{"id":984,"date":"2022-11-10T19:06:48","date_gmt":"2022-11-10T19:06:48","guid":{"rendered":"https:\/\/travis.vc\/?p=984"},"modified":"2022-11-11T05:31:34","modified_gmt":"2022-11-11T05:31:34","slug":"ftx-implosion","status":"publish","type":"post","link":"https:\/\/travis.vc\/ftx-implosion\/","title":{"rendered":"&#x1f4a3; Here we go again\u2026 FTX"},"content":{"rendered":"<p>Gah. I keep on thinking that I\u2019m done talking about crypto, but crazy entertaining shit just <em>keeps<\/em> on happening, pulling me back in.<\/p>\n<p><img fetchpriority=\"high\" decoding=\"async\" class=\"aligncenter wp-image-987\" src=\"https:\/\/travis.vc\/wp-content\/uploads\/2022\/11\/crypto-resurrection-gif.gif\" alt=\"crypto resurrection gif\" width=\"439\" height=\"327\" \/><\/p>\n<p>If you\u2019re interested in the crypto world, then I\u2019m sure you\u2019ve been following along with the FTX collapse, completely frying your dopamine receptors by obsessively refreshing Twitter.<\/p>\n<p>I don\u2019t need to go deep, so I\u2019ll just give an simplified explanation of what we know so far, and how it probably came to be.<\/p>\n<p>First in this story is the code names:<\/p>\n<ul>\n<li><strong>FTX<\/strong> &#8211; <em>Was<\/em> the 2nd largest exchange<\/li>\n<li><strong>Binance<\/strong> &#8211; Largest exchange<\/li>\n<li><strong>Alameda<\/strong> &#8211; SBF\u2019s trading firm, closely associated to FTX<\/li>\n<li><strong>SBF<\/strong> &#8211; Sam Bankman-Fried (FTX CEO)<\/li>\n<li><strong>CZ<\/strong> &#8211; Changpeng Zhao (Binance CEO)<\/li>\n<li><strong>FTT<\/strong> &#8211; FTX\u2019s made-up token<\/li>\n<\/ul>\n<h2>Action<\/h2>\n<p>This saga reads like a hybrid script of if a soap-opera and The Onion had a mutant baby. Eventually, you just stop being surprised by crypto and just accept that it\u2019s a looney house.<\/p>\n<p>So:<\/p>\n<ol>\n<li>FTX international has imploded (blown TF up) &#8211; The US version <em>claims<\/em> to be ok<\/li>\n<li>FTX seems to have a <em>massive<\/em> hole in the balance sheet of at least $8 billion+<\/li>\n<li>Much of the mess is probably attributed to just a simple little Twitter spat.<\/li>\n<\/ol>\n<h2>How we got here<\/h2>\n<p>SBF (FTX CEO) sent a jab to CZ (Binance CEO) via a <a title=\"SBF Tweet to CZ he is allowed to go to DC right?\" href=\"https:\/\/travis.vc\/wp-content\/uploads\/2022\/11\/SBF-Tweet-to-CZ-he-is-allowed-to-go-to-DC-right.png\">now deleted Tweet<\/a>. It\u2019s not the first time that the two have traded jabs, but SBF picked a really bad time to be all passive-aggressive.<\/p>\n<p>Why? Because SBF has the behemoth of a prop shop trading firm called Alameda. We\u2019re talking about something like $15B in assets that traded $billions of shitcoins a day.<\/p>\n<p>Well, supposedly, Alameda\u2019s balance sheet was <a href=\"https:\/\/www.coindesk.com\/business\/2022\/11\/02\/divisions-in-sam-bankman-frieds-crypto-empire-blur-on-his-trading-titan-alamedas-balance-sheet\/\" target=\"_blank\" rel=\"noopener\">leaked<\/a>. Never good for a prop shop, but especially not good when it reveals that huge portions of your equity is made up of a self-invented valueless governance token called $FTT. It was something like 1\/3 of all assets, or a staggering 88% of net equity.<\/p>\n<p>This position was also a massive percentage of the entire FTT market cap. It\u2019s not like they could actually liquidate if they needed to.<\/p>\n<p>Well, now back to CZ. This is where it all goes downhill. Binance essentially owned a big ole\u2019 giant position of FTT tokens that it had received from helping initially fund FTX.<\/p>\n<p>CZ simply <a href=\"https:\/\/twitter.com\/cz_binance\/status\/1589283421704290306\" target=\"_blank\" rel=\"noopener\">telegraphed<\/a> to the world that it didn\u2019t want to be part of the FTT ecosystem anymore, and it was going to sell it all.<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-998\" src=\"https:\/\/travis.vc\/wp-content\/uploads\/2022\/11\/Binance-CZ-to-liquidate-all-FTT-tokens-1024x417.png\" alt=\"Binance CZ to liquidate all FTT tokens\" width=\"636\" height=\"259\" srcset=\"https:\/\/travis.vc\/wp-content\/uploads\/2022\/11\/Binance-CZ-to-liquidate-all-FTT-tokens-1024x417.png 1024w, https:\/\/travis.vc\/wp-content\/uploads\/2022\/11\/Binance-CZ-to-liquidate-all-FTT-tokens-300x122.png 300w, https:\/\/travis.vc\/wp-content\/uploads\/2022\/11\/Binance-CZ-to-liquidate-all-FTT-tokens-768x313.png 768w, https:\/\/travis.vc\/wp-content\/uploads\/2022\/11\/Binance-CZ-to-liquidate-all-FTT-tokens.png 1386w\" sizes=\"(max-width: 636px) 100vw, 636px\" \/><\/p>\n<p><strong>They didn\u2019t even get to selling much of it, they <em>just<\/em> announced it.<\/strong><\/p>\n<p>That\u2019s basically all it took. $FTT started dropping as traders (and anyone with leveraged exposure) started front-running the selloff.<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-999\" src=\"https:\/\/travis.vc\/wp-content\/uploads\/2022\/11\/FTT-Token-price-drop-after-tweet-1024x699.png\" alt=\"FTT Token price drop after tweet\" width=\"560\" height=\"382\" srcset=\"https:\/\/travis.vc\/wp-content\/uploads\/2022\/11\/FTT-Token-price-drop-after-tweet-1024x699.png 1024w, https:\/\/travis.vc\/wp-content\/uploads\/2022\/11\/FTT-Token-price-drop-after-tweet-300x205.png 300w, https:\/\/travis.vc\/wp-content\/uploads\/2022\/11\/FTT-Token-price-drop-after-tweet-768x524.png 768w, https:\/\/travis.vc\/wp-content\/uploads\/2022\/11\/FTT-Token-price-drop-after-tweet.png 1406w\" sizes=\"(max-width: 560px) 100vw, 560px\" \/><\/p>\n<h2><\/h2>\n<h2>So What?<\/h2>\n<p>Welp, as mentioned, a huge portion of Alameda&#8217;s balance sheet was made up of FTT, so they were essentially toast. But why would this matter for FTX?<\/p>\n<p>FTX supposedly had some big ass loans out to Alameda (remember, they\u2019re closely connected) and a lot of exposure to FTT itself, which made up its capital base.<\/p>\n<p>After this realization it was a self-fulfilling prophecy.<\/p>\n<p>Users were scared of FTT going down, so the Alameda-FTX loan would be bad, so FTX might end up insolvent, so people started withdrawing from FTX, which led to FTX having more balance sheet problems, which led to more withdraws, which led to the death spiral we now find ourselves in. An old fashioned bank run.<\/p>\n<p>And so much of this was started just over a stupid little tweet. &#x1f921;<\/p>\n<p>CZ is an interesting fella, but he\u2019s not an idiot. He smelled blood, saw the leaked balance sheet, and took his shot. That\u2019s all it took to bring a company valued at $32B last week to being worth zero today.<\/p>\n<p>So to me, the interesting part of the story is the stuff above. Of course, it doesn\u2019t end there though.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-1014\" src=\"https:\/\/travis.vc\/wp-content\/uploads\/2022\/11\/CZ-vs-SBF-Binance-vs-FTX-1024x576.png\" alt=\"CZ vs SBF - Binance vs FTX\" width=\"635\" height=\"357\" srcset=\"https:\/\/travis.vc\/wp-content\/uploads\/2022\/11\/CZ-vs-SBF-Binance-vs-FTX-1024x576.png 1024w, https:\/\/travis.vc\/wp-content\/uploads\/2022\/11\/CZ-vs-SBF-Binance-vs-FTX-300x169.png 300w, https:\/\/travis.vc\/wp-content\/uploads\/2022\/11\/CZ-vs-SBF-Binance-vs-FTX-768x432.png 768w, https:\/\/travis.vc\/wp-content\/uploads\/2022\/11\/CZ-vs-SBF-Binance-vs-FTX-1536x864.png 1536w, https:\/\/travis.vc\/wp-content\/uploads\/2022\/11\/CZ-vs-SBF-Binance-vs-FTX.png 1600w\" sizes=\"(max-width: 635px) 100vw, 635px\" \/><\/p>\n<h3>Some stuff that happened after the above.<\/h3>\n<ol>\n<li>FTX knew they were toast<\/li>\n<li>They reached out to Binance for help (the only other player big enough to help)<\/li>\n<li>SBF <a href=\"https:\/\/twitter.com\/sbf_ftx\/status\/1590012124864348160\" target=\"_blank\" rel=\"noopener\">announced<\/a> that Binance was buying FTX (everyone was shooketh)<\/li>\n<li>CZ <a href=\"https:\/\/twitter.com\/cz_binance\/status\/1590013613586411520\" target=\"_blank\" rel=\"noopener\">said<\/a> yeah, we\u2019re buying it, depending on due-diligence.<\/li>\n<li>Binance comes back a day later and says \u201c<a href=\"https:\/\/twitter.com\/binance\/status\/1590449161069268992\" target=\"_blank\" rel=\"noopener\">actually nah<\/a>\u201d, FTX\u2019s books look terrible and there are going to be lawsuits and unhappy people and investigations and all the stuff that just sounds unpleasant. We can\u2019t help.<\/li>\n<li>FTX\u2019s legal and compliance team quit<\/li>\n<li>FTX is now worth zero. Crypto markets crash like whoa. Lots of people lost a lot of money as their funds on FTX are now probably mostly gone.<\/li>\n<li>Everyone everywhere sells and deleverages and curses SBF.<\/li>\n<\/ol>\n<p>&nbsp;<\/p>\n<p><strong>There was some fantastic<\/strong> <a href=\"https:\/\/twitter.com\/LucasNuzzi\/status\/1590122590206824448\" target=\"_blank\" rel=\"noopener\">onchain detective work<\/a> that possibly shows a clearer picture of what happened. If accurate (I have no idea) then it\u2019s probable that Alameda kind of blew up in Q2 during the <a href=\"https:\/\/travis.vc\/ponzi-meltdown\/\">crazy Luna\/UST\/3AC collapse<\/a>, but FTX\u2019s reserves were able to float it some loans.<\/p>\n<p>The above theory also shows why FTX may have come <a href=\"https:\/\/fortune.com\/crypto\/2022\/09\/20\/alameda-research-voyager-digital-sam-bankman-fried-web3-blockchain\/\" target=\"_blank\" rel=\"noopener\">to the rescue<\/a> of crypto lender Voyager Digital\u2026 as they needed to keep Voyager&#8217;s FTT tokens from being dumped.<\/p>\n<p>What a wild house of cards this was.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-large\" src=\"https:\/\/media.tenor.com\/z8LpIY1X2K8AAAAM\/jenga-game.gif\" width=\"220\" height=\"220\" \/><\/p>\n<h2>So what now?<\/h2>\n<p>Today SBF <a href=\"https:\/\/twitter.com\/SBF_FTX\/status\/1590709166515310593\" target=\"_blank\" rel=\"noopener\">tweeted<\/a> about the situation, but no one believes a word he says anymore. Remember the often-used \u201c<em>It takes 20 years to build a reputation and five minutes to ruin it<\/em>\u201d quote.<\/p>\n<p>Supposedly FTX International, and I\u2019ll quote \u201c<a href=\"https:\/\/twitter.com\/SBF_FTX\/status\/1590709171338776577\" target=\"_blank\" rel=\"noopener\"><em>has a total market value of assets\/collateral higher than client deposits<\/em><\/a>\u201d. This is kinda believable, as FTX has holdings and investments in a bazillion other things. But those things are hella illiquid, questionable, and grey, and god knows what else.<\/p>\n<p>So maybe, just maybe, FTX will find some financial support and be able to open up some redemptions (or at least partial). We\u2019ll see though, $8 billion is a LOT of money, even in today\u2019s weird funny-money world.<\/p>\n<p>What is known, is that Sam&#8230; is toast.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-1011\" src=\"https:\/\/travis.vc\/wp-content\/uploads\/2022\/11\/join-us-sam-sbf.jpeg\" alt=\"join us sam sbf\" width=\"509\" height=\"586\" srcset=\"https:\/\/travis.vc\/wp-content\/uploads\/2022\/11\/join-us-sam-sbf.jpeg 750w, https:\/\/travis.vc\/wp-content\/uploads\/2022\/11\/join-us-sam-sbf-260x300.jpeg 260w\" sizes=\"(max-width: 509px) 100vw, 509px\" \/><\/p>\n<h3>What\u2019s the big risk now?<\/h3>\n<p>A friend in my community asked, \u201c<em>so what does this have to do with Bitcoin and Eth<\/em>\u201d?<\/p>\n<p>My answer: <strong>contagion<\/strong><\/p>\n<p>We have to assume there will be so many damn blowups from this, so much short-selling, and a lot of fear. Everyone saw what happened from the crazy Luna\/UST collapse, which led to the insane Three Arrows Capital (3AC) collapse, which led to lenders everywhere going bust, that now everyone is just scared of a lot more of that happening.<\/p>\n<p>USDT has been painted to be a possible target, as FTX supposedly had vast exposure and reserves here, but no one knows anymore. I think it&#8217;s a nothing-burger, but if USDT did finally break the consequences would be extreme.<\/p>\n<p>USDT has been the unbreakable black box that everyone knows isn\u2019t full of what it is supposed to be full of (actual USD), but that has just kept kinda working and holding peg anyway. (I finally gave in and stopped shorting it months ago).<\/p>\n<p><em><strong>* Edit* &#8211; looks like the contagion didn&#8217;t take long.\u00a0<\/strong><\/em><br \/>\n<a href=\"https:\/\/twitter.com\/BlockFi\/status\/1590875997351866368\" target=\"_blank\" rel=\"noopener\">Blockfi is halting withdrawals<\/a> as a direct result of the FTX debacle.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-1017\" src=\"https:\/\/travis.vc\/wp-content\/uploads\/2022\/11\/blockfi-is-halting-withdrawals.png\" alt=\"blockfi is halting withdrawals\" width=\"740\" height=\"458\" srcset=\"https:\/\/travis.vc\/wp-content\/uploads\/2022\/11\/blockfi-is-halting-withdrawals.png 1024w, https:\/\/travis.vc\/wp-content\/uploads\/2022\/11\/blockfi-is-halting-withdrawals-300x186.png 300w, https:\/\/travis.vc\/wp-content\/uploads\/2022\/11\/blockfi-is-halting-withdrawals-768x476.png 768w\" sizes=\"(max-width: 740px) 100vw, 740px\" \/><\/p>\n<p>Expect more to come.<\/p>\n<h2>Lessons and Takeaways<\/h2>\n<ol>\n<li><strong>Trust absolutely no one in crypto<\/strong>. Sounds cynical right? Well it is, but more than that the ethos of crypto is building a <strong>trustless<\/strong> financial system. A transparent system where trust isn&#8217;t needed, as it can be verified, by all, on-chain.<\/li>\n<p>&nbsp;<\/p>\n<li><strong>Who knows how much in the crypto space is even real?<\/strong> \u00af\\_(\u30c4)_\/\u00af. So many things are a black box. There is a large and very unknown amount of hidden leverage, balance sheet manipulation, and just outright theft. Liars and frauds are EVERYWHERE in the space (plenty of super-altruistic people too though).<\/li>\n<p>&nbsp;<\/p>\n<li><strong>Not your keys, not your coins<\/strong>. It&#8217;s always been true. If someone can&#8217;t learn to hold crypto themselves then they probably shouldn&#8217;t hold it. It&#8217;s not easy at first, but not terribly difficult either. Not having the keys also defeats the purpose of crypto to begin with (and, I might add, why I think the idea that crypto would replace the financial system is silly).<\/li>\n<p>&nbsp;<\/p>\n<li><strong>Financialization infects our modern systems everywhere<\/strong>, it&#8217;s just easier to do in centralized crypto because no one checks.<\/li>\n<p>&nbsp;<\/p>\n<li><strong>FOR GODS SAKE STOP USING LEVERAGE PEOPLE<\/strong>. Would ANY of this happened if SBF and Alameda had just traded without leverage? I doubt it. Without it your bankroll can go down, but not negative. I&#8217;ve simply been astonished at how many sophisticated-ish billionaires have gone broke this year because they are leveraged to the gills. WTF?<\/li>\n<\/ol>\n<p>&nbsp;<\/p>\n<p>Have thoughts? <a href=\"https:\/\/twitter.com\/Travis_Jamison\" target=\"_blank\" rel=\"noopener\">Reach out and let me know<\/a>.<\/p>\n<p>&#8211; Travis<\/p>\n<hr \/>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Gah. I keep on thinking that I\u2019m done talking about crypto, but crazy entertaining shit just keeps on happening, pulling me back in. If you\u2019re interested in the crypto world, then I\u2019m sure you\u2019ve been following along with the FTX collapse, completely frying your dopamine receptors by obsessively refreshing Twitter. I don\u2019t need to go [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":1014,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-984","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blog"],"_links":{"self":[{"href":"https:\/\/travis.vc\/wp-json\/wp\/v2\/posts\/984","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/travis.vc\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/travis.vc\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/travis.vc\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/travis.vc\/wp-json\/wp\/v2\/comments?post=984"}],"version-history":[{"count":5,"href":"https:\/\/travis.vc\/wp-json\/wp\/v2\/posts\/984\/revisions"}],"predecessor-version":[{"id":1021,"href":"https:\/\/travis.vc\/wp-json\/wp\/v2\/posts\/984\/revisions\/1021"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/travis.vc\/wp-json\/wp\/v2\/media\/1014"}],"wp:attachment":[{"href":"https:\/\/travis.vc\/wp-json\/wp\/v2\/media?parent=984"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/travis.vc\/wp-json\/wp\/v2\/categories?post=984"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/travis.vc\/wp-json\/wp\/v2\/tags?post=984"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}