The mea culpa of Fisking SBF

The mea culpa of Fisking SBF

FTX’s Sam Bankman-Fried resurfaced after a short silence, which in the age of 24-hour trading and billionaire-owned rumor mills counts as a very long silence.

SBF said he was sorry in a 21-tweet thread. We talk a lot about accountability, transparency, and so on. He also had a salty message for the head of Binance, CZ, who started this whole mess.

But it’s not as newsworthy as FTX starts allowing some withdrawals. It could either be good news or very very problematic! [Update at 2:10pm EST: Looks like this was, in fact, problematic. And then maybe reversed?] While we wait for the dust to settle, we can take a look at the clues SBF is giving as to what happened at FTX this week and why.

Here are some notable tweets that could mean Something:

The SBF claims that the exchange has more assets than “customer deposits”.

It probably matters that he used the word “deposits” instead of “encumbrances” here, because the word “deposit” could mean several different things.

Deposits could mean real-world fiat currency. Or fiat and customer custody assets. It is clear that the company does not have more assets than Passivesbecause if it was, there would be no problem.

Market maker companies on FTX global also use it as a guardian for their trading equity, according to three people familiar with market-making operations, and that money is also frozen. We expect market makers to significantly minimize the likelihood of recovering this money.

It’s also unclear how SBF reconciles this Tweet with reports that it loaned billions of dollars worth of money to its clients at Alameda, as reported by The Wall Street Journal today (see our previous coverage ). The reporting is based on a single source, so we assume that an investor could have misunderstood what SBF meant. But also maybe not. Especially if SBF’s tally of the company’s “assets” assumes that Alameda will fully repay the $10 billion loan it got from FTX.

Don’t you hate when that happens!

Who among us hasn’t mislabeled their “customer risk requiring collateral” spreadsheet as “customer collateral provided”? In this scenario, accessories trading company Alameda would be a customer, of course; just a client that would mostly belong to the owner of the exchange.

It’s unclear what exactly “bank-linked accounts” means, but FTX executives have been very publicly incorrect about current bank account policy and customer protection in the past.

Sorry what?

So the head of FTX – a popular platform partly because it makes it easy to use leverage when trading – thought his clients had . . . zero leverage?

It pushes the boundaries of credible belief. On the one hand, FTX is notorious for self-liquidating clients that fall into the red. This is apparently to protect his other customers from this type of situation.

In other words, there shouldn’t have been a giant accumulation of client leverage! To end up in a $10 billion hole, FTX might have suspended its liquidation policy for a whale “client,” perhaps one that rhymes with Shmalameda. Or maybe SBF simply transferred their clients’ money to their in-house trading company.

The ultimate consequence of either of these scenarios for FTX customers is negligible: they are stuck anyway. For SBF, the consequences could be quite different. Anyway, now it’s fundraising!

We should also point out that FTX employees have received significant compensation in the FTT token, which has fallen by more than 80% in the last seven days.

“One way or another, Alameda Research is going out of business.”

Interesting! Although it is not clear when the trade will be completely stopped.

A trader tells Alphaville that an Alameda public wallet borrowed a tether from a lending protocol earlier today. This sparked a series of rumors that Alameda was going to downsize the token, which may have helped push it out of its US dollar peg.

In other words, SBF says he will quit his job if investors make it a condition of a bailout. However, it’s unclear what that would mean for his ownership of the company.

Whether intentional or not, the tweet above could be interpreted as a request for US regulators to please leave him alone. 🙂

Oh and we can’t forget the “this isn’t investment advice and I probably don’t know what I’m talking about so please don’t sue me for this specific Twitter thread I’m already facing to enough legal trouble” disclaimer at the end:

Maybe a a little more software development and a little less League of Legends would have helped?

#mea #culpa #Fisking #SBF

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