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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

#431

Post by throwaway5959 »

chironjit wrote: post #294
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.

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…

That’s insane.

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

#432

Post by sbarre »

majormajor wrote: post #415
FormerBandmate wrote: post #124

Earlier quoted context omitted.

Sequoia did a nauseating, hilarious puff piece on him a couple months ago and this guy sounds like Adam Neumann’s second coming. https://www.sequoiacap.com/article/sam-bankman-fried-spotlig...

That link is taking me to a "oh shit our bad" sort of page now, but I'm curious on the date. I don't see an original timestamp on the wayback machine version, though. :( If they were still taking him seriously as "ethical" after the Luna fiasco where he had previously trashed it in press (as the scheme was just a perpetual motion machine) but was perfectly willing to make money off of poor suckers who got conned... I…

Google's webcache has it

https://webcache.googleusercontent.com/search?q=cache:pizI33...

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

#433

Post by eigenvalue »

skippyboxedhero wrote: post #258
laluser wrote: post #13

The Twitter thread from SBF is even better where he admits he messed up. And still trying to throw jabs at Binance here and there like it’s their fault they’re here. Unbelievable.

He also attempted to claim that the problem was due to an issue with the "labelling" of funds...this story leaks, we know he has been telling people he lent the money to Alameda, and in these tweets he is now saying that he has a problem expressing what happened... ...I feel bad for him because he obviously believes his own bullshit, but he should have just said nothing rather than lie about what happened and pull th…

I highly doubt he believes it. He has been living a lie for months now and can't bring himself to come clean about the deception. So he instead is "admitting" to vanilla incompetence and confusion and, most importantly, continuing to tell the lie that this is a liquidity issue at heart and not a solvency issue. That may have been the case a few weeks ago, but is palpably false at this point.

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

#434

Post by jefftk »

bko wrote: post #430
jefftk wrote: post #421

Earlier quoted context omitted.

Very few utilitarians or affective altruists (including me) consider that ethical.

> To maximize your expected value, you must aim for it and then march blindly forth, acting as if the fabulously lucky SBF of the future can reach into the other, parallel, universes and compensate the failson SBFs for their losses. It sounds crazy, or perhaps even selfish—but it’s not. It’s math. It follows from the principle of risk-neutrality. [0] I think he figured in a million realities, the expected value is ne…

Taking a risk-neutral approach to altruism isn't the problem, it's the misusing customer funds.

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

#435

Post by Nursie »

rglover wrote: post #404
y04nn wrote: post #362

Earlier quoted context omitted.

I find it very ironic that Satoshi created Bitcoin with the objective to be more resilient than banks, with the famous genesis block containing "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks". A decade later, the bitcoin creation generated an entire industry of "crypto banks" that are opaque, played with customers money and went bankrupt.

It's a beautiful lesson in human behavior and greed. You're given a perfect form of money (Bitcoin) that you can safely hold with minimal effort and your shortsighted greed ("yield farming") forces you to lose it all to a conman. The silver lining to all of this is that people might actually start listening to Bitcoin maxi's after this year.

> You're given a perfect form of money

Ha, wow. Yeah no, Bitcoin is not a perfect form of money at all. It-

  - uses vast amounts of energy
  - can only process a few TPS
  - confirms slowly
  - has limited quantities which warps economies
  - is irreversible in cases of theft or fraud
  - is lost forever if you lose your keys
And that's just off the top my head. I get what you're saying - "not your keys not your coins", but the idea that this system is somehow an optimum is just plain wrong.

For those of us who do not fetishize decentralisation, those negatives are unacceptable in any form of 'money'. Even if you do believe in decentralisation, it's clear that this is far from perfect.

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

#436

Post by cmckn »

throwaway5959 wrote: post #431
chironjit wrote: post #294

Earlier quoted context omitted.

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…

That’s insane.

It’s the only way any popular token has met trading demand; the vast majority of transactions have to happen off-chain, or the thing would fall over.

(but yeah it’s wild)

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

#437

Post by netheril96 »

xs83 wrote: post #420

For those wondering why people would store coins on centralised exchanges, the answer is simply because you are heavily incentivised to do so. When Ethereum was congested and simple transfers were costing upwards of $200 - FTX offered a number of free ERC20 withdrawals if you staked a certain amount of FTT. in addition to that - the more FTT you staked the more preferential treatment you got in access to IDO's and re…

Another reason is that many people in crypto trade often. They don’t intend to hold any coins for long. Withdrawing and depositing frequently will cost a ton in that case.

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

#438

Post by qeternity »

SevenNation wrote: post #329
wbl wrote: post #295

Earlier quoted context omitted.

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?

> By contrast no bank would have touched Alameda with a ten foot pole. 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.

Would you believe...that pension funds, particularly Canadian ones, invest in lots of risky assets?

Also, they invested in the equity, specifically because they're not allowed to hold crypto. In theory, it's also the better risk/reward in the long run i.e. casino house vs gambler (provided the exchange isn't effectively also a hedge fund that blows up).

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

#439

Post by vgatherps »

skullone wrote: post #305
pmcollins wrote: post #252

Earlier quoted context omitted.

FTX.us or intl?

ftx.us - checked again, at least my account is still unable to withdraw.

I was perusing hot wallets recently and USDT is still pretty well funding on a few wallets (BSC, SOL, TRON) if I remember. USDC is mostly empty or near empty. Didn't check other coins but if you can I'd cancel the withdrawal, swap to USDT, swap back to USD somewhere else. Costs some fees but much better than potential total loss.

And send small some test transfers first to see which paths work.

reading your original post, if available to withdraw only shows 0.1, are you possibly lending out or taking a margin position? I experienced that the 'available to withdraw' field indicated what I should be able to withdraw in theory, not what ftx could actually handle

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

#440

Post by LeafGuild »

dmak wrote: post #419
LeafGuild wrote: post #324

Earlier quoted context omitted.

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…

It's strange to attribute failure to the blockchain in this case. There was no visibility into how much leverage was taken on by Alameda because they aren't borrowing through DeFi means. This a traditional finance problem where a hedge fund takes on too much leverage and no one finds out until they explode. No visibility leads to no accountability.

No blockchain can ever guarantee there's any visibility or accountability. Defi means are only useful to trade cryptos for other cryptos, and you only have visibility if no one launders the money through crypto mixers. Once you want to cash out and trade your cryptos for any real assets, like buying a pizza, you instantly lose visibility again because all that has to happen off chain. Just because something is a tradfi problem doesn't mean it also can't be a defi problem. In this case, and in a lot of other cases, it's both. Blockchains cannot solve this problem in any meaningful way because you can never force everything to go through that chain. Fraudsters will just move it off the chain and lie about it, and that instantly puts you back into a spot where blockchains aren't doing anything for you.

I argue this is what they wanted out of blockchains. I remember all the rumblings in the days of Silk Road and Mt Gox. The enthusiasts that are responsible for propagating this system into today wanted it to be a wild west where anything goes. They said all the same things back then. I heard people saying it was good that Mt Gox got hacked because it meant all the scammers got what they deserved and they learned their lesson. Well, they didn't! It continued to be a wild west and more scammers just showed up. They'll keep scamming and they won't stop as long as they can make money from it. I don't know why crypto people are so reluctant to acknowledge this. Scammers seek out anywhere they can latch onto and they don't leave until forcibly removed. If a malicious person finds a risk-free way to get free money from unsuspecting victims, with no downsides, why would they ever want to stop?

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