[colinmhayes]

FTX was never doing a ponzi. All the threads are about how everyone was ok with SBF ponzi’ing because the money went to a good cause but that’s just not the case. EA proponents thought SBF was just running a normal exchange, if that was true I don’t see what’s morally wrong with supporting him.

[ZetaZero]

Three months ago, FTX was offering 8% interest APY. FTX knew they were in trouble, and needed new deposits to stay afloat. This makes it a ponzi.

[gruez]

But was that the reason it collapsed? Matt Levine thinks it's something else[1] (tl;dr: bad loans given to alameda research backed by FTT tokens). 8% pretty close to the rates that decentralized lending protocols provided[2]. There might be other issues with the product (eg. inadequate disclosures), but if it does what it's promised (eg. invest your money into decentralized lending protocols and/or yield farming) and the underlying product collapsed that's not really a ponzi any more a ETF composed of junk bonds going under is a ponzi.

[1] https://www.bloomberg.com/opinion/articles/2022-11-09/bankma...

[2] https://www.gemini.com/earn says that 1inch is providing 8.05% APY right now

[DebtDeflation]

Most of the well known historical Ponzis started out as legitimate investment funds. Then the fund manager started commingling funds and taking risks with customer money in an attempt to boost returns. Inevitably, there was a loss, and at that point the Ponzi component (paying existing investors with new investor's funds) got started, with the intent being to only do it until they could catch up on the losses and then return to being legitimate. The "catch up" never happens and eventually all new inflows are going to pay out existing investors. It blows up when outflows exceed inflows. In the case of FTX/Alameda it seems the blowup just happened earlier than usual, before they could reach "Full Ponzi".

[telotortium]

The blowup happened because CZ acres on the leaked balance sheet. It might have been years before FTX found out otherwise.

[HappyTypist]

[2] is referring to 1inch offering 8.05% APY on the 1inch token _only_, which is easy when only 621m out of 1.5b tokens are circulating (i.e. more 1inch tokens are printed to pay the fake interest).

[notyourday]

They collapsed because the outflows became higher than the inflow. Every Ponzi collapses this exact way.

[s1artibartfast]

Every legitimate company also collapses this exact way.

[errantmind]

That doesn't make it a ponzi, otherwise offering corporate bonds at higher interest rates would also be a ponzi.

[adam_arthur]

Using new user deposits to pay off old users is a ponzi.

Issuing bonds to pay off old debt is not a ponzi because the premise that you will lose your money if the company defaults is known and evaluated up front. And the yield on the bond is commensurate with the risk.

There is no reasonable expectation that an exchange will gamble and possibly lose the money you deposit

[bitcurious]

The kind of person that risks billions of depositor funds to get obscenely rich might be the same kind that walks back their pledge to do good after getting obscenely rich.

[colinmhayes]

But no one knew ftx had written the shitty loans until last week. You can speculate that he was risking billions in depositor funds but there wasn’t really any evidence.

[hairofadog]

I found this exchange between Sam Bankman-Fried and Matt Levine to be pretty revealing:

> SBF: (26:43) And they’re like ‘10X’ that's insane. 1X is the norm.’ And so then, you know, X token price goes way up. And now it's $130 million market cap token because of, you know, the bullishness of people's usage of the box. And now all of a sudden of course, the smart money's like, oh, wow, this thing's now yielding like 60% a year in X tokens. Of course I'll take my 60% yield, right? So they go and pour another $300 million in the box and you get a psych and then it goes to infinity. And then everyone makes money.

> Matt: (27:13) I think of myself as like a fairly cynical person. And that was so much more cynical than how I would've described farming. You're just like, well, I'm in the Ponzi business and it's pretty good.

https://www.bloomberg.com/news/articles/2022-04-25/sam-bankm...

[colinmhayes]

Read levines last newsletter. He goes over how your interpretation of what was said is wrong.

In fact he says he came out of that podcast bullish on SBF and ftx.

[jefftk]

This is a little weird, but I do feel like I ought to disclose a bias here, which is that I like Sam Bankman-Fried. I have done a few podcast interviews and events with him, and I have always found him likable, smart, thoughtful, well-intentioned and candid. That is not in any sense investing advice or whatever; it’s just how I feel. I am rooting for this all to work out for him and FTX.

People sometimes assume that I am a sort of antagonist to Bankman-Fried, in part because he has sometimes said things in our talks that are … let’s say surprisingly candid. Most notably, people keep bringing up an Odd Lots podcast from last August in which I asked him to explain yield farming. His explanation starts:

>You start with a company that builds a box and in practice this box, they probably dress it up to look like a life-changing, you know, world-altering protocol that's gonna replace all the big banks in 38 days or whatever. Maybe for now actually ignore what it does or pretend it does literally nothing. It's just a box. So what this protocol is, it's called ‘Protocol X,’ it's a box, and you take a token. You can take ethereum, you can put it in the box and you take it out of the box. Alright so, you put it into the box and you get like, you know, an IOU for having put it in the box and then you can redeem that IOU back out for the token.

And at some point I interject:

>I think of myself as like a fairly cynical person. And that was so much more cynical than how I would've described farming. You're just like, well, I'm in the Ponzi business and it's pretty good.

And he replies:

>So on the one hand, I think that’s a pretty reasonable response, but let me play around with this a little bit. Because that's one framing of this. And I think there's like a sort of depressing amount of validity. …

>So you've got this box and it’s kind of dumb, but like what's the end game, right? This box is worth zero obviously. … But on the other hand, if everyone kind of now thinks that this box token is worth about a billion dollar market cap, that's what people are pricing it at and sort of has that market cap. Everyone's gonna mark to market. In fact, you can even finance this, right? You put X token in a borrow lending protocol and borrow dollars with it. If you think it's worth like [not] less than two thirds of that, you could even just like put some in there, take the dollars out. Never, you know, give the dollars back. You just get liquidated eventually. And it is sort of like real monetizable stuff in some senses. And you know, at some point if the world never decides that we are wrong about this in like a coordinated way, right? Like you're kind of the guy calling and saying, no, this thing's actually worthless, but in what sense are you right?

People on Twitter now are like “he admitted that FTX is a Ponzi!” but of course that’s not true. He conceded a certain validity to my claim that some crypto businesses — not his — are Ponzis. He is just in the business of trading their tokens.

In fact, I came away from that conversation bullish on FTX and Bankman-Fried. My view was, and is, that if you talk to a crypto exchange operator and he is like “crypto is changing the world, your old-fashioned economics are just FUD, HODL,” then that’s bad. A wild-eyed crypto true believer is not the person to operate an exchange. The person you want operating an exchange is a clear-eyed trader. You want someone whose basic attitude to financial assets is, like, “if someone wants to buy and someone wants to sell, I will put them together and collect a fee.” You want someone whose perspective is driven by markets, not ideology, who cares about risk, not futurism. A certain cynicism about the products he is trading is probably healthy.

That said, knowing what we know now, this seems prophetic:

>But on the other hand, if everyone kind of now thinks that this box token is worth about a billion dollar market cap, that's what people are pricing it at and sort of has that market cap. Everyone's gonna mark to market. In fact, you can even finance this, right? You put X token in a borrow lending protocol and borrow dollars with it. If you think it's worth like [not] less than two thirds of that, you could even just like put some in there, take the dollars out. Never, you know, give the dollars back.

A popular theory about what happened to FTX — the one I wrote about above, and yesterday — is that FTX issued its FTT token, and it had a market price, and Alameda got a lot of it, and FTX loaned Alameda money against it, and then Zhao was “the guy calling and saying, no, this thing’s actually worthless,” and Alameda could “never, you know, give the dollars back,” and that was the end of FTX.

[hairofadog]

Interesting, thanks for the added information.

[Yizahi]

If you split your business into two (or more) parts, segregating legal activities into one entity and illegal stuff into a different entity, that doesn't make strictly the legal company good, or not a scam. FTX+Alameda is a Ponzi and always has been, and the mechanism why they failed (printing clown bucks, then selling them to hype the price, then print more and more) is exactly a Ponzi.

[adolph]

> (printing clown bucks, then selling them to hype the price, then print more and more)

FTX can't be a scam--that's basically how Fed and Treasury work.

[hef19898]

Agree, if FTX was actually backed by a country with its own currency and an actual economy to back it up. Which it isn't.

[adolph]

Yep, it all boils down to who has the most guns. The Bahamas pirate ship is outclassed by the ship of state.

[freejazz]

Fed and Treasury are granted those powers by congress. That's why they aren't scams.

[adolph]

A fine tautology, if you can keep it.

[AlexandrB]

I agree that "Ponzi" is probably technically incorrect. This piece by dirty bubble media has a more nuanced definition and calls it a "flywheel scheme": https://dirtybubblemedia.substack.com/p/is-alameda-research-...

IMHO, the moral failing is simply being too credulous of SBF's claims and not digging deeper. A lot of the stuff getting posted in the aftermath was content already available before FTX collapsed. In particular, the conversation with Matt Levine where SBF basically describes a Ponzi scheme comes to mind.

[bombcar]

Ponzi has a very technical meaning and people instead use it to mean "Every Scam" and it gives an effective defense for scammers.

Many scams end up operating as a Ponzi scheme in their final days as it keeps them afloat a bit longer, but the actual scammy loss is often not a Ponzi.