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We will not pursue the potential acquisition of FTX

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Re: We will not pursue the potential acquisition of FTX

#381

Post by goodcanadian »

pseudosavant wrote: post #111
JumpCrisscross wrote: post #13

In the thick of it, illiquidity and insolvency blur. But not after the fact. As usual, Levine put it best: “the problem is not a timing mismatch, in which FTX’s customers asked for their cash back but FTX did not have enough ready cash because it had long-term but money-good loans out. The problem is that FTX took its customers’ money and traded it for a pile of magic beans, and now the beans are worthless and there’…

FTX going under due to magic beans reminds me so much of Lehman Brothers going under in 2008. That time the magic beans were "mortgage backed securities" that somehow took low-quality debt, mixed it up with some magic, and out came high-quality debt, only it didn't.

There are already a lot of replies, so maybe it is pointless adding my own . . . My understanding of the problem with mortgage backed securities was that the calculations assumed the risks on the low-quality debt was uncorrelated. If that were true, all of the math works out, and there is no problem with mortgage backed securities. The reality was/is, however, that the risks on those loans were, in fact, highly correlated. The conditions that caused one loan to default also made it much more likely that others mixed up in the pot would also default. In that case, the math was wrong and the magic failed. I suppose we could argue all day about whether that was an honest mistake or deliberate manipulation.

Re: We will not pursue the potential acquisition of FTX

#382

Post by blitzar »

skippyboxedhero wrote: post #243
MichaelDickens wrote: post #195

Earlier quoted context omitted.

> There is a difference between trading firms with good tech (Jane Street) and firms taking prop risk (DE Shaw) What do you mean by this? What is DE Shaw doing that Jane Street isn't?

DE Shaw takes directional risk. They have a lot of conventional strategies iirc (distressed debt, credit, etc.). Jane Street does a lot of ETF AP and other strategies that optimize for technology (afaik).

Alameda is/was strategies that optimize for technology, arbitrage etc. But with a massive one way directional long bet over the top.

Run by people with 1-2 years experience in shops that run a market neutral profile , in an environment where they believed the underlying asset goes up every single day.

Re: We will not pursue the potential acquisition of FTX

#383

Post by tdullien »

goodcanadian wrote: post #381
pseudosavant wrote: post #111

Earlier quoted context omitted.

FTX going under due to magic beans reminds me so much of Lehman Brothers going under in 2008. That time the magic beans were "mortgage backed securities" that somehow took low-quality debt, mixed it up with some magic, and out came high-quality debt, only it didn't.

There are already a lot of replies, so maybe it is pointless adding my own . . . My understanding of the problem with mortgage backed securities was that the calculations assumed the risks on the low-quality debt was uncorrelated. If that were true, all of the math works out, and there is no problem with mortgage backed securities. The reality was/is, however, that the risks on those loans were, in fact, highly corre…

It was broken incentives. Give people a financial incentive to do something that can look like an honest mistake in retrospect, and they will make a lot of "honest mistakes".

Re: We will not pursue the potential acquisition of FTX

#384

Post by pa7x1 »

TheOtherHobbes wrote: post #213
mrtksn wrote: post #200

Earlier quoted context omitted.

That's just the label, nothing decentralised is left. See, as it turns out, to trade you need to find people and people are found in central locations. Okay, there are still many exchanges but this is mostly incidental and it makes sense to end up with single exchange eventually.

I'm enjoying the irony that practical crypto could not possibly be less like an decentralised peer-to-peer system for exchanging value if it tried to be. As you soon as someone creates an exchange - and especially as soon as they start packaging funds into absolutely any kind of financial instrument/service - they've effectively reinvented deregulated banking with no deposit protection and extra risk.

Don't let the schadenfreude and confirmation bias get to you. Centralized exchanges never had anything to do with the value proposition of cryptocurrency. And trading on them is just speculation with no relation to crypto. It's what gets views in the press, though.

Whenever news like these occur there is always a bunch of "I knew it would all fall down" self-validation comments in HN. Yet it really doesn't fall down, after over a decade. Perhaps it's time to consider that you are looking at the wrong thing and barking at the wrong tree.

Of all these collapses there is 0 decentralized exchanges (i.e. on-chain) involved. Pretty much because they can't, by design. That's the value proposition. Unstoppable exchanges, transparent, publicly verifiable, highest availability.

What you have seen all this year is more and more validation that centralized finance is problematic by design (3AC, Celsius, BlockFi, FTX...) while decentralized finance comes unscathed (Uniswap, Aave, Curve, MakerDAO...).

Re: We will not pursue the potential acquisition of FTX

#386

Post by mvindahl »

matheusmoreira wrote: post #333
chii wrote: post #254

Earlier quoted context omitted.

and this is why banks are not allowed to use customer deposits for such activities. And if they do, they must have equity value to back it up - aka, the bank's share holders lose value _first_ when shit hits the fan, before customer deposits. Then lastly, the gov't has put up guarantees on the deposits in case bank equity cannot cover customer deposits when shit hits the fan. Crypto has none of the above - so basical…

This isn't a cryptocurrency problem though. It's a cryptocurrency exchange problem. As you noted, they have essentially reinvented centralized fractional reserve banking with none of the benefits and all of the drawbacks. They're all unregulated banks in disguise. Cryptocurrencies were meant to put an end to such things. Ironic how corporations ended up reinventing it all on top of crypto. Exchanges are everything th…

> Cryptocurrencies were meant to put an end to such things

Yeah, well, Communism was meant to put an end to poverty and class injustice. Brexit was meant to restore glory to Britain. The Catholic Church was mean to put an end to vice. Things don't always do what they say on the tin.

As the Bible puts it: "For every tree is known by its own fruit".

Specifically, if the fruit seems consist of nothing but speculative bubbles and billion dollar frauds then that may be the true nature of the tree.

Re: We will not pursue the potential acquisition of FTX

#387

Post by pjc50 »

matheusmoreira wrote: post #333
chii wrote: post #254

Earlier quoted context omitted.

and this is why banks are not allowed to use customer deposits for such activities. And if they do, they must have equity value to back it up - aka, the bank's share holders lose value _first_ when shit hits the fan, before customer deposits. Then lastly, the gov't has put up guarantees on the deposits in case bank equity cannot cover customer deposits when shit hits the fan. Crypto has none of the above - so basical…

This isn't a cryptocurrency problem though. It's a cryptocurrency exchange problem. As you noted, they have essentially reinvented centralized fractional reserve banking with none of the benefits and all of the drawbacks. They're all unregulated banks in disguise. Cryptocurrencies were meant to put an end to such things. Ironic how corporations ended up reinventing it all on top of crypto. Exchanges are everything th…

> Exchanges are everything that's wrong with this space.

Exchanges are the space. Without them, there's no way for people to buy into the system with real money in the first place!

Re: We will not pursue the potential acquisition of FTX

#388

Post by mstipetic »

PathOfEclipse wrote: post #271
mscarborough wrote: post #228

Earlier quoted context omitted.

Making the subprime loans in the first place doesn't necessitate packing them into opaque financial instruments and going bananas with the wildly over-leveraged profit-seeking. Financial firms has been making tons of money during decades of increasing wealth inequality. Sure, let's talk about these congressional acts, but not going to put a lot of blame on relatively small programs that required these firms to throw…

I'd rather have wealth inequality, which is natural, especially in a world where even the poorest have only gotten richer over time, than have enforced wealth equity, which has resulted in near universal poverty nearly everywhere it's been implemented. People calling for enforced wealth equity don't have the moral high ground. They're in the moral caves and pits! https://www.investopedia.com/articles/economics/09/fin…

People like you are so annoying. Super natural to have 70 people control 50 percent of the world wealth. Ace.

Re: We will not pursue the potential acquisition of FTX

#389

Post by CaptainZapp »

sytelus wrote: post #30
alexk307 wrote: post #10

Maybe people will finally get some sense and stop storing their wealth in digital currency that is backed by absolutely nothing. I think a lot of dominoes are about to fall in the crypto world

At present no major currency is backed by anything material but trust. USD, for example, is only viable because, at the deepest level, trust in it is enforced by US army. There are three major class of people who need digital currency: (1) who are super rich and won't care about putting their 1% of wealth for "diversify and forget", (2) who need to transfer money eyes off from governments, (3) people who need alterna…

> At present no major currency is backed by anything material but trust.

While this is true in theory I trust the Swiss National Bank (in my case) significantly more than all those two bit shysters running crypto exchanges, while being extremely economical with the truth in all their communications.

Re: We will not pursue the potential acquisition of FTX

#390

Post by sullyj3 »

rippercushions wrote: post #187
twblalock wrote: post #169

Earlier quoted context omitted.

Why did anyone trust FTX either? The trust was really based on the credibility of the person running it, and the fact they had bailed out some other failing exchanges. But there were no hard facts. In fact it seemed like all it took was a public quarrel with the founder of another exchange to start the ball rolling toward total collapse -- again, because it was all based on personal credibility.

It's almost as if crypto tokens are intrinsically worthless!

Wait til you hear about how fiat works.
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