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Speaker 1: This is Bloomberg Crypto Daily, Bloomberghart Podcast, and I'm Stacy

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Speaker 1: Marie Ishmael, Managing editor of Crypto for Bloomberg News. It's Wednesday,

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Speaker 1: November twenty three. Have you heard the one about the box? Well.

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Speaker 1: In April two, long before Sam Bankman Freed was tweeting

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Speaker 1: rambling threads about the collapse of his FTX empire, he

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Speaker 1: joined the Bloomberg Odd Lots podcast and talked about the box.

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Speaker 1: What this protocol is, It's called protocolize. It's a box

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Speaker 1: and you take you can take it token, and you

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Speaker 1: can take it theory, and you can put it in

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Speaker 1: the box, and you take take it out like you

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Speaker 1: put it in the box, and you get like, you know,

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Speaker 1: an IOU for for having to put it in the box,

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Speaker 1: and then you can redeem that IOW you back out

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Speaker 1: for the token. The box was Bankman Freed's metaphor for

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Speaker 1: describing the crypt to a practice of yield farming, and

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Speaker 1: his description at the time raised many an eyebrow because

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Speaker 1: it seemed well both too blunt and too good to

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Speaker 1: be true. I'm joined today by Joe Wisenhal, co host

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Speaker 1: of the Odd Lots podcast, who at that Time ended

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Speaker 1: that episode with a deeply relatable comment, I don't know

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Speaker 1: how to feel about it. I feel weird. We all

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Speaker 1: feel weird. Joe, welcome to the show. Thank you so

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Speaker 1: much for having me. Yeah, and you know, you range

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Speaker 1: from like what's happening with trucking supply chains to Guyana

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Speaker 1: to interviewing Sam Bankman Freed. So for the for the

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Speaker 1: purposes of this episode, we're going to talk about that interview.

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Speaker 1: In April two. This was right before the Salt conference

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Speaker 1: in the Bahamas. Things were still um, i'll use the word,

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Speaker 1: frothy and optimistic. The vibe was very much, you know,

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Speaker 1: to the moon, as the bitcoin folks like to say.

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Speaker 1: And Bankman Freed came on the show, which was co

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Speaker 1: hosted by Tracy, and had a special guest to parents

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Speaker 1: from Matt Levine. Among many other things he talked about,

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Speaker 1: one of the things was about defy and yield farming,

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Speaker 1: and at that point, you know, he had this metaphor

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Speaker 1: about the box, which was like you put money in

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Speaker 1: and kind of money comes out, and what happens in

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Speaker 1: between is mysterious. And I really listened to that episode

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Speaker 1: before we recorded this one, and I just remember you

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Speaker 1: Tracy and Matt's all doing variations on like what it's

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Speaker 1: interesting because the box comments. I think it's about twenty

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Speaker 1: or so minutes into the episode, and I do think

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Speaker 1: that if you sort of listened to the full episode,

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Speaker 1: just the tone of it, we never quite recovered or

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Speaker 1: got back on the track after that. I think that

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Speaker 1: we were all like a little like flabbergasted, a little

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Speaker 1: bit surprised by the bluntness these sort of you know,

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Speaker 1: after he just arrived Yield Farming as like this sort

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Speaker 1: of magic money box where you put money in and

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Speaker 1: then money comes out. And Matt's first response was like,

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Speaker 1: to be honest, that sounds like a Ponzi scheme, and

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Speaker 1: I was like, wow, it doesn't really seem like there's

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Speaker 1: any economic value created at all. My expectation at that

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Speaker 1: moment in the conversation was that he would push back

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Speaker 1: a little bit, like he would say something like, oh, well,

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Speaker 1: that's just sort of like the structure of it, but

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Speaker 1: something cool and productive could theoretically happen in the box.

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Speaker 1: So it surprised me at the time was not even

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Speaker 1: the metaphor per se, but after Matt sort of said

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Speaker 1: this sounds like Ponzi, after we all kind of said

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Speaker 1: where's the value? There was like no pushback or anything,

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Speaker 1: and I think that was actually the part, more than

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Speaker 1: anything else that I found to beat jarring. And then yeah, afterwards,

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Speaker 1: like you know, we got to the end and Tracey

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Speaker 1: and I are did our outro, and I think we

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Speaker 1: just sort of like stammered a little bit because after

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Speaker 1: that moment, we didn't really know what to say except wow,

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Speaker 1: that was in a in a weird way, it seemed

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Speaker 1: very honest, seemed like he was being extremely candid about

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Speaker 1: what he thought cynical. But it you know, it almost

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Speaker 1: came off as like, well, yeah, here's a crypto person

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Speaker 1: saying what many people outside of crypto believed to be

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Speaker 1: the case about the industry. You, like many other people,

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Speaker 1: have read the Vox story in which which was essentially

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Speaker 1: like he was texting with a Fox Reports and there

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Speaker 1: was so much in there in which he indicated just

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Speaker 1: how savvy he was about his public persona and the

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Speaker 1: kinds of things that he had to say in order

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Speaker 1: to seem credible. But you also get the impression that

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Speaker 1: this is a person who while he was doing that,

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Speaker 1: while he was playing this part to some extent, believed

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Speaker 1: that he was above the free right that he was

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Speaker 1: to use a very old phrase in finance, actually still

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Speaker 1: the smartest guy in the room. Well, you know one

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Speaker 1: thing that I long thought about Sam and being separate,

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Speaker 1: and so I don't know if above is right, but

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Speaker 1: you know, maybe he did think of himself but definitely separate,

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Speaker 1: which is that you know, in his public persona like

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Speaker 1: on Twitter, etcetera. He never really made the case that

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Speaker 1: crypto is good. Most people in the space argue that, yeah,

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Speaker 1: of course, you know, they don't really talk about all

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Speaker 1: the money they're making or they were making anyway. They

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Speaker 1: talked about, oh, we're changing the world and we're gonna

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Speaker 1: bring transparency and trustlessness and you're not gonna have your

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Speaker 1: money de valued by the FED and you're not gonna

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Speaker 1: have to trust JP Morgan, etcetera, or this sort of

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Speaker 1: other version that it's like, oh, well, people in emerging

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Speaker 1: markets without access to reliable payments, there stable whatever it is.

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Speaker 1: They're all these stories that crypto people tell the public,

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Speaker 1: and I think to a large extent, tell themselves to

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Speaker 1: put this gloss on making a lot of money so

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Speaker 1: that sounds like important and world changing. And he never

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Speaker 1: did that as far as I could tell, it was

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Speaker 1: always about the money, not just in that conversation but elsewhere,

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Speaker 1: And so I always thought, you know, I remember, like

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Speaker 1: even a friend of mine several months ago asked me

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Speaker 1: what I thought of um SPF. I thought it was

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Speaker 1: sort of refreshing that he didn't sort of like position

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Speaker 1: making a lot of money and crypto is sort of

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Speaker 1: there's noble thing. And basically he was like he and

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Speaker 1: the various Lamenta people who are on Twitter or like,

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Speaker 1: they really just talked about the money. And they talked

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Speaker 1: about the money. Obviously, there was this backdrop, whether you

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Speaker 1: believe that it was sincere or not of you know,

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Speaker 1: what's called effective altruism, but the idea is like you

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Speaker 1: make a bunch of money and eventually maybe you change

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Speaker 1: the world. But it was also the way that they

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Speaker 1: talked about the money was very matter of facts. And

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Speaker 1: I think, in addition to what you're identifying about the

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Speaker 1: the self righteousness that can infuse crypto Twitter, sometimes there's

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Speaker 1: also a lot of mud slinging. Right there's as it

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Speaker 1: is happening right now, various similarly disgraced crypto founders of

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Speaker 1: spending quite a lot of time on Twitter, redirecting attention

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Speaker 1: towards you know, sound back when Freedom FTX right now,

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Speaker 1: there were a couple of times I remember, you know

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Speaker 1: when back when Freed talked about like coin based earnings

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Speaker 1: and various other things. But for the majority of his presence,

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Speaker 1: he was talking up or talking about like his own entities.

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Speaker 1: And there were many when you were interviewing other folks

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Speaker 1: in the ATO space, and you've talked to a lot

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Speaker 1: of them, what was their perception of what was happening

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Speaker 1: at Alameda f t X, Bakman, Freed himself. That's a

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Speaker 1: good question. So I don't think in any of our

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Speaker 1: interviews that we've actually done on the podcast that we

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Speaker 1: actually like talked about f t X and or Lameda

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Speaker 1: or SBF. What I do know is that, you know,

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Speaker 1: when I spoke to traders just sort of independently or

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Speaker 1: my curiosity about the industry, they really like trading on

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Speaker 1: f t X, And I think this is like it

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Speaker 1: from my perspective again, you know, sort of going back

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Speaker 1: and like rethinking things, Like one of the through lines

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Speaker 1: was that professional like crypto hedge fund traders, etcetera, thought

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Speaker 1: it was a really high quality product for a number

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Speaker 1: of reasons that there was a high level of customer support,

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Speaker 1: that there was a high level of up time. If

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Speaker 1: you recall, sites like coin base have had some pretty

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Speaker 1: big down times from time to time, it didn't seem

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Speaker 1: like f t X had any I remember talking to

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Speaker 1: a trader who once told me that, like, basically, you

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Speaker 1: can buy with a tremendous amount of leverage, so it's

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Speaker 1: like ft X and binance, etcetera. And then if the

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Speaker 1: position moves against you, you you get the position liquidated and

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Speaker 1: your collateral gets taken away from you. But of course,

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Speaker 1: any algorithm that determines with when your collateral is gonna

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Speaker 1: get taken away from you, you know, it's gotta it's

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Speaker 1: based on some sort of like, you know, probabilistic measure,

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Speaker 1: I don't really know the math, but some sort of

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Speaker 1: probabilistic measure of your in risk of losing the exchange money.

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Speaker 1: And what I was told by one trader is like

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Speaker 1: that f t x is liquidation engine works so well,

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Speaker 1: and they're like, oh, f t X is gonna take

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Speaker 1: over the world because their liquidation engine is so much

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Speaker 1: better than everyone else's that they've trade with. There was

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Speaker 1: also a cross margining abilities, so you could post one

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Speaker 1: type of token as a collateral and get leverage against

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Speaker 1: the different asset you apparently could not get on buy

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Speaker 1: It's so I think there was another aspect in which,

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Speaker 1: you know, you sort of like if you were to

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Speaker 1: think about from an investor perspective, like doing due diligence

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Speaker 1: on a company, we want to talk to do the

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Speaker 1: customers like the product? And my impression always was that

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Speaker 1: customers really like trading on FTX. Do you have this

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Speaker 1: combination of software that seemed to be pretty decent, right,

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Speaker 1: and insofar as the value that the ft X trading

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Speaker 1: platform is providing to institutional investors, a lot of intelligence,

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Speaker 1: a lot of people who were all about the money,

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Speaker 1: and yet the size of the losses that whether it's

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Speaker 1: between eight or ten billion dollars, seems to have stunned

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Speaker 1: a lot of people just in terms of the share

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Speaker 1: scoope of it. Yeah, and I do believe that like

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Speaker 1: where the money went is still a mystery, But what

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Speaker 1: seems like very plausible is that al Amita was lost

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Speaker 1: a lot of money trading. I mean, on some level

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Speaker 1: or another that seems to be the case. And you know,

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Speaker 1: this is something that like I said, I never really

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Speaker 1: heard people talk that much about al Amida. But you know,

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Speaker 1: of course, um Sam had a background at the famous

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Speaker 1: quant trading shop Jane Street, as did some of his colleagues,

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Speaker 1: and so the presentation of Alameda was that it was

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Speaker 1: sort of like this market neutral, quantitative trading shop. And

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Speaker 1: I'm pretty sure on the Alameda website they also talked

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Speaker 1: about that they were a market neutral firm, so not

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Speaker 1: taking big directional bet one way or another. But that

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Speaker 1: being said, and you know, if you're like thinking, okay,

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Speaker 1: like let's go back and think more about red flags,

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Speaker 1: I do recall, you know, and people have since pointed

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Speaker 1: these out, but I do remember thinking at the time

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Speaker 1: that the former CEO of Alameda, Sam Trabuco, who left

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Speaker 1: the company earlier in the year, at some point this summer,

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Speaker 1: he did have these threads that did not seem like

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Speaker 1: very quantity, did not seem like market neutral. And one

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Speaker 1: of the threads that people point to, if I recall

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Speaker 1: it like basically like we went long doorge coin ahead

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Speaker 1: of Elon Desinel, which maybe, you know, maybe a fine trade,

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Speaker 1: although I think that was the peak, but it's like,

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Speaker 1: oh man, this is not exactly what I thought what

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Speaker 1: my impression of what el Ameda was doing. And I

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Speaker 1: thought what he was doing was, you know, making markets

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Speaker 1: and collecting spreads between the price of a coin on

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Speaker 1: one side and the price of a coin on another side,

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Speaker 1: or the price of a coin on a centralized exchange

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Speaker 1: versus the price on the defied exchange. So I did,

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Speaker 1: you know, I didn't think too much about it, but

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Speaker 1: I did think, I guess I that it did seem

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Speaker 1: different what I than what I thought Elamo was doing.

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Speaker 1: We'll be right back with more from Bloomberg's Joe. Wisn'tal

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Speaker 1: you said the friends of the show, Katie and Tim

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Speaker 1: that one of the signs that crypto is immature is

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Speaker 1: that it's too hard to launder money, yeah, without getting caught. Well,

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Speaker 1: this is like so something I mean, I've been you know,

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Speaker 1: from day one. It's like, this is the question. It's like, well,

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Speaker 1: what is crypto good for? Right? We probably both of

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Speaker 1: us have asked this question a million guys Like, Okay,

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Speaker 1: it's fun as journalists we like looking at the lines

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Speaker 1: going up and down, and it's probably fun is traders

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Speaker 1: like you know, big big swings, but like, what is

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Speaker 1: it good for? Right? What is the point of any

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Speaker 1: of this. And you know, one of the things you hear,

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Speaker 1: particularly from the bitcoins side the world, just like, well,

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Speaker 1: it's good for censorship resistant payments, doing the payments that

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Speaker 1: the state doesn't want you to do, doing the payments

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Speaker 1: that would Venmo or PayPal or zel or your bank

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Speaker 1: would kick you off for right trust less money. And

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Speaker 1: yet it doesn't seem to be that good for that

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Speaker 1: either as far as I can tell. And so, like,

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Speaker 1: you know, even the sort of like bare minimum things

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Speaker 1: that like crypto proponents often say, which is like, well,

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Speaker 1: person a, can some person be money and persons? He

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Speaker 1: can't say no, I'm not even convinced that it's true,

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Speaker 1: because again, I think in the you know, the context

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Speaker 1: we were discussing was like, there was a big test

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Speaker 1: of this with a Canadian trucker protests earlier this year,

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Speaker 1: and a lot of that money got seized or blocked,

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Speaker 1: and that was people trying to donate to the protesters.

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Speaker 1: And so, regardless of what you think about the protesters

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Speaker 1: mission or cause, it struck me as kind of a

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Speaker 1: test of like cryptos as particularly bitcoins main claims, and

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Speaker 1: I don't think I really lived up. They didn't really

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Speaker 1: have a way of getting bitcoin to the protesters in

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Speaker 1: a way that was trust list and could avoid blockage. Well,

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Speaker 1: one of the things that the truckers did is they

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Speaker 1: like put a bunch of wallet addresses on their signs

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Speaker 1: and the size of the trucks, and they're like, you

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Speaker 1: send us money here, and then various regular says, We're

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Speaker 1: like we're just gonna But you know, on the other hand,

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Speaker 1: like there's no like I think, you know, I remember

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Speaker 1: so after that happened, I remember seeing these discussions even

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Speaker 1: among many like sort of bitcoin proprimis like oh, they

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Speaker 1: shouldn't have like, uh, you know, made the wallets address

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Speaker 1: just so public, which fine, maybe, but I don't think

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Speaker 1: I ever saw like a great alternative solution. And you know,

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Speaker 1: it's like, Okay, let's say you are going to be

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Speaker 1: the focal point for disbursing the money. I'm going to

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Speaker 1: send it to you, and you know who the truckers

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Speaker 1: are privately, and you're gonna dispurse it. How do I

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Speaker 1: trust you? How do I know you're not gonna pocket it? Etcetera.

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Speaker 1: And so even like if you could find a way

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Speaker 1: like around the public wallet episodes, like you still have

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Speaker 1: the problem of trusting the intermediary is so it's very tricky,

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Speaker 1: and so I thought that that was like a pretty

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Speaker 1: good test of whether, you know, like bitcoins core claims

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Speaker 1: of censorship resistance could be defended, and I thought it

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Speaker 1: was lacking. Is there anything that you're seeing in the

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Speaker 1: response to the fallout from algorithmic stable coins three Arrows

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Speaker 1: Capital Celsius Voyager SPF f t X that is suggesting

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Speaker 1: what the next crisis could look like. So it did

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Speaker 1: actually have one thought on this specific question, which is

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Speaker 1: that one of the things you're hearing about now in

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Speaker 1: the wake of f t X is this concept where

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Speaker 1: they say, okay, crypto entities, particularly centralized ones, if they're

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Speaker 1: going to be centralized, should produce some sort of proof

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Speaker 1: of reserves. And this idea that with cryptographic technology, you

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Speaker 1: don't necessarily have to reveal your entire balance sheet or

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Speaker 1: all the items on it, but you could prove your

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Speaker 1: solvency in some way, and so you have some snapshot

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Speaker 1: of coins that are yours, and you could prove your solvency.

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Speaker 1: And the first thought that went to my mind was sure,

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Speaker 1: you might be able to do that, but how do

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Speaker 1: you know that the marks are true? And of course

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Speaker 1: in traand FI, you know, two thousand and eight, two

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Speaker 1: thousand nine, it was always like level on, level two,

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Speaker 1: level three acid Mark Smith. That's right, And we saw

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Speaker 1: that a bit with f t X because part of

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Speaker 1: the story is how much of the f t T

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Speaker 1: and seram tokens they had, and I think many people

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Speaker 1: would say that those coins were marked Smith. You know,

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Speaker 1: if the next stage of okay, what lessons learned from

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Speaker 1: f t X, every exchange has to sort of like

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Speaker 1: have some sort of cryptographic proof of solvency, then I

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Speaker 1: think the next crisis after that could have something that

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Speaker 1: was like, yeah, but where do these prices come from

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Speaker 1: and how reliable are they? Because we do see that

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Speaker 1: of course with the f t T and serum question

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Speaker 1: at f t X, and I'm not sure that like

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Speaker 1: a proof of reserves, had it been in place for

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Speaker 1: f t X, would have necessarily been a robust against

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Speaker 1: that failure. Thank you so much for coming on the show.

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Speaker 1: Thanks for having me. You can find more of Joe's

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Speaker 1: work on the Bloomberg Terminal and on Bloomberg dot com,

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Speaker 1: and of course on the Odd Lots podcast as well

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Speaker 1: as the Odd Lots news letter and be sure to

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Speaker 1: check out our twice weekly news letter, Bloomberg Crypto. This

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Speaker 1: is Bloomberg Crypto, a daily podcast from Bloomberg and I

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Speaker 1: Heart Radio. For more shows from I Heart Radio, visit

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Speaker 1: the I Heart Radio app, Apple Podcasts, or wherever you

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Speaker 1: get your podcasts. Send us your comments, questions, or suggestions

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Speaker 1: for the show to Crypto at Bloomberg dot net. The

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Speaker 1: supervising producer of Bloomberg Crypto is Vicky very Galina. Our

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Speaker 1: senior producer is Janet Babin. Our producers are Mohammed Faruke

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Speaker 1: and Sharon Barriro. Our associate producers are Ty Butler and

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Speaker 1: Moses on Them. Desta wonder At is our engineer. Original

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Speaker 1: music by Leo Sidron. I'm Stacy Marie Schmal. We'll be

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Speaker 1: back tomorrow