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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

#641

Post by duckmysick »

100001_100011 wrote: post #562
colechristensen wrote: post #466

Earlier quoted context omitted.

It is a blockchain failure in that blockchains in general cannot actually support transactions like this. There's too much volume and there are fees. It is also a regulatory failure, there are reasons this kind of dipping into customer funds is quite illegal in the US. FTX should not have been reachable by US citizens (funding should have been impossible) _or_ FTX should have been sanctioned _by_ the US. There is no…

> It is a blockchain failure in that blockchains in general cannot actually support transactions like this. "The #LightningNetwork has a theoretical throughput of 40 million #TPS... Lightning enables #Bitcoin to be a planetary scale decentralized medium of exchange." https://twitter.com/Excellion/status/1456088664132440069?cxt...

What's the practical throughput?

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

#642

Post by rkagerer »

runeks wrote: post #620

I don't understand how it can ever be acceptable for a company to risk its customers' deposits, regardless of what kind of company it is (bank, exchange, whatever). There should be a law that states: 1. Depositors are the most senior creditor (ie. they must be paid first, before any other creditor) 2. Investing depositor funds without explicit approval is a criminal act (because it's essentially using other people's…

There's common law out there to help you if you can establish the funds were to be held in trust, but the bar is very high.

Here's an article where some lawyers speculate about priority:

https://www.coindesk.com/policy/2022/11/10/ftx-violated-its-...

"Because the terms of service specify that customer funds do not belong to FTX, those funds cannot be used to pay back creditors or other stakeholders in the event of insolvency."

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

#643

Post by rkagerer »

siftrics wrote: post #361
leet_thow wrote: post #241

Where does did all that money go? Is it part of a zero sum game and in someone else's hands now, did it evaporate, or a combination of the two?

Literally ~$50 million went straight to the Democratic Party as direct campaign donations. He stated he intended to give up to $1 billion to democrats. Millions more went to various other people in power who will now decide the fate of SBF. Sources: https://www.cnbc.com/2022/10/14/sam-bankman-fried-backtracks... His Wikipedia page.

Could creditors make a case those were stolen funds and try to claw some back?

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

#644

Post by dools »

baobabKoodaa wrote: post #622
qnt wrote: post #443

Earlier quoted context omitted.

Not at all. When you get a loan, the bank creates a liability and deposit out of thin air. The deposit is a "demand deposit", which is effectively equivalent and fungible to central-bank-backed currency (hence the term "money" usually applies to both, though they are different things). The bank needs no existing customer deposits to create a demand deposit and liability in your account. You should run through your ex…

You claim that the bank needs no existing customer deposits to create a demand deposit and liability in your account. This claim is true only in the pedantic sense: if the bank is otherwise capitalized (e.g. money from investors in the bank), then it could create loans using whatever money it has, as opposed to using money specifically from depositors. However, what you probably meant is that a bank could loan out mo…

Can you describe how a bank uses money that it has to originate loans?

EDIT: note that this paragraph (and the one preceding it) directly contradicts what you are saying:

This description of money creation contrasts with the notion that banks can only lend out pre-existing money, outlined in the previous section. Bank deposits are simply a record of how much the bank itself owes its customers. So they are a liability of the bank, not an asset that could be lent out. A related misconception is that banks can lend out their reserves. Reserves can only be lent between banks, since consumers do not have access to reserves accounts at the Bank of England.

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

#645

Post by zeroclip »

mrjin wrote: post #636
zeroclip wrote: post #625

Earlier quoted context omitted.

Decentralized exchanges exist that process about the same volume as centralized exchanges, without centralizing trust to a single entity.

What do you mean by "Decentralized exchanges"? If decentralization ever worked, I don't believe exchanges would be necessary.

See Uniswap. Working fine.

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

#646

Post by breck »

dang wrote: post #596
breck wrote: post #537

Earlier quoted context omitted.

I wrote a post critical of the actions of YCombinator and its affiliates, it received thousands of unique visitors and rose quickly on HN, and then was flagged and removed and comments blocked. I don't think anyone should be able to flag anonymously. Judges don't get to hide behind anon accounts when they hand out sentences. Not in America anyway. It's cowardly and dishonorable. I don't mind when dumb stuff I submit…

What is the link? From a quick look at your submissions, it's most likely that users flagged your post, but I'd need to see a link to be sure. Actually users have been emailing us to complain about your submissions, and I've been trying to hold them off.

https://news.ycombinator.com/item?id=33482032

> it's most likely that users flagged your post

I think when users flag a post they should only be given that privilege if their account is under their real name and if it shows who flagged a post. I rarely flag a post but when I do I would always be willing to do so publicly and state why. Otherwise downvotes/lack of upvotes should be the only acceptable means of flagging.

Obviously you post under your real name, so if you flag anything then I of course can disagree but have no right to be upset as ultimately you are the final judge here and I respect that.

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

#647

Post by imtringued »

deevolution wrote: post #513
cma wrote: post #322

Earlier quoted context omitted.

From the Sequoia puff-piece: > 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 need…

> "I know who I'd rather trust my money with: SBF, hands down." This quote is complety antithetical to everything crypto is actually trying to achieve; which is a trustless financial system, a system that would be void of these sorts of melt downs. Don't trust; verify.

That works just fine but the vast majority of cryptocurrencies just copied the flawed design of conventional fiat currencies and they fail in exactly the same ways.

While everything is dumping, RAI goes up.

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

#648

Post by colinmhayes »

cuteboy19 wrote: post #555
astrange wrote: post #486

Earlier quoted context omitted.

Giving away other people’s money is both effective and altruistic, it seems to me.

Eventually, you run out of other people's money.

Not before giving away hundreds of millions of dollars

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

#649

Post by colinmhayes »

qnt wrote: post #443
baobabKoodaa wrote: post #409

Earlier quoted context omitted.

No, when you take a loan out of a bank, the bank doesn't "create deposits" that it loans to you. The bank loans you existing deposits. The method by which banks end up creating money is less dramatic than you think. I wrote a long-form explainer here: https://www.attejuvonen.fi/money-out-of-thin-air/

Not at all. When you get a loan, the bank creates a liability and deposit out of thin air. The deposit is a "demand deposit", which is effectively equivalent and fungible to central-bank-backed currency (hence the term "money" usually applies to both, though they are different things). The bank needs no existing customer deposits to create a demand deposit and liability in your account. You should run through your ex…

You are wrong. Without existing deposits the bank has no money to loan out. They can write numbers on screens, but eventually the money they loaned out will be transferred and the bank that it was transferred to will ask for settlement.

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

#650

Post by colinmhayes »

jojobas wrote: post #298
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.

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 margi…

Eventually the other bank will ask for settlement. Maybe it’s because you owe them a billion dollars and they have a liquidity crisis. Whatever the reason is, you can’t just go on forever “oweing” then money.
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