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

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

#331

Post by derangedHorse »

chlodwig wrote: post #162
newfonewhodis wrote: post #156

Earlier quoted context omitted.

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.

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,…

As others have pointed out in comments on this post, banks typically don't loan out customer funds and instead use them as reserves. For loans, banks can create money out of thin air and just increase the number representing the borrower's bank account balance in a database somewhere. Interest is to incentivize adding more reserves to their balance sheets which in turn allows more loans (with considerably larger interest rates) to be given out

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

#332

Post by topranks »

ChadNauseam wrote: post #267
delusional wrote: post #243

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…

The big risk with that system is a bug in the smart contract that lets me take all the ETH and USDC.

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

#333

Post by junofan »

espadrine wrote: post #195
itsdrewmiller wrote: post #56

Earlier quoted context omitted.

The original comment addresses that concern: >Why in the absence of any positive evidence, like "oh here is our genius but nonetheless expired" trading strategy, which anyone could have furnished in the last two decades, they agree, oh it must be real? I agree that there should be some obviously awesome things these funds did that they can share now given they are no longer able to exploit them. I have no idea if the…

That is part of it. The Sequoia piece[0] describes what kicked off Alameda Research: after a tumultuous hard fork, there used to be a discrepancy between the price of Bitcoin in JPY at a Japanese exchange, and that in a US exchange. So he opened a Japanese account, bought a bitcoin in the US for a low price, and sold it in Japan for a high price. To be clear, it is described by SBF. I haven’t verified historical pric…

He claims to have been wiring $25m a day from a BoA branch to banks in rural Japan. Total horseshit.

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

#334

Post by _fizz_buzz_ »

AustinDev wrote: post #122
elefanten wrote: post #119

Earlier quoted context omitted.

Well, his ultimate hedge is that both his parents are Stanford law professors. Slam dunk unlikely.

He was also the 6th largest political donor for the 2022 election cycle.

Bernie Madoff was also a big political donor, didn't help him in the end. SBF will also probably not hand out donations in the near future, so there is very little incentive to help him out at this point.

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

#335

Post by ProjectArcturis »

jcpham2 wrote: post #96
shmatt wrote: post #29

Earlier quoted context omitted.

>The first $10,000 USD value in your deposit wallets will earn 8% APY (This is what FTX was offering customers) And now we know the accounts weren't actually covered by real money (or "value" as they called it). So when person X was asking FTX for their money back, FTX would send person X+1's money to cover Sounds like a Ponzi to me

FWIW I have difficulty distinguishing the difference between a Ponzi scheme and "The Time Value of Money" concept itself. Every place I see that offers interest on crypto deposits, I fear they have no business plan to generate the profits to pay the interest on a deflationary fake internet money in the first place. My fear is they are just Ponzi-ing on Wayne! seeking the next highest interest rate holding the biggest…

>Every place I see that offers interest on crypto deposits, I fear they have no business plan to generate the profits to pay the interest on a deflationary fake internet money in the first place.

You are correct. Literally every place offering high interest rates on crypto deposits is a Ponzi scheme.

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

#336

Post by caminante »

LeafGuild wrote: post #324
phas0ruk wrote: post #278

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.

It is absolutely a blockchain failure. Blockchains are intentionally designed to facilitate this. They have no possible way to stop this kind of fraud. Even if you built an elaborate set of smart contracts that could audit participants, they would still not stop anything. That activity can just be moved to another chain and avoid the audits. This kind of thing can just keep happening over and over again, as it alread…

> That activity can just be moved to another chain and avoid the audits.

> Remember Mt Gox? [...] It's viewed as a feature that everyone just loses their money sometimes [...] From speaking to them, they view any kind of fraud prevention as an affront to their definition of "economic freedom"

I found these observations to be helpful reminders how things are (and used to be!). A blockchain isn't designed to indemnify you if you hop on/off the blockchain.

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

#337

Post by robocat »

willcipriano wrote: post #268
colinmhayes wrote: post #117

Earlier quoted context omitted.

The entire point of FTX is that Americans were barred from using it. Now Americans certainly ignored that rule by using vpn’s, but I’m not sure that gives the sec jurisdiction. The Americans using the exchange were explicitly breaking the TOS

Is it legal to defraud people in other countries from the US? I can't imagine that it is.

Most countries have their own security laws and enforcement departments, which are nominally there to protect the interests of their citizens. Examples: https://sfo.govt.nz/ https://en.m.wikipedia.org/wiki/Financial_Conduct_Authority https://www.afp.gov.au/what-we-do/crime-types/fraud/fraud-an... However the enforcement departments usually appear to me to be underfunded and quite weak, even against fraud within their own country, and it seems rare they indict overseas parties even when citizens are deeply impacted.

The SEC is unusually strong (which might surprise you), and because the American market is so wealthy and the rules are relatively clear, the SEC has a huge influence over investment structure.

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

#338

Post by UncleEntity »

mccorrinall wrote: post #320
joe_the_user wrote: post #282

Earlier quoted context omitted.

Maybe you're thinking of Etherium or other smart-contract systems, Etherium is a system where things like that happen automatically. With Bitcoin, the only thing you have is a secure (but static) ledger of who (which wallet/id) has what bitcoins. Any transfers have to be "manually" and just recorded by the blockchain. Of course, the automatic processes in Etherium produce a bunch of other weird effects.

Where does this Etherium-meme(?) come from? I’ve seen several people writing Etherium and Monaro instead of Ethereum and Monero on mailing lists, but never understood what it means and where it comes from.

Since when is bad spelling a meme?

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

#339

Post by encryptluks2 »

wslh wrote: post #288
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…

How many years could Sam Bankman-Fried get in jail? It is also interesting to read on his Wikipedia profile [1] about "Bankman-Fried is a supporter of effective altruism and claims to pursue earning to give as an altruistic career. He is a member of Giving What We Can and has claimed that he plans to donate the great majority of his wealth to effective charities over the course of his life.". Having direct access to…

Or people that are unethical use charities as a front to do illegal things without remorse

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

#340

Post by topranks »

ericd wrote: post #315
jefftk wrote: post #160

Earlier quoted context omitted.

Well, your account still shows $100, but Chase has paused withdrawals while they "sort out liquidity issues" so it's effectively $0

Yep, this is exactly what happened en masse during the Great Depression. People were selling their bank account books for a fraction of their nominal value.

People are selling their ftx.com logins the same way today.
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