FTX held less than $1B in liquid assets against $9B in liabilities(ft.com)
ft.com
FTX held less than $1B in liquid assets against $9B in liabilities
https://www.ft.com/content/f05fe9f8-ca0a-48d5-8ef2-7a4d813af558
188 comments
I think these exposures and bad practices are fine as long as the ones who broke laws get served justice.
The worst is seeing white collar crime get let off easy while the man who steals from a bank goes to jail for long time.
The worst is seeing white collar crime get let off easy while the man who steals from a bank goes to jail for long time.
"Currently, all U.S. banks are subject to a balance sheet leverage ratio, which requires them to maintain a ratio of tier 1 capital to balance sheet assets at a minimum level of 4%. In order to be well-capitalized, banks must achieve a 5% minimum leverage ratio"
So FTX had an 11% leverage ratio, pretty good.
So FTX had an 11% leverage ratio, pretty good.
> So FTX had an 11% leverage ratio, pretty good.
A better comparison would be a stock brokerage that took your money to buy specific stocks on your behalf but then did something totally different, including “investing” in illiquid assets.
If they had just bought the stock you requested, then they could just liquidate your stock at market price when you said you want to sell.
This was not the situation that FTX was/is in.
Instead, the way FTX allocated money/assets was suspicious (at best) if not flat out irresponsible and deceptive.
Also, FTX was not and is not a bank, and the idea that this is levering in the same way regulated banks lever is laughable.
A better comparison would be a stock brokerage that took your money to buy specific stocks on your behalf but then did something totally different, including “investing” in illiquid assets.
If they had just bought the stock you requested, then they could just liquidate your stock at market price when you said you want to sell.
This was not the situation that FTX was/is in.
Instead, the way FTX allocated money/assets was suspicious (at best) if not flat out irresponsible and deceptive.
Also, FTX was not and is not a bank, and the idea that this is levering in the same way regulated banks lever is laughable.
Stock brokerages also offer margin accounts. You send them $5k and you buy stock worth $20k. How do you suppose this happens?
brokerages need to have cash on hand to loan. they can partner with a bank, or it can come from their own balance sheet or investors, but it's not printed out of thin air.
In practice, aren't almost all of them either a bank themselves or partner one or more banks and auto-sweep customer deposits into these 'program banks'?
Sure it might be slightly more convoluted, but at the end of the day isn't this still customer deposits funding margin/loans?
Sure it might be slightly more convoluted, but at the end of the day isn't this still customer deposits funding margin/loans?
FTX was not an FDIC-insured bank with the ability to borrow funds at the Fed discount window, and it did not tell its customers it would be lending out their funds.
Yeah this is a key point, and not only did they not tell customers, their TOS was quite explicit about not loaning customer funds:
"You control the Digital Assets held in your Account," says Section 8.2 of the terms. "Title to your Digital Assets shall at all times remain with you and shall not transfer to FTX Trading."
The terms continue: "None of the Digital Assets in your Account are the property of, or shall or may be loaned to, FTX Trading; FTX Trading does not represent or treat Digital Assets in User’s Accounts as belonging to FTX Trading."
"You control the Digital Assets held in your Account," says Section 8.2 of the terms. "Title to your Digital Assets shall at all times remain with you and shall not transfer to FTX Trading."
The terms continue: "None of the Digital Assets in your Account are the property of, or shall or may be loaned to, FTX Trading; FTX Trading does not represent or treat Digital Assets in User’s Accounts as belonging to FTX Trading."
The last sentence is crucial and probably what will get SBF in trouble.
You must consider what the banks are lending with that ratio. It’s mostly mortgages, which are far less risky than what FTX was doing.
Hard to quantify far less but a few orders of magnitude probably isn’t too “far off.”
Closer to selling mortgages for metaverse real estate
???
banks hold real life assets, that can be resold, like mortgages or loans to credit-worthy people.
they also have access to central banks, and other big banks who might recapitalise them if they have bad luck.
FTX had a bundle of funbacks, which it had also printed, and are of no intrinsic worth.
of course the liquidity and reserve requirements are different.
banks hold real life assets, that can be resold, like mortgages or loans to credit-worthy people.
they also have access to central banks, and other big banks who might recapitalise them if they have bad luck.
FTX had a bundle of funbacks, which it had also printed, and are of no intrinsic worth.
of course the liquidity and reserve requirements are different.
Ahh, but FTX is not supposed to be a bank.
Is this normal? I would assume that no bank has 100% liquid assets against liabilities (same as stuffing all your money under your mattress.) So what is the "right" ratio for an exchange? Close to 100% since you are not supposed to invest an exchange's money?
>Is this normal? I would assume that no bank has 100% liquid assets against liabilities
Banks are required by law to have regulatory capital[1] and reserves[2] in order to stay liquid and solvent.
Longer explanation: "The reserves only provide liquidity to cover withdrawals within the normal pattern. Banks and the central bank expect that in normal circumstances only a proportion of deposits will be withdrawn at the same time, and that the reserves will be sufficient to meet the demand for cash. However, banks routinely find themselves in a shortfall situation or may experience an unexpected bank run, when depositors wish to withdraw more funds than the reserves held by the bank. In that event, the bank experiencing the liquidity shortfall may routinely borrow short-term funds in the interbank lending market from banks with a surplus. In exceptional situations, the central bank may provide funds to cover the short-term shortfall as lender of last resort. When the bank liquidity problem exceeds the central bank’s lender of last resort resources, as happened during the global financial crisis of 2007-2008, the government may try to restore confidence in the banking system, for example, by providing government guarantees[2]."
If commercial bank is in trouble other commercial banks will try to help but if they can not help, central bank will try to help and if that is not possible government will step in.
All in all, banking industry is tightly regulated and somewhat safe especially after 2007 fiasco.
In the case of FTX, Binance said they would step in but they gave up. If FTX is profitable they can gradually loan money from private sector(banks, investment funds etc.) then start to repay their liabilities and eventually return loans.
[1] https://en.wikipedia.org/wiki/Capital_requirement
[2] https://en.wikipedia.org/wiki/Reserve_requirement
Banks are required by law to have regulatory capital[1] and reserves[2] in order to stay liquid and solvent.
Longer explanation: "The reserves only provide liquidity to cover withdrawals within the normal pattern. Banks and the central bank expect that in normal circumstances only a proportion of deposits will be withdrawn at the same time, and that the reserves will be sufficient to meet the demand for cash. However, banks routinely find themselves in a shortfall situation or may experience an unexpected bank run, when depositors wish to withdraw more funds than the reserves held by the bank. In that event, the bank experiencing the liquidity shortfall may routinely borrow short-term funds in the interbank lending market from banks with a surplus. In exceptional situations, the central bank may provide funds to cover the short-term shortfall as lender of last resort. When the bank liquidity problem exceeds the central bank’s lender of last resort resources, as happened during the global financial crisis of 2007-2008, the government may try to restore confidence in the banking system, for example, by providing government guarantees[2]."
If commercial bank is in trouble other commercial banks will try to help but if they can not help, central bank will try to help and if that is not possible government will step in.
All in all, banking industry is tightly regulated and somewhat safe especially after 2007 fiasco.
In the case of FTX, Binance said they would step in but they gave up. If FTX is profitable they can gradually loan money from private sector(banks, investment funds etc.) then start to repay their liabilities and eventually return loans.
[1] https://en.wikipedia.org/wiki/Capital_requirement
[2] https://en.wikipedia.org/wiki/Reserve_requirement
I think with cryptocurrencies we need to consider the sheer speed at which mass transactions can occur, and 24/7 to boot.
Technically, the problem you're restricting to cryptocurrencies is actually something finance as a whole just deal with.
Everyone could withdraw all their money at the same time. What happens then? The answer is bank run. There will literally not be enough cash to do it. The entire system is running on the fact that everyone has not done that yet.
Personally, I want to have it happen, just to force the system to come to terms with the fact that it isn't all just about numbers, and so that people can actually materially witness the sheer magnitude of monetary centralization created by our system.
Fuck the inconvenience. If Mammon is going to fucking rule, let everyone see it's rictus. Let everyone take in what it looks like.
Everyone could withdraw all their money at the same time. What happens then? The answer is bank run. There will literally not be enough cash to do it. The entire system is running on the fact that everyone has not done that yet.
Personally, I want to have it happen, just to force the system to come to terms with the fact that it isn't all just about numbers, and so that people can actually materially witness the sheer magnitude of monetary centralization created by our system.
Fuck the inconvenience. If Mammon is going to fucking rule, let everyone see it's rictus. Let everyone take in what it looks like.
> Personally, I want to have it happen, just to force the system to come to terms with the fact that it isn't all just about numbers, and so that people can actually materially witness the sheer magnitude of monetary centralization created by our system.
The question is are you also willing to give up the easily ignored benefits of monetary centralization, which are significant and foundational to the trust that underpins technological and social progress.
The question is are you also willing to give up the easily ignored benefits of monetary centralization, which are significant and foundational to the trust that underpins technological and social progress.
We can have both.
Yes, exactly. The liabilities number includes all on-exchange customer deposits and funds, which it should be theoretically possible to redeem in full at any time.
Matt Levine has an excellent overview of the liquidity / solvency question: https://www.bloomberg.com/opinion/articles/2022-11-10/ftx-is...
Archived copy of Levine's article, with full text: https://archive.ph/q4Z1L
Fractional reserves exist in finance and are held in various assets that can be hedged and also redeemed. Based on the liabilities that FTX revealed like funding Alameda for their investments in un-hegable bets like “Donald Trump losing” is not normal where they could never get those funds back if there was a bank run.
Setting aside arguments about whether it actually fixes the moral hazard issues with fractional reserve banking, banks also have FDIC deposit insurance and there is an understanding of the possibility of loss of funds which exceed the insurance limit.
It was all for charity.
People are mean.
https://twitter.com/The_Prologuist/status/158967849854920704...
https://twitter.com/The_Prologuist/status/158967849854920704...
I think the consequentialist underpinnings of EA are part of the story. Consequentialism revisits our ideas of right and wrong by looking at outcomes. Any reasonable person can look at a law and conclude that there might be a reason to break it under certain circumstances. Certainly, one might argue, financial regulations are arbitrary and that the only way to succeed in your larger goal is to break the rules. EA specializes in this type of reframing, especially when the imagined benefits hugely outweigh the immediate costs, and in this case it's easy to see how self-serving it can be.
Agreed. There's also the question of the stopping point - or how do you balance earning vs giving. Some day SBF is still worth $900M. Is he giving that away? Probably not, because he thinks it's easier to make a ton of money with a half ton of money. So he'll hoard his money in the hopes of making more money, but from the perspective of the starving person, his behavior is the same as a greedy billionaire who keeps their money for their own personal use.
For all his talk of altruism, what has he actually done so far? Compared with, say, Mackenzie Scott, who is actually putting her money where her mouth is?
From what little I could find, perhaps he has written $160M worth of grants, and it is questionable if those will even be paid out, or who they went to, or over what time period. So that is 0.6% of his wealth at peak.
For reference, people who make less than $30-50k/yr(who generally have a negligible net worth and are sustained by their income) donate on average 5%[0] of their income to charity each year. An average Joe or Jane appears to be literally 10x more altruistic than SBF from what I can find.
[0]https://www.definefinancial.com/blog/charitable-giving-stati...
For all his talk of altruism, what has he actually done so far? Compared with, say, Mackenzie Scott, who is actually putting her money where her mouth is?
From what little I could find, perhaps he has written $160M worth of grants, and it is questionable if those will even be paid out, or who they went to, or over what time period. So that is 0.6% of his wealth at peak.
For reference, people who make less than $30-50k/yr(who generally have a negligible net worth and are sustained by their income) donate on average 5%[0] of their income to charity each year. An average Joe or Jane appears to be literally 10x more altruistic than SBF from what I can find.
[0]https://www.definefinancial.com/blog/charitable-giving-stati...
> think the consequentialist underpinnings of EA are part of the story
I've thought before that EA is charity for sociopaths. Nothing recently has shaken that view. There are plenty of EA quotes that support the 're-framing' point you make, stuff ling Singer saying "take advantage of strategies other people are biased against using".
Fortunately, with FTX collapsed there is a little less risk that someone will actually fund them to move forward with the idea of genociding all the wild animals on earth (on the basis of it being the most efficient way to reduce total suffering because wild animals are suffering). So, I guess that's a little silver lining on the FTX implosion.
I've thought before that EA is charity for sociopaths. Nothing recently has shaken that view. There are plenty of EA quotes that support the 're-framing' point you make, stuff ling Singer saying "take advantage of strategies other people are biased against using".
Fortunately, with FTX collapsed there is a little less risk that someone will actually fund them to move forward with the idea of genociding all the wild animals on earth (on the basis of it being the most efficient way to reduce total suffering because wild animals are suffering). So, I guess that's a little silver lining on the FTX implosion.
We should have trusted Larry David on FTX...
https://youtu.be/noekVG8XLQI?t=45
https://youtu.be/noekVG8XLQI?t=45
This is smart.
Look, I’m a savvy investor who builds marketing teams and would never fall for this, but I think other people will, so I’m going to invest.
The greater fool game is probably fun, but I am too dumb to play it.
this is essentially why cryptoscams get VC money - sufficient clout and "reputation" amongst nerds is enough to make the scam work and let you get out before it's game over.
He earned $1b and gave away $9b. It’s not leverage, it’s philanthropy.
Is this satire? I can't tell.
It is not.
Well, it depends on how you look at it.
Define satire?
Well, it depends on how you look at it.
Define satire?
[deleted]
[deleted]
> In all, the spreadsheet says FTX Trading’s assets were $900mn of “liquid” assets, $5.5bn of “less liquid” assets consisting of crypto tokens
Aren't tokens supposed to be "liquid" or is this a different way of saying the tokens are worthless?
Aren't tokens supposed to be "liquid" or is this a different way of saying the tokens are worthless?
My understanding is that a lot of their assets were in their own cryptocoin that they borrowed against like:
1. Make million new coins called $mikecoin
2. Sell 1 $mikecoin to a friend for 1 USD
3. Claim that the "Total Market Cap" for $mikecoin is 1 million USD
4. Borrow Bitcoin or dollars against your $mikecoin reserve.
1. Make million new coins called $mikecoin
2. Sell 1 $mikecoin to a friend for 1 USD
3. Claim that the "Total Market Cap" for $mikecoin is 1 million USD
4. Borrow Bitcoin or dollars against your $mikecoin reserve.
This seems to be the trick. I think this same thing also explains the high market cap of many altcoins, such as Solana. Instead of selling and crashing the price, these are held onto and used as a collateral to borrow against.
The two sentences
> Instead of selling and crashing the price
and
> these are held onto and used as a collateral to borrow against.
Are not compatible. If selling the assert crashes its price, it is a terrible collateral.
I would like to see how lenders justified in writing accepting large quantities of FTT as collateral.
> Instead of selling and crashing the price
and
> these are held onto and used as a collateral to borrow against.
Are not compatible. If selling the assert crashes its price, it is a terrible collateral.
I would like to see how lenders justified in writing accepting large quantities of FTT as collateral.
My understanding that it is an extension of the old joke about someone wanting to sell a dog for 1 million that was finally traded for 2 cats worth half a million each.
Basically extended comment of michaelbuckbee. You have your $mikecoins "worth" 1 million and someone else makes $annacoins worth 1 million and some other party makes $bobcoins worth 1 million - and you each "lend" them to each other to make a complicated net. Then Mike, Anna and Bob just wait for some people to invest real money - and cash out. People who bought those $mikecoins, $annacoins and $bobcoins think that they can "always sell them back at the market", but the market didnt really exist. From those 1 million coins minted, maybe 250 thousand were sold, rest are held by creators to sell them to bagholders.
Basically extended comment of michaelbuckbee. You have your $mikecoins "worth" 1 million and someone else makes $annacoins worth 1 million and some other party makes $bobcoins worth 1 million - and you each "lend" them to each other to make a complicated net. Then Mike, Anna and Bob just wait for some people to invest real money - and cash out. People who bought those $mikecoins, $annacoins and $bobcoins think that they can "always sell them back at the market", but the market didnt really exist. From those 1 million coins minted, maybe 250 thousand were sold, rest are held by creators to sell them to bagholders.
Your explanation is the clearest one I've read thus far, of how these token scams work.
Tokens are very liquid, until they are not. And sadly with both FTT, Luna and so many others, that transition seems to happen instantly and without any warning.
Well, I guess the warning would be that someone created something from nothing and said it was worth a few Billion dollars, but other than that, it's a surprise event to everyone - just ask Sequoia Capital and Forbes.
Well, I guess the warning would be that someone created something from nothing and said it was worth a few Billion dollars, but other than that, it's a surprise event to everyone - just ask Sequoia Capital and Forbes.
Liquid doesn't just mean "can trade out of it at any time", but also "would typically be willing to trade out of it at any time". If a market is in a downswing, you're typically told to hold on to your stocks: buy low, sell high. The same rule would apply here. But that does mean they're not guaranteed to be liquid ("willing to trade") at all times, given that there's a risk of loss if you are forced to trade out of it at times of a market-low.
tokens are as liquid as worthless currency of many dying countries out there. Who are the takers for these tokens? For instance, the whole world loves to swap their real assets (commodities, etc) with US dollars. How many want to part with their US dollars for these tokens? Hardly any. So, worthless.
Not worthless! Just, you know, worthless right now.
There should be more discussion about how to store value without counterparty risk.
Most people think it is as easy as ordering a hardware wallet, following the process the wallet software suggests and - hurray! - your keys, your coins!
But it is not that easy. You also have to cut the wallet manufacturer and the software developer out of the loop.
I have yet to see a description on how to safely create a wallet that really does away with counterparty risk.
The way I understand Bitcoins signatures, there could be a way. But it would involve to somehow put your secret key into multiple air gapped, RFC-6979 compliant hardware wallets. And then create addresses and sign transactions with those hardware wallets without ever connecting them to a computer. And compare the addresses and signatures between these wallets to make sure they match. Because otherwise, the wallets could taint the output in a way that signals data back to the manufacturer.
I don't even know if there are fully operational air gapped hardware wallets on the market.
Most people think it is as easy as ordering a hardware wallet, following the process the wallet software suggests and - hurray! - your keys, your coins!
But it is not that easy. You also have to cut the wallet manufacturer and the software developer out of the loop.
I have yet to see a description on how to safely create a wallet that really does away with counterparty risk.
The way I understand Bitcoins signatures, there could be a way. But it would involve to somehow put your secret key into multiple air gapped, RFC-6979 compliant hardware wallets. And then create addresses and sign transactions with those hardware wallets without ever connecting them to a computer. And compare the addresses and signatures between these wallets to make sure they match. Because otherwise, the wallets could taint the output in a way that signals data back to the manufacturer.
I don't even know if there are fully operational air gapped hardware wallets on the market.
You cannot 'store value' without some counterparty risk because ultimately the value you store, has to be 'valuable' to some other person, likely many of them.
Money/Credit is a social construct; not objectively separate from the system in which it's 'useful'.
If you really want to - you can store Gold in safe. How hard is that? It's relatively easy. A bit annoying, but plausible.
Of course, you have to be sure that others will value Gold in the future. There's no formal 'counterparty' in the specific sense you're alluding to (if the gold is under your bed) but the inherent value of the stored good depends on a 'counterparty'.
You can buy Real Estate, a bit of a pain and dependent on a bunch of laws, but that's an option.
Or any other thing.
All of it ultimately depends on 'counter party' and 'contextual' issues.
I think that this is a serious problem among the 'Self Sovereign' thinking - in pragmatic reality - there is no such thing. At least not in the sense of things like 'currency' or even 'stores of value' to be deployed commercially.
(You can 'store' things like fuel for your own future consumption, but that's a different story)
Money/Credit is a social construct; not objectively separate from the system in which it's 'useful'.
If you really want to - you can store Gold in safe. How hard is that? It's relatively easy. A bit annoying, but plausible.
Of course, you have to be sure that others will value Gold in the future. There's no formal 'counterparty' in the specific sense you're alluding to (if the gold is under your bed) but the inherent value of the stored good depends on a 'counterparty'.
You can buy Real Estate, a bit of a pain and dependent on a bunch of laws, but that's an option.
Or any other thing.
All of it ultimately depends on 'counter party' and 'contextual' issues.
I think that this is a serious problem among the 'Self Sovereign' thinking - in pragmatic reality - there is no such thing. At least not in the sense of things like 'currency' or even 'stores of value' to be deployed commercially.
(You can 'store' things like fuel for your own future consumption, but that's a different story)
what?
as always, the biggest risk to your cryptocurrency at an exchange is ... the exchange actively or passively stealing all your money. this has been the case for the entire history of cryptocurrency exchanges.
as always, the biggest risk to your cryptocurrency at an exchange is ... the exchange actively or passively stealing all your money. this has been the case for the entire history of cryptocurrency exchanges.
> Most people think it is as easy as ordering a hardware wallet ...
I also don't understand why some folks are so attracted to a custom hardware device. It's straight-forward to grab Bitcoin software from Github, put it on an air-gapped laptop via USB stick, run it and generate a new pubkey, write down recovery info and bury in backyard, send btc to that pubkey, and done.
https://github.com/bitcoin
I also don't understand why some folks are so attracted to a custom hardware device. It's straight-forward to grab Bitcoin software from Github, put it on an air-gapped laptop via USB stick, run it and generate a new pubkey, write down recovery info and bury in backyard, send btc to that pubkey, and done.
https://github.com/bitcoin
The pubkey is only secure if the software you downloaded from GitHub, all its dependencies, GitHub itself and all its dependencies, your Browser and all its dependencies and your OS and all its dependencies were neither faulty or malicious at the time you created it.
Otherwise the pubkey might have been created in a way that makes it easy to guess for someone in your supply chain.
Otherwise the pubkey might have been created in a way that makes it easy to guess for someone in your supply chain.
>There should be more discussion about how to store value without counterparty risk.
Due to the social nature of money, this is impossible.
Due to the social nature of money, this is impossible.
Any guide on how to do that would expose you to counterparty risk from the guide maker, so I'm afraid you have to figure it out on your own.
But code for making paper wallets is easy enough to validate or write on your own. Just bring your own air gapped computer, bought from a random supplier at least 20 miles away from your home.
But code for making paper wallets is easy enough to validate or write on your own. Just bring your own air gapped computer, bought from a random supplier at least 20 miles away from your home.
Isn't an index card a fully operational air-gapped hardware wallet?
>There should be more discussion about how to store value
What value? All crypto is people trading checksum numbers.
What value? All crypto is people trading checksum numbers.
You’re ignoring the largest risk - that your coins become valueless because nobody wants them. This is entirely beyond your control.
That's not counterparty risk.
I just said risk; depends on your definition of counterparty risk I suppose, but it’s a much greater risk than those you discuss if you’re attempting to store value in cryptocurrencies.
Stated another way: if you can’t find a counterparty, does the risk you’re talking about matter?
Stated another way: if you can’t find a counterparty, does the risk you’re talking about matter?
No matter which asset you use to store value, the bet is that there will be demand for this asset in the future. That is pretty much the definition of value.
How to avoid counterparty risk is a topic for every asset. For self-custodial crypto, it is about how to handle private keys.
Asset picking which you bring up is a different topic.
But hey, we can go there if you like.
You make a bold claim: That in crypto, demand risk is higher than counterparty risk. Can you back that up somehow? Historically, nobody who held crypto for more than a few years faced lower demand. But many faced loss of their crypto due to counterparty risk.
And which asset class do you see as less risky?
How to avoid counterparty risk is a topic for every asset. For self-custodial crypto, it is about how to handle private keys.
Asset picking which you bring up is a different topic.
But hey, we can go there if you like.
You make a bold claim: That in crypto, demand risk is higher than counterparty risk. Can you back that up somehow? Historically, nobody who held crypto for more than a few years faced lower demand. But many faced loss of their crypto due to counterparty risk.
And which asset class do you see as less risky?
The demand for crypto was zero 15 years ago. It has since proven spectacularly unsuitable for storing value, transactions or really any purpose at all because of fundamental design flaws and misconceptions. Re ‘historically…nobody faced lower demand’ see the 2017 crash and the 2022 crash.
The bold claim is that it has any value at all.
The bold claim is that it has any value at all.
Depends on which coins. Asset-backed coins like USDC and USDT (lol) do carry counterparty risk which can cause them to become valueless. Some would say the latter already is. And since of course the majority of crypto is priced in USDT not USD, that becoming valueless due to counterparts risk will likely nuke prices across the board. Still almost $70B of funny money floating around the ecosystem.
Ethereum multi-sig wallets do the trust side fantastically side very well.
In addition you get ways to handle lost keys, ownership changes, and the ability to require multiple people to sign off on any action.
In addition you get ways to handle lost keys, ownership changes, and the ability to require multiple people to sign off on any action.
What is an "Ethereum multi-sig wallet"? Is that a piece of hardware? Multiple pieces of hardware? A piece of software?
There's different ways to handle multi-sig, but https://gnosis-safe.io is probably the current gold standard, and it's pretty easy to set up and use.
It's a smart contract that you can add any type of owner to (regular wallet, hardware wallet, anything that can sign for transactions), then you specify how many of the owners need to sign for transactions.
It's a smart contract that you can add any type of owner to (regular wallet, hardware wallet, anything that can sign for transactions), then you specify how many of the owners need to sign for transactions.
When you "set up and use" that Gnosis thing, how do you verify it is doing the right thing and has no backdoor built in?
It's open source and you can deploy everything yourself. You don't even need to use their hosted website if you don't trust it. What more could you ask for?
https://github.com/safe-global/
https://github.com/safe-global/
Open Source does not help here. You cannot read all that code you downloaded with all its dependencies and understand it. Its much too complex.
1. Hard disagree on open source not helping.
2. Audited[0]
3. Have you read the core contracts source? It's really not that complex.
4. If you don't trust the honesty from this project/team, then you probably don't trust any crypto at all, which is fine. To each their own.
It's used by Aave, 1Inch, Sushi, Balancer, and many more.
[0] https://github.com/safe-global/safe-contracts/blob/186a21a74...
2. Audited[0]
3. Have you read the core contracts source? It's really not that complex.
4. If you don't trust the honesty from this project/team, then you probably don't trust any crypto at all, which is fine. To each their own.
It's used by Aave, 1Inch, Sushi, Balancer, and many more.
[0] https://github.com/safe-global/safe-contracts/blob/186a21a74...
When you say "read the core contracts", do you mean this?
https://github.com/safe-global/safe-contracts/blob/main/cont...
https://github.com/safe-global/safe-contracts/blob/main/cont...
Along with its dependencies, yes.
https://www.crowdsupply.com/sutajio-kosagi/precursor
This aims to address these issues. Verifiable hardware and open source OS and wallet.
This aims to address these issues. Verifiable hardware and open source OS and wallet.
There is no way a user can verify hardware and software.
The only solution is to use multiple air gapped wallets from different manufacturers which use a deterministic algorithm for signatures.
The only solution is to use multiple air gapped wallets from different manufacturers which use a deterministic algorithm for signatures.
Did you look at the precursor? They explicit address user verification of the hardware, right down to using simplified translucent PCBs for the keyboard etc. so you can see it hasn’t been tampered, and using an FPGA for the CPU so you know what the processor is doing.
Translucent material is a smokescreen. No user can verify if the wallet is really doing what it is supposed to do by looking at it.
What are you talking about? You can inspect both the hardware and software. If you can verify a ‘deterministic algorithm’, you can verify this.
You verify the deterministic algorithm in a wallet by comparing its output to the output of a wallet by a different manufacturer. It does not need any technical expertise.
That would tell you nothing. The two manufacturers could easily be using the same compromised software or hardware inside the casing.
Multisig, with hardware from different companies, no one of which could constitute a quorum of your keys.
If you have even just a 2-of-3 keyset with one Ledger, one Trezor, and a Coldcard, none of those companies can screw you by itself.
If you go up to 3-of-5, it's even more robust.
You can set it up yourself using FOSS like Electrum.
Or you can hire somebody like Casa[0] to get it all set up and set up the infrastructure to verify Casa App is doing exactly what it says it's doing.
[0] https://keys.casa
ETA: There are lots of airgapped wallets. Coldcard, Keystone, and Passport all work airgapped.
If you have even just a 2-of-3 keyset with one Ledger, one Trezor, and a Coldcard, none of those companies can screw you by itself.
If you go up to 3-of-5, it's even more robust.
You can set it up yourself using FOSS like Electrum.
Or you can hire somebody like Casa[0] to get it all set up and set up the infrastructure to verify Casa App is doing exactly what it says it's doing.
[0] https://keys.casa
ETA: There are lots of airgapped wallets. Coldcard, Keystone, and Passport all work airgapped.
The issue with hardware wallets that make them significantly risky is if you are storing wallets that contain any substantial amount of assets then it as risky as storing large sums of money in your house. If you lose that, it gets corrupted or destroyed then you've just lost those assets.
There are pros and cons vs having a password-protected file that you can at least backup to whatever devices you decide.
There are pros and cons vs having a password-protected file that you can at least backup to whatever devices you decide.
That's not the issue. You can destroy the hardware wallet. All you need to keep is the seed phrase.
The issue is that the hardware wallet could be malicious. A malicious hardware wallet has multiple ways to put your funds at risk.
The issue is that the hardware wallet could be malicious. A malicious hardware wallet has multiple ways to put your funds at risk.
Mulsitig fixes this.
How do you create the Multisig?
Smart contract storing a vector of signer addresses, vector of votes and a staged transaction.
Each signer has to vote yes before the smart contract executes the staged transaction.
Each signer has to vote yes before the smart contract executes the staged transaction.
And you do that with pencil and paper?
If you use software by a 3rd party, we are back to squear one.
If you use software by a 3rd party, we are back to squear one.
You don't use 3rd party software to generate the wallet. Electrum, Specter, or another FOSS app can do it fine.
The keys have 3rd-party software, but all they do is sign. Don't have a quorum from the same manufacturer. If it takes 3 signatures of 5, don't use 3 from the same company.
The keys have 3rd-party software, but all they do is sign. Don't have a quorum from the same manufacturer. If it takes 3 signatures of 5, don't use 3 from the same company.
That's what I mean with 3rd party software.
If you use Electrum, you are hoping that Electrum is not buggy or malicious.
If you use Electrum, you are hoping that Electrum is not buggy or malicious.
It's open-source. Read the code. You don't have to trust anybody.
Nobody can read all the code of Electrum and all its dependencies and be sure it is secure. It is much too complex.
By that logic, nothing can ever be secure for any reason. We should all abandon the internet and go home.
From the string of your comments throughout this conversation, you seem to be making some weird, "I can't do it, so nobody can do it," false equivalency.
I don't know you from anybody, but I'm reasonably confident you're not more intelligent than all the highly incentivized people who have been, on the one hand, solving these problems against adversaries on the other hand who are every bit as incentivized to unsolve them.
None of the points I've made have been in any way groundbreaking or insightful. They're basic "I spent my free time for a year going down the bitcoin rabbit hole" stuff. You're throwing out incredibly basic objections as though they somehow mean the whole system is an unreliable fraud, but all it's really showing is that you haven't done even a cursory overview of the topic.
I'm really not trying to be rude here. People can understand code, even lots of it. People do understand it. They even understand the high-level cryptography these systems are built on. You might not, but that doesn't mean nobody does, much less that nobody can.
From the string of your comments throughout this conversation, you seem to be making some weird, "I can't do it, so nobody can do it," false equivalency.
I don't know you from anybody, but I'm reasonably confident you're not more intelligent than all the highly incentivized people who have been, on the one hand, solving these problems against adversaries on the other hand who are every bit as incentivized to unsolve them.
None of the points I've made have been in any way groundbreaking or insightful. They're basic "I spent my free time for a year going down the bitcoin rabbit hole" stuff. You're throwing out incredibly basic objections as though they somehow mean the whole system is an unreliable fraud, but all it's really showing is that you haven't done even a cursory overview of the topic.
I'm really not trying to be rude here. People can understand code, even lots of it. People do understand it. They even understand the high-level cryptography these systems are built on. You might not, but that doesn't mean nobody does, much less that nobody can.
Nothing can ever be completely secure, but one can increase the security.
The aspect of security I talked about is reducing counterparty risk. What one can do to reduce counterparty risk is to have multiple systems, make them as independent as possible, and compare the output they create.
Example:
1: An air gapped Dell laptop with Electrum on Linux
2: Another air gapped laptop. From Lenovo with Specter on Windows.
Create your seed phrase offline with dice and put them into both.
Every address you create, every transaction you sign - do it on both systems and compare the output.
Now, both systems would have to be faulty/malicious in the same way to harm you.
The aspect of security I talked about is reducing counterparty risk. What one can do to reduce counterparty risk is to have multiple systems, make them as independent as possible, and compare the output they create.
Example:
1: An air gapped Dell laptop with Electrum on Linux
2: Another air gapped laptop. From Lenovo with Specter on Windows.
Create your seed phrase offline with dice and put them into both.
Every address you create, every transaction you sign - do it on both systems and compare the output.
Now, both systems would have to be faulty/malicious in the same way to harm you.
OP explained this, if the signing is required by multiple 3rd parties then you’re good. You can do this with pencil and paper btw and write down keys. It’s not far fetched.
Still sounds far fetched to me.
Do these types of smart contracts exist on Bitcoin?
Do these types of smart contracts exist on Bitcoin?
I don't want to be rude, but you're not the only smart person who's thought of counterparty risks. There's tremendous incentive to all sorts of people to break the cryptographic security that secures these networks. And, thus, also incentive to stay ahead of those people.
I'm not very worried about the cryptographic security of the Bitcoin blockchain.
I am worried that in 5 years we will learn that some hardware wallets used side channels to transfer bits of your private key out to make it easier to guess for someone who worked at the manufacturer.
I am worried that in 5 years we will learn that some hardware wallets used side channels to transfer bits of your private key out to make it easier to guess for someone who worked at the manufacturer.
But you can check this. You can monitor whether info is leaving on other channels. And you can sign on an air-gapped computer and transfer only the signed transaction hash (never the privkey) to a connected one to broadcast. You can do all but the actual signature with open source tools.
Just because you haven't taken the time to learn how this stuff works doesn't mean there aren't thousands of incredibly intelligent people who have been working on it for a decade and have actually solved the low-level concerns you have.
Just because you haven't taken the time to learn how this stuff works doesn't mean there aren't thousands of incredibly intelligent people who have been working on it for a decade and have actually solved the low-level concerns you have.
You cannot monitor all channels when you use just a single way to create your hashes.
Example: If you use a single hardware wallet to sign your transactions, you have no way to know if the wallet transmits data out via the hashkey:
https://news.ycombinator.com/item?id=32181462
Example: If you use a single hardware wallet to sign your transactions, you have no way to know if the wallet transmits data out via the hashkey:
https://news.ycombinator.com/item?id=32181462
They don't need to. Multisig is built directly into the protocol for BTC.
Search BTC multisig and you can learn all about it.
Search BTC multisig and you can learn all about it.
I know Bitcoin multisigs.
But nobody is creating them with pencil and paper.
But nobody is creating them with pencil and paper.
I don't know what that comment was about. That would be a weird way to do it. I don't know why anyone would want to.
Write the smart contract yourself and deploy it to the blockchain
I'd recommend a PNC checking account. Solves a lot of issues related to storing value without counterparty risk.
Ally is a great option, and Schwab too. Both are neobanks that have very limited fees. Schwab even rebates all ATM fees globally and has three free wire transfers per quarter. [1]
And uh, both are FDIC members.
[1] https://www.nerdwallet.com/reviews/banking/charles-schwab-ba...
And uh, both are FDIC members.
[1] https://www.nerdwallet.com/reviews/banking/charles-schwab-ba...
What if you’re not a US citizen?
Pretty much all developed countries have similar mechanisms.
https://en.wikipedia.org/wiki/Deposit_insurance
https://en.wikipedia.org/wiki/Deposit_insurance
>But it is not that easy. You also have to cut the wallet manufacturer and the software developer out of the loop.
Better get computer literate, and better yet, cryptographically savvy. Oh, but wait, all those microprocessors have closed blob firmware, closed source designs, and you have no idea what type of higher level industry collusion (be it with regulators you disagree with, or just within themselves to ensure they maintain a niche) they have going on.
Guess you'll have to bootstrap your own hardware/firmware/software stack, and maintain it yourself.
...No, there is no /s. I'm dead serious. That's what you're proposing shakes out like.
Look, it ain't an unfamiliar sight to me. I've also seen it exploited in the other direction (industry doing everything they can to maintain their relevance to the detriment of everyone else) too many times.
What I guess I'm trying to say is: no one (in power, or to an extent abstractly) actually wants to empower people to be able to financially self-service.
Better get computer literate, and better yet, cryptographically savvy. Oh, but wait, all those microprocessors have closed blob firmware, closed source designs, and you have no idea what type of higher level industry collusion (be it with regulators you disagree with, or just within themselves to ensure they maintain a niche) they have going on.
Guess you'll have to bootstrap your own hardware/firmware/software stack, and maintain it yourself.
...No, there is no /s. I'm dead serious. That's what you're proposing shakes out like.
Look, it ain't an unfamiliar sight to me. I've also seen it exploited in the other direction (industry doing everything they can to maintain their relevance to the detriment of everyone else) too many times.
What I guess I'm trying to say is: no one (in power, or to an extent abstractly) actually wants to empower people to be able to financially self-service.
It's about 200 lines of Python code to implement a Bitcoin HD (Hierarchical Deterministic) wallet using just the standard library and old-style addresses.
This will give you a 256-bit integer as the private key. You can process this further with whatever additional method you want (Shamir Secret Sharing, ...).
Obviously not for everybody, but the underlying cryptography is pretty simple.
This will give you a 256-bit integer as the private key. You can process this further with whatever additional method you want (Shamir Secret Sharing, ...).
Obviously not for everybody, but the underlying cryptography is pretty simple.
This method doesn't eliminate counter-party risk does it? You'd need to use open-source hardware, write your own C compiler in assembler, then write a Python interpreter, along with the standard library and cryptographic functions, and finally the actual wallet, while making sure your code isn't compromised during the entire process. I forgot the OS, which also needs to be written from scratch.
Nobody wrote their own C compiler, OS, for bitcoin, yet no such wide-spread attacks happened.
BTW, this logic also applies to everything else - all websites in the world are hackable if the website owner doesn't write their own compilers, OSes, ...
BTW, this logic also applies to everything else - all websites in the world are hackable if the website owner doesn't write their own compilers, OSes, ...
> There should be more discussion about how to store value without counterparty risk.
> Most people think it is as easy as ordering a hardware wallet, following the process the wallet software suggests and - hurray! - your keys, your coins!
What exactly is the threat model here?
To my knowledge, there's been no general compromise of truly air-gapped hardware that could only exfiltrate data by a back channel in an otherwise valid cryptographic transaction. This scenario seems to therefore imagine a targeted attack.
However, if you're storing enough value to be the subject of a targeted attack, then it would also be unwise to have the assets so concentrated in cryptocurrencies. Diversification reduces overall risk.
With cryptocurrencies as just one asset among many, the "storage" answer becomes obvious: use a law firm or financial institution that holds enough liability insurance to cover any losses arising from bad storage practices. Use the legal system, rather than evade it.
> Most people think it is as easy as ordering a hardware wallet, following the process the wallet software suggests and - hurray! - your keys, your coins!
What exactly is the threat model here?
To my knowledge, there's been no general compromise of truly air-gapped hardware that could only exfiltrate data by a back channel in an otherwise valid cryptographic transaction. This scenario seems to therefore imagine a targeted attack.
However, if you're storing enough value to be the subject of a targeted attack, then it would also be unwise to have the assets so concentrated in cryptocurrencies. Diversification reduces overall risk.
With cryptocurrencies as just one asset among many, the "storage" answer becomes obvious: use a law firm or financial institution that holds enough liability insurance to cover any losses arising from bad storage practices. Use the legal system, rather than evade it.
Not targeted. The typical way of handling bitcoin is flawed in multiple ways.
Lets look at the simplest way a hardware manufacturer could get your private key: They make the hardware wallet create the private key in a way the manufacturer can guess.
But there are more elaborate ones. For another one, take a look at this discussion:
https://news.ycombinator.com/item?id=32181462
Lets look at the simplest way a hardware manufacturer could get your private key: They make the hardware wallet create the private key in a way the manufacturer can guess.
But there are more elaborate ones. For another one, take a look at this discussion:
https://news.ycombinator.com/item?id=32181462
Some hardware wallets recommend you to generate your key with dice.
Yes, that would be part of a solution.
Another part has to be multiple air gapped hardware wallets from different manufacturers that all are RFC-6979 compliant.
And here it already ends AFAIC. I don't know of any air gapped wallets. The ones that call themselfes "air gapped" just connect to the computer via different means like display->camera.
Another part has to be multiple air gapped hardware wallets from different manufacturers that all are RFC-6979 compliant.
And here it already ends AFAIC. I don't know of any air gapped wallets. The ones that call themselfes "air gapped" just connect to the computer via different means like display->camera.
You can use an hardware wallet, protected by a HSM, on a computer which is itself airgapped. I've written a decoder which decode Ethereum transactions and verify that at least it's what the hardware wallet says it is signing that it is actually signing (amount / fees / destination address).
So you take your hardware wallet, you connect it to a fully airgapped computer (one without any WiFi capability and without any ethernet whatsoever) (btw let's please not get carried away with exfiltration through "fan rotating speed" or the like and hence that not being a really "airgapped computer" and the very concept of "airgapped" being non-existent).
You then sign a tx on your hardware wallet, which generates a text file. You copy that text file to a USB stick. You check that USB stick from another airgapped computer running the tx decoder software. You can see what's signed.
If it's what you wanted, you broadcast the transaction.
This is reasonably secure.
I'm talking about security for people protecting millions in assets, not $1 K, not $1 billion.
There are still several issues. For example the Ledger hardware wallets, often regarded as the be-all / end-all of hardware wallets require constant updating, needing the wallet to be connected to a computer connected to the Internet to download updates.
You can update the firmware before entering your key (for example on a new wallet), but you cannot install the "Nano apps" before entering your keys. Which is an issue in itself.
Data exfiltration through non-deterministic signatures is another very serious issue.
I haven't looked into using the same seed from different hardware wallet vendors and verifying that you get the transaction signature: if that can be done, I'm all ears.
The Ledger CTO and Ledger overall will constantly dodge questions on these issues.
The answer is basically: "Trust us, we won't exfiltrate your seed through non-deterministic transactions" and "Trust us, we won't exfiltrate your seed during apps or firmware updates".
Firmware updates which aren't even signed with a signature people can verify: Ledger can decide to serve, if they want to, a backdoored firmware leaking seeds through non-deterministic to one person in one thousand if they want to.
And they pretend there's nothing to worry about.
What Ledger should do is let people download firmwares and Nano apps offline, put them on USB keys, and then update their hardware wallets from an airgapped computer.
This would at least allow people to crosscheck their firmware and Nano app hashes.
It still wouldn't solve all the issues.
It's very hard to have something you can really trust and the hardware wallets vendors are really trying very hard to make sure you cannot verify what they're doing.
So you take your hardware wallet, you connect it to a fully airgapped computer (one without any WiFi capability and without any ethernet whatsoever) (btw let's please not get carried away with exfiltration through "fan rotating speed" or the like and hence that not being a really "airgapped computer" and the very concept of "airgapped" being non-existent).
You then sign a tx on your hardware wallet, which generates a text file. You copy that text file to a USB stick. You check that USB stick from another airgapped computer running the tx decoder software. You can see what's signed.
If it's what you wanted, you broadcast the transaction.
This is reasonably secure.
I'm talking about security for people protecting millions in assets, not $1 K, not $1 billion.
There are still several issues. For example the Ledger hardware wallets, often regarded as the be-all / end-all of hardware wallets require constant updating, needing the wallet to be connected to a computer connected to the Internet to download updates.
You can update the firmware before entering your key (for example on a new wallet), but you cannot install the "Nano apps" before entering your keys. Which is an issue in itself.
Data exfiltration through non-deterministic signatures is another very serious issue.
I haven't looked into using the same seed from different hardware wallet vendors and verifying that you get the transaction signature: if that can be done, I'm all ears.
The Ledger CTO and Ledger overall will constantly dodge questions on these issues.
The answer is basically: "Trust us, we won't exfiltrate your seed through non-deterministic transactions" and "Trust us, we won't exfiltrate your seed during apps or firmware updates".
Firmware updates which aren't even signed with a signature people can verify: Ledger can decide to serve, if they want to, a backdoored firmware leaking seeds through non-deterministic to one person in one thousand if they want to.
And they pretend there's nothing to worry about.
What Ledger should do is let people download firmwares and Nano apps offline, put them on USB keys, and then update their hardware wallets from an airgapped computer.
This would at least allow people to crosscheck their firmware and Nano app hashes.
It still wouldn't solve all the issues.
It's very hard to have something you can really trust and the hardware wallets vendors are really trying very hard to make sure you cannot verify what they're doing.
If you use an air gapped computer, why use a hardware wallet at all? Why not just a software wallet?
Apart from that, using an air gapped computer is a good idea! I would say you need at least two of them. With different wallets. And then compare everything they do to make sure they do not play any tricks on you.
Apart from that, using an air gapped computer is a good idea! I would say you need at least two of them. With different wallets. And then compare everything they do to make sure they do not play any tricks on you.
Actually secure uses for distributed decentralized databases (cryptocurrencies) like the world bank climate warehouse are going to use proper self custody solutions that aren't 'keep this paper safe' with clawback technologies and peer to peer (escrowless) methods of transfer. This one is being built by BitTorrent creator Bram Cohen. It's me shilling but I feel I'm a supporter for a technology reason, it's not been affected by the latest madness because it's business focused tech that works.
https://www.chia.net/2022/10/29/a-new-home-for-the-prefarm/
Kraken's proof-of-reserves audits are looking more and more attractive and important these days!
https://blog.kraken.com/post/15002/kraken-proof-of-reserves-...
https://blog.kraken.com/post/15002/kraken-proof-of-reserves-...
Reserves means nothing without also knowing the liabilities. Without that it is simply more smoke and mirrors.
First, it is absolutely better to hold your own keys.
That said, I don't think it's fair to say "nothing" in a situation where holding the keys means having control of the coins.
FTX's problem wasn't that they had liabilities. It was that they didn't have cryptographic custody of the assets they claimed to have. They don't have the ability to make a case in court that the funds they held belong to customers and, thus, should not be considered assets that could be given to their creditors, because they don't have the assets at all.
Kraken not only can prove that they have all the customer funds in the audited currencies, but also which account they belong to.
If individual accountholders can prove Kraken holds not just "all customer coins" but "my specific account's coins," Kraken can also make that case in court.
Whether it holds up is obviously not guaranteed, but that's not "nothing" compared to FTX's situation.
That said, I don't think it's fair to say "nothing" in a situation where holding the keys means having control of the coins.
FTX's problem wasn't that they had liabilities. It was that they didn't have cryptographic custody of the assets they claimed to have. They don't have the ability to make a case in court that the funds they held belong to customers and, thus, should not be considered assets that could be given to their creditors, because they don't have the assets at all.
Kraken not only can prove that they have all the customer funds in the audited currencies, but also which account they belong to.
If individual accountholders can prove Kraken holds not just "all customer coins" but "my specific account's coins," Kraken can also make that case in court.
Whether it holds up is obviously not guaranteed, but that's not "nothing" compared to FTX's situation.
From the Kraken terms of service:
> None of the Digital Assets in your Kraken Account are the property of Payward. Payward does not represent or treat assets in your Kraken Account as belonging to Payward. However, a court may disagree with Payward’s treatment of your assets and subject them to claims of Payward’s creditors.
This will be tested in court. Kraken's liabilities matter.
> None of the Digital Assets in your Kraken Account are the property of Payward. Payward does not represent or treat assets in your Kraken Account as belonging to Payward. However, a court may disagree with Payward’s treatment of your assets and subject them to claims of Payward’s creditors.
This will be tested in court. Kraken's liabilities matter.
I didn't say they didn't matter, and I explicitly did say whether a court would agree had not been decided.
What I also said is that proof of reserves is not nothing.
Kraken has proven they do have your coins. FTX did not.
This does not mean Kraken is invulnerable. It's just not vulnerable to the vulnerability that killed FTX.
What I also said is that proof of reserves is not nothing.
Kraken has proven they do have your coins. FTX did not.
This does not mean Kraken is invulnerable. It's just not vulnerable to the vulnerability that killed FTX.
> This does not mean Kraken is invulnerable. It's just not vulnerable to the vulnerability that killed FTX.
FTX could have borrowed using these assets as collateral, and the result would have been very similar, but FTX could have posted a proof of reserves.
You're right that the court would have had more freedom to act, though.
In any case, the news about the supposed hack may make the argument moot.
FTX could have borrowed using these assets as collateral, and the result would have been very similar, but FTX could have posted a proof of reserves.
You're right that the court would have had more freedom to act, though.
In any case, the news about the supposed hack may make the argument moot.
while kraken is one of the more reputable cex, at least from what ogs say, not your keys not your coins
the point of crypto is the ability to self custody without intermediary and verify funds are sound on-chain
non-custodial defi solves many of these issues
the point of crypto is the ability to self custody without intermediary and verify funds are sound on-chain
non-custodial defi solves many of these issues
Noncustodial defi will solve this, but defi contracts have so far often been light on auditing and heavy on compromise risk.
I look forward to the day defi fixes this, but right now, and especially with the difficulty of fiat on-ramps to defi, I think the balance comes down in favor of trading on a reliable CEX and never holding funds on an exchange that you aren't actively trading.
I look forward to the day defi fixes this, but right now, and especially with the difficulty of fiat on-ramps to defi, I think the balance comes down in favor of trading on a reliable CEX and never holding funds on an exchange that you aren't actively trading.
10% liquid doesn't necessarily concern me when considering a bank. But, they have many more routes to liquidity than FTX (Liam from the fed, loans from other banks, etc.). And even still, 10% isn't legal for a bank if their liquid assets are too volatile.
450 mil was in SBFs Robinhood investment, and FTX clearly didn't have any other avenues towards liquidity. 10% without an out was a predictably bad idea
450 mil was in SBFs Robinhood investment, and FTX clearly didn't have any other avenues towards liquidity. 10% without an out was a predictably bad idea
FTX isn’t a bank. They aren’t supposed to operate as a fractional reserve. Coinbase would be crucified by the SEC if they did this.
FTX US wasn't doing it either. They did it outside of SEC jurisdiction.
Animats disagrees. https://news.ycombinator.com/item?id=33556651
SBF being a US citizen was an angle I hadn’t considered. The US does have jurisdiction over its own citizens, even if they’re operating in other countries. So the question becomes to what extent has SBF defrauded US investors.
SBF being a US citizen was an angle I hadn’t considered. The US does have jurisdiction over its own citizens, even if they’re operating in other countries. So the question becomes to what extent has SBF defrauded US investors.
There’s plenty of jurisdiction here. Assuming that there’s an indictable offense here, all SBF has to do is connect through the wrong airport one time at some point during the rest of his life, and he’ll find himself back in the US.
Any transaction that involves dollars involves American banks due to correspondent banking. That means there's jurisdiction in the EDNY or SDNY because that's where all the banks are. America also has jurisdiction over its citizens conduct. It may not be the SEC or even a securities fraud prosecution but if the government can find emails or logs that show intent or show that he was sending money to Alameda and trying to evade internal compliance controls he can be found guilty of wire fraud. The fact that he owns most of Alameda doesn't help him either.
Seems like they were offering leverage, which plenty financial businesses besides banks do (such as brokers) and has the same effect.
> and a negative $8bn entry described as “hidden, poorly internally labled ‘fiat@’ account”.
> Bankman-Fried told the Financial Times the $8bn related to funds “accidentally” extended to his trading firm, Alameda, but declined to comment further.
Oh look, $8bn just appeared on the balance sheet. Where did they come from? Doesn't matter, surely they are legit. I mean, I have so many billions, $8bn is pocket change. Lets use the $8bn for trading immediately.
> Bankman-Fried told the Financial Times the $8bn related to funds “accidentally” extended to his trading firm, Alameda, but declined to comment further.
Oh look, $8bn just appeared on the balance sheet. Where did they come from? Doesn't matter, surely they are legit. I mean, I have so many billions, $8bn is pocket change. Lets use the $8bn for trading immediately.
So now we see some numbers.
Notes:
Bankman-Fried personally seems to own, indirectly, about $472M (paid over $600M, so that was a loss) worth of Robinhood Financial.[1]
Other documents provided to investors say that FTX US, Bankman-Fried’s onshore exchange, held $115mn of cash. Of that sum, $48mn was listed as corresponding to customer US dollar balances of $60mn.
So there might be enough cash to pay off customer cash balances. Those belong to the customer, not FTX, and were supposed to be in a separate account.
Here's the bankruptcy filing.[2] Case #22-11066.
Money appears to be flowing out of FTX to "privileged accounts" and anonymous wallets.[3]
This is now well past simple speculating with customer funds and into major criminal enterprise territory.
Creditor litigation is being started up.[4] Of course.
[1] https://archive.ph/o/hfvzw/https://www.sec.gov/Archives/edga...
[2] https://pacer-documents.s3.amazonaws.com/33/188448/042120640...
[3] https://btc-pulse.com/2022/11/12/ftx-withdrawals-resume-but-...
[4] https://scott-scott.com/sec-investigation/ftx-trading-ltd/
Notes:
Bankman-Fried personally seems to own, indirectly, about $472M (paid over $600M, so that was a loss) worth of Robinhood Financial.[1]
Other documents provided to investors say that FTX US, Bankman-Fried’s onshore exchange, held $115mn of cash. Of that sum, $48mn was listed as corresponding to customer US dollar balances of $60mn.
So there might be enough cash to pay off customer cash balances. Those belong to the customer, not FTX, and were supposed to be in a separate account.
Here's the bankruptcy filing.[2] Case #22-11066.
Money appears to be flowing out of FTX to "privileged accounts" and anonymous wallets.[3]
This is now well past simple speculating with customer funds and into major criminal enterprise territory.
Creditor litigation is being started up.[4] Of course.
[1] https://archive.ph/o/hfvzw/https://www.sec.gov/Archives/edga...
[2] https://pacer-documents.s3.amazonaws.com/33/188448/042120640...
[3] https://btc-pulse.com/2022/11/12/ftx-withdrawals-resume-but-...
[4] https://scott-scott.com/sec-investigation/ftx-trading-ltd/
-- a 30 year old personally has $600MM to invest in a single company? - his startup was founded in 2019 - that was crazy comp structure he had? - he comes from money? - or..? --
Already the world of founders, funding, and venture capital is full of incestuous relationships and shady dealings. I can’t imagine what happens when you combine that kind of capital with the utter shamelessness and obtuse financial engineering of the cryptocurrency space.
By incestuous, do you mean full-blown incest literally or just plain cronyism and good old boys' club?
incestuous
ĭn-sĕs′choo͞-əs
adjective
…
3. Improperly intimate or interconnected.
3. Improperly intimate or interconnected.
Thanks but I wouldn't use it though as it's an open invitation for misunderstanding and faux pas
For what it’s worth - I have never seen ‘incestuous relationships’ used in any way other than the common usage of referring to ‘nefarious bedfellows’
Edit: grammar, for clarity.
Edit: grammar, for clarity.
It's all fugazie. Just ask andreessen horowitz.
Even if I take the most charitable view, ie. that everything they did was above board etc, there’s still a lesson here about diversification -
a startup (ie. a private company which represents the majority of the founders assets) is already a massively concentrated, ie. not diversified, financial position -
no need to compound it by making a myriad bets (through Alameda or otherwise) in in other tokens/companies in the same market, which are ultimately incredibly correlated assets.
If there was no fraud, that will ultimately be the explanation for their downfall.
a startup (ie. a private company which represents the majority of the founders assets) is already a massively concentrated, ie. not diversified, financial position -
no need to compound it by making a myriad bets (through Alameda or otherwise) in in other tokens/companies in the same market, which are ultimately incredibly correlated assets.
If there was no fraud, that will ultimately be the explanation for their downfall.
Non-paywall link to zero hedge (which seems to be the same info) https://www.zerohedge.com/markets/ftx-held-just-900mm-liquid...
8 months ago I commented "Anyone else oddly skeptical of FTX? They seemingly came out of no where with ungodly amounts of money, and began slapping their name on anything and everything."
Glad my BS detector works I guess.
Glad my BS detector works I guess.
Just one glance at the founder's pics online, makes all my gut alarms go off like crazy. Sometimes, I wonder how people got easily scammed like this by these people but I just chalk to them not being hyper aware of these subconscious clues or worse not acting on their gut reaction when it fires incessantly.
I told my dad over a year ago that FTX buying stadium naming rights for a bunch of sports leagues (including one of our hometown teams) was like if there had been an Enron Stadium in 2000.
> if there had been an Enron Stadium in 2000
There actually was an Enron Field in Houston in 2000:
> Minute Maid Park, previously named The Ballpark at Union Station, Enron Field, and Astros Field, is a retractable roof stadium in Downtown Houston, Texas, United States. It opened in 2000 as the home ballpark of Major League Baseball's Houston Astros.[1]
(It was named "Enron Field" from 2000 to 2002.)
[1] https://en.wikipedia.org/wiki/Minute_Maid_Park
There actually was an Enron Field in Houston in 2000:
> Minute Maid Park, previously named The Ballpark at Union Station, Enron Field, and Astros Field, is a retractable roof stadium in Downtown Houston, Texas, United States. It opened in 2000 as the home ballpark of Major League Baseball's Houston Astros.[1]
(It was named "Enron Field" from 2000 to 2002.)
[1] https://en.wikipedia.org/wiki/Minute_Maid_Park
How the fuck did all these high-profile investors miss this.
NEA, IVP, Iconiq Capital, Third Point Ventures, Tiger Global, Altimeter Capital Management, Lux Capital, Mayfield, Insight Partners, Sequoia Capital, SoftBank, Lightspeed Venture Partners, Ribbit Capital, Temasek Holdings, BlackRock and Thoma Bravo.
These aren't schleps in this list. Blackrock, Sequoia, Tiger, Lightspeed, the fucking NEA. Jesus. Did no one do _any_ due diligence?? Did they just trust the auditor Armanino and Prager Metis (who??)[1]??
At least Enron had Arthur Andersen and some cover of respectability in the audit space at the time.
Irrational exuberance is really something.
1- https://www.coindesk.com/business/2022/11/11/meet-the-metave...
NEA, IVP, Iconiq Capital, Third Point Ventures, Tiger Global, Altimeter Capital Management, Lux Capital, Mayfield, Insight Partners, Sequoia Capital, SoftBank, Lightspeed Venture Partners, Ribbit Capital, Temasek Holdings, BlackRock and Thoma Bravo.
These aren't schleps in this list. Blackrock, Sequoia, Tiger, Lightspeed, the fucking NEA. Jesus. Did no one do _any_ due diligence?? Did they just trust the auditor Armanino and Prager Metis (who??)[1]??
At least Enron had Arthur Andersen and some cover of respectability in the audit space at the time.
Irrational exuberance is really something.
1- https://www.coindesk.com/business/2022/11/11/meet-the-metave...
The words of Andrew Lahde (who closed his hedge fund up 800% after betting against investment banks in 2008) continue to be not just insightful but downright educational.
"I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America."
The lesson is that just because you work for a16z, or Goldman Sachs, or McKinsey, doesn’t mean anything. In fact you’re probably more dumb than average because you’ve been trained to see things a certain way. Not only are they not our best and brightest, they are in fact the “low hanging fruit”.
"I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America."
The lesson is that just because you work for a16z, or Goldman Sachs, or McKinsey, doesn’t mean anything. In fact you’re probably more dumb than average because you’ve been trained to see things a certain way. Not only are they not our best and brightest, they are in fact the “low hanging fruit”.
The rest of Lahde's goodbye letter is also interesting, and can be found here in its entirety: https://web.archive.org/web/20081019183111/http://ftalphavil...
Appeal to authority is a hell of a drug.
"I'm a big advocate for Sam because he has two parents that are compliance lawyers. If there's ever a place I can be where I'm not going to get in trouble, it's gonna be FTX" https://twitter.com/Guruleaks1/status/1591086077489844224
"I'm a big advocate for Sam because he has two parents that are compliance lawyers. If there's ever a place I can be where I'm not going to get in trouble, it's gonna be FTX" https://twitter.com/Guruleaks1/status/1591086077489844224
Or maybe that guy was spouting nonsense because he was betting he can pawn off his ownership stake onto someone else for a gain.
>Jesus. Did no one do _any_ due diligence??
They did, saw mommy, daddy, family connections and went all in.
Edit: forgot about girlfriend "Gary Gensler's boss at MIT Glenn Ellison is the father of the Co-CEO Caroline Ellison"
They did, saw mommy, daddy, family connections and went all in.
Edit: forgot about girlfriend "Gary Gensler's boss at MIT Glenn Ellison is the father of the Co-CEO Caroline Ellison"
Makes you wonder who else in the crypto space is lying through their freakin' teeth, don't it?
Why do due diligence when the CEO plays League of Legends during meetings and that is supposed to make him a super genius.
We all asked the same quesrions after Theranos. Silicon Valley VC is a relationship business run by idiots who just follow the leader. They admitted they didn't do much diligence into Theranos, and they obviously didn't do it here either.
Yeah you're right, FOMO and the bandwagon effect are at play here.
[deleted]
Because they are all dumb and dumbers. Having spoken to a lot of high profile vc firms you would be amazed how low IQ most of them are. They have this outward show which they cultivate while they spend old people's pension funds.
"It's A BIG Club & You Ain't In It!" - https://youtu.be/Nyvxt1svxso
I feel like making money when you can borrow money at near zero interest rates is a pretty easy thing that more or less anyone can do.
It's fun to gamble and light money on fire. Sometimes that gambling pays off and you get to light even more on fire. Retail traders will always gladly sweep up the ashes and hold on to them.
>SoftBank
Well, it's not like they have a great track record with risk management.
Well, it's not like they have a great track record with risk management.
My guess is that either FTX did not furnish them with accurate or truthful information, or the information was correct at the time, but the lack of good governance allowed FTX to pursue some rotten strategies without the knowledge of their investors.
It would not be the first time that otherwise smart people have made a bad call.
It would not be the first time that otherwise smart people have made a bad call.
The timing of the big investments back in Oct '21 for their Series B and Jan '22 for Series C makes your guess seem likely.
Seems like most of the actual fraud started after the 3AC/TerraLuna blowup as SBF trying to trade out of the hole he was in.
Seems like most of the actual fraud started after the 3AC/TerraLuna blowup as SBF trying to trade out of the hole he was in.
I’m slightly curious if Sam had a personal relationship with someone at alameda? He took a pretty straightforward way to make money (charge fees running an exchange) and then looks to have dumped money into an absolute black whole of illiquidity and stupidity at alameda which was run by Caroline ? Even if alameda was making smart seed round investments- the liquidity horizons make no sense for an exchange to be part of that!
I can imagine alameda being burnt by 3ac - just wrap things up there if needed?
I can imagine alameda being burnt by 3ac - just wrap things up there if needed?
That seems to be known: "Alameda CEO Caroline Ellison, whose firm played a central role in the company’s collapse – and who, at times, has dated Bankman-Fried" - https://fortune.com/2022/11/11/sam-bankman-fried-crypto-empi...
He lived with the CEO of Alameda and is said to be in a polyamorous relationship with her. He’s also co-CEO.
Yowk! Well - that might explain some of the craziness!
> Seems like most of the actual fraud started after the 3AC/TerraLuna blowup
What makes you say that? I think it was fraud from day one-- starting with the claimed billions of dollars in arb gains.
If they were real-- wheres that money now?
What makes you say that? I think it was fraud from day one-- starting with the claimed billions of dollars in arb gains.
If they were real-- wheres that money now?
Yeah, we see this time and time again. All those Theranos investors didn't do any diligence because they saw other rich and powerful people throw money at them.
A friend who tried to raise funds from VCs for his start up tech company in SV, tried for multiple years. He was happy to disclose his financials because he had actual customers and revenue. But nobody cared for multiple years. Then one day, well known VC in those circles finally wrote them a check. The moment that happened, all the VCs were throwing money at him. They didn't care about the financials or doing their due diligence, they just did it because some other reputable guy did it. FOMO.
A friend who tried to raise funds from VCs for his start up tech company in SV, tried for multiple years. He was happy to disclose his financials because he had actual customers and revenue. But nobody cared for multiple years. Then one day, well known VC in those circles finally wrote them a check. The moment that happened, all the VCs were throwing money at him. They didn't care about the financials or doing their due diligence, they just did it because some other reputable guy did it. FOMO.
So... about the same as a typical bank reserve ratio, 10%. https://en.wikipedia.org/wiki/Reserve_requirement#Reserve_re...
Except FTX wasn't a bank, it was an exchange.
This was always a Ponzi scheme, and SBF was incredibly open about it being a Ponzi scheme, and yet people still tried to beat out the Ponzi scheme. Here's SBF back in April (just a small excerpt, the full section is far more damning):
> SBF: So, you know, X tokens [are] being given out each day, all these like sophisticated firms are like, huh, that's interesting. Like if the total amount of money in the box is a hundred million dollars, then it's going to yield $16 million this year in X tokens being given out for it. That's a 16% return. That's pretty good. We'll put a little bit more in, right? And maybe that happens until there are $200 million dollars in the box. So, you know, sophisticated traders and/or people on Crypto Twitter, or other sort of similar parties, go and put $200 million in the box collectively and they start getting these X tokens for it.
> And now all of a sudden everyone's like, wow, people just decide to put $200 million in the box. This is a pretty cool box, right? Like this is a valuable box as demonstrated by all the money that people have apparently decided should be in the box. And who are we to say that they're wrong about that? Like, you know, this is, I mean boxes can be great. Look, I love boxes as much as the next guy. And so what happens now? All of a sudden people are kind of recalibrating like, well, $20 million, that's it? Like that market cap for this box? And it's been like 48 hours and it already is $200 million, including from like sophisticated players in it. They're like, come on, that's too low. And they look at these ratios, TVL, total value locked in the box, you know, as a ratio to market cap of the box’s token.
> ...
> Matt Levine: I think of myself as like a fairly cynical person. And that was so much more cynical than how I would've described farming. You're just like, well, I'm in the Ponzi business and it's pretty good.
https://www.bloomberg.com/news/articles/2022-04-25/sam-bankm...
> SBF: So, you know, X tokens [are] being given out each day, all these like sophisticated firms are like, huh, that's interesting. Like if the total amount of money in the box is a hundred million dollars, then it's going to yield $16 million this year in X tokens being given out for it. That's a 16% return. That's pretty good. We'll put a little bit more in, right? And maybe that happens until there are $200 million dollars in the box. So, you know, sophisticated traders and/or people on Crypto Twitter, or other sort of similar parties, go and put $200 million in the box collectively and they start getting these X tokens for it.
> And now all of a sudden everyone's like, wow, people just decide to put $200 million in the box. This is a pretty cool box, right? Like this is a valuable box as demonstrated by all the money that people have apparently decided should be in the box. And who are we to say that they're wrong about that? Like, you know, this is, I mean boxes can be great. Look, I love boxes as much as the next guy. And so what happens now? All of a sudden people are kind of recalibrating like, well, $20 million, that's it? Like that market cap for this box? And it's been like 48 hours and it already is $200 million, including from like sophisticated players in it. They're like, come on, that's too low. And they look at these ratios, TVL, total value locked in the box, you know, as a ratio to market cap of the box’s token.
> ...
> Matt Levine: I think of myself as like a fairly cynical person. And that was so much more cynical than how I would've described farming. You're just like, well, I'm in the Ponzi business and it's pretty good.
https://www.bloomberg.com/news/articles/2022-04-25/sam-bankm...
Except in that comment he's talking about yield farming, and he's 100% right about a lot of what yield farming products did
However he runs an exchange, not one of these magic boxes, and he was never saying or claiming that that was what ftx was doing
However he runs an exchange, not one of these magic boxes, and he was never saying or claiming that that was what ftx was doing
You are right, and I was wrong. I wish I could edit to put a big red flag at the top of my incorrect comment...
Fedex was famously down to their last 5,000$ dollars and were facing bankruptcy, and the founder quite literally went to Vegas to play blackjack and won 27,000$ to save the company.
Companies and entrepreneurs are supposed to take on risk, that's why bankruptcy laws and LLCs exists in the first place. To give entrepreneurs some peace of mind that if the risk doesn't pay off they only lose what they put in.
The world and the US was growing much faster in the 1970s and 1980s when these sort of things happened daily. Not all donuts come out with a hole.
If for every Ponzis we get a Standard Oil then it's worth it.
If for every Enron we get a Microsoft then it's worth it.
If for every FTX we get a Moderna then it's for sure worth it.
And maybe all those positive examples were just inches away from being touted as negative examples, quite like Fedex was.