<story><title>FTX tapped into customer accounts to fund risky bets, setting up its downfall</title><url>https://www.wsj.com/articles/ftx-tapped-into-customer-accounts-to-fund-risky-bets-setting-up-its-downfall-11668093732</url></story><parent_chain><item><author>cma</author><text>From the Sequoia puff-piece:&lt;p&gt;&amp;gt; Something of the sort must happen eventually, as the current system, with its layers upon layers of intermediaries, is antiquated and prone to crashing—the global financial crisis of 2008 was just the latest in a long line of failures that occurred because banks didn’t actually know what was on their balance sheets. Crypto is money that can audit itself, no accountant or bookkeeper needed, and thus a financial system with the blockchain built in can, in theory, cut out most of the financial middlemen, to the advantage of all. Of course, that’s the pitch of every crypto company out there. The FTX competitive advantage? Ethical behavior. SBF is a Peter Singer–inspired utilitarian in a sea of Robert Nozick–inspired libertarians. He’s an ethical maximalist in an industry that’s overwhelmingly populated with ethical minimalists. I’m a Nozick man myself, but I know who I’d rather trust my money with: SBF, hands-down. And if he does end up saving the world as a side effect of being my banker, all the better.</text></item><item><author>chironjit</author><text>This is the correct answer. When you move your tokens into a centralised exchange like FTX, your funds are pooled with everyones deposit.&lt;p&gt;There are always deposits and wihdrawals, and of course maybe you traded your tokens for another before withdrawing. So its hard to parse how much customers deposited vs genuinely withdrew, and so you cant really tell if the exchange is short unless they declare their actual assets and liabilities.</text></item><item><author>phas0ruk</author><text>FTX is a centralised exchange, it is not routing all customer trades on chain. It’s not a blockchain failure, it’s just a lack of client asset segregation by a traditional centralised trading house.</text></item><item><author>Digory</author><text>So if the chain is supposed to enable &amp;quot;trustless&amp;quot; finance, what enabled Alameda to take anything?  Seems Alameda and its clients should be screwed, but FTX&amp;#x27;s holders should be relatively easy to identify and restore.&lt;p&gt;But everyone seems to say that&amp;#x27;s not the case.  So what broke down here?  Why isn&amp;#x27;t the ledger ledgering?</text></item><item><author>chlodwig</author><text>From the article: &amp;quot;FTX Chief Executive Sam Bankman-Fried said in investor meetings this week that Alameda owes FTX about $10 billion, people familiar with the matter said. FTX extended loans to Alameda using money that customers had deposited on the exchange for trading purposes, a decision that Mr. Bankman-Fried described as a poor judgment call, one of the people said.&amp;quot;&lt;p&gt;In the FTX International terms of service ( &lt;a href=&quot;https:&amp;#x2F;&amp;#x2F;help.ftx.com&amp;#x2F;hc&amp;#x2F;article_attachments&amp;#x2F;9719619779348&amp;#x2F;FTX_Terms_of_Service.pdf&quot; rel=&quot;nofollow&quot;&gt;https:&amp;#x2F;&amp;#x2F;help.ftx.com&amp;#x2F;hc&amp;#x2F;article_attachments&amp;#x2F;9719619779348&amp;#x2F;FT...&lt;/a&gt; ) they say that users have full title, ownership and control of digital assets. They say that the assets are the property of the user, and shall not be loaned to FTX trading, shall not be treated as they belong to FTX trading, and that users control the assets in the account.&lt;p&gt;So if they did indeed loan out customer deposits, that is just straight up criminal fraud, open and shut. This isn&amp;#x27;t like some DeFi scheme where they are working around some legal loophole or in the fine print tell you that they will probably lose your money. This is just straight up illegal under the plain vanilla theft and fraud laws of any country. This isn&amp;#x27;t even a bank run (banks at least tell you they are loaning your deposits out) -- it&amp;#x27;s a run on a U-Haul self-storage where you find out that they actually sold all the furniture in your storage unit to a pawn shop.</text></item></parent_chain><comment><author>deevolution</author><text>&amp;gt; &amp;quot;I know who I&amp;#x27;d rather trust my money with: SBF, hands down.&amp;quot;&lt;p&gt;This quote is complety antithetical to everything crypto is actually trying to achieve; which is a &lt;i&gt;trustless&lt;/i&gt; financial system, a system that would be void of these sorts of melt downs.&lt;p&gt;Don&amp;#x27;t trust; verify.</text></comment>
<story><title>FTX tapped into customer accounts to fund risky bets, setting up its downfall</title><url>https://www.wsj.com/articles/ftx-tapped-into-customer-accounts-to-fund-risky-bets-setting-up-its-downfall-11668093732</url></story><parent_chain><item><author>cma</author><text>From the Sequoia puff-piece:&lt;p&gt;&amp;gt; Something of the sort must happen eventually, as the current system, with its layers upon layers of intermediaries, is antiquated and prone to crashing—the global financial crisis of 2008 was just the latest in a long line of failures that occurred because banks didn’t actually know what was on their balance sheets. Crypto is money that can audit itself, no accountant or bookkeeper needed, and thus a financial system with the blockchain built in can, in theory, cut out most of the financial middlemen, to the advantage of all. Of course, that’s the pitch of every crypto company out there. The FTX competitive advantage? Ethical behavior. SBF is a Peter Singer–inspired utilitarian in a sea of Robert Nozick–inspired libertarians. He’s an ethical maximalist in an industry that’s overwhelmingly populated with ethical minimalists. I’m a Nozick man myself, but I know who I’d rather trust my money with: SBF, hands-down. And if he does end up saving the world as a side effect of being my banker, all the better.</text></item><item><author>chironjit</author><text>This is the correct answer. When you move your tokens into a centralised exchange like FTX, your funds are pooled with everyones deposit.&lt;p&gt;There are always deposits and wihdrawals, and of course maybe you traded your tokens for another before withdrawing. So its hard to parse how much customers deposited vs genuinely withdrew, and so you cant really tell if the exchange is short unless they declare their actual assets and liabilities.</text></item><item><author>phas0ruk</author><text>FTX is a centralised exchange, it is not routing all customer trades on chain. It’s not a blockchain failure, it’s just a lack of client asset segregation by a traditional centralised trading house.</text></item><item><author>Digory</author><text>So if the chain is supposed to enable &amp;quot;trustless&amp;quot; finance, what enabled Alameda to take anything?  Seems Alameda and its clients should be screwed, but FTX&amp;#x27;s holders should be relatively easy to identify and restore.&lt;p&gt;But everyone seems to say that&amp;#x27;s not the case.  So what broke down here?  Why isn&amp;#x27;t the ledger ledgering?</text></item><item><author>chlodwig</author><text>From the article: &amp;quot;FTX Chief Executive Sam Bankman-Fried said in investor meetings this week that Alameda owes FTX about $10 billion, people familiar with the matter said. FTX extended loans to Alameda using money that customers had deposited on the exchange for trading purposes, a decision that Mr. Bankman-Fried described as a poor judgment call, one of the people said.&amp;quot;&lt;p&gt;In the FTX International terms of service ( &lt;a href=&quot;https:&amp;#x2F;&amp;#x2F;help.ftx.com&amp;#x2F;hc&amp;#x2F;article_attachments&amp;#x2F;9719619779348&amp;#x2F;FTX_Terms_of_Service.pdf&quot; rel=&quot;nofollow&quot;&gt;https:&amp;#x2F;&amp;#x2F;help.ftx.com&amp;#x2F;hc&amp;#x2F;article_attachments&amp;#x2F;9719619779348&amp;#x2F;FT...&lt;/a&gt; ) they say that users have full title, ownership and control of digital assets. They say that the assets are the property of the user, and shall not be loaned to FTX trading, shall not be treated as they belong to FTX trading, and that users control the assets in the account.&lt;p&gt;So if they did indeed loan out customer deposits, that is just straight up criminal fraud, open and shut. This isn&amp;#x27;t like some DeFi scheme where they are working around some legal loophole or in the fine print tell you that they will probably lose your money. This is just straight up illegal under the plain vanilla theft and fraud laws of any country. This isn&amp;#x27;t even a bank run (banks at least tell you they are loaning your deposits out) -- it&amp;#x27;s a run on a U-Haul self-storage where you find out that they actually sold all the furniture in your storage unit to a pawn shop.</text></item></parent_chain><comment><author>jjulius</author><text>Hahahahahahahaha holy fuck.&lt;p&gt;Disclaimer: I don&amp;#x27;t usually drop comments like this that don&amp;#x27;t contribute to anything, but... lmao wow.</text></comment>