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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

#661

Post by doorman2 »

seaal wrote: post #544
ricochet11 wrote: post #515

Earlier quoted context omitted.

we have lots of decentralized exchanges: uniswap, paraswap, dydx, loopring, etc.... not sure why more people dont use them, perhaps fooled by the convenience/ marketing/ promotional lures of CEXs.

Fees are generally much lower when trading on a CEX, especially with small amounts.

I guess that makes sense given that the CEX can simply update values in their own (non-blockchain) database. This highlights that blockchain tech isn't really ready for prime-time use, yet. If the cost / tx could be brought down significantly, then there would be no need for a CEX.

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

#662

Post by imtringued »

kwertyoowiyop wrote: post #204
tootie wrote: post #190

Earlier quoted context omitted.

And the FDIC can afford to do that because there are laws dictating liquidity requirements to banks and disclosure requirements to inspect and enforce those rules.

It’s almost as if our existing financial system, built upon the lessons from hundreds of years, is worthwhile! :-)

That doesn't stop people from thinking the Fed is the spawn of Satan.

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

#663

Post by imtringued »

klodolph wrote: post #244
nostrebored wrote: post #233

Earlier quoted context omitted.

But liquidity is the issue here. In the event that this happens, how long would it be before you could have access to your funds?

Why do you say liquidity is the issue? It sounds like you are imagining some specific scenario here.

He means that the bureaucratic arm may take time to process your insurance claim, after all you aren't the only one waiting for your money.

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

#664

Post by eric_cc »

LeafGuild wrote: post #446
legutierr wrote: post #306

Earlier quoted context omitted.

This is the whole idea behind DeFi. All trading is done autonomously on-chain, and owners retain custody throughout.

That's a marketing line, it's not true. Nobody actually has any custody of anything in crypto. The value of the tokens is completely and totally dependent on a consensus of crypto miners doing their job within the parameters of the system, assuming you want them to maintain a price and trading volume that's favorable to the token holders. If the majority of miners suddenly go bust due to outside circumstances, or the…

As others have pointed out, this is completely wrong in literally every way possible.

> Nobody actually has any custody of anything in crypto.

This is insanely wrong and it’s unreal things like this are being said in 2022.

DeFi Example: Take your self-custody bitcoin to Thorswap and exchange it for Ethereum. Pure defi. No trust needed. Total self-custody cross chain trading.

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

#665

Post by eric_cc »

LeafGuild wrote: post #324
phas0ruk wrote: post #278

Earlier quoted context omitted.

FTX is a centralised exchange, it is not routing all customer trades on chain. It’s not a blockchain failure, it’s just a lack of client asset segregation by a traditional centralised trading house.

It is absolutely a blockchain failure. Blockchains are intentionally designed to facilitate this. They have no possible way to stop this kind of fraud. Even if you built an elaborate set of smart contracts that could audit participants, they would still not stop anything. That activity can just be moved to another chain and avoid the audits. This kind of thing can just keep happening over and over again, as it alread…

> Nothing fundamental has changed about blockchains that could ever prevent this from happening

DeFi

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

#666

Post by eric_cc »

100001_100011 wrote: post #567
LeafGuild wrote: post #440

Earlier quoted context omitted.

No blockchain can ever guarantee there's any visibility or accountability. Defi means are only useful to trade cryptos for other cryptos, and you only have visibility if no one launders the money through crypto mixers. Once you want to cash out and trade your cryptos for any real assets, like buying a pizza, you instantly lose visibility again because all that has to happen off chain. Just because something is a trad…

> No blockchain can ever guarantee there's any visibility or accountability Visibility or accountability of what? Many blockchains are public. I find you not only misinformed but possibly intentionally trying to mislead people. "The amount of energy necessary to refute bullshit is an order of magnitude bigger than to produce it." - Paul Kedrosky

> I find you not only misinformed but possibly intentionally trying to mislead people.

This. Brand new account spreading blatant lies.

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

#667

Post by BurningFrog »

stephen_g wrote: post #619
BurningFrog wrote: post #568

Earlier quoted context omitted.

I didn't understand much of the jargon, but if banks don't lend out customer deposits, why are they gone when banks go bankrupt? If they were not lent out, where did they go?

The issue is that it's very abstract, and all the mechanics of banking are accounting operations, whereas people don't tend to think that way. The deposits themselves are entries on the liability side of the bank's balance sheet. The bank doesn't store money for customers, they take whatever asset you give them and give you basically an IOU in return. So the "customer deposit" is not what you gave the bank (say if yo…

I think the answer to my question from this is that the money in my Citibank account is part of all the other money Citibank can lend out.

There is no specific pile anywhere that is "my money", but if I withdraw $10k, the bank has $10k less to lend out.

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

#668

Post by Taikonerd »

dylan604 wrote: post #478
datalopers wrote: post #417

Earlier quoted context omitted.

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.

I still get sketched out that companies feel so free to "unpublish" content that they later decided was embarrassing. Traces of "Nineteen Eighty-Four"...

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

#669

Post by RC_ITR »

rainjackets11 wrote: post #602
RC_ITR wrote: post #589

Earlier quoted context omitted.

You’re creating a lot of confusion by ignoring cash accounting (the physical dollar I give a bank is then given to a homeowner as a mortgage) and talking about GAAP accounting, without making it clear that is what you are doing (the jargon only makes things worse). Like sure, it’s loan to capital ratio that matters but as you point out: > Bank runs are a liquidity problem because the bank's assets aren't all liquid e…

Banks cannot and do not lend out deposits. Bank deposits are a liability of the bank, they do not have it in the first place to lend out. When the bank gives someone else a $500,000 mortgage, they just create the money out of nothing and increase the customer’s bank balance. This new $500,000 liability is balanced by the new loan asset. Almost all money is of this type rather than physical currency.

Ok so then by your logic, why do banks care about collecting deposits?

Because they need a liability to offset their assets? Ok wildly backwards but sure.

And wait, in your metaphor, where does the $500k asset of cash that a depositor gives a bank (which offsets that liability) go? It’s just fake in your mind?

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

#670

Post by RC_ITR »

stephen_g wrote: post #614
RC_ITR wrote: post #589

Earlier quoted context omitted.

You’re creating a lot of confusion by ignoring cash accounting (the physical dollar I give a bank is then given to a homeowner as a mortgage) and talking about GAAP accounting, without making it clear that is what you are doing (the jargon only makes things worse). Like sure, it’s loan to capital ratio that matters but as you point out: > Bank runs are a liquidity problem because the bank's assets aren't all liquid e…

But there aren't dollars given to banks mostly. Cash is a tiny fraction of the money banks handle. Most of the payment volume is millions of electronics messages between banks to debit and credit numbers in people's accounts, and only at certain times of the day the net of that (a far, far smaller amount of reserves) are actually moved. It's actually the other way around - trying to follow a physical dollar just make…

Then by your logic, shouldn’t banks not want customer deposits? Isn’t it just burdensome overhead?

Trust me, I get that people aren’t Fedexing cash envelopes between banks, but that doesn’t mean money is fake and banks can invent it out of think air (they can only multiply it)

And to be clear, again, you can very easily follow physical dollars at banks (otherwise imagine the fraud that could happen!), it’s just circular so multipliers get applied.

Like I get it’s complicated, but my deposit goes into a mortgage that then goes into another account, etc etc etc. that’s called the “credit multiplier” and we can definitely track it.

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