IdleRich

IdleRich
i suppose one distinctive factor could be the speed of the rise and fall - how would that compare to, say, tulips in 1637
It does seem really fucking fast doesn't it? And the sums of money seem to be really really big. Like Razzlekhan, if she had stolen (or laundered (allegedly)) a few million then that would be sort of normal crazy, but when you realise we are talking about billions it seems something like crazy squared somehow.
 

padraig (u.s.)

a monkey that will go ape
and FTX didnt have a bank account for investors to deposit in, so Alameda recived the deposits, and never transferred them over to FTX - they double counted and then used one to back the other,
very basic
wait is that true? I thought the basic mechanism was that FTX allowed users to borrow from each other, which Alameda used to borrow enormous sums using its basically worthless FTT tokens as collateral. I'm no expert on startup funding but surely something like the lack of a bank account for investor deposits would have been uncovered during Series A/B due diligence? tho reading John Ray's comments on how completely fucked FTX's books and total lack of accounting controls are, maybe not.

so double counting and using one to back the other is basically right, but via the medium of worthless self-issued tokens. it's an important difference I think bc it makes much harder to write it off as incompetence or inexperience - you know you're issuing these tokens that only have value bc they're not making it to an open market, and marking them as equal in value to deposits back by fiat currency or some other, non in-house crypto. hard to see that as anything but malicious.
 

padraig (u.s.)

a monkey that will go ape
it is really a strange mix tho of extremely complex trades and murky, semi-opaque relationships with other crypto ventures - that piece luke linked details how FTX very likely colluded with Celsius to drive up the price of its own token in order to raise equity by defrauding investors, for example - combined with incredibly simple or nonexistent accounting? my understanding of financial scandals is that they're usually the other way around - simple or nonexistent trades combined with fancy accounting - or complex on both sides. I guess it reminds me maybe of Nick Leeson, where he said he was able to get away with it for as long/to the extent that he did bc his superiors at Barings had no idea how modern finance actually works.
 

IdleRich

IdleRich
One thing I got from it was that FTX was accused of gambling with investors' money but they vehemently denied doing so. Then in one of the interviews I just read (the one after it all went tits up where they were surprised that SBF was available and particularly surprised with his candour regarding how the stuff about good causes was really just PR) they asked SBF if he still maintained that that was the case - he said that "technically" it was true, and finally said that FTX did not gamble with investors' money, however, they did lend the investors' money to Alameda - and of course, as soon as Alameda got their hands on it, they started betting it willy nilly and very soon it was all gone.

So, if you were an FTX investor it's not that comforting to know that of course they wouldn't dream of taking any risks with their money in the markets, but they would happily give it all to someone else (who was also them) who would do exactly that.
 

Clinamenic

θερμοδυναμικός καπιταλιστής
btw I wonder what % of crypto is money laundering. you'd think it's quite significant. maybe @Clinamenic has some insight?
A friend of mine is an insightful on-chain investigator, a field of forensic accounting he says is woefully underdeveloped given the kind of fraud and geopolitical danger he’s seeing in the data.

It is difficult to move large sums of money in crypto, either at once or over time through federated multi-wallet pathways, without it being noticeable - but to a large extent people either aren’t watching, aren’t able to make sense of the data, don’t notice it in time (because it’s easy to do this stuff quickly), or aren’t able to associate on-chain intelligence with off-chain intelligence so as to put a fuller case together.

Regulation I suspect will ultimately probably be focused on the fiat on-ramps and off-ramps, where Financial Intelligence Units issue their suspicious activity reports - as there is nothing web3-native to address this yet, to my knowledge.

But actually, some friends of mine - holonym.id - are working on a zero-knowledge ID system that could have AML/CFT features built in, to mirror the procedures used internationally by FIUs.
 

Clinamenic

θερμοδυναμικός καπιταλιστής
Re bank accounts, I never actually used FTX but I’d be a bit surprised if they had neither an in-house bank account system (like Nexo does, somehow) or let you transfer to your own bank account instantly, like most other exchanges do.
 

IdleRich

IdleRich
dude it is truly a document for the ages

just imagining a couple Wall Street elites whispering to each other "bro do you remember the time that SBF collapsed the kimchi premium?"

it's like a line out of terrible William Gibson fanfic

Also is what they're claiming even true? When I read about the Three Arrows collapse (they're coming thick and fast at the moment aren't they?) it said that they were doing the kimchi arbitrage along with many other people, but here they are making out that SBF was the only one able to do it.

It's weird that what they're making such a bit thing of is not that he spotted the trade - cos they admit that it was an obvious thing to do - but rather that his genius lay in gaining permission to do the really obvious trade. They're saying that he was a master of filling in forms, he was boring enough to fill in a form that no-one else could be arsed to do, eventually no doubt he became a legendary filler in of forms whose name is discussed in hushed tones any time two form fillers meet.

Also in this they go on about how amazing it was that he was playing League of Legends while he was in a meeting - but in one of the other articles they said that for someone to have played it as much as he did over such a long period of time and still be at such a low level should be a warning sign that he was in some ways not the full ticket. It said that it was like someone unable to pass their driving test after, say, thirty times, eventually you start to realise that it's not bad luck or nerves but that he has some kind of mental problem that means that he is limited in some way that means that he is literally incapable of doing a basic thing that most people could do. So which is it, was he a super genius or did he have learning difficulties?
 

IdleRich

IdleRich
A friend of mine is an insightful on-chain investigator, a field of forensic accounting he says is woefully underdeveloped given the kind of fraud and geopolitical danger he’s seeing in the data.

It is difficult to move large sums of money in crypto, either at once or over time through federated multi-wallet pathways, without it being noticeable - but to a large extent people either aren’t watching, aren’t able to make sense of the data, don’t notice it in time (because it’s easy to do this stuff quickly), or aren’t able to associate on-chain intelligence with off-chain intelligence so as to put a fuller case together.

With Razzlekhan and her husband I read that the reason it was hard for investigators to trace the money was cos it was split into bits and then moved through sometimes as many as twenty-thousand accounts. How do they do that? And how did they know how to do it? And once it's done how can it possibly traced at all?
 

Clinamenic

θερμοδυναμικός καπιταλιστής
With Razzlekhan and her husband I read that the reason it was hard for investigators to trace the money was cos it was split into bits and then moved through sometimes as many as twenty-thousand accounts. How do they do that? And how did they know how to do it? And once it's done how can it possibly traced at all?
It only takes a couple minutes to manually set up a wallet, and the nature of Ethereum requires no KYC or personal documentation. With smart contracts, or maybe even just bots, I’m pretty sure one can automate the wallet creation process to create way more than someone could be expected to make manually.

There are also probably smart contracts created to facilitate breaking down a large sum in an initial wallet, tumbling it through a series of wallets, siphoning out a bit of the sum each time and send that bit to an end wallet.

It would be very difficult to make any sense of this unless you either manually go through a bunch of ledger data (it’s all public, which is a really fascinating feature), or else have some analytics software to automate and visualize the more tedious and unintuitive data.
 

Clinamenic

θερμοδυναμικός καπιταλιστής
Smart contracts can also hold funds, so you could write a smart contract to receive funds, and periodically disburse them to other wallets.
 

padraig (u.s.)

a monkey that will go ape
Also is what they're claiming even true? When I read about the Three Arrows collapse (they're coming thick and fast at the moment aren't they?) it said that they were doing the kimchi arbitrage along with many other people, but here they are making out that SBF was the only one able to do it.

It's weird that what they're making such a bit thing of is not that he spotted the trade - cos they admit that it was an obvious thing to do - but rather that his genius lay in gaining permission to do the really obvious trade. They're saying that he was a master of filling in forms, he was boring enough to fill in a form that no-one else could be arsed to do, eventually no doubt he became a legendary filler in of forms whose name is discussed in hushed tones any time two form fillers meet.
it does sound like setting up and infrastructure to handle the trades at volume was the hard part

but I think it's more like SBF's wealth was built on crypto arbitrage in general and the article is just exaggerating the kimchi premium part

sounds like a lot of people were doing the trade but maybe he was an early mover and/or had a more robust trading infrastructure?

either way pretty sure it's not some legendary feat Wall Street elites are discussing in hushed tones

idk it's an in-house fluff piece written by a guy who by his own admission isn't really finance literate

which is a big part of what makes the article so great, of course
 

padraig (u.s.)

a monkey that will go ape
my real question is who the fuck was its intended audience?

or is this something VC firms regularly do, hire freelance writers to write fluff about how awesome their investments so their partners can sit around and say "fuck yeah look at how awesome we are at investing in stuff"?
 

IdleRich

IdleRich
it does sound like setting up and infrastructure to handle the trades at volume was the hard part

but I think it's more like SBF's wealth was built on crypto arbitrage in general and the article is just exaggerating the kimchi premium part

sounds like a lot of people were doing the trade but maybe he was an early mover and/or had a more robust trading infrastructure?

either way pretty sure it's not some legendary feat Wall Street elites are discussing in hushed tones

idk it's an in-house fluff piece written by a guy who by his own admission isn't really finance literate

which is a big part of what makes the article so great, of course

It is a fantastic article!

Strangely enough just been chatting to a friend from school, a good friend but because we have different lives in different places we don't talk as often as either of us would like I guess. But we chatted yesterday and it turned out he's got really into following all these cyrpto crash things and he's been reading loads of articles on SBF - I was very happy to be able to share this particular piece with him, I'm sure that it will make his week.

Re the kimchi trade, I get the impression that he was the only person who could be bothered to slog through loads and loads of tedious bureaucracy and after doing so successfully he was able to put the trade on for larger size than others had previously managed. And fair enough most people wouldn't be able to do that. But yeah, it's sort of the opposite of the stroke of genius they are trying to present it as.
 

IdleRich

IdleRich
my real question is who the fuck was its intended audience?

or is this something VC firms regularly do, hire freelance writers to write fluff about how awesome their investments so their partners can sit around and say "fuck yeah look at how awesome we are at investing in stuff"?

I wonder if it's just that. Quite possibly they always produce this kind of self-aggrandising nonsense to pass around to themselves and investors to reassure each other about how great they all are. Someone starts off wanting to be a journalist, breaking big stories, exposing crimes, standing up to powerful bad guys and telling the truth... they end up writing fake stories exaggerating stuff they don't understand to people who aren't interested ad who know that they are lying.
 

Clinamenic

θερμοδυναμικός καπιταλιστής
my real question is who the fuck was its intended audience?

or is this something VC firms regularly do, hire freelance writers to write fluff about how awesome their investments so their partners can sit around and say "fuck yeah look at how awesome we are at investing in stuff"?
I’d wager that most short-form content out there about crypto is marketing content, yeah. Stuff that does describe technical details of a given project or investment opportunity, but still implicitly or explicitly encourages investment.
 
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