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Speaker 1: Hello, and welcome to another episode of the All Thoughts Podcast.

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Speaker 1: I'm Tracy Alloway and I'm Joe wisn't Tracy? Obviously, the

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Speaker 1: big story, which we haven't talked about yet, is the

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Speaker 1: collapse of the crypto Exchange ft X and the broader empire,

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Speaker 1: which was built by Sam Bankman Freed, which includes a

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Speaker 1: trading shop alimeter research. That's right. It has been really

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Speaker 1: a stunning two weeks for the industry, in part because

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Speaker 1: Sam Bankman Freed, or SPF as he's frequently referred to,

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Speaker 1: had become arguably the face of crypto. He was highly

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Speaker 1: influential in d C, he was a donor to numerous

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Speaker 1: nonprofits and politicians, wildly rich, and of course we have

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Speaker 1: interviewed him a number of times on this very podcast, right,

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Speaker 1: so the last time we interviewed him it had already

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Speaker 1: become something of an infamous episode. We're joined by our

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Speaker 1: colleague Matt Levine, and during that conversation that he described

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Speaker 1: much of defy or at least the concept of yield

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Speaker 1: farming in a matter that sounded a lot like a

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Speaker 1: Ponzi scheme. And of course he didn't describe f t

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Speaker 1: X or l AMDA his own business as a ponzi exactly.

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Speaker 1: We're still learning details about how it all collapsed. Nonetheless,

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Speaker 1: in the wake of this implosion, I don't think there's

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Speaker 1: any doubt that those comments are seen as just a

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Speaker 1: massive red flag, right, And as you mentioned, this is

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Speaker 1: all moving very very fast. It is a gigantic, really

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Speaker 1: sprawling story that ranks up there with some of the

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Speaker 1: biggest corporate disasters and potentially frauds of all time. And

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Speaker 1: given its size and speed, it's a little tough to

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Speaker 1: do a complete overview of the story right now. There's

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Speaker 1: already been a lot that's been written about it and

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Speaker 1: reported on at multiple media outlets, So we're going to

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Speaker 1: try to do things a little bit differently. We're going

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Speaker 1: to try to break things up a bit. First, today,

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Speaker 1: we are going to be speaking with a market participant

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Speaker 1: who used f t X and was caught out in

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Speaker 1: the scandal. And then we'll be speaking to a whistleblower

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Speaker 1: who was among the first to sound the alarm at

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Speaker 1: something actually being wrong at f t X and Alameda, right,

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Speaker 1: And then we're going to be doing a follow up

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Speaker 1: episode tomorrow with Matt Levine where we'll try to understand

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Speaker 1: more about what's happened and what is currently going on

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Speaker 1: right now in the wake of the collapse. But for

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Speaker 1: now we want to start with the gunny guy. Avoid

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Speaker 1: here's the founder and CEO of Winter Mute, which is

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Speaker 1: the largest crypto market making operation. It had been very

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Speaker 1: active on f t X and he's going to help

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Speaker 1: us understand a little bit more about f t X

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Speaker 1: and Alameda's role in crypto market structure. So if Jenny,

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Speaker 1: thank you so much for coming on the Odd Lots podcast.

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Speaker 1: What do you tell us? What do you do and

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Speaker 1: what is Winter Mute? Yeah, Hi, thanks for having me. Um, Yeah,

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Speaker 1: I guess very quickly about the Wintermute one of the

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Speaker 1: largest crypto market makers. We've been at since the Southern

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Speaker 1: suventeen and I think at this stage basically is the

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Speaker 1: largest the native market maker after Salamat's device. It's it's

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Speaker 1: an interesting way to have to grow the ranks with

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Speaker 1: all the with all that's going on, but basically we

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Speaker 1: our businesses across centralized exchanges, decentralized exchanges have been active

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Speaker 1: and defie since two thousand nineteen, and of course or

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Speaker 1: to see as well. So it's a lot of different

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Speaker 1: diversified activities. We are training billions dollars per per day

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Speaker 1: on all kinds of venues and in general very deeply

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Speaker 1: intertwined with the crypt taker system. Can you explain that

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Speaker 1: a little bit further? What does a market maker in

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Speaker 1: crypto actually do? And what is your business relationship with

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Speaker 1: the various exchanges like f TX. Yeah, on centralized exchanges,

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Speaker 1: that's fairly similar to how it works and traditional finance.

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Speaker 1: We basically provide bits and offers all great nuclear so

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Speaker 1: that people get access to liquidity. When it kin comes

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Speaker 1: to like how we work with different exchanges, There's are

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Speaker 1: no formal contracts as such. It's basically us creating an

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Speaker 1: account just like everyone else, institutional accounts of like everyone else,

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Speaker 1: and and then effectively sent orders via APIs that exchanges proved,

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Speaker 1: so you mentioned they. You know, you've sort of grown

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Speaker 1: in market share since the collapse of Lamet, which was

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Speaker 1: a competitor. Can you talk about prior to the implosion

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Speaker 1: of f t X and elmet, which of course will discuss,

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Speaker 1: what was your understanding and what was your view of

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Speaker 1: the f t X L meter relationship. I guess yeah,

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Speaker 1: I mean alla meta part was pretty shocking because basically

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Speaker 1: pretty much everyone in the industry, including myself, assumes that

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Speaker 1: Alometer has been writing running a pretty big and successful

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Speaker 1: operation across centralized and decentralized exchanges. For example, we've seen

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Speaker 1: them being very active on Serum, the Solana Native decks.

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Speaker 1: We suspected that they have a pretty decent market share

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Speaker 1: on ft act itself, despite actually not being able to

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Speaker 1: confirm it or denied, simply because one of the great

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Speaker 1: things that was about FC access that they had a

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Speaker 1: leaderboards for volumes and they were pretty public being there

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Speaker 1: and saying that they have InterMute is whatever number it

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Speaker 1: or number three or like whatever depends on the months,

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Speaker 1: but you will would never see lamed in there, which

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Speaker 1: was kind of annoying. But yeah, we kind of got that,

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Speaker 1: and not everyone wants to show the presence his publicly

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Speaker 1: is with it. And now I'm thinking, okay, probably the

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Speaker 1: market chair was either very big or maybe potentially very small,

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Speaker 1: but more likely very big because like one of the

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Speaker 1: main because like I guess the main question is given

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Speaker 1: the size of the whole that f t X faces

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Speaker 1: and that they lend money to al Ameter, somehow they

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Speaker 1: managed to lose those those billions, and one of the

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Speaker 1: one of the ideas that's traveling around crypto Twitter is

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Speaker 1: basically they were just very bad market maker, I guess

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Speaker 1: because they were kind of forced to probably quit it

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Speaker 1: an f t X and they basically lost of money

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Speaker 1: over the years supporting that liquity. What was your experience

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Speaker 1: of last week, Like when did you first think, oh,

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Speaker 1: something is happening here. I saw you were quite early

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Speaker 1: about pulling your money out of FTX dot US, but

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Speaker 1: some of it is stuck in f t X, the

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Speaker 1: international exchange. Like what exactly was your experience of the

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Speaker 1: past ten days or so? Yeah, I guess when it

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Speaker 1: all started with the z twits and when like the

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Speaker 1: first withdrawals started in f t X, we basically withdrew

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Speaker 1: roughly half of our capital simply because we basically our

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Speaker 1: initial assessment was exchange is going to be fine, but

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Speaker 1: it might be struggling with withdrawals for sometimes. So it's

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Speaker 1: just not smart to look so much so much of

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Speaker 1: our capital over there, because like the way we operate,

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Speaker 1: we have a number of exchanges that we consider to

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Speaker 1: be safe. That's where like we basically have a pool

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Speaker 1: of capitals that we keep rebalancing across different exchanges. And

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Speaker 1: also decentralized exchanges, so block chains, and we have a

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Speaker 1: number of exchanges which considered safe and we basically park

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Speaker 1: excess capital there every nouncer because it's quite easy, like

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Speaker 1: an fc X was one of them, like great things

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Speaker 1: that was about. Another great thing that was about fc

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Speaker 1: access that you could actually like very different stable coins

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Speaker 1: again versus each other. So it was it was a

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Speaker 1: very neat exchange to park the cash on. But once

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Speaker 1: we realized that, yeah, it might be that they may

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Speaker 1: be close withdrawals for a bit, maybe maybe they just

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Speaker 1: be super swamped with withdrawal requests, so it's just not

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Speaker 1: great to have our capital on it. So we kind

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Speaker 1: of stopped doing that and we decreased it. But the

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Speaker 1: initial assessment was, yeah, we want to keep some capital

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Speaker 1: on because it's going to be great, great trading with

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Speaker 1: all this moilutility, Yeah, which turned out to be not

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Speaker 1: not very great. I want to go back to something

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Speaker 1: you said about maybe l meter or just bad market makers,

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Speaker 1: or maybe they were bad market makers because they were

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Speaker 1: the official or the unofficial in house, like did the

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Speaker 1: provider at f t X. I believe and correct me

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Speaker 1: if I'm wrong. I believe that prior to all of this,

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Speaker 1: say like prior to this month or whatever, there was

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Speaker 1: a perception that LAMA had an unfair advantage in its

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Speaker 1: trading by dint of its relationship with f t X.

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Speaker 1: In other words, that it was very profitable but only

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Speaker 1: because it had some sort of relationship with f t X.

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Speaker 1: Did you have that perception beforehand that it gave an advantage,

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Speaker 1: and now do you sort of view this other side

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Speaker 1: that essentially the relationship actually made it harder for ELMA

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Speaker 1: to make money. I guess my perception was that Alameda

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Speaker 1: was not really market making an f t X to

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Speaker 1: make the liquid it's bigger simply because like, there's enough

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Speaker 1: market makers and ft X like. It was probably the

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Speaker 1: second biggest exchange in primitives at some point, and honestly,

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Speaker 1: there was no need for somebody to well, some for

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Speaker 1: some internal market making desk to provide this liquidity too.

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Speaker 1: So I was always thinking, okay, if they would be

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Speaker 1: losing money and that they would just pull off and

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Speaker 1: let others do their job, because yes, there is there

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Speaker 1: are enough crypto market makers to fill in, and so

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Speaker 1: my assumption was barely the advantage that would be getting

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Speaker 1: would be from basically realizing some synergies between like ft

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Speaker 1: X listings for example, like especially I think it was

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Speaker 1: especially apparent on Slana where alamido ft X with investing

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Speaker 1: the protocols and then protocol would pretty much immediately get

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Speaker 1: listed an f t X and basically, since Alameda would

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Speaker 1: have well hising inventory of tokens or barely better knowledge

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Speaker 1: about like how all this stuff works, they would be

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Speaker 1: just better position to make money out of it. And

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Speaker 1: that that to me sounded like a pretty good money

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Speaker 1: making machine, and that that was one of the reasons

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Speaker 1: I kind of expected them to print billions last year

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Speaker 1: and maybe you know, just losing some of the venture

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Speaker 1: positions this year, and that's a so one of the

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Speaker 1: criticisms that's come out about this whole thing, and my gosh,

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Speaker 1: there are a lot of things that you could say here,

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Speaker 1: but one of them is that this is all about

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Speaker 1: centralized finance because f t X was a centralized exchange,

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Speaker 1: it wasn't actually decentralized like a lot of other ones are,

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Speaker 1: like Newna Swap being the primary example. What do you

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Speaker 1: say to that criticism? Is that fair? I think it's

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Speaker 1: very fair. Basically, I I really disagree that this is

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Speaker 1: a failure of Crypta. I think it's, if anything, it's

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Speaker 1: a vindication of everything Crypta is standing for, which is

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Speaker 1: basically being completely decentralized, being committed, transparent, and basically, yeah,

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Speaker 1: people have an access to their own assets, self study,

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Speaker 1: and basically not relying on anything really because like, if

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Speaker 1: you look at all the failures of this year, like

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Speaker 1: even Terror, even though it was a decentralized protocol, the

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Speaker 1: only reason Terror blew up to such a massive proportions

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Speaker 1: was well, I think, in my opinion at least, the

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Speaker 1: main reason was that this crazy twenty percent yield was

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Speaker 1: repackaged by centralized institutions in the very opaque way it

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Speaker 1: was repackaged to the retail, and so retail would not

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Speaker 1: get ten percent guild on their account. Those centralized entities

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Speaker 1: would get like ten percent spread over the Terror, and

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Speaker 1: everyone was happy unless until until basically everything blew up.

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Speaker 1: The three arrow blob exactly the same thing, like everyone

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Speaker 1: lent to three arrows, but nobody knew what the combined

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Speaker 1: value of the loans was, and then when they blew up, Yeah,

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Speaker 1: all the centralized landers got hurt simply because it was

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Speaker 1: just centralized and transparent. And finally f t X exactly

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Speaker 1: the same thing they lent Alamida. Nobody knew about it

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Speaker 1: because it was yeah, it was not public. It was

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Speaker 1: like somewhere on the internal ledger, not even most of

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Speaker 1: the place knew about it, I think. And again it

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Speaker 1: blew up in a very centralized fation. So to me,

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Speaker 1: the crypto kind of solves it. And it's quite unfortunate

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Speaker 1: toward a trip to exchange, but it's a to me,

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Speaker 1: it's an indication of all the cryptoe ideals. So I

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Speaker 1: want to go back to the experience of trading on

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Speaker 1: f t X specifically, you mentioned that your perception prior

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Speaker 1: to this was that f t X was a high

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Speaker 1: quality exchange, a safe place to park capital when it

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Speaker 1: wasn't in a in a trade. What was good about

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Speaker 1: f t X. It does seem to me like when

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Speaker 1: I've talked to professional crypto traders, they liked this site.

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Speaker 1: And I think part of the reason maybe people are

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Speaker 1: so blindsided by this collapse is the fact that by

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Speaker 1: all accounts, the f t X platform seemed to be

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Speaker 1: a good one that people really like the experience that

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Speaker 1: had a lot of uptime, People like the way the

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Speaker 1: liquidations worked on ft X, can you talk about your

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Speaker 1: experience just being a traitor on it and in your

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Speaker 1: view why f t X got the prominence that it did.

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Speaker 1: I think it's very much linked to SBF to be honest, Like, yes,

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Speaker 1: sure it was a good platform to trade, especially because

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Speaker 1: they were pretty yeah there's a pretty quick about listen ussets,

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Speaker 1: they're pretty quick about well. Basically I guess that perhaps

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Speaker 1: were great and there were like a lot of different

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Speaker 1: products products. One sense it wasn't great about f t

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Speaker 1: X and everyone knows about it as well, is this

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Speaker 1: throughput was pretty a bit small, like a number of

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Speaker 1: others you can send per second. Like all those limits,

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Speaker 1: they kept increasing them by I don't know. Sometimes it

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Speaker 1: would come and say, oh, good, great news for increased

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Speaker 1: but they needed like a two th increase. And one

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Speaker 1: of the reasons I think, and yeah, I don't know,

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Speaker 1: I have no idea, like I haven't looked through the

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Speaker 1: code base, but I guess one of the reasons for

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Speaker 1: this was basically what was promoting very much is that

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Speaker 1: the matching engine was combined with their risk engine, because

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Speaker 1: you could use all those assets on margin as collateral

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Speaker 1: to trade all this perpetual products, like every time you

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Speaker 1: send another and it gets matched. It would need to

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Speaker 1: do both matching and their risk calculation, which I would

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Speaker 1: imagine would slow it quite considerably. And I was always

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Speaker 1: like very curious how much you can leverage that, like

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Speaker 1: how much how much you can expand that, because honestly,

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Speaker 1: like none of the centralized cryptic exchanges are close to

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Speaker 1: strouput to even like the worst I know European Stock

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Speaker 1: Exchange for example, they just all really really bad, like

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Speaker 1: even violence, and ft X was quite worse than violence

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Speaker 1: in the throughput twice even though it was smaller volume wis.

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Speaker 1: So to me, it was always a question like how

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Speaker 1: is it going to grow? Like how is it gonna

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Speaker 1: continue making this throutput, especially because like if as a

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Speaker 1: bitcoin in the studium, that's fine. But the idea I

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Speaker 1: was I think was like expanded the stocks, expanded, the commodities,

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Speaker 1: expanding everything. Also, I don't know, maybe maybe it was

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Speaker 1: all the facade, but to me, it was always securious

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Speaker 1: saying like, yeah, you mentioned engine clearing, it's not great

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Speaker 1: that you actually should it. It's physically possible to maintain

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Speaker 1: this model. So just to be clear, your perception was

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Speaker 1: that there was this trade off that the throughput in

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Speaker 1: terms of total volume at f t X was not

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Speaker 1: say what you could get it binance, but that was

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Speaker 1: because it had this superior matching engine and ability to

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Speaker 1: cross margin assets. Can you just explain what that means

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Speaker 1: for the listener, that the matching engine, the cross margining asset,

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Speaker 1: and what is the advantage of that as a professional trader. Yeah,

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Speaker 1: so basically if you go if you go on binance

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Speaker 1: and trade binance features, you need to post b U,

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Speaker 1: s D or some I think there's a cross margin

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Speaker 1: was also stable quins as well now, and but that's

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Speaker 1: that's just one instrument. If you if you would trade

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Speaker 1: on ft X, you could use your bitcoin, you can

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Speaker 1: use an e Syria, and you can use like a

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Speaker 1: dozens of other different tokens for which the price would

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Speaker 1: be quite volatile. Right, So let's say you have one

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Speaker 1: million works of bitcoin and one million works of dollars.

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Speaker 1: You could use both of those positions too as a

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Speaker 1: margin to enter delative contracts, which is very handy because

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Speaker 1: you like you trade sport, you trade perpet you trade perpetuals.

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Speaker 1: You can do it all on one account. And yeah,

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Speaker 1: it's it's very convenient from the capital perspective because you,

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Speaker 1: for example, like what if you only have bitcoin then

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Speaker 1: just parking bitcoin and still get margin on on FTX.

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Speaker 1: That's great, but that also means that you're met that

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Speaker 1: the matching engine continuously had to keep in its mind

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Speaker 1: what the price of bitcoin is, because maybe if bitcoin fALS,

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Speaker 1: you'll need to liquidate this guy, because really if his

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Speaker 1: positions are you know, like his his unrealized profit as

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Speaker 1: like THEO low, and so maybe we need to liquidate

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Speaker 1: his bitcoin line and then initiate like the whole liquidation process,

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Speaker 1: which which is basically way more complex than for binus futures,

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Speaker 1: which is just yeah, we just take your perpetual exposure.

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Speaker 1: It's it's generous dollars bn L and you only have

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Speaker 1: dollars and your accounts. It's very easy. This actually leads

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Speaker 1: into something I wanted to ask you, which is a

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Speaker 1: sort of I guess fundamental criticism about defy, which is,

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Speaker 1: even if you're dealing with decentralized exchanges or you know,

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Speaker 1: you hold your own keys or whatever, because you don't

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Speaker 1: actually know who you're lending to, DEFY often places a

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Speaker 1: lot of emphasis on the underlying collateral. The quality of

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Speaker 1: the collateral and the price of it, and so if

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Speaker 1: it starts to go down, you do get these big

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Speaker 1: margin calls because you don't really know who your counterparty is.

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Speaker 1: That seems like a potential vulnerability for defy, particularly in

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Speaker 1: an environment where we're seeing the collateral price, you know,

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Speaker 1: be extremely volatile. Well, I think that like defy challenges

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Speaker 1: potentially is they don't stem from the fact that you

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Speaker 1: don't know who your counterpart is. They're primarily stemming from

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Speaker 1: two things. One is just a quality of collectal like

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Speaker 1: you mentioned, and basically the fact that in extreme market

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Speaker 1: moves it might not be possible to liquidated quick enough

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Speaker 1: on the access and that basic basically the quality of

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Speaker 1: the collateral can drop so quickly, is that there will

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Speaker 1: be no incentive for anyone to do liquidations, and that

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Speaker 1: can create gaps and products like whole wholes and protocol

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Speaker 1: treasuries for example, which which happened after Lunar with with

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Speaker 1: some protocols. And the second second issue is it's also

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Speaker 1: related to just potential manipulation vectors and that that has

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Speaker 1: to do with oracles because you like what we what

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Speaker 1: we've seen with malgo markets. So a few weeks ago,

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Speaker 1: for example, was that yeah, if you manipulate the oracle price,

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Speaker 1: you can potentially create sort of run the bank for

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Speaker 1: those sounds of slending protocols as well. Honestly, I think

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Speaker 1: it's all like both of those issues are solvable. Basically

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Speaker 1: most most of the time issues with descentralized protocols were

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Speaker 1: caused by just the quality of a collateral, which works

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Speaker 1: both on like a float level, so if if it's

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Speaker 1: just some old coin which has a very low float

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Speaker 1: yet it just wouldn't be able to liok at it

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Speaker 1: fast enough, but also on the oracle level as well,

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Speaker 1: if it's like a very small talk and it's very

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Speaker 1: easy to manipulate surprise, just like the service Mango. But overall,

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Speaker 1: like the defied protocols over the last I know, nine

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Speaker 1: twelve months worked perfectly well in terms of stress. Like

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Speaker 1: you haven't seen any issues with other you haven't seen

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Speaker 1: any issues with Compound. They worked just like they intended

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Speaker 1: to be. People are doing liquidations at all. It was

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Speaker 1: all very much elderly, so I think from that perspective,

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Speaker 1: I think it's still pretticol system to look at. Are

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Speaker 1: you going to change the way you think about counterparty

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Speaker 1: risk and keeping money on exchanges, any exchanges in the

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Speaker 1: wake of this, how are you changing your business up rations?

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Speaker 1: We're basically playing it very safe. So there are like

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Speaker 1: very small number of exchanges that we considered to be safe,

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Speaker 1: and we have is drawing from a lot of like

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Speaker 1: what we call t S three exchanges at the moment,

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Speaker 1: and even some of the tear too exchanges. We basically

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Speaker 1: and I cannot really name names because we actually have

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Speaker 1: a pretty good relationship with most of them. And like

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Speaker 1: if I say it Withdrew from Exchange, why it does

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Speaker 1: mean that we think the bankrupt. It just means that

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Speaker 1: we are We're just waiting for our due diligence. We're

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Speaker 1: waiting for them to provide financials. We're just waiting for

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Speaker 1: them to kind of prove to us that they're fine.

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Speaker 1: And so the idea for us is just to get

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Speaker 1: this due diligence done and in a week or two

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Speaker 1: we just resume training and all the exchanges that remain.

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Speaker 1: But my unfortunate yeah, understanding of the situation is there

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Speaker 1: might be more exchanges failing, like big and small. So yeah,

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Speaker 1: it's just very good security practice to be very safe

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Speaker 1: in this environment. I think for individual users, I would

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Speaker 1: generally advice to try self custody if you can, or

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Speaker 1: withdraw to like very very high quality exchanges if you cannot.

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Speaker 1: What exactly is the path for contagion here? Like what

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Speaker 1: happens if ft X goes down? Like why should we

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Speaker 1: worry about a Tier three exchange? What's the knock on effect? Um?

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Speaker 1: The knock on effect can be I guess like multiple vectors.

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Speaker 1: First of all, sounds of exchanges like the way they

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Speaker 1: operate with market makers. Some of them they provide letters

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Speaker 1: of credit, so they basically can extend what leverage effectively

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00:21:30,640 --> 00:21:33,639
Speaker 1: or just be your free capital to market makers so

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Speaker 1: that the market makers would have better incentive to provide markets.

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Speaker 1: So if any of those history exchanges gave lots of

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Speaker 1: credit Dolometer and Telometer lost money, they could be facing

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Speaker 1: some losses. Second way it can be can be happening

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Speaker 1: is basically a lot of exchanges will be keeping there

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Speaker 1: like some of their capital on FTX. And we've seen

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Speaker 1: like some some exchanges coming forward and meeting that whether

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00:21:58,200 --> 00:22:00,800
Speaker 1: it can be for internal market maker in operations, So

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00:22:00,920 --> 00:22:05,159
Speaker 1: it can be simply because they just sometimes basically like

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00:22:05,320 --> 00:22:08,840
Speaker 1: broadcast liquidity on the exchange via ft X either way,

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Speaker 1: they could potentially keep some of their money on ft X.

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Speaker 1: You know, one of the interesting things that makes crypto

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Speaker 1: distinct from say tread fire the stock market if you

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Speaker 1: do have this separation of the broker and the market.

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Speaker 1: And so if I log into a Schwab account to

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Speaker 1: trade stocks, Schwab is the broker, but Schwab is not

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Speaker 1: the stock market itself. It seems like that different in crypto,

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00:22:36,280 --> 00:22:39,240
Speaker 1: where it's like finance or f t X, that's you

397
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Speaker 1: have your account there, but it also is the market

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00:22:41,800 --> 00:22:45,160
Speaker 1: and that has the order book. Would it make sense

399
00:22:45,320 --> 00:22:48,840
Speaker 1: to separate those? Yeah, it's a very good question. Um,

400
00:22:50,640 --> 00:22:53,320
Speaker 1: I guess it depends as the right answer. On one hand,

401
00:22:54,080 --> 00:22:57,520
Speaker 1: like a few exchanges that I think is perfectly fine

402
00:22:57,600 --> 00:23:00,440
Speaker 1: to do it basically, Okay, let's let's give you this

403
00:23:00,560 --> 00:23:04,159
Speaker 1: kind of framework. The main like not necessarily cause but

404
00:23:04,280 --> 00:23:07,560
Speaker 1: like a huge amount of effort for centralized exchanges goes

405
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Speaker 1: and k I c mL of their customers. So it's

406
00:23:12,200 --> 00:23:14,160
Speaker 1: a pretty big I'm pretty sure it's a big, pretty

407
00:23:14,200 --> 00:23:17,080
Speaker 1: big cost. It's a pretty big number of employees who

408
00:23:17,080 --> 00:23:20,560
Speaker 1: I busited this and that's that's honestly where the biggest

409
00:23:20,600 --> 00:23:24,720
Speaker 1: regulatory attack vector comes from as well, because yeah, if

410
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Speaker 1: you do not cave I see properly, like if you

411
00:23:27,840 --> 00:23:30,400
Speaker 1: kve I see someone, no Korean people or you know whatever,

412
00:23:30,560 --> 00:23:33,280
Speaker 1: you can get in trouble. So that that's pretty big

413
00:23:33,400 --> 00:23:38,000
Speaker 1: cost base. Effectively, if if that part is taken away

414
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Speaker 1: from exchanges, like whoever runs this needs to charge quite

415
00:23:41,359 --> 00:23:43,040
Speaker 1: a bit for it, because yeah, it's a pretty big

416
00:23:43,119 --> 00:23:46,159
Speaker 1: cost to run. And so you can argue that the

417
00:23:46,240 --> 00:23:49,200
Speaker 1: centralized exchanges off setting this course by charge and trading

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Speaker 1: fees from all those people that the cave I see, Like,

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00:23:52,000 --> 00:23:55,359
Speaker 1: if you completely separate it, it would be yeah, it

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Speaker 1: would be interesting. I mean it's a kind of a

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00:23:57,560 --> 00:24:01,480
Speaker 1: different model again obviously because all those kind of broker's

422
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Speaker 1: effectively would be would have to do I s instead.

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Speaker 1: But ultimately, yes, they would need to figure out the

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00:24:07,359 --> 00:24:11,680
Speaker 1: way to i know, either share revenues or basically find

425
00:24:11,720 --> 00:24:14,399
Speaker 1: in a different business small around it, because currently all

426
00:24:14,440 --> 00:24:17,440
Speaker 1: those costs are offset by training fees and whatever the

427
00:24:17,640 --> 00:24:21,560
Speaker 1: auxiliary profits or exchanges generate. So we talked a little

428
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Speaker 1: bit about how you know, f t X was generally

429
00:24:24,240 --> 00:24:28,080
Speaker 1: considered to be a good exchange from a technology perspective.

430
00:24:28,359 --> 00:24:32,720
Speaker 1: Some of the latent latency issues you describe. Notwithstanding, but

431
00:24:32,960 --> 00:24:37,960
Speaker 1: like Sam Bankman, Freed overall was generally considered to be

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00:24:38,119 --> 00:24:41,120
Speaker 1: this titan of crypto. And we can argue about whether

433
00:24:41,200 --> 00:24:43,560
Speaker 1: or not that reputation was deserved given that he was

434
00:24:43,640 --> 00:24:47,159
Speaker 1: running a centralized exchange versus a decentralized exchange. But this

435
00:24:47,280 --> 00:24:51,200
Speaker 1: seems like a massive, massive deal for the industry as

436
00:24:51,240 --> 00:24:53,440
Speaker 1: a whole, that this guy who was sort of held

437
00:24:53,560 --> 00:24:57,399
Speaker 1: up as the face of it was essentially running some

438
00:24:57,520 --> 00:25:01,560
Speaker 1: sort of fraud. What is the long term impact of

439
00:25:01,680 --> 00:25:05,080
Speaker 1: all of this on the crypto space? Does institutional capital

440
00:25:05,240 --> 00:25:07,680
Speaker 1: just dry up at this point? How do you convince

441
00:25:07,760 --> 00:25:10,680
Speaker 1: people to put money into a space that time and

442
00:25:10,760 --> 00:25:13,840
Speaker 1: time again seems to either blow up or be the

443
00:25:13,920 --> 00:25:17,960
Speaker 1: victim of hacks or fraud. On the institutional side, I

444
00:25:18,040 --> 00:25:22,200
Speaker 1: think it will all come come down to they're just

445
00:25:22,520 --> 00:25:25,399
Speaker 1: just coming up with a better ways to custody assets

446
00:25:25,600 --> 00:25:28,040
Speaker 1: because you have one big issue. Obviously, if you store

447
00:25:28,119 --> 00:25:31,360
Speaker 1: US as an FTX, you basically screwed. But I also

448
00:25:31,480 --> 00:25:33,919
Speaker 1: there are quite quite a few banks that are actively

449
00:25:34,000 --> 00:25:36,119
Speaker 1: working on it, like traditional banks. On the cost of

450
00:25:36,160 --> 00:25:39,000
Speaker 1: the solutions, B and why came up, we came up

451
00:25:39,080 --> 00:25:41,000
Speaker 1: with one like a month ago or something, right, I

452
00:25:41,080 --> 00:25:44,360
Speaker 1: think that that will be ultimately the past institutional adoption

453
00:25:44,440 --> 00:25:46,920
Speaker 1: because they will just need to replicate the same same

454
00:25:47,040 --> 00:25:50,440
Speaker 1: rails effectively to to operate. Saying the custody has been

455
00:25:51,040 --> 00:25:53,640
Speaker 1: the major piece that has been missing, and once it's done,

456
00:25:53,720 --> 00:25:58,000
Speaker 1: it's because like ASBFS failure was not a failure of

457
00:25:58,040 --> 00:26:01,240
Speaker 1: crypto again, it was a failure of his centralizeddentity. So

458
00:26:01,560 --> 00:26:04,840
Speaker 1: once you remove custody from it, Okay, it shouldn't really

459
00:26:04,880 --> 00:26:08,320
Speaker 1: affect you that much because yeah, if you studyr money

460
00:26:08,359 --> 00:26:11,679
Speaker 1: not on a not an FTX but with extodian for example,

461
00:26:11,840 --> 00:26:15,480
Speaker 1: or just story yourself, it should be fine. I think,

462
00:26:15,520 --> 00:26:18,960
Speaker 1: like if you're talking about more longer term impact of this,

463
00:26:19,240 --> 00:26:21,600
Speaker 1: I think it's safety assume there will be a pretty

464
00:26:21,640 --> 00:26:25,080
Speaker 1: big regulatory response, because regulators should have fuel day about

465
00:26:25,080 --> 00:26:28,560
Speaker 1: around this. I kind of hope that, yeah, there there

466
00:26:28,600 --> 00:26:30,800
Speaker 1: would be like some some of the at least some

467
00:26:30,880 --> 00:26:34,520
Speaker 1: of the fault will be recognized, like on the SEC side,

468
00:26:34,600 --> 00:26:38,080
Speaker 1: given just how close those guys were, how this looks like.

469
00:26:38,840 --> 00:26:41,240
Speaker 1: But overall, yeah, I think I think there are laws

470
00:26:41,320 --> 00:26:43,280
Speaker 1: that we will see implemented on the U S side

471
00:26:43,280 --> 00:26:46,160
Speaker 1: of things, and maybe globally as well won't be as

472
00:26:46,640 --> 00:26:49,640
Speaker 1: favorable as they would have been like a few months ago.

473
00:26:50,320 --> 00:26:52,639
Speaker 1: For me, the events of the past week kind of

474
00:26:52,920 --> 00:26:55,280
Speaker 1: proved that we need to go back to the to

475
00:26:55,440 --> 00:26:59,000
Speaker 1: those ideas of the centralization of But it basically exists

476
00:26:59,080 --> 00:27:02,720
Speaker 1: in the trust less old whenever it comes to individual users,

477
00:27:02,800 --> 00:27:05,119
Speaker 1: and I think that's that to me. Is this something

478
00:27:05,240 --> 00:27:08,359
Speaker 1: that kind of like re rebooted the whole thing for me,

479
00:27:08,720 --> 00:27:11,920
Speaker 1: I rebooted my whole approach to crypto, rebooted my face

480
00:27:12,000 --> 00:27:15,280
Speaker 1: and crypt as something that can replace future financial system

481
00:27:15,320 --> 00:27:18,200
Speaker 1: as well, Like I actually believe even more than before

482
00:27:18,400 --> 00:27:22,560
Speaker 1: after this somehow, Hey, Jenny, thank you so much for

483
00:27:22,680 --> 00:27:25,320
Speaker 1: coming out a lots. Yeah, thank you for having it.

484
00:27:26,080 --> 00:27:28,680
Speaker 1: That was if Jinny guy boy of Winter Mute talking

485
00:27:28,760 --> 00:27:30,960
Speaker 1: to us about how he had seen f t X

486
00:27:31,080 --> 00:27:34,000
Speaker 1: is business. Next up, we'll be speaking to James Block.

487
00:27:34,200 --> 00:27:37,600
Speaker 1: You might know him better from his Twitter handle Mike

488
00:27:37,880 --> 00:27:41,159
Speaker 1: Burger's Burg. He also writes about crypto and fraud at

489
00:27:41,200 --> 00:27:44,200
Speaker 1: the Dirty Bubble media sub stacks, So we will be

490
00:27:44,280 --> 00:27:46,639
Speaker 1: talking to him about what he saw at f t

491
00:27:46,920 --> 00:28:06,639
Speaker 1: X that raised some initial red flax. So we are

492
00:28:06,720 --> 00:28:09,800
Speaker 1: back and we're about to speak with James Block. He

493
00:28:10,040 --> 00:28:13,159
Speaker 1: was one of the initial researchers who sounded the alarm

494
00:28:13,280 --> 00:28:16,320
Speaker 1: on f t X and Alameda and set some of

495
00:28:16,400 --> 00:28:19,280
Speaker 1: these events in motion. So James, thanks so much for

496
00:28:19,400 --> 00:28:22,280
Speaker 1: coming on all thoughts. Hey, it's great to be here. James,

497
00:28:22,800 --> 00:28:25,639
Speaker 1: tell us who you are, because it seems like you

498
00:28:25,760 --> 00:28:31,120
Speaker 1: are basically a doctor by day and crypto researcher by night.

499
00:28:31,320 --> 00:28:34,440
Speaker 1: Is that accurate, that's something like that. Yeah, yeah, I'm

500
00:28:34,440 --> 00:28:37,520
Speaker 1: trained as a physician scientist. Kind of got interested in

501
00:28:37,600 --> 00:28:39,400
Speaker 1: this space, if you want to call it that, about

502
00:28:39,400 --> 00:28:41,560
Speaker 1: a year ago. Just kind of always had a fascination

503
00:28:41,680 --> 00:28:45,400
Speaker 1: with financial crimes and kind of the oddities of how

504
00:28:45,480 --> 00:28:48,440
Speaker 1: financial markets work. So crypto seemed like a really interesting

505
00:28:48,520 --> 00:28:50,880
Speaker 1: place to kind of dive in and learn some stuff.

506
00:28:51,400 --> 00:28:55,080
Speaker 1: What first got you interested in f t X specifically?

507
00:28:55,920 --> 00:28:58,840
Speaker 1: So before I was writing about f t X, I

508
00:28:58,920 --> 00:29:02,040
Speaker 1: was really looking into this Selsia's network scandal, which might

509
00:29:02,120 --> 00:29:05,080
Speaker 1: have been writing about extensively prior to their collapse. And

510
00:29:05,160 --> 00:29:08,480
Speaker 1: it turns out that there were extensive ties between Celsia's

511
00:29:08,520 --> 00:29:11,800
Speaker 1: network and FTX, both financial and other. So that's kind

512
00:29:11,800 --> 00:29:13,360
Speaker 1: of how I kind of got into it looking at

513
00:29:13,400 --> 00:29:15,920
Speaker 1: it from that perspective, and then I was able to

514
00:29:16,160 --> 00:29:19,440
Speaker 1: find out some information about their actual financial condition, and

515
00:29:19,480 --> 00:29:22,680
Speaker 1: then that's when I wrote an article about Alameda's financial

516
00:29:22,720 --> 00:29:25,600
Speaker 1: situation that has some impact on the how the events

517
00:29:25,640 --> 00:29:28,120
Speaker 1: turned out. So one of the things that we hear

518
00:29:28,160 --> 00:29:30,920
Speaker 1: about crypto quite a lot is that, you know, it's

519
00:29:31,120 --> 00:29:34,880
Speaker 1: very transparent, you can trace wallet addresses, you can sort

520
00:29:34,920 --> 00:29:37,720
Speaker 1: of follow the money and figure out what's going on.

521
00:29:38,400 --> 00:29:42,200
Speaker 1: And yet yet we seem to have um like repetitive

522
00:29:42,280 --> 00:29:46,840
Speaker 1: frauds in the space. What's your sense of that part

523
00:29:47,040 --> 00:29:50,360
Speaker 1: of crypto When you're looking at crypto trying to expose

524
00:29:50,400 --> 00:29:55,000
Speaker 1: potential frauds, is it easier than with traditional finance. I

525
00:29:55,080 --> 00:29:58,000
Speaker 1: definitely think that it is easier in some respects. I mean,

526
00:29:58,080 --> 00:30:01,040
Speaker 1: a lot of the information is public and easily legible

527
00:30:01,120 --> 00:30:03,840
Speaker 1: if you understand how to read the data, which isn't. Honestly,

528
00:30:03,840 --> 00:30:06,040
Speaker 1: it's not that complicated. The part of it that people

529
00:30:06,200 --> 00:30:08,760
Speaker 1: forget about is that the vast majority of the economic

530
00:30:08,880 --> 00:30:12,280
Speaker 1: activity happening in this space doesn't happen on the blockchain.

531
00:30:12,360 --> 00:30:16,080
Speaker 1: It happens in centralized exchanges and other platforms that don't

532
00:30:16,160 --> 00:30:18,640
Speaker 1: use the blockchain for any of the transactions. They perform. So,

533
00:30:19,000 --> 00:30:21,920
Speaker 1: for example, ft x is an exchange, you would deposit

534
00:30:22,000 --> 00:30:25,440
Speaker 1: your crypto there and then it just sits there. Theoretically

535
00:30:25,440 --> 00:30:27,120
Speaker 1: it should sit in their wallet, and then all of

536
00:30:27,200 --> 00:30:30,440
Speaker 1: the trading actually happens on a off off chain like

537
00:30:30,600 --> 00:30:33,400
Speaker 1: centralized platform. And then eventually, let's say you want to

538
00:30:33,400 --> 00:30:35,440
Speaker 1: take your crypto back out, then it goes back onto

539
00:30:35,480 --> 00:30:37,800
Speaker 1: the blockchain and moves back to your wallet. But there's

540
00:30:37,840 --> 00:30:41,160
Speaker 1: never the trading that happens, any of the market activity

541
00:30:41,200 --> 00:30:43,960
Speaker 1: that happens. That's totally opaque. To let it we start

542
00:30:44,080 --> 00:30:47,400
Speaker 1: with the details. You mentioned that you saw there were

543
00:30:47,440 --> 00:30:50,600
Speaker 1: more links between f t X, you believed in Celsius

544
00:30:50,680 --> 00:30:54,640
Speaker 1: than perhaps people appreciated. What did you first see there? Yeah,

545
00:30:54,760 --> 00:30:59,280
Speaker 1: so for people who aren't familiar, Celsius was a lending platform.

546
00:30:59,400 --> 00:31:02,040
Speaker 1: Basically it allowed you to do was either deposit crypto

547
00:31:02,520 --> 00:31:05,720
Speaker 1: and earn yield on it kind of like a savings account,

548
00:31:06,320 --> 00:31:08,160
Speaker 1: or you could borrow against your crypto. You could borrow

549
00:31:08,200 --> 00:31:10,600
Speaker 1: dollars against a bitcoin, and then what Celsius would do

550
00:31:10,640 --> 00:31:16,640
Speaker 1: is rehypothecate those assets into various supposed yield yield earning strategies.

551
00:31:17,000 --> 00:31:19,080
Speaker 1: And it turned out that what they were doing wasn't

552
00:31:19,080 --> 00:31:21,360
Speaker 1: actually profitable, and they collapsed. And there's a lot of

553
00:31:21,400 --> 00:31:23,600
Speaker 1: allegations about kind of what was going on in that

554
00:31:23,640 --> 00:31:26,040
Speaker 1: company that are still being kind of figured out. But

555
00:31:26,120 --> 00:31:28,640
Speaker 1: what I noticed, among other things, was that in June

556
00:31:28,800 --> 00:31:31,480
Speaker 1: they froze. They froze withdrawals, so like all their customers

557
00:31:31,520 --> 00:31:33,920
Speaker 1: could no longer withdraw their funds. And then there was

558
00:31:33,920 --> 00:31:36,640
Speaker 1: a month period of time between June and July where

559
00:31:36,640 --> 00:31:40,360
Speaker 1: the company was engaging in a significant number of transactions

560
00:31:40,480 --> 00:31:43,880
Speaker 1: on the blockchain, and then in July they filed for bankruptcy.

561
00:31:44,320 --> 00:31:46,160
Speaker 1: And what I found was that they had sent hundreds

562
00:31:46,200 --> 00:31:49,000
Speaker 1: of millions of dollars worth of assets from their wallets

563
00:31:49,080 --> 00:31:51,720
Speaker 1: to the ft X exchange, and then in return, it

564
00:31:51,760 --> 00:31:54,120
Speaker 1: seemed like they had received about a billion dollars in

565
00:31:54,280 --> 00:31:56,560
Speaker 1: USDC from that exchange and used it to pay off

566
00:31:56,600 --> 00:31:59,920
Speaker 1: various debts. According to the bankruptcy filing, celsius od ft

567
00:32:00,120 --> 00:32:03,000
Speaker 1: X about a hundred and eight million dollars, and apparently

568
00:32:03,080 --> 00:32:05,680
Speaker 1: that loan was also discharged in that time period. So

569
00:32:05,800 --> 00:32:08,360
Speaker 1: my concern was that there were some very questionable transfers

570
00:32:08,440 --> 00:32:11,120
Speaker 1: happening that we're within the ninety day period prior to

571
00:32:11,160 --> 00:32:14,320
Speaker 1: filing for bankruptcy that seemed to me to be preferential transfers,

572
00:32:14,360 --> 00:32:16,480
Speaker 1: although you know, I'll let the lawyers figure that one out.

573
00:32:16,600 --> 00:32:18,920
Speaker 1: And additionally, just the opaqueness of what they were doing

574
00:32:18,960 --> 00:32:21,160
Speaker 1: with those funds. So I started looking into that, and

575
00:32:21,240 --> 00:32:24,120
Speaker 1: then there's a number of other connections to I mean, Celsius.

576
00:32:24,240 --> 00:32:28,120
Speaker 1: One of their main shareholders was the Tether stable Coin Company,

577
00:32:28,480 --> 00:32:30,680
Speaker 1: and that was also very closely tied to ft X

578
00:32:30,760 --> 00:32:33,959
Speaker 1: and Alimator Research, So there are multiple ties between these

579
00:32:34,000 --> 00:32:37,080
Speaker 1: companies that go back number of years. It seems like

580
00:32:37,240 --> 00:32:41,760
Speaker 1: there were a few months between Celsius experiencing problems and

581
00:32:42,520 --> 00:32:45,560
Speaker 1: all the ft X issues sort of coming home to roost.

582
00:32:46,080 --> 00:32:48,680
Speaker 1: Why do you think it took a while? Well, I

583
00:32:48,720 --> 00:32:51,960
Speaker 1: don't think that Celsius was necessarily material to the collapse

584
00:32:52,000 --> 00:32:54,680
Speaker 1: of Alimta and ft X. They were doing business together

585
00:32:55,200 --> 00:32:57,520
Speaker 1: and FTX actually got their money back, so for them

586
00:32:57,560 --> 00:33:00,240
Speaker 1: it probably worked out pretty well. Um. I think Elma

587
00:33:00,440 --> 00:33:02,400
Speaker 1: was a party to the bankruptcy and is own something

588
00:33:02,480 --> 00:33:05,320
Speaker 1: like ten or eleven million dollars from Celsius, But relatively

589
00:33:05,320 --> 00:33:07,080
Speaker 1: the amount of money that they apparently got paid back,

590
00:33:07,160 --> 00:33:10,280
Speaker 1: it's not very significant. What appears what happened with Alameda,

591
00:33:10,600 --> 00:33:12,160
Speaker 1: and we don't actually know. I mean, honestly, I don't

592
00:33:12,160 --> 00:33:14,640
Speaker 1: want to speculate at this point. I still can't imagine

593
00:33:14,720 --> 00:33:17,680
Speaker 1: how they managed to lose the amount of money that

594
00:33:17,720 --> 00:33:19,560
Speaker 1: they're saying that they lost. I mean, eight to ten

595
00:33:19,600 --> 00:33:23,240
Speaker 1: billion dollars is a lot of money. Celsius by comparison,

596
00:33:23,720 --> 00:33:25,800
Speaker 1: is maybe three billion dollars to four billion dollars in

597
00:33:25,840 --> 00:33:28,120
Speaker 1: the whole. So it's this is a it's a it's

598
00:33:28,160 --> 00:33:30,720
Speaker 1: a massive loss, and nobody, I think it knows entirely

599
00:33:30,840 --> 00:33:33,719
Speaker 1: yet where the where the money went in terms of FDx. Right,

600
00:33:33,880 --> 00:33:35,880
Speaker 1: So just on this note, I mean, this was one

601
00:33:35,920 --> 00:33:38,640
Speaker 1: of the things that I think was surprising for a

602
00:33:38,760 --> 00:33:41,320
Speaker 1: lot of people, which is, you know, we all listen

603
00:33:41,640 --> 00:33:44,000
Speaker 1: to Sam Bankman Freed when he was on this podcast

604
00:33:44,120 --> 00:33:47,360
Speaker 1: describe yield farming as the sort of magical money box,

605
00:33:48,000 --> 00:33:51,000
Speaker 1: but he was describing the business of crypto and we

606
00:33:51,160 --> 00:33:55,520
Speaker 1: sort of thought, well, you know, he's operating an exchange

607
00:33:55,840 --> 00:33:58,880
Speaker 1: where people are trading these things and that's how he's

608
00:33:58,960 --> 00:34:03,680
Speaker 1: making his money, and that must be incredibly profitable, And

609
00:34:03,800 --> 00:34:07,560
Speaker 1: it turns out it wasn't. Where do we actually think

610
00:34:08,080 --> 00:34:11,560
Speaker 1: the money went? Well, I mean, we know for a

611
00:34:11,640 --> 00:34:14,440
Speaker 1: fact at this point, we know that a large portion

612
00:34:14,480 --> 00:34:17,640
Speaker 1: of user assets ended up going to Sam Bankment Fred's

613
00:34:17,640 --> 00:34:21,040
Speaker 1: trading firm, which was Elevated Research. Where it goes from

614
00:34:21,080 --> 00:34:24,239
Speaker 1: there is, uh, the eight to ten billion dollar question.

615
00:34:24,320 --> 00:34:26,400
Speaker 1: I guess they were doing a number of different things

616
00:34:26,480 --> 00:34:28,080
Speaker 1: with the funds. We know that they were investing in

617
00:34:28,120 --> 00:34:30,920
Speaker 1: a lot of different venture opportunities, you can call them

618
00:34:31,200 --> 00:34:34,000
Speaker 1: various crypto projects that never seemed to work out. I

619
00:34:34,040 --> 00:34:37,880
Speaker 1: think five million went to some AI research nonprofit. You know,

620
00:34:37,920 --> 00:34:40,439
Speaker 1: obviously they weren't spending a lot of money on advertising

621
00:34:40,600 --> 00:34:43,960
Speaker 1: and on political contributions. So I mean, I don't think

622
00:34:43,960 --> 00:34:46,600
Speaker 1: anyone's come close to accounting for the amount of money

623
00:34:46,600 --> 00:34:48,640
Speaker 1: that's apparently missing here, but we know at least where

624
00:34:48,680 --> 00:34:50,360
Speaker 1: some of it went. The question is, yeah, I mean,

625
00:34:50,520 --> 00:34:52,560
Speaker 1: so were they profitable? I mean, you can look at

626
00:34:52,560 --> 00:34:54,880
Speaker 1: coin bases earnings and that just as a disclosure, I

627
00:34:54,960 --> 00:34:57,640
Speaker 1: am shortcoin based, so my opinions about that company are

628
00:34:57,760 --> 00:35:00,120
Speaker 1: colored by that position. But I mean, coin bay has

629
00:35:00,160 --> 00:35:02,200
Speaker 1: been losing a substantial amount of mine in the last year.

630
00:35:02,520 --> 00:35:05,120
Speaker 1: Were they actually profitable? As a very good question, and

631
00:35:05,239 --> 00:35:07,040
Speaker 1: you know, the thing to remember too, is that FTX

632
00:35:07,080 --> 00:35:10,920
Speaker 1: always build themselves as sort of the the exchange for

633
00:35:11,040 --> 00:35:15,520
Speaker 1: institutional institutional traders. Like there was retail involved, but a

634
00:35:15,600 --> 00:35:18,120
Speaker 1: lot of the volume was supposedly these institutional people who

635
00:35:18,160 --> 00:35:21,640
Speaker 1: are playing on there, and so they're their actual revenue

636
00:35:21,640 --> 00:35:23,880
Speaker 1: from that would have been much lower than what somebody

637
00:35:23,960 --> 00:35:26,759
Speaker 1: with primarily a retail customer base would make. So's it's

638
00:35:26,760 --> 00:35:28,879
Speaker 1: actually very questionable if they were ever really making money

639
00:35:29,000 --> 00:35:33,160
Speaker 1: or not. That's a really interesting observation, and it's just,

640
00:35:33,320 --> 00:35:37,120
Speaker 1: you know, it's something that come up with coin based specifically. Obviously,

641
00:35:37,200 --> 00:35:39,920
Speaker 1: as you know, if you're short it, this idea that

642
00:35:40,160 --> 00:35:43,960
Speaker 1: institutional clients are way less profitable than retail clients is

643
00:35:44,000 --> 00:35:46,800
Speaker 1: something that Jim Chanos has talked a lot about. So

644
00:35:46,920 --> 00:35:50,760
Speaker 1: the fact that f t X was to institutionally focused

645
00:35:51,160 --> 00:35:54,359
Speaker 1: would be a suggestion that, you know, it's margins even

646
00:35:54,680 --> 00:35:57,800
Speaker 1: in the best case scenario, we're pretty slim. Let's go

647
00:35:57,920 --> 00:36:00,600
Speaker 1: back to just La Meta for a can. I think

648
00:36:00,640 --> 00:36:03,839
Speaker 1: the perception was that, you know, it was a profitable

649
00:36:04,160 --> 00:36:07,080
Speaker 1: market making firm and that maybe it had some leg

650
00:36:07,200 --> 00:36:10,880
Speaker 1: up by dint of its relationship with f t X.

651
00:36:11,280 --> 00:36:14,160
Speaker 1: What is it that first cut your attention and get

652
00:36:14,280 --> 00:36:18,520
Speaker 1: you thinking that maybe it wasn't all sound with Alameda specifically.

653
00:36:19,080 --> 00:36:21,120
Speaker 1: I'm a very skeptical person when it comes to crypto.

654
00:36:21,160 --> 00:36:23,279
Speaker 1: I agree, I view most of these things is very

655
00:36:23,400 --> 00:36:26,759
Speaker 1: very very questionable operations, that many of them, most of

656
00:36:26,800 --> 00:36:28,960
Speaker 1: them are probably losing money and engaging in things that

657
00:36:29,000 --> 00:36:31,800
Speaker 1: aren't very savory. But of all the people, I actually

658
00:36:31,840 --> 00:36:34,560
Speaker 1: didn't think that maybe if anybody was making money, it

659
00:36:34,640 --> 00:36:37,000
Speaker 1: was Alameda, because everybody always said they were the smartest

660
00:36:37,040 --> 00:36:38,880
Speaker 1: guys in the room. To make a reference to my

661
00:36:38,920 --> 00:36:41,520
Speaker 1: favorite documentary of all time. When I really started thinking

662
00:36:41,560 --> 00:36:44,600
Speaker 1: there was something wrong was when all of these firms

663
00:36:44,640 --> 00:36:48,960
Speaker 1: started failing, like block fi Um and Voyager and f

664
00:36:49,120 --> 00:36:51,520
Speaker 1: t X was suddenly stepping in and Alameda was stepping

665
00:36:51,560 --> 00:36:54,520
Speaker 1: in and bailing these companies out. And I knew enough

666
00:36:54,560 --> 00:36:56,759
Speaker 1: about how these firms operated and how how big the

667
00:36:56,840 --> 00:36:59,360
Speaker 1: holes were to just think there was no reason for

668
00:36:59,440 --> 00:37:01,239
Speaker 1: them to do that would make any sense. I mean,

669
00:37:01,640 --> 00:37:03,880
Speaker 1: these companies, like the names of these companies are worthless

670
00:37:03,880 --> 00:37:06,000
Speaker 1: now because they've shown that they did a very poor

671
00:37:06,080 --> 00:37:08,200
Speaker 1: job of handling people's money. It's not somebody's gonna want

672
00:37:08,200 --> 00:37:09,839
Speaker 1: to invest again in Block Fight once they find out

673
00:37:09,840 --> 00:37:11,800
Speaker 1: that they went in solvent because they were lending to

674
00:37:12,200 --> 00:37:14,520
Speaker 1: what as allegedly at ponzi scam, the three three year

675
00:37:14,520 --> 00:37:16,960
Speaker 1: olds capital, So it wasn't like he was getting any

676
00:37:17,040 --> 00:37:19,880
Speaker 1: kind of advantage by doing that, And so my question

677
00:37:20,040 --> 00:37:21,400
Speaker 1: was was he just trying to get ahold of the

678
00:37:21,520 --> 00:37:25,239
Speaker 1: user assets or was he trying to cover up debt

679
00:37:25,320 --> 00:37:27,640
Speaker 1: that Alimada had to those to those platforms. And it

680
00:37:27,680 --> 00:37:29,960
Speaker 1: seems like it's the latter case. That both of those

681
00:37:30,000 --> 00:37:33,880
Speaker 1: platforms held large amounts of these liquid tokens that Alameda

682
00:37:34,160 --> 00:37:37,279
Speaker 1: owned and that FTX had issued, and that basically they

683
00:37:37,280 --> 00:37:39,560
Speaker 1: were trying to protect themselves from getting liquidated on all

684
00:37:39,640 --> 00:37:41,960
Speaker 1: of that. So basically it was in protecting himself and

685
00:37:42,040 --> 00:37:43,839
Speaker 1: that's what kind of initially made me think there's something

686
00:37:43,920 --> 00:37:45,839
Speaker 1: wrong here. I didn't know how bad it was until

687
00:37:45,840 --> 00:37:48,800
Speaker 1: I saw their balance sheet, though. Sorry just to be

688
00:37:48,960 --> 00:37:51,799
Speaker 1: clear on that last point, because I think that's really key,

689
00:37:52,000 --> 00:37:54,800
Speaker 1: This idea that some of these other firms held on

690
00:37:55,080 --> 00:38:00,239
Speaker 1: their books assets that Almada didn't want liquidated. Was that public? Yes,

691
00:38:00,400 --> 00:38:02,680
Speaker 1: that's public, that's in that's in the Voyager. I can't

692
00:38:02,680 --> 00:38:04,160
Speaker 1: remember what doc at number, but it is in the

693
00:38:04,200 --> 00:38:07,279
Speaker 1: Voyage of bankruptcy filing is part of the There was

694
00:38:07,280 --> 00:38:11,080
Speaker 1: an agreement for FTS two or elimated to receive their

695
00:38:11,120 --> 00:38:13,839
Speaker 1: collateral back and payback the loans that they had taken out,

696
00:38:13,920 --> 00:38:16,800
Speaker 1: and it was all F T T and serum tokens,

697
00:38:16,840 --> 00:38:19,840
Speaker 1: which are the tokens that I and coin does showed

698
00:38:19,880 --> 00:38:23,399
Speaker 1: were kind of the albatrosses around their neck on their

699
00:38:23,400 --> 00:38:27,760
Speaker 1: balance sheet. So the Coin Desk report sort of kicked

700
00:38:27,840 --> 00:38:30,480
Speaker 1: all of this into high gear. And there was you know,

701
00:38:30,640 --> 00:38:34,000
Speaker 1: speculation and research before then, including some of the work

702
00:38:34,080 --> 00:38:37,000
Speaker 1: that you did. But when that came out, I mean,

703
00:38:37,200 --> 00:38:41,719
Speaker 1: things happened very very quickly after that. What's been your

704
00:38:41,960 --> 00:38:45,840
Speaker 1: just personal experience of the past ten days or so.

705
00:38:46,600 --> 00:38:48,719
Speaker 1: So Coin Desk grew at their article, I believe. On

706
00:38:48,800 --> 00:38:52,080
Speaker 1: the second I had my own information that suggested basically

707
00:38:52,120 --> 00:38:53,360
Speaker 1: the same thing they had said, and I had a

708
00:38:53,400 --> 00:38:55,960
Speaker 1: little bit more information about exactly how much of the

709
00:38:56,040 --> 00:38:59,080
Speaker 1: other holdings they had, which was interesting to find out.

710
00:38:59,560 --> 00:39:01,799
Speaker 1: And so on the fourth I published my article which

711
00:39:02,320 --> 00:39:05,080
Speaker 1: basically just showed took it took the acquaintance article step

712
00:39:05,120 --> 00:39:07,120
Speaker 1: further and said instead of just saying they have this

713
00:39:07,239 --> 00:39:09,400
Speaker 1: much in these tokens, my question was how much of

714
00:39:09,440 --> 00:39:12,080
Speaker 1: these tokens actually worth and it's pretty easy to show

715
00:39:12,120 --> 00:39:15,480
Speaker 1: that they were in all practical senses worthless because nobody

716
00:39:15,520 --> 00:39:18,520
Speaker 1: else owned them except Alameda, and the market was entirely

717
00:39:18,560 --> 00:39:20,680
Speaker 1: controlled by this company, and they were basically faking an

718
00:39:20,800 --> 00:39:23,160
Speaker 1: entire market. So that came on the fourth it kind

719
00:39:23,200 --> 00:39:25,160
Speaker 1: of went viral, which was kind of cool. And then

720
00:39:25,280 --> 00:39:27,640
Speaker 1: a couple of days after that was when the head

721
00:39:27,680 --> 00:39:29,799
Speaker 1: of finance announced that he was going to liquidate all

722
00:39:29,840 --> 00:39:32,680
Speaker 1: of their assets in this ft T token, which was

723
00:39:32,719 --> 00:39:35,120
Speaker 1: some five sixty million or more worth of it. And

724
00:39:35,200 --> 00:39:37,040
Speaker 1: that's that's the point when it really kicked off the

725
00:39:37,239 --> 00:39:39,320
Speaker 1: bank rund on FTX. And then the thing was that

726
00:39:39,400 --> 00:39:41,359
Speaker 1: they were fighting a battle on two fronts, right, They

727
00:39:41,400 --> 00:39:44,880
Speaker 1: had to simultaneously pay people back their money, and then

728
00:39:44,880 --> 00:39:46,520
Speaker 1: they also had to keep the price of this token

729
00:39:46,640 --> 00:39:49,000
Speaker 1: up because they had levered themselves on this totally a

730
00:39:49,080 --> 00:39:51,799
Speaker 1: liquid asset, so they couldn't win that. Here's the thing,

731
00:39:51,880 --> 00:39:53,799
Speaker 1: Like I, like I said, I'm a very suspicious person

732
00:39:53,840 --> 00:39:55,879
Speaker 1: by nature. When I saw their balance sheet, I knew,

733
00:39:56,000 --> 00:39:58,480
Speaker 1: I knew based on the information I had, I knew

734
00:39:58,520 --> 00:40:00,680
Speaker 1: that they were in very serious trouble. Sorry, when you

735
00:40:00,760 --> 00:40:03,200
Speaker 1: say they just to be clear, do you mean Alimata,

736
00:40:03,239 --> 00:40:07,239
Speaker 1: Speciflimta and FTX. Yeah. And the thing to remember for

737
00:40:07,520 --> 00:40:10,880
Speaker 1: people listening is that for years, Sam bankman Fried and

738
00:40:10,920 --> 00:40:14,640
Speaker 1: others have always alleged or stated that Alimta and FTX

739
00:40:14,680 --> 00:40:16,880
Speaker 1: were totally separate entities, despite the fact that they were

740
00:40:16,880 --> 00:40:19,120
Speaker 1: owned by the same person. The argument was that their

741
00:40:19,200 --> 00:40:22,320
Speaker 1: leadership is different, they don't share information, they don't share assets,

742
00:40:22,480 --> 00:40:24,960
Speaker 1: they are separate companies. And clearly that was not the

743
00:40:25,000 --> 00:40:27,520
Speaker 1: case because they actually filed for bankrupcy together a couple

744
00:40:27,560 --> 00:40:30,080
Speaker 1: of days ago, so they were one and the same.

745
00:40:30,280 --> 00:40:32,240
Speaker 1: But yeah, so they were fighting a battle on two fronts.

746
00:40:32,360 --> 00:40:34,960
Speaker 1: And I mean, like I was saying before, I knew

747
00:40:35,000 --> 00:40:37,520
Speaker 1: that they were in trouble based on looking at their financials,

748
00:40:37,600 --> 00:40:41,080
Speaker 1: but I didn't realize the extent to which they had

749
00:40:41,480 --> 00:40:44,040
Speaker 1: lost customer assets and the whole that they were in.

750
00:40:44,320 --> 00:40:46,120
Speaker 1: I didn't think they would go down as quickly as

751
00:40:46,120 --> 00:40:48,359
Speaker 1: they did, for sure, But very shortly after that they

752
00:40:48,400 --> 00:40:51,920
Speaker 1: were insolvent and froze froze withdrawals, and from there on

753
00:40:52,040 --> 00:40:53,799
Speaker 1: we kind of know what happened. And I guess we're

754
00:40:53,840 --> 00:40:55,920
Speaker 1: gonna find out who else has a lot of exposure

755
00:40:55,920 --> 00:40:57,800
Speaker 1: to this thing. Just on that note, you kind of

756
00:40:57,880 --> 00:41:00,239
Speaker 1: touched on this already. But one of the big walking

757
00:41:00,320 --> 00:41:03,880
Speaker 1: points now is that, well, this isn't a failure of crypto.

758
00:41:04,280 --> 00:41:08,040
Speaker 1: This is a failure of a centralized exchange. And you know,

759
00:41:08,280 --> 00:41:11,879
Speaker 1: real crypto is decentralized, and you should own your own

760
00:41:11,960 --> 00:41:15,000
Speaker 1: keys and run your own node and you know, only

761
00:41:15,040 --> 00:41:17,680
Speaker 1: trade through unite swap or whatever. Is that a valid

762
00:41:17,960 --> 00:41:23,200
Speaker 1: argument to make? Here is the problem the centralized entities

763
00:41:23,280 --> 00:41:27,320
Speaker 1: who act badly, or is the problem something fundamental about

764
00:41:27,400 --> 00:41:30,680
Speaker 1: crypto and it's tech. So here's my answer to that question.

765
00:41:30,840 --> 00:41:32,719
Speaker 1: I've I've had to answer that question a few times

766
00:41:32,719 --> 00:41:35,719
Speaker 1: in the last week. My opinion about crypto is I'm

767
00:41:35,760 --> 00:41:39,279
Speaker 1: fairly negative. I'm fairly skeptical. But I think arguments about

768
00:41:39,320 --> 00:41:42,000
Speaker 1: whether or not the blockchain technology or bitcoin has any

769
00:41:42,080 --> 00:41:44,440
Speaker 1: intrinsic value can be set to one side because the

770
00:41:44,520 --> 00:41:48,040
Speaker 1: fact is that regardless of whether or not it's cryptos

771
00:41:48,040 --> 00:41:50,759
Speaker 1: fault or centralized exchanges fault, the fact of the matter

772
00:41:50,960 --> 00:41:53,680
Speaker 1: is most of the people involved in this ecosystem at

773
00:41:53,719 --> 00:41:57,160
Speaker 1: this point are transacting through centralized exchanges. All the prices

774
00:41:57,160 --> 00:42:00,480
Speaker 1: are determined by centralized exchanges. Centralized exchange hold most of

775
00:42:00,520 --> 00:42:04,799
Speaker 1: the assets and are controlling the entire market. So regardless

776
00:42:04,920 --> 00:42:08,719
Speaker 1: of whatever is good or bad about the crypto, in

777
00:42:08,800 --> 00:42:11,760
Speaker 1: its essence, there's a very very very very big problem

778
00:42:11,880 --> 00:42:14,759
Speaker 1: here that defines the industry. In my opinion, I don't

779
00:42:14,760 --> 00:42:18,160
Speaker 1: think there's you know how many people. The number of

780
00:42:18,160 --> 00:42:20,319
Speaker 1: people who own crypto on these exchanges and don't even

781
00:42:20,360 --> 00:42:22,200
Speaker 1: know how to pull them pull the assets off into

782
00:42:22,280 --> 00:42:28,160
Speaker 1: their own wallet is unbelievable. It's unbelievable. So to say

783
00:42:28,200 --> 00:42:30,880
Speaker 1: it's a specific problem, it's only Sam, it's only Uh,

784
00:42:31,520 --> 00:42:34,000
Speaker 1: it's only this one exchange, it's only this one lending platform.

785
00:42:34,440 --> 00:42:36,040
Speaker 1: I think we're going to find out that it is

786
00:42:36,120 --> 00:42:39,759
Speaker 1: a an industry ride problem because ultimately none of these

787
00:42:39,840 --> 00:42:42,279
Speaker 1: things produce anything of value. All they do is they

788
00:42:42,360 --> 00:42:45,120
Speaker 1: trade money in a circle, and that money has to

789
00:42:45,200 --> 00:42:47,560
Speaker 1: leave the system eventually. And what we're going to find

790
00:42:47,600 --> 00:42:49,000
Speaker 1: out is that there is much less money in the

791
00:42:49,080 --> 00:42:51,120
Speaker 1: system now than there was when it started, and a

792
00:42:51,160 --> 00:42:52,359
Speaker 1: lot of people are not gonna be able to exit

793
00:42:52,440 --> 00:42:54,480
Speaker 1: the system without losing a lot of their money. I'm

794
00:42:54,520 --> 00:42:57,239
Speaker 1: so glad you said that, because I keep seeing these

795
00:42:57,280 --> 00:43:02,200
Speaker 1: discussions on Twitter and alto the solution is decentralized exchanges

796
00:43:02,320 --> 00:43:04,520
Speaker 1: or just holding your own keys to etcetera. And the

797
00:43:04,680 --> 00:43:07,479
Speaker 1: main chain auditing is the new one, and maybe there's

798
00:43:07,520 --> 00:43:10,640
Speaker 1: some truth to that, but I'm also surprised how rarely

799
00:43:10,760 --> 00:43:13,000
Speaker 1: I hear what you said is like, why don't you

800
00:43:13,080 --> 00:43:16,000
Speaker 1: make a product of the point And you would not

801
00:43:16,200 --> 00:43:18,880
Speaker 1: have these same problems if there were sort of like

802
00:43:19,520 --> 00:43:23,280
Speaker 1: coins and platforms that solved real problems, that had revenue

803
00:43:23,320 --> 00:43:26,840
Speaker 1: that wasn't tied to speculation, that had real businesses. And

804
00:43:26,960 --> 00:43:29,920
Speaker 1: so to my mind, it almost doesn't matter centralized decentralized

805
00:43:30,160 --> 00:43:33,920
Speaker 1: if there is no naturally natural pull and revenue. I

806
00:43:33,960 --> 00:43:37,760
Speaker 1: want to ask another question, though, which is why couldn't

807
00:43:37,880 --> 00:43:40,080
Speaker 1: in your view, f t X have just let element

808
00:43:40,160 --> 00:43:42,560
Speaker 1: to go. Okay, it was like blowing up. The balance

809
00:43:42,600 --> 00:43:45,480
Speaker 1: sheet was wrecked. Could FTX have just say, you know

810
00:43:45,560 --> 00:43:48,000
Speaker 1: what this are trading arm blew up, but we still

811
00:43:48,040 --> 00:43:51,319
Speaker 1: have an exchange. No, because they were trading with their

812
00:43:51,360 --> 00:43:55,640
Speaker 1: customers money. They took their customers assets. You could literally

813
00:43:55,680 --> 00:43:58,960
Speaker 1: watch as as as they were paying out withdrawals, you

814
00:43:59,000 --> 00:44:02,520
Speaker 1: could watch the fun is returning. Through Elimator research addresses.

815
00:44:02,600 --> 00:44:06,000
Speaker 1: This is confirmed by multiple individuals. They had taken the funds.

816
00:44:06,040 --> 00:44:08,040
Speaker 1: I mean, they've essentially admitted to that at this point.

817
00:44:08,480 --> 00:44:10,320
Speaker 1: That's why there's a hole there, I mean, because you

818
00:44:10,400 --> 00:44:12,960
Speaker 1: have to remember, part of the reason that crypto is

819
00:44:13,440 --> 00:44:15,200
Speaker 1: is what it is, is that people are so against

820
00:44:15,239 --> 00:44:18,200
Speaker 1: the traditional banking system and fractional banking and all that stuff,

821
00:44:18,480 --> 00:44:21,040
Speaker 1: and these exchanges are supposed to operate as fully capitalized.

822
00:44:21,239 --> 00:44:23,480
Speaker 1: They're not supposed to be playing around with their customers assets,

823
00:44:23,800 --> 00:44:25,719
Speaker 1: and that's exactly what they were doing. And you know,

824
00:44:25,719 --> 00:44:28,359
Speaker 1: mean FTX is offering yield on their customer's assets as well,

825
00:44:28,400 --> 00:44:30,919
Speaker 1: which is I mean obviously a red flag that they're

826
00:44:31,000 --> 00:44:33,480
Speaker 1: doing something more than just holding onto the assets and

827
00:44:33,640 --> 00:44:36,560
Speaker 1: keeping them there for for safe keeping. Just to be clear,

828
00:44:36,960 --> 00:44:41,759
Speaker 1: your perception or your view is that the transference of

829
00:44:41,840 --> 00:44:44,719
Speaker 1: customer assets to elimated, which going on for a very

830
00:44:44,800 --> 00:44:47,600
Speaker 1: long time, that is what everything points to. I think

831
00:44:47,640 --> 00:44:49,479
Speaker 1: there's been a fair amount of reporting at that point

832
00:44:49,560 --> 00:44:52,520
Speaker 1: that I mean, I saw it myself, but yeah, there's

833
00:44:52,520 --> 00:44:54,800
Speaker 1: been a lot of other reporting as well that shows

834
00:44:55,440 --> 00:44:57,680
Speaker 1: that the money came back through their wallets, and if

835
00:44:57,719 --> 00:44:59,080
Speaker 1: you look at where the money went, it went to

836
00:44:59,160 --> 00:45:01,640
Speaker 1: their wallets, what they did with it after that nobody's

837
00:45:01,640 --> 00:45:04,440
Speaker 1: figured out yet. That's a very massive problem to figure out,

838
00:45:04,480 --> 00:45:07,279
Speaker 1: probably far beyond my abilities. But yeah, I mean they

839
00:45:07,760 --> 00:45:12,000
Speaker 1: absolutely were. There's no there's no excuse. Again, there's no excuse.

840
00:45:12,040 --> 00:45:14,040
Speaker 1: If you look at f t X as user agreements,

841
00:45:14,320 --> 00:45:16,480
Speaker 1: they weren't supposed to be doing that with the customer's assets.

842
00:45:16,480 --> 00:45:18,080
Speaker 1: They were supposed to hold onto the assets and keep

843
00:45:18,120 --> 00:45:20,960
Speaker 1: them safe and if the customers wanted to leave. And

844
00:45:21,040 --> 00:45:22,640
Speaker 1: that's the thing now is there's a lot of other

845
00:45:22,680 --> 00:45:25,600
Speaker 1: exchanges facing very big withdrawal pressure. The fact is all

846
00:45:25,600 --> 00:45:27,040
Speaker 1: of them should be able to give back all of

847
00:45:27,080 --> 00:45:30,160
Speaker 1: the money and be fine. They shouldn't have any problem

848
00:45:30,239 --> 00:45:31,759
Speaker 1: with that. And if they do have a problem with that,

849
00:45:31,880 --> 00:45:33,360
Speaker 1: that means they were doing something with the money that

850
00:45:33,360 --> 00:45:36,480
Speaker 1: they weren't supposed to be doing. Right. So, if it

851
00:45:36,640 --> 00:45:37,880
Speaker 1: is true, if you look at the f t X

852
00:45:38,000 --> 00:45:41,080
Speaker 1: user agreement, like it says specifically, we will not lend

853
00:45:41,160 --> 00:45:46,400
Speaker 1: out the cryptocurrency that we custody. So okay, two quick questions. One, overall,

854
00:45:46,760 --> 00:45:50,920
Speaker 1: how damaging is this for crypto given that you know

855
00:45:51,640 --> 00:45:55,640
Speaker 1: part of Crypto's raised on Dutch I guess was to

856
00:45:56,239 --> 00:45:59,400
Speaker 1: reform the financial system in a way that would avoid

857
00:45:59,640 --> 00:46:02,880
Speaker 1: a lot of these problems. And then secondly, what are

858
00:46:02,920 --> 00:46:06,040
Speaker 1: you watching out for in terms of contagion. So I'm

859
00:46:06,040 --> 00:46:07,920
Speaker 1: going to disagree with you a little bit. I think

860
00:46:07,960 --> 00:46:10,480
Speaker 1: that that's the narrative for crypto is that it's there

861
00:46:10,520 --> 00:46:14,799
Speaker 1: to change the financial system and offer individual responsibility alternative

862
00:46:14,880 --> 00:46:20,600
Speaker 1: to the central banking world, and you know, inflation free alternative,

863
00:46:20,680 --> 00:46:25,200
Speaker 1: and that's like gold or something in practical terms. Most

864
00:46:25,239 --> 00:46:27,360
Speaker 1: of the people that have gotten involved in crypto in

865
00:46:27,400 --> 00:46:29,600
Speaker 1: the last year and a half or so are not

866
00:46:29,760 --> 00:46:31,800
Speaker 1: people who care about that narrative. They're people who just

867
00:46:31,840 --> 00:46:34,239
Speaker 1: want to get rich. It's just like any of the

868
00:46:34,440 --> 00:46:36,480
Speaker 1: gambling that's going on the stock market is the same thing.

869
00:46:37,040 --> 00:46:39,200
Speaker 1: Mostly people don't really care about that narrative. The number

870
00:46:39,200 --> 00:46:40,600
Speaker 1: of people in this in this space they actually care

871
00:46:40,640 --> 00:46:43,320
Speaker 1: about that narrative is relatively small. I think that this

872
00:46:43,440 --> 00:46:46,160
Speaker 1: is going to have a tremendous impact, and we're just

873
00:46:46,200 --> 00:46:49,799
Speaker 1: starting to see that because a couple of reasons. Number One,

874
00:46:50,480 --> 00:46:54,279
Speaker 1: f t X, because of Sam's spending on advertising, is

875
00:46:54,360 --> 00:46:57,320
Speaker 1: one of the most recognizable firms in the entire I

876
00:46:57,360 --> 00:46:59,399
Speaker 1: hate calling an industry because it's not productive, but I'll

877
00:46:59,440 --> 00:47:01,120
Speaker 1: call it into straight He had his name on the

878
00:47:01,320 --> 00:47:03,040
Speaker 1: I mean, I swear I can't get over it. He

879
00:47:03,120 --> 00:47:05,960
Speaker 1: had his name of ft X on the umpire uniforms

880
00:47:06,000 --> 00:47:08,080
Speaker 1: for the Major League Baseball I mean he literally had

881
00:47:08,080 --> 00:47:10,320
Speaker 1: his name on the regulators. You know, he has his

882
00:47:10,400 --> 00:47:12,920
Speaker 1: name on one of the most famous stadiums in the country.

883
00:47:13,239 --> 00:47:15,440
Speaker 1: He had one of the most popular athletes in the

884
00:47:15,560 --> 00:47:19,359
Speaker 1: world advertising for him and apparently invested in him. So yeah,

885
00:47:19,400 --> 00:47:21,719
Speaker 1: everybody knows who f t X is, which is why

886
00:47:21,760 --> 00:47:23,560
Speaker 1: obviously the story is getting as much pressed as it is.

887
00:47:23,920 --> 00:47:25,880
Speaker 1: So them failing number one is going to have a

888
00:47:25,960 --> 00:47:29,560
Speaker 1: massive psychological impact both on the people who already owned crypto,

889
00:47:29,640 --> 00:47:32,440
Speaker 1: who are realizing now that maybe they can't trust any

890
00:47:32,520 --> 00:47:34,800
Speaker 1: of these exchanges. It's also going to have a massive

891
00:47:34,800 --> 00:47:37,800
Speaker 1: effect on anyone who hasn't invested yet, because ultimately this

892
00:47:37,880 --> 00:47:41,120
Speaker 1: space depends entirely on new money coming in in order

893
00:47:41,160 --> 00:47:43,880
Speaker 1: to drive prices up. So that's gonna that alone is

894
00:47:43,880 --> 00:47:46,600
Speaker 1: gonna have a massive impact. And then secondly, Sam was

895
00:47:46,719 --> 00:47:49,120
Speaker 1: very close to regulators, He was very close to a

896
00:47:49,200 --> 00:47:51,279
Speaker 1: lot of politicians. He donated. I think he was the

897
00:47:51,320 --> 00:47:53,920
Speaker 1: second largest donor to the Democratic Party this year. This

898
00:47:54,000 --> 00:47:56,400
Speaker 1: election cycle, there's been a lot of politicians who are

899
00:47:56,440 --> 00:47:58,520
Speaker 1: going to have to explain why did I take money

900
00:47:58,600 --> 00:48:01,080
Speaker 1: from somebody who may have been running something that was

901
00:48:01,680 --> 00:48:04,080
Speaker 1: you know, very very very questionable. Let's just put it

902
00:48:04,160 --> 00:48:05,799
Speaker 1: that way. I think that there's gonna be a lot

903
00:48:05,880 --> 00:48:09,160
Speaker 1: more impetus for the regulators and for lawmakers to act

904
00:48:09,640 --> 00:48:11,719
Speaker 1: on what's happening in crypto, and I don't think they're

905
00:48:11,719 --> 00:48:13,200
Speaker 1: going to act in a way that the industry is

906
00:48:13,239 --> 00:48:17,239
Speaker 1: going to enjoy very much. And then in terms of contagion,

907
00:48:18,160 --> 00:48:23,040
Speaker 1: oh uh yeah, everybody, there is no no But I

908
00:48:23,080 --> 00:48:26,160
Speaker 1: mean I mean realistically, I mean number one, this system again,

909
00:48:26,280 --> 00:48:27,759
Speaker 1: like we talked about a little bit earlier, this is

910
00:48:27,800 --> 00:48:30,720
Speaker 1: not a productive system. Ultimately, this is a destructive system.

911
00:48:30,760 --> 00:48:33,680
Speaker 1: There is no money created by what they're doing. There

912
00:48:33,760 --> 00:48:35,640
Speaker 1: is no value created by what they are doing. So

913
00:48:35,840 --> 00:48:38,040
Speaker 1: it's it's a closed system that only gets new money

914
00:48:38,120 --> 00:48:40,440
Speaker 1: from people who believe in in in crypto and one

915
00:48:40,480 --> 00:48:43,160
Speaker 1: invest more so that once has cut off, everybody has

916
00:48:43,200 --> 00:48:46,480
Speaker 1: to fight over whatever liquidity has left. And if it

917
00:48:46,520 --> 00:48:48,600
Speaker 1: turns out other exchanges we're playing the same games as

918
00:48:48,640 --> 00:48:50,200
Speaker 1: Sam was, which it appears that at least some of

919
00:48:50,239 --> 00:48:52,279
Speaker 1: them were doing those playing the same games and moving

920
00:48:52,320 --> 00:48:54,640
Speaker 1: money around in ways that they shouldn't have been doing,

921
00:48:55,000 --> 00:48:58,319
Speaker 1: and people start withdrawing, it's game over. Anybody who lent

922
00:48:58,400 --> 00:49:01,080
Speaker 1: money to Alameda is in trouble. All of the VC

923
00:49:01,280 --> 00:49:03,920
Speaker 1: firms that invested in Alameda and in f t X

924
00:49:04,120 --> 00:49:06,280
Speaker 1: just got burned to the tune of billions of dollars.

925
00:49:06,840 --> 00:49:08,960
Speaker 1: So are they going to be investing any more on

926
00:49:09,000 --> 00:49:12,120
Speaker 1: crypto firms that don't generate income and need constant infusions

927
00:49:12,120 --> 00:49:14,960
Speaker 1: the capital in order to stay afloat. I don't think so.

928
00:49:15,520 --> 00:49:18,239
Speaker 1: I mean, if any exchange going down could have had

929
00:49:18,280 --> 00:49:20,960
Speaker 1: like a systemic effect on on crypto, ft X is

930
00:49:21,000 --> 00:49:23,279
Speaker 1: probably one of the biggest candidates for that. So it's

931
00:49:23,280 --> 00:49:24,960
Speaker 1: gonna be interested to see what happens in the next

932
00:49:25,000 --> 00:49:27,680
Speaker 1: couple of weeks. Yeah, for sure. And it does seem

933
00:49:27,760 --> 00:49:32,080
Speaker 1: problematic when your your use cases basically predicated on speculation

934
00:49:32,200 --> 00:49:35,640
Speaker 1: if you don't get influence anymore. James, thank you so

935
00:49:35,760 --> 00:49:38,600
Speaker 1: much for joining us. Really appreciate it. Hey, no problems

936
00:49:38,640 --> 00:49:53,840
Speaker 1: if I'm talking to you guys, Tracy. I found that

937
00:49:53,960 --> 00:49:56,600
Speaker 1: conversation to be helpful both in terms of understanding how

938
00:49:56,719 --> 00:49:59,880
Speaker 1: f t X had been perceived prior to the collapse,

939
00:50:00,239 --> 00:50:03,120
Speaker 1: the relationship between f t X l AMDA, and of

940
00:50:03,239 --> 00:50:05,680
Speaker 1: course what those early signs were in terms of collapse.

941
00:50:06,040 --> 00:50:09,720
Speaker 1: And it really did materialize at lightning speed once fears

942
00:50:09,719 --> 00:50:12,680
Speaker 1: of its insolvency started to percolate up right, And I

943
00:50:12,840 --> 00:50:15,719
Speaker 1: do think it's worth noting that within the industry there

944
00:50:15,840 --> 00:50:19,279
Speaker 1: is still this furious discussion about whether the fault was

945
00:50:19,400 --> 00:50:23,759
Speaker 1: crypto itself or whether it was more traditional trad five

946
00:50:23,840 --> 00:50:28,080
Speaker 1: structures that actually imploded. But on some level the debate

947
00:50:28,320 --> 00:50:32,160
Speaker 1: seems really philosophical and one that we will probably be

948
00:50:32,280 --> 00:50:35,080
Speaker 1: talking about for a long time. Right. So in the meantime,

949
00:50:35,160 --> 00:50:37,680
Speaker 1: tomorrow we're going to be going over some of these topics,

950
00:50:37,760 --> 00:50:41,040
Speaker 1: further zooming out of it with our past guest Matt Levine.

951
00:50:41,360 --> 00:50:43,600
Speaker 1: Shall we leave it there? Let's leave it there. This

952
00:50:43,760 --> 00:50:46,680
Speaker 1: has been another episode of the All Thoughts Podcast. I'm

953
00:50:46,719 --> 00:50:49,960
Speaker 1: Tracy Alloway. You can follow me on Twitter at Tracy Alloway,

954
00:50:50,080 --> 00:50:53,320
Speaker 1: and I'm Joe Wisenthal following me on Twitter at the Stalwart.

955
00:50:53,560 --> 00:50:56,560
Speaker 1: Follow our guests if Guinny Guy Boy He's at Guinny

956
00:50:56,640 --> 00:51:00,120
Speaker 1: Guy Boy, and James Block at Mike Burgersburg, and be

957
00:51:00,200 --> 00:51:03,319
Speaker 1: sure to follow our producer Kerman Rodriguez at Kerman Arman

958
00:51:03,440 --> 00:51:06,000
Speaker 1: and check out all of our Bloomberg podcasts unto the

959
00:51:06,080 --> 00:51:09,920
Speaker 1: handle at podcasts, and for more odd Lots content, go

960
00:51:10,000 --> 00:51:13,400
Speaker 1: to Bloomberg dot com slash odd Lots, where we post transcripts,

961
00:51:13,520 --> 00:51:16,120
Speaker 1: we blog, and we even have a weekly newsletter that

962
00:51:16,160 --> 00:51:18,840
Speaker 1: Tracy and I write that you should subscribe to. Thanks

963
00:51:18,880 --> 00:51:19,320
Speaker 1: for listening.