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To summarize, the WSJ article says he took $10B of $16B in customer deposits to FTX and used that to finance his hedge fund.
...and then the hedge fund lost the whole $10B. Corruption AND incompetence.
Earlier quoted context omitted.
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…
> Something of the sort must happen eventually, as the current system, with its layers upon layers of intermediaries, is antiquated and prone to crashing—the global financial crisis of 2008 was just the latest in a long line of failures that occurred because banks didn’t actually know what was on their balance sheets. Crypto is money that can audit itself, no accountant or bookkeeper needed, and thus a financial system with the blockchain built in can, in theory, cut out most of the financial middlemen, to the advantage of all. Of course, that’s the pitch of every crypto company out there. The FTX competitive advantage? Ethical behavior. SBF is a Peter Singer–inspired utilitarian in a sea of Robert Nozick–inspired libertarians. He’s an ethical maximalist in an industry that’s overwhelmingly populated with ethical minimalists. I’m a Nozick man myself, but I know who I’d rather trust my money with: SBF, hands-down. And if he does end up saving the world as a side effect of being my banker, all the better.
All: please don't fulminate*. Perhaps you don't owe embattled billionaires better, but you owe this community better if you're participating in it. HN is a site for curious conversation, so please wait to feel some curiosity before you comment. * https://news.ycombinator.com/newsguidelines.html
> fulminate Hearby nominated as word of the day. Excellent.
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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.
Earlier quoted context omitted.
It’s almost as if our existing financial system, built upon the lessons from hundreds of years, is worthwhile! :-)
That's what makes it so boring, whereas DeFi is so exciting it gives you a heart attack seemingly every other day.
You know those corner stores that act as Western Union/Moneygram agents? They have to follow stronger regulations (KYC/AML/BSA) and are audited on a quarterly basis by WU/MG to ensure there is no co-mingling of funds. A bodega conducts better financial oversight than these masters of the cryptoverse.
Did SBF have any cats in the office? That should have been a warning sign.
All these kids should be chucked in jail and seized of their assets. I don't care how smart they are.
all criminals think they are smart because they figure out a way to scam people
I highly recommend reading this article, from 50 days ago . So many humorous quotes to be had in that article. https://www.sequoiacap.com/article/sam-bankman-fried-spotlig... edit: archive https://archive.ph/GQkCp
"Among Wall Street’s financial elite, SBF’s Bitcoin arb is mentioned in the same hushed tones as Paul Tudor Jones’s 1987 shorting of the entire American economy, or George Soros’s 1992 raid on the Bank of England, or John Paulson’s 2008 bet against subprime mortgages. Alameda’s capture of the kimchi premium (and other trades like it) gave SBF the grubstake he needed for his next move: founding the crypto exchange FTX…
> 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?
Would you believe... a pension fund is involved with FTX?
https://fortune.com/2022/11/10/canadian-teachers-could-have-...
I doubt the full extent of the connections to Alameda (or FTX) have been disclosed.
Earlier quoted context omitted.
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.
There are fully-decentalized exchanges which have to have much less counterparty risk (because anyone could take the other side of your deal, so you don't want to trust them). As a simple example, imagine a contract which I send 1 ETH to, and if you send it 1000 USDC it'll send you the ETH. The big counterparty risk with that system is that the price of ETH will skyrocket and someone else will call the contract to ma…
No it isn't, that's what limit orders are for. There's still the exact same counterparty risk there anyway, in the form of USDC. Circle is another big dodgy centralized provider. The major critical flaw with all this defi stuff is that it can only reliably trade cryptos for other cryptos. Once you actually try to get any of it out into real assets, the counterparty risk immediately comes back again. No crypto defi stuff can ever solve that. The idea is just bad, it's a scam from the very beginning.