I have 0 exposure to cryptocurrencies and I don't work in that industry, but the recent news about FTX plummeting to the ground have left me thinking quite a bit.
It's extremely surprising how a person can go from one day being considered a "genius" or a shrewd business man to being a world wide piece of shit, conman, idiot in some aspects and overall hated by everyone. With this hindsight, now, we can tell that everything that Bankman-Fried said was a lie... he never did tell the truth.
Plus the arrogance that comes from the deep insecurity of having a bad hand where the only choice is to double down every time until you get caught (he was giving product advice to Stripe CEO while alt-tabbing on an interview; now, who is this guy really...) I feel like this could happen again, and to anyone. And, looking back it's obvious, this guy was offering 3 billion dollars to buy a piece of Twitter to a surprised Musk saying, "Does Sam have 3b liquid?"
As soonest as that message did come out it should have been aggregated, it should have moved the needle strongly towards the insolvency of this company and hopefully save thousands of users from having their funds locked. The same goes for any centralized exchange functioning right now, this lowers the probability that they will be able to sustain a bank-run (by different amounts.)
We have to find ways in which the skepticism of people are accounted for and people that were right are rewarded, in the case of FTX this would have been a service to the tune of a billion dollar value.
This will happen again, how can we save the next thousands of users and the next billion of dollars?
Agreed. To quote myself like some kind of asshole:
Thank you for being a temporary asshole, that is a great comment. Does it occur to you how it can be done?
the first prediction market about this was in 8 november on polymarket and surprisingly it was 94 percent probability on them not halting withdrawals
Yes. From the same comment:
I have since updated against hypotheses that it is possible to achieve anything of consequence via legislation. Also, now that the political goodwill and funding potential of FTX has been eliminated, the legislative path is even more implausible.
Therefore, the best plan is to build a serious prediction market on the Ethereum blockchain, and rely on reputation systems (think Ebay star ratings) to incentivize trustworthy market arbitration.
Prediction markets are not magic. It's just the principle of stock market applied to more broad type of questions.
Whether a company commits a huge fraud that will bancrupt it on reveal and lead to billions of dollars in investments being lost, is among the questions that regular stock market is answering.
Magic not needed... someone sees that SBF offers 3 billion to buy a piece of twitter, gets spooked and aggregates it on the prediction market -> this raises the probability that it's doing something shady (then any other assessment will be aggregated) now when FTX offers EA some money, we know the probability of them doing something shady... have some info to make a better decision (I noticed Scott Alexander writing about this)
If this sort of evidence wasn't enough to significantly drop the prices of FTT token on the financial market why would it be enough to significantly drop the confidence in the company on prediction market?
Regular stock markets are already extremely liquid prediction markets for the trust in the companies.
A prediction market is only as good as the participants. People with the insider information and highly lucrative information necessary to forecast FTX-like catastrophes generally don't participate in prediction markets, especially not free ones, and probably won't any time soon. That's something that financial and analyst firms can do, because they have ways to guarantee that their org's members are safe, and that they won't get targeted by all sorts of vicious people out there.
Startups are fundamentally incapable of this. Wall street is highly capable of this, possibly also legal and government contractors that I'm not aware of, but it's only possible because those systems are fundamentally closed and ingrained inside large nontransparent institutions that have built up networks of trust for decades.
Sorry if this is a stupid question; I originally wanted to ask on ACX, but the open thread has exploded and now my web browser freezes when I go there.
If I understand it correctly, several EA charities are currently in serious financial problems, because FTX promised to give them tons of money and then... didn't.
Could this be avoided if we simply started following a common-sense rule: "Do not spend the money you do not have yet"? Like, if tomorrow some FTX2 comes and says: "Hey, why don't you do X, I will give you billion dollars", just tell them: "Sure, I will start working on X as soon as the billion dollars appear in my bank account. Until then, we can discuss plans, but I am not spending any of my money, nor doing anything huge and irreversible."
I understand that this is not always simple. For example, if a project requires doing something every year, for 10 years, and someone promises to give you billion dollars each year, and the first year they actually give you the first billion, then you may start doing things and get yourself in a situation where if the second year you suddenly don't get a cent, you may be in a big problem. (Though a possible solution is to always think about the possibility, estimate the cost of shutdown of the operation, and leave that money aside from the first billion.)
Really, my impression is that regardless of whether FTX are the bad guys (though I suppose they probably are), the problem is spending the money you don't have, which seems like an avoidable mistake. Am I completely wrong here? If yes, could someone please ELI5?