The collapse of the cryptocurrency exchange FTX has been all over the news.
Cryptocurrency exchange FTX, which has filed for US bankruptcy court protection, said it owes its 50 biggest creditors nearly $3.1 billion.
The exchange owes about $1.45 billion to its top ten creditors, it said in a court filing on Saturday, without naming them.
FTX and its affiliates filed for bankruptcy in Delaware on Nov. 11 in one of the highest-profile crypto blowups, leaving an estimated 1 million customers and other investors facing total losses in the billions of dollars.
What seems to have happened is a lot like an old-fashioned bank run where too many depositors wanted their money back at the same time, exhausting the cash reserves of the company. But in the case of actual banks, they are regulated by the government and there are systems in place to assist individual banks weather such runs and protect depositors. In the unregulated crypto-world where they prided themselves on being independent of government entanglements, there are no such safeguards
The company has filed for bankruptcy and Sam Bankman-Fried, the founder of FTX, has ben pushed out of the company and is now in the Bahamas.
The collapse of FTX has given a new lease of life for the ad the company aired during the last Super Bowl featuring Larry David.
It’s difficult to care much about something that doesn’t even qualify as a first world problem.
Poor guy had to join his offshore bank accounts in the Bahamas!? Oh no, how terrible.
Oh, that ad. I thought you were going to say this Larry.
Not really. What happened was basically a Ponzi scheme:
A more recent one, after the administrator was put in:
And a follow-up video to #4 I just watched: FTX Collapse Scandal -- The Girlfriend, Penthouse, Polyamory, Political Donations & Missing Billions.
Larry David needs to do another commercial where his naysayer character says “I TOLD YOU crypto was a bad idea!”
Also in the case of banks, they generally do actually have at least some money, rather than their own made-up tokens (note that these are not the same as the made-up tokens deposited by the customers), plus they do really, really boring things like “keeping accurate accounts”, “reconciling balances”, and “not syphoning off customer deposits into completely different businesses via secret, un-audited back channels”…
A bank run is generally a liquidity issue -- the bank has sufficient assets to cover their liabilities, but can’t convert them into cash quickly enough. FTX was both a liquidity and a solvency issue -- it turns out they didn’t actually have sufficient assets to cover their liabilities, or even a clear idea of what their assets and liabilities were. (The “balance sheets” submitted to the bankruptcy case do not include details of such trivial minutia as “customer deposits”…) This was then further complicated by the fact that a very large chunk of their supposed assets turned out to be their own tokens… This is a bit like a bank using its own shares as collateral against customer deposits -- so as soon as the bank gets into trouble, the share value goes down, and suddenly it no longer has the assets it thought it did, meaning it’s in even more trouble, driving the share price down further, and so on. (AFAIK, this is absolutely not allowed, for obvious reasons.) Except bank shares generally are traded on the open market in sizeable volumes, whereas FTX’s FTT token was mostly used internally and had very limited trading volume in the real world, meaning it was highly illiquid and its mark-to-market price was susceptible to sudden movements.
I think it’s worth quoting what the new CEO John J Ray III had to say in the bankruptcy filing, bearing in mind that this is the guy who got hauled in to clear up Enron:
This is not a bank run. This is a bunch of overgrown children playing stupid games with other people’s money, matches, and gasoline.
Regulations have been so thoroughly demonized that people forget that while there are bad regulations, most regulations are there for a reason.
Yes, everyone should be more like me. : )
(The lar in larpar is for Larry.)
I just looked up Larry David. Now I know who he is.
And just watched the featured advertisement.
Heh. A bit over-laboured, but I suppose it’s for American audiences.
So… don’t use forks or toilets or electric lights. Be like Larry!
I quite like this YouTuber: