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FTX balance sheet, revealed

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201–210 of 309 posts

Re: FTX balance sheet, revealed

#201
post #186

Earlier quoted context omitted.

> this was the typical disruptor cosplaying grifting Being connected and well off, should now be a sign of lack of inventive mind than having one. VCs think they are risk takers but rather go for well connected SV folks unconsciously or consciously to avoid risks. I hope these two three episodes like Theranos put some sense in them.

Problem is that this is only apparent in hindsight. How do you tell apart Theranos and something like Color Labs[techcrunch]? Sometimes it isn't even clear in hindsight. From the outside, both are novel ideas. Both had talented workers working on novel ideas. I don't know enough/anything about biochemistry so I don't know if the vision Theranos sold was even possible but how do I know that the all public all the time…

As a lay person, it might be difficult. As a well funded VC, I'd expect due diligence beyond the level of 'let me see your balance sheet' before investing millions of dollars.

One particular item of fraud was the claim that their machines were on helicopters in US-led war zones. Okay, show me the contract details for this, or some kind of evidence this is actually true, and then I will verify with the counter party to ensure it's not completely bologna.

Not to mention the entire concept of 'nano-tainers' and doing blood work with a single drop of blood seemed physically improbable, and literal Nobel level scientists would need to be involved, people with decades of experience in the field, not a random college dropout.

> all public all the time but only to someone physically nearby you photo sharing idea (of color) would work either?

I can't see the appeal of that whatsoever. At least with instagram or whatever you can have followers, and then monetize those followers one way or another. On the flip side, it might be an interesting avenue for prostitutes and drug dealers to advertise their services discretely in public places.

Re: FTX balance sheet, revealed

#202
post #17

The "before this week" column seems to be attempting to draw sympathy by saying "but everything was fine before, seriously!" when in reality it just proved that, even in the best of worlds, they had an extremely optimistic view of the entire crypto ecosystem, including its liquidity. I can't believe they seriously held that much of their total value in their own issued token. That's just preposterous. Imagine if JP M…

> Imagine if JP Morgan Chase's entire value was in JP Morgan Chase stock,

It's way worse. JPM stock pays dividends in dollars. The yield on FTT is more FTT.

Re: FTX balance sheet, revealed

#203
post #99

Earlier quoted context omitted.

If my understanding is correct the Swedish central bank, Riksbanken (which happens to be the oldest in the world), has said that whey do not want to hold their QE assets to maturity and that they are essentially bankrupt. They will be bailed out by the tax payers of course.

You're probably understanding it wrong. Central banks have little or no debt, and they can "print" reserves at no cost. Reserves is the stuff they pay their debts off with. As a result it's virtually impossible for a central bank to go bankrupt.

True, if self-denominated debt there is no risk of bankruptcy. There is only risk of hyperinflation. That being said, default and hyperinflation are two sides of the same coin.

Re: FTX balance sheet, revealed

#204
post #75

Earlier quoted context omitted.

He's also being purposefully obtuse about his 2 largest regrets - the "poorly labeled" account and underestimating the size of the withdrawals. He's still behaving as if having billions of liabilities in real money backed by funny money "assets" is somehow acceptable and everything would have been fine if it wasn't for the "last week".

But maybe it could have been? I’m a complete crypto skeptic who would never touch anything like FTT, but it’s not an obvious Ponzi scheme. I think one of the troubles with crypto is that it’s very easy to operate what is effective a Ponzi scheme, without fully realizing it yourself.

> But maybe it could have been?

Maybe for a while, but ultimately no - reality will assert itself even if you have stopped believing in it. Made-up valuations of faith-based assets are insubstantial, and anything that is entirely that is completely without substance.

There's no financial principle which says it is not a Ponzi scheme until you notice that it is.

Re: FTX balance sheet, revealed

#205

Earlier quoted context omitted.

But maybe it could have been? I’m a complete crypto skeptic who would never touch anything like FTT, but it’s not an obvious Ponzi scheme. I think one of the troubles with crypto is that it’s very easy to operate what is effective a Ponzi scheme, without fully realizing it yourself.

Ponzi schemes are not obvious, until they’re totally obvious. That’s why they keep happening. A lot of people will explain to others that it’s a Ponzi scheme, but those people are making so much money that hey don’t want to hear it. Crypto is a Ponzi scheme, and it always was. I’m not just talking about these companies, being Ponzi schemes, I’m talking about the whole ecosystem being a Ponzi scheme. You can either li…

You don't have to listen to me or another expert saying that FTX was a ponzi scheme. Literally just listen to SBF himself. He described his business as a ponzi scheme. If that isn't obvious then I don't know what is. This is Coffeezilla's summary of SBF on the Odd Lots podcast with financial analyst Matt Levine

https://www.youtube.com/watch?v=sucxhGOv9ww

Re: FTX balance sheet, revealed

#206
post #191

Earlier quoted context omitted.

If it has no way to wind down to zero it is a Ponzi scheme. Yes the USD and other fiat currencies are partially ponzi schemes as well but only the store of value part.

This is diluting the definition of "ponzi scheme" to the point of uselessness. State-backed central currencies emerged because people in informal economies were bartering to exchange goods and services, which is less efficient than having a standardized medium of exchange, so central authorities issued currency in order to increase the efficiency of the economy. That's not a ponzi scheme, because the value of the cur…

No post body was provided.

Re: FTX balance sheet, revealed

#207
post #116

Earlier quoted context omitted.

Backed by liquidity or by assets? I thought the article said that 90% of the funds were liabilities

Exchange business models are supposed to be 100% different from banks. If exchanges are using fractional reserves of any kind or amount, they have already committed fraud.

Also people are missing that banks having 10% reserves doesn't mean their assets are 10% of their liabilities

It means they have 10% of their deposits held as cash. The remaining 90+% is in liquid marketable securities (usually mortgages and other loans which are freely traded if they need the liquidity)

Re: FTX balance sheet, revealed

#208
post #157

Earlier quoted context omitted.

SOL trades $100s of millions per day, which is actually extremely liquid in investment terms. "Less than liquid" is actually quite accurate for lesser known crypto. It's how assets like syndicated debt, that trade much less often, would be described on a balance sheet. "Illiquid" would be more like equity in a private company, where there is no active secondary market at all.

Thank you! That’s been a big pet peeve of mine in this discussion, where people casually throw around “illiquid” when the currency is really “liquid but collapsed in value”, which is what was going on with FTT and SOL. Earlier comment: https://news.ycombinator.com/item?id=33539326

“Liquidity refers to the ease with which an asset, or security, can be converted into ready cash without affecting its market price.”

https://www.investopedia.com/terms/l/liquidity.asp

You have misunderstood the meaning of liquid.

Re: FTX balance sheet, revealed

#209

Okay, but... how? How did they manage to lose so much money by running a popular exchange that should bring in tons of fees? Even if they were gambling with part of the deposits, how can they lose 90% of all assets? You'd have to be actively trying to lose money to be this bad... Also, where does Alameda fit into the picture?

Well firstly they were offering perps[1] which are a margined product. If you want to trade with margin on a regular exchange (like say you want to trade commod futures on CBOE or ICE or whatever) you contact a broker/dealer and put up collateral[2] to get margin. FTX was seemingly both acting as an exchange and as a broker/dealer so they were providing the margin and standing risk on the other side of certain trades either as FTX themselves or as Alameda (I'm not sure about this).

Margin has the effect of magnifying the effect of volatility in the value of a product on profit and loss. And of course crypto is extremely volatile to begin with (by comparison to other assets).

Since they were acting as a dealer they could lose a lot if their book of business was imbalanced (ie on net a lot of their customers have the same position) and the market moved against them.

Secondly they seem to have had very little equity as a reserve against losses and what equity they had seems to have been in this FTT token which was only backed by the exchange itself. So if the FTT token lost value they would lose all their equity and have no reserves to protect against losses. This happened when Binance tweeted that they were selling their (very substantial) FTT holdings. In normal finance your equity reserves are there for if you have a bad day and lose some money - you can dust yourself off and try again the next day. If you have no equity then your business is insolvent. Trading when insolvent is no bueno and if there are rumours that you are insolvent of course people pull funds, won't trade with you so you have effectively a "run on the bank" and all the problems you had before get worse because now you can't find anyone to trade with as you try to wind down positions to refund customers etc.

Thirdly there seems to have been shenanigans afoot regarding Alameda (the affiliated hedge fund) which seems also to have primarily been long FTT and a bunch of other similar tokens backed by not very much. It may be exchange funds were being used by Alameda for trading - certainly they don't seem to have been kept at arm's length as they should have.

Fourthly there have been allegations that customer funds from the exchange were somehow inappropriately used to cover losses either at alameda or at FTX itself. If this is not true, it's hard to understand why refunds are taking any time at all so make of that what you will.

[1] Essentially a leveraged swap on the price of a particular crypto. So one party will pay say 10x the difference between some reference price and the current price of the crypto and the other side will receive it.

[2] Assets with a certain value as security against losses. Generally you will be required to have collateral which is liquid (ie can be easily sold if need be without affecting the value of the collateral) and relatively risk-free (like treasury bonds). For collateral that is risky, the dealer will take a "haircut" off the face value of the collateral to account for the fact that they may not be able to sell the things for the market value. The market itself (and Alameda) had collateral (FTT and similar) that was on the whole neither liquid nor risk-free.

Re: FTX balance sheet, revealed

#210
post #47
post #17

The "before this week" column seems to be attempting to draw sympathy by saying "but everything was fine before, seriously!" when in reality it just proved that, even in the best of worlds, they had an extremely optimistic view of the entire crypto ecosystem, including its liquidity. I can't believe they seriously held that much of their total value in their own issued token. That's just preposterous. Imagine if JP M…

> Imagine if JP Morgan Chase's entire value was in JP Morgan Chase stock, and they just reported that as their value in cash. It's like recursive valuation. While I think real world finance is on much more stable ground than crypto, I thought it'll be funny to point out that many of the world's central banks back their liabilities (the currency they issue) with own government's bonds. Luckily, the bonds are denominat…

Anything that prints its own money can be "like a central bank". If FTX had all its assets AND liabilities denominated in FTT they'd be like a strong one. But their assets are in their token and their liabilities are in real money so they're weak one. We've just seen the exchange rate of the FT-peso/USD go to nothing.
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