FTX Crisis. What we know and some forecasts on what will happen next

Our sympathy lies with SBF and the team

I'm not generally following the news as-it-happens (even this), but someone I know told me that Sam seems to have straightforwardly lied on Monday. The twitter thread is down now but the quote was:

FTX has enough to cover all client holdings.
We don't invest client assets (even in treasuries).
We have been processing all withdrawals, and will continue to be.

I reckon it has probably been a hellish few days on the inside there, but I'll mention that if someone openly lies to lots of people whose money they control, I wouldn't straightforwardly give them all of my sympathies for their problems, even if I believe they've otherwise done a great deal of good in the world.

Edit on Nov 24th: As I said downthread, I'll update this comment with new info. It now seems to me that Sam lied, that he did invest client assets, (though it's possible to me he just monkeyed around and didn't know what he was doing with them). For a full account I recommend Zvi's writeup.

[-]evhub3y3422

I don't think we know enough yet to know whether this was a lie or not. I'd hold out on passing judgement until we get more details about what exactly happened.

[-]Ben Pace3y335

Yeah, seems fair. I've set a reminder to check in again in 2 weeks and update my comment with any new info that clearly reduces uncertainty on this (and in the absence of that I'll probably set another reminder).

[-]GeneSmith3y1411

I can give you an update right now:

This was a lie and he knew it was a lie. There are numerous reports now that FTX has an 8 billion dollar hole in its balance sheet due to loans made to Alameda that were collateralized by illiquid tokens. The Wall Street Journal is reporting Alameda owes FTX $10 billion.

There is no chance whatsoever that the CEO did not know that his company was loaning over half of customer assets to a hedge fund he started and in which he owned a 50% equity stake.

I think he is still lying about it on Twitter today. He wrote this in his explanation thread:

a poor internal labeling of bank-related accounts meant that I was substantially off on my sense of users' margin

Again, implausible for the reason above.

[-]ChristianKl3y30

Tokens can be illiquid because they are locked for staking and a few other reason that allow them to be liquid again in the future. Do we know more about those illiquid tokens to tell whether they are worth something or whether it makes sense to think of them as being worth zero?

[-]GeneSmith3y10

Most of the illiquid tokens were FTT, FTX's proprietary token, which has dropped 97% from its all-time high (and about 89% just this week).

The remainder are a mish-mash of others, but they account for less than 10% of the total.

They had some other assets on their balance sheet, though the reports about how much and of what are very mixed and the only actual data source we have is from before the crash. I believe they sold off a few hundred million Bitcoin, Ethereum and Solana trying to prop up the price of FTT at $22.

Look at the price of FTT on the evening of the 7th. Volatility goes to basically zero. You only see that when there's one buyer in the market and everyone else wants to sell.

There's some articles mentioning huge outflows from Alameda-associated wallets around that same time, but I'm too lazy to go find them.

But all that is kind of besides the point. The tokens were illiquid because Alameda owned 180% of the circulating supply. If they made bad trades and FTX was forced to liquidate that collateral, who was going to buy it? There were no buyers.

That's also why they were so desperate to keep the price up; FTT was like 90% of their net assets.

[-]Ben Pace3y20

Updated with new info.

[-]Ege Erdil3y189

In my opinion, the fact that the original tweet, along with Bankman-Fried's other tweets in the same thread, has been deleted in an attempt to shift the narrative is noteworthy in and of itself.

I think the tweet is more likely to be deleted in this way in worlds where the claim in it was made in bad faith rather than not, though perhaps unknown details about FTX's strategy for getting out of this quagmire necessitated such a move even in worlds where the claim had originally been made in good faith. Still, the optics are not good, and I have appropriately updated towards FTX having engaged in dishonest conduct.

I agree with evhub that we don't yet know if the claim was made in bad faith, but we can still make some guesses in the absence of such definitive knowledge.

[-]M. Y. Zuo3y52

It does makes him sound very shady.

It’s unproductive to grieve before all the facts are known. There’s even a chance the EA folks dodged a bullet here.

IDK why the OP even needs to include suggestions on how to feel?

[-]Ben Pace3y62

Yeah, I generally don't comment on news, but when a post attempts to speak on my behalf, I feel I am at least a little honor-bound to point out if I wouldn't say that.

[-]Nathan Young3y20

The original post on the forum was written by multiple people, hence the use of "our"

[This comment is no longer endorsed by its author]Reply

[-]Ben Pace3y31

K. It was immediately following the bullet "We should wait and see what happens" which is attempting to speak for everyone (it's aiming to set an attitude for all readers). But I see your alternative interpretation now.

[-]Nathan Young3y60

Honestly looking back I can't recall how I meant it. Thanks for the critique.

[-]Ben Pace3y20

You are welcome :)

[-]Nathan Young3y31

I made some edits.

[-]jacob_cannell3y100

FTX.com comprises ~39% of SBF's assets and will likely be worthless, affecting the value of FTX US and Alameda

How is this only 39% of his assets? Was Alameda really worth more than FTX.com, or is this 39% after the massive devaluation? Was he already a multi-billionaire before founding FTX?

[-]Lech Mazur3y97

From what I gather, Alameda wasn't worth quite as much but he had a larger stake in it. Both appear to be worthless now. There is also a U.S. subsidiary ftx.us, which according to them "is a separate entity with separate management personnel, tech infrastructure, and licensing." Some calculations I've seen put SBF's net worth below $1 billion now and I think it's probable that he'll have to deal with some big legal issues.

[-]Nathan Young3y94

Should people who got funding from immoral activity pay it back?

[-]Caerulean3y40

The way this question is asked seems somewhat off to me, mainly because it carries hidden assumption which indirectly create a narrative around this event (and this narrative naturally evokes a strong emotional response and might cloud thinking).

That being said, if it turns out that FTX violated its terms of agreement and thus billions of investments were lost, I wish that FTX Fund grantees would at least briefly considered the complicated moral questions of their next actions. However, if FTX truly becomes insolvent, there's nothing that can be done which would result in an adequate fraction of people's savings being returnered.

[-]JacobW383y61

Been staying hard away from crypto all year, with the general trend of about one seismic project failure every 3 months, and this might be the true Lehman moment on top of the shitcoin sundae. Passing no assumptions on intent or possible criminal actions until more info is revealed, but it certainly looks like SBF mismanaged a lot of other people's money and was overconfident in his own, being largely pegged to illiquid altcoins and FTT. The most shocking thing to me is how CZ took a look at their balance sheets for all of like 3 hours after announcing intent to acquire, and just noped right outta there. Clearly this situation is more FUBAR than we ever imagined, and it all feels like SBF had to have known all along that his castle was built on a foundation of sand, at the very least. By all appearances, for him not to have seen that would require an immense amount of living in denial.

[-]Mitchell_Porter3y20

In string theory in the mid-1980s, there was a moment when they thought, not just that they had found the theory of everything, but that they might be able to prove it. Only one "realistic" string vacuum was known, so all they had to do was calculate the particle masses, and they'd be done... Forty years and a googolplex possible worlds later, attitudes are rather more cautious now.

I would be interested to know what the high point of optimism associated with FTX was. Bankman-Fried was discussed as a future trillionaire, he was hanging out with regulators and bailing out other crypto enterprises... Were there, say, people who combined crypto maximalism and Democrat progressivism to dream that FTX might catalyze the transformation of the USA into the heart of an EA-centered global civilization, which in turn could become the nucleus of a hedon-maximizing galactic civilization?