alameda's losses occurred.
Quoting Goat
{quote} This is logical and realistic, but the Patrick Boyle explanation is a lot simpler, requires less fraud, and is more like other trading blowups where a broker or bank is carrying a huge unrealized loss. If Alameda was allowed to go negative on FTX (ie the "secret exemption" John Ray pointed out), the whole situation is elegantly explained. The FTT issues are merely an explanation of how Alameda's losses occurred.
His explanation does make a lot of sense, and seems like a better fit to replace the VC investments portion of what I was thinking (which is really the meat of the issue, where losses occurred).

The VC portion may have just been the sink where Alameda was spending it's booked profits prior to late 2021, and a lack of mark-to-market on those illiquid investments as the environment worsened resulted in a larger gap between the firm's perception of position and reality.
I'm going out on a limb here and predicting Sam will not see prison. He did some dumb shit and fooled a lot of people, but he did it from the Bahamas where such acts are not only legal, they're celebrated.

I think it's more likely that someone from Alameda goes to jail due to activity on US soil.
Quoting yieldjunkie
The VC portion may have just been the sink where Alameda was spending it's booked profits prior to late 2021, and a lack of mark-to-market on those illiquid investments as the environment worsened resulted in a larger gap between the firm's perception of position and reality.
Yup. The story behind Alameda's losses is very complicated, but the story behind FTX customer losses is very simple: FTX let Alameda's account trade in the red.
Quoting Goat
FTX let Alameda's account trade in the red.
Might Sam be an altruist after all?!?!?
Quoting Goat
I'm going out on a limb here and predicting Sam will not see prison. He did some dumb shit and fooled a lot of people, but he did it from the Bahamas where such acts are not only legal, they're celebrated. I think it's more likely that someone from Alameda gets in trouble for this.
You might be right here. Tough to say what the real relation to FTX.US is. That said, there are alot of people who want to see this guy go down, I would imagine this includes the professionals and regulators he made a mockery of.

Quoting Goat
{quote} Yup. The story behind Alameda's losses is very complicated, but the story behind FTX customer losses is very simple: FTX let Alameda's account go negative.
Wild to think somebody signed off on this, but it certainly adds up nicely. Thanks for sharing that video!
Quoting yieldjunkie
That said, there are alot of people who want to see this guy go down, I would imagine this includes the professionals and regulators he made a mockery of.
I think it hinges on FTX US. If Sam didn't commit any crimes on US soil, ie FTX US customers are made whole, he can't be extradited from the Bahamas. And the Bahamas will certainly do nothing to their hero. That makes him a free man in my understanding.
Quoting Goat
I'm going out on a limb here and predicting Sam will not see prison. He did some dumb shit and fooled a lot of people, but he did it from the Bahamas where such acts are not only legal, they're celebrated. I think it's more likely that someone from Alameda goes to jail due to activity on US soil.
No justice and a bad example if he walks. I think he will serve a favorably reduced sentence.

Inserted Video
Money isn't real
Quoting Goat
I'm pretty sure I understand what happened with the FTX blowup... 1. Alameda was allowed to trade on the FTX platform without liquidation constraints (ie no margin call) 2. Alameda's positions went bad. 3. Alameda's positions went from bad to worse, and the losses were sitting on the FTX exchange. It's that simple. No funds were "transferred" to Alameda -- they sucked up the customer funds via a huge loss in their FTX trading account. Credit to Patrick Boyle for cracking...
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Money isn't real
Also interested in hearing what Caroline has to say in court. I bet her lawyers are advising her not to say one word ATM.
Money isn't real
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  • Posted: Dec 1, 2022 7:36am
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    Category: Low Impact Breaking News
    Comments: 15  /  Views: 665

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