Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

FTX tapped into customer accounts to fund risky bets, setting up its downfall

wsj.com

Post reply on HN
Print view View original

291–300 of 746 posts

Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall

#291

Post by Digory »

delusional wrote: post #243
Digory wrote: post #235

Earlier quoted context omitted.

So if the chain is supposed to enable "trustless" finance, what enabled Alameda to take anything? Seems Alameda and its clients should be screwed, but FTX's holders should be relatively easy to identify and restore. But everyone seems to say that's not the case. So what broke down here? Why isn't the ledger ledgering?

The ledger ensures that the handing over of the "thing" can happen without trust in any intermediary. You still ultimately have to trust the counterparty to deliver what they promise. Think of it like HTTPS. Nobody can sneak anything into the request, but the counterparty you're contacting could still be a fraud.

But this isn't counterparty risk, it's fraud risk, right? It sounds like "Atrium borrowed a bunch of houses from FX, but FX didn't own the houses." When you check the Recorder (the blockchain for houses), the deeds should all say "John Doe owns 123 Main St."

In the world with a Recorder of Deeds, Atrium is screwed, and FX might be screwed, but John Doe is easily confirmed as the owner of 123 Main.

It sounds like people here gave their coins to FX, so that the "deed" shows FX "owns" the coin. In effect, they destroyed the 'trustless' part of the equation. And then SBF violated the trust.

So, the next innovation seems to be a blockchain that shows an owner and an agent?

Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall

#292

Post by n0tth3dro1ds »

solotronics wrote: post #273

Probably a good time to mention the original mission statement of Bitcoin was to custody your own money without counterparty risk. Time and time again we have seen altcoin ponzis and exchanges collapse under the weight of their fractional reserve. What is still working? Bitcoin. Greed in this space causes people to act with a more short term view for quick profits while ignoring fundamentals. Over and over again.

Not your keys, not your coins.

Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall

#293

Post by Digory »

phas0ruk wrote: post #278
Digory wrote: post #235

Earlier quoted context omitted.

So if the chain is supposed to enable "trustless" finance, what enabled Alameda to take anything? Seems Alameda and its clients should be screwed, but FTX's holders should be relatively easy to identify and restore. But everyone seems to say that's not the case. So what broke down here? Why isn't the ledger ledgering?

FTX is a centralised exchange, it is not routing all customer trades on chain. It’s not a blockchain failure, it’s just a lack of client asset segregation by a traditional centralised trading house.

So the internal trades aren't on chain. Well, that's going to leave a mark.

Is there a coin that distinguishes agent and owner? Seems like you want trustless agency if you're pursuing trustless finance.

Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall

#294

Post by chironjit »

phas0ruk wrote: post #278
Digory wrote: post #235

Earlier quoted context omitted.

So if the chain is supposed to enable "trustless" finance, what enabled Alameda to take anything? Seems Alameda and its clients should be screwed, but FTX's holders should be relatively easy to identify and restore. But everyone seems to say that's not the case. So what broke down here? Why isn't the ledger ledgering?

FTX is a centralised exchange, it is not routing all customer trades on chain. It’s not a blockchain failure, it’s just a lack of client asset segregation by a traditional centralised trading house.

This is the correct answer. When you move your tokens into a centralised exchange like FTX, your funds are pooled with everyones deposit.

There are always deposits and wihdrawals, and of course maybe you traded your tokens for another before withdrawing. So its hard to parse how much customers deposited vs genuinely withdrew, and so you cant really tell if the exchange is short unless they declare their actual assets and liabilities.

Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall

#295

Post by wbl »

SevenNation wrote: post #236

> FTX Chief Executive Sam Bankman-Fried told an investor this week that Alameda owes FTX about $10 billion, the person said. FTX extended loans to Alameda using money that customers had deposited on the exchange for trading purposes, a decision that Mr. Bankman-Fried described as a poor judgment call, according to the person. This raises the question of who else Alameda owes. It's a sign of the times that $10 billion…

LTCM was a problem because everyone lent to them since they had lots of government bonds to hock as collateral. So that 4.6 billion loss due to impairment of the value of the Russian loans was a huge problem.

By contrast no bank would have touched Alameda with a ten foot pole. Loan to a crypto fund?

Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall

#296

Post by JamesianP »

iamthirsty wrote: post #275
JamesianP wrote: post #248

Earlier quoted context omitted.

It may be that what the FDIC promises to do is not in sync with what it can actually afford to do.

The FDIC, as of March 2021, has 119.4 billion[0], along with "... a US$100 billion line of credit with the United States Department of the Treasury.[9]"[1]. I think they've got enough to cover any consumer issues. [0]: https://www.fdic.gov/about/strategic-plans/strategic/insuran... [1]: https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corp...

How much is the total liability they are guaranteeing?

And $119 billion where exactly? In US treasuries? If so it's about as safe as the social security "fund". What if the "customer issue" includes a govt default?

All you're saying here is that we can treat an FDIC guarantee like a govt guarantee, which is probably true, but still not the same as a case where the guarantor has actual assets which the prior poster was suggesting. The FDIC is making promises and backing those promises with other promises. There's not cash laying around anywhere to back it up. I'm not saying the only response is run for the hills like the other poster, but I find these defenses rather naive. The likelihood of any insurance scheme failing is not zero. Same for a government's finances.

Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall

#297

Post by roywiggins »

gfd wrote: post #188
chlodwig wrote: post #162

Earlier quoted context omitted.

Not exactly, because banks tell you that they will loan out your money and you might not get it back, that's why you get interest on the account. They can't go horse betting, but they can loan it out. You don't have "title" over the USD in the bank reserves. This is like if you put $100 in Chase's security deposit box , and they opened it up, took the cash, and lent it out, and then when you come to get it, they say,…

Only tangentially related, but don't put cash in safety deposit boxes. Police can take them under civil forfeiture laws: https://nypost.com/2021/06/12/fbi-aims-to-keep-valuables-86m... https://www.businessinsider.com/fbi-raid-1400-boxes-us-priva...

The greater risk is probably that your bank will just screw up and lose your stuff:

https://www.nytimes.com/2019/07/19/business/safe-deposit-box...

Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall

#298

Post by jojobas »

newfonewhodis wrote: post #156
chlodwig wrote: post #151

From the article: "FTX Chief Executive Sam Bankman-Fried said in investor meetings this week that Alameda owes FTX about $10 billion, people familiar with the matter said. FTX extended loans to Alameda using money that customers had deposited on the exchange for trading purposes, a decision that Mr. Bankman-Fried described as a poor judgment call, one of the people said." In the FTX International terms of service ( h…

I put $100 in my Chase account. Chase goes horse betting with my money and loses it all. My account shows $0. That's basically what happened here.

Except

1) Chase doesn't have to show you $0, you'll still see $100.

2) When you decide to spend the money, chances are the seller is also with Chase, then all Chase has to do is show you $0 and the seller +$100

3) If the seller happens to be with another bank, Chase will just go in credit with that other bank for $100. The total of such interbank accounts is around 0 as money flows both ways, and, with a decent margin, within the bank reserve amount.

Fractional-reserve banking works so well with so little "actual" reserve money that some consider it counterfeiting.

Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall

#299

Post by fnordpiglet »

chlodwig wrote: post #151

From the article: "FTX Chief Executive Sam Bankman-Fried said in investor meetings this week that Alameda owes FTX about $10 billion, people familiar with the matter said. FTX extended loans to Alameda using money that customers had deposited on the exchange for trading purposes, a decision that Mr. Bankman-Fried described as a poor judgment call, one of the people said." In the FTX International terms of service ( h…

This is why in regulated securities markets customer assets must be held in segregated accounts. Corzine, who knew better, ended up with an orange suit for not doing this.

Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall

#300

Post by varsketiz »

solotronics wrote: post #273

Probably a good time to mention the original mission statement of Bitcoin was to custody your own money without counterparty risk. Time and time again we have seen altcoin ponzis and exchanges collapse under the weight of their fractional reserve. What is still working? Bitcoin. Greed in this space causes people to act with a more short term view for quick profits while ignoring fundamentals. Over and over again.

Is Bitcoin history a metaphor for "society needs to learn more about technology"?
Post reply on HN