Publish through it, crypto-Lehman edition

Sam Bankman-Fried continues to speak with reporters about his adventures in unhinged assets. At least this time it was on purpose. We’re not sure this did any more to clear things up.

SBF said he “never tried to defraud anyonein a live-streamed discussion with NYT’s Andrew Ross Sorkin. But he claimed that he only tracks Alameda’s share of trading volumes on the platform, not the actual size of his positions or their risk, which seems like a pretty important detail.

“These are positions where FTX could, if necessary, call these positions with margin and close them in time to cover all of them. . . Passives. Obviously, that’s not the case here, and that was a huge lack of accountability.

To translate: a selling point for crypto exchanges has been the way they perform”margin calls”, in the sense that they don’t really call. Platforms are just meant liquidate traders automatically once their positions become too extended.

But in his day one statement, new FTX CEO John Ray said FTX has suspended its reverse charge requirements for Alameda. It could be a form of “back door“which allowed Alameda to leverage even if SBF does not”even know how to codeas he told interviewer Tiffany Fong in a video posted this week.

And then there’s the question of how he mislabeled the accounts. It seems that years ago the exchange decided to accept deposits from customers by Alameda. From the interview:

So I’m still digging into the details of parts of this. But I think in addition to what I had seen, a lot of standard borrowing here, that when you go back to 2019, FTX didn’t have bank accounts. He had no bank accounts in the world. We were trying to get [bank accounts], it took us a long time, it took us a few years. And you know, there were clients who wanted to wire money to FTX.

So in the meantime some of them were transferring money to Alameda Research to be credited on FTX. It was a substantial sum. . . FTX internal accounting correctly tried to debit Alameda for these funds, but it did not happen in the main account. And so it created a gap between the display of the account and what was really going on there. And I’m still looking for how it worked mechanically.


If only we had some clarification from other global crypto exchanges on how they demarcate their clients’ money.

It seems that Binance does not, for example, despite its long blog post Last week. In the post, he claims that customers’ money is in “segregated accounts”, before going on to explain why the money isn’t segregated at all:

“ . . . Other than the instances of deposits and withdrawals, swiping and moving funds between deposits, hot and cold wallets are completely independent of user account balance updates.

So while Binance doesn’t tell clients to deposit money through a hedge fund, it doesn’t exactly guard their cash either. Anyway, once SBF signed off on the Dealbook interview, he continued to tweet. And he conquered at least one viewer:

#Publish #cryptoLehman #edition #Crypto

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