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

wsj.com

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

#471

Post by JamesianP »

cortesoft wrote: post #368
dools wrote: post #312

Earlier quoted context omitted.

> banks at least tell you they are loaning your deposits out Side not but that’s not really how banking works. Banks create deposits when they originate loans and separately look for the assets they need in order to satisfy any regulatory requirements and net flows of funds for inter bank settlements. https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...

The details of how the actual transactions occur might be different, but the general concept of fractional reserve banking is still “loaning out a portion of deposits” https://en.wikipedia.org/wiki/Fractional-reserve_banking

It's more accurate to say they loan out a multiple of deposits based on the inverse of the fraction (the "money multiplier"). If someone puts 1 million in the bank and the fractional reserve is 20 percent, they can now create loans of up to 4 million. Such that the reserve is 20 percent of their total assets of 5 million (= 4 million loans + 1 million cash).

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

#472

Post by [deleted] »

breck wrote: post #382
iudqnolq wrote: post #232

Earlier quoted context omitted.

I think this merits your tradition of moderating less if YC's interests are implicated.

> I think this merits your tradition of moderating less if YC's interests are implicated. That tradition has gone out the window: https://twitter.com/breckyunits/status/1590858862504316928

[deleted]

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

#473

Post by NoPicklez »

sbarre wrote: post #429
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…

It feels like every time there's a crypto exchange exit-scam/fail/crash/run/fraud, someone says "but this one felt safe/different/better than the others". I (genuinely) wonder how many more times that will happen?

Well people only know what they know. Nothing is completely safe.

You will likely continue to find people who say that until the day you die.

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

#474

Post by qnt »

JamesianP wrote: post #471
cortesoft wrote: post #368

Earlier quoted context omitted.

The details of how the actual transactions occur might be different, but the general concept of fractional reserve banking is still “loaning out a portion of deposits” https://en.wikipedia.org/wiki/Fractional-reserve_banking

It's more accurate to say they loan out a multiple of deposits based on the inverse of the fraction (the "money multiplier"). If someone puts 1 million in the bank and the fractional reserve is 20 percent, they can now create loans of up to 4 million. Such that the reserve is 20 percent of their total assets of 5 million (= 4 million loans + 1 million cash).

Again no, neither of these are accurate. Modern banks do not operate on a fractional reserve basis at all. This is a falsehood peddled by well out of date undergrad econ textbooks

https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...

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

#475

Post by [deleted] »

ceejayoz wrote: post #418
roywiggins wrote: post #297

Earlier quoted context omitted.

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...

Probably not. > Every year, a few hundred customers report to the authorities that valuable items — art, memorabilia, diamonds, jewelry, rare coins, stacks of cash — have disappeared from their safe deposit boxes. https://en.wikipedia.org/wiki/Civil_forfeiture_in_the_United... > In 2010, there were 11,000 noncriminal forfeiture cases. If I'm reading it correctly, that's just the Federal cases alone.

[deleted]

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

#476

Post by tl_donson »

LeafGuild wrote: post #423
siftrics wrote: post #354

Earlier quoted context omitted.

This is not true at all. If you are the only person in the world with the private key to your coins, you are the only person who can move them. Period. FTX is a centralized entity that custodies funds. It has nothing to do with a blockchain, which could have completely prevented this. There are many examples of decentralized exchanges (DEXs) for which it is mathematically impossible to loan out depositor's funds with…

>If you are the only person in the world with the private key to your coins, you are the only person who can move them. Period. This is completely and utterly irrelevant and has not stopped anyone from performing massive fraud. Just look at the long history of crypto scams. They still happened constantly despite blockchains having that feature. It's just impossible for a blockchain to prevent these frauds. It doesn't…

> On a DEX you can't even know if the person on the other end is a real person or not without going outside the chain.

why does it matter if the counterparty is a human?

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

#477

Post by Animats »

eloff wrote: post #454
wslh wrote: post #288

Earlier quoted context omitted.

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…

It's easy to be altruistic when it's not your money!

Yes. As a judge once said in a sentencing decision involving a crook with a history of philanthropy.

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

#478

Post by dylan604 »

datalopers wrote: post #417
muxator wrote: post #410

Earlier quoted context omitted.

I'd like to read this in context; do you know where this declararion could be found? Who is speaking? Thanks!

Sequoia deleted it. You can find a cached version though at https://webcache.googleusercontent.com/search?q=cache:pizI33...

Another case of someone forgetting that the internet is written not just ink but permanent marker.

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

#479

Post by rglover »

Nursie wrote: post #468
rglover wrote: post #452

Earlier quoted context omitted.

- uses vast amounts of energy Bank branches, ATMs, armored cars, computer systems for the banks, computer systems for card processors, credit rating firms, etc. Bitcoin replaces all of that and, comparatively, for significantly less energy. This is a surface-level argument intended for shortsighted thinkers. - can only process a few TPS - confirms slowly On main net. Lightning network can outpace Visa. - has limited…

> Bitcoin replaces all of that No, it doesn't, it doesn't offer 1% of the services those things you mentioned can offer. > This is a surface-level argument intended for shortsighted thinkers. Yes, that describes your argument perfectly. > On main net. Lightning network can outpace Visa. The fact the lightning network needs to exist shows flaws in bitcoin, or lightning wouldn't be required. Lightning also has massive…

Cool, take care.

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

#480

Post by Animats »

dvt wrote: post #186
Animats wrote: post #143

Earlier quoted context omitted.

No, see Molly White's blog and the WSJ parent article. What seems to have happened is that 1) FTX.intl loaned money to Alameda Research in the US in exchange for some token, 2) Alameda Research, which is a crypto trading firm, speculated with that money and lost, 3) the collateral from Alameda to FTX turned out to have little value, and so 4) FTX.intl goes down. Bear in mind that Mr. Bankman-Fried heads all three org…

I fully understand the purported chain of events. But, again: the US does not have jurisdiction over FTX. So why would he "get arrested" in California for embezzlement? He didn't break any US laws. The FTX/Alameda deal was likely done via SAFT[1], which is both legal and popular. [1] https://www.investopedia.com/terms/s/simple-agreement-future...

The US has jurisdiction over Mr. Bankman-Fried, who is an American citizen born in California. The US has jurisdiction over Alameda Research, which is a US company operating in California and appears to have been the beneficiary of the scam. That's plenty of jurisdiction.
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