What Happened at Alameda Research

Ironically Binance's low trust makes their users especially diligent about on and off boarding their funds. Their model is closer to DeFi than their competitors who are CeFi

Besides what makes FTX especially trendy to cover was how he targeted mostly American, supposedly sophisticated SV VC types. He got funded by dozens of billionaires.

Funny enough SBF openly described his cynical scam months ago, explaining both how shit coins and greedy VCs operated.

The NYT article is headlined "How Sam Bankman-Friedʼs Crypto Empire Collapsed". The parts of the article which actually answer this question are, in their totality, as follows:

> Alameda had accumulated a large “margin position” on FTX, essentially meaning it had borrowed funds from the exchange,

Par 6. Common knowledge, finance-splained and followed by equivocation and hand-waving from SBF.

> On Nov. 6, Mr. Zhao announced on Twitter that he was selling the FTT, spooking customers who rushed to withdraw their FTX deposits

Common knowledge for more than a week (in par 28). More well-known things about the Zhao deal in the next couple of pars. Obv suggesting the two key questions, why did they need a bailout in the first place, and what was wrong with the business that led Zhao not to invest? Needless to say, neither of them is answered in the article.

> Her voice shaking, she apologized, saying she had let the group down. Over recent months, she said, Alameda had taken out loans and used the money to make venture capital investments, among other expenditures.

> Around the time the crypto market crashed this spring, Ms. Ellison explained, lenders moved to recall those loans, the person familiar with the meeting said. But the funds that Alameda had spent were no longer easily available, so the company used FTX customer funds to make the payments. Besides her and Mr. Bankman-Fried, she said, two other people knew about the arrangement: Mr. Singh and Mr. Wang.

> The meeting was previously reported by The Wall Street Journal.

Several day old scuttlebutt taken from another newspaper in par 30+. (And nicely written to suggest that it's an urgent eyewitness dispatch "Her voice shaking")

That's it. Literally no actual news reporting was done in this article.

The high standards of reliability and standing up to scrutiny are worthless, because they are not actually applied to any useful or new information, but just to the human interest color that 90% of the piece consists of. Yes, the 'facts' that SBF has 15 room-mates and not 12, and that he plays League of Legends not Terraria are rigorously fact-checked, but they might as well not be. The actual question of Where did the money go is completely ignored beyond what is widely known.

This isn't news reporting, it's a form of entertainment journalism, which allows people out of the loop to get a sense of the excitement and glamor of what's it like to live in the Bahamas and have your crypto exchange go bankrupt. (And it equally fulfils the desire for other clueless people to tut and sigh over the way the world is going.)

Because those pictures can produce some darn explosive puking.

In Midnight Run (1988) when Marvin finds the Duke and Jack in the sandstone of Red Rock Country he exclaims "Am I lucky or am I just good?":

https://www.youtube.com/watch?v=Gokkl2br7G8&t=152s

Later in the movie, when Marvin decides to ask for more money and takes a Polaroid of the Duke in the bathroom of the motel, he comments to himself: "I amaze myself... I'm always thinking."

The thing is, the character of Marvin is quite dumb, not a nice person and above all someone who never grasps the full picture -- but at the same time he has good instincts and is, in fact, a fairly good hunter. It's a dangerous combination.

OTP put in something like that in the fund I was at. Yes it's small for them but it's still serious, the guy in charge wants to move on to bigger things.

Oh and I totally forgot to comment on the math. Kelly criterion, I don't get how the guy could have studied physics at MIT and not understood it. It's simply a result that tells you how much to bet of your stash if you are presented with some repeated betting opportunity. It's essentially an extension of high school level probability theory, with similar clean-room constraints (independence, etc). There's also a continuous version of it using Sharpe ratios, no surprises.

If you read anything about it, it's very very not smart to bet beyond the ideal size. This is actually the reason why a lot of people use less than the ideal, because you don't want to end up over the hump. Both the assumptions that underlie the result and the measurements of the parameters are not easy to ascertain, so don't act like it's a dice game within a known environment.

By the way anyone studying Kelly Criterion needs to read this: https://en.wikipedia.org/wiki/Proebsting%27s_paradox