1 00:00:10,880 --> 00:00:14,880 Speaker 1: Hello, and welcome to another episode of the Odd Lots podcast. 2 00:00:14,920 --> 00:00:18,680 Speaker 1: I'm Joe Wisenthal and I'm Tracy Alloway. So, Tracy, we're 3 00:00:18,720 --> 00:00:22,759 Speaker 1: continuing to talk about the implosion of f t X 4 00:00:22,920 --> 00:00:27,080 Speaker 1: and Alameda the Sam Bankman Freed empire. Yesterday we talked 5 00:00:27,120 --> 00:00:29,680 Speaker 1: to two people who are involved in the story in 6 00:00:29,760 --> 00:00:33,040 Speaker 1: different ways, one who is a market maker who had 7 00:00:33,159 --> 00:00:35,440 Speaker 1: used and got caught out on the f t X site, 8 00:00:35,680 --> 00:00:38,440 Speaker 1: another one who had attempted to blow the whistle. But 9 00:00:38,520 --> 00:00:41,080 Speaker 1: of course we're still just sort of like beginning to 10 00:00:41,159 --> 00:00:45,519 Speaker 1: understand the story, right a very fast moving story. But 11 00:00:45,720 --> 00:00:48,440 Speaker 1: one of the things that people are talking about right now, 12 00:00:48,479 --> 00:00:52,400 Speaker 1: with the benefit of hindsight, of course, is the infamous 13 00:00:52,520 --> 00:00:57,000 Speaker 1: Sam Bankman Freed episode of Odd Thoughts. And in that 14 00:00:57,080 --> 00:01:01,120 Speaker 1: episode we had him on with Bloomberg opinion columnist Matt Levine. 15 00:01:01,320 --> 00:01:04,160 Speaker 1: We're talking about how DeFi works, and of course he 16 00:01:04,440 --> 00:01:08,280 Speaker 1: described it as the sort of magical money making box, right, 17 00:01:08,319 --> 00:01:11,120 Speaker 1: and so in retrospect, and at the time, of course, 18 00:01:11,200 --> 00:01:14,040 Speaker 1: people were pretty you know, in shock by those comments. 19 00:01:14,080 --> 00:01:17,120 Speaker 1: But now everyone's going back and listening to that in retrospect, 20 00:01:17,280 --> 00:01:21,040 Speaker 1: and it also helps explain perhaps certain aspects of the 21 00:01:21,080 --> 00:01:23,959 Speaker 1: f t X balance sheet, particularly the tokens that it 22 00:01:24,080 --> 00:01:27,720 Speaker 1: used to capitalize its balance sheet. Anyway, so we have 23 00:01:27,800 --> 00:01:30,200 Speaker 1: to have Matt Levine back on. He's been writing a 24 00:01:30,280 --> 00:01:33,520 Speaker 1: lot about this story. It's been a must read his coverage, 25 00:01:33,520 --> 00:01:35,920 Speaker 1: and of course he was there with us on that episode. 26 00:01:35,959 --> 00:01:39,440 Speaker 1: So Matt Levine, thank you so much for joining us. 27 00:01:39,959 --> 00:01:43,160 Speaker 1: Let me start kind of with a simple question, which is, 28 00:01:43,800 --> 00:01:48,160 Speaker 1: what is your summary or how would you describe why 29 00:01:48,360 --> 00:01:51,760 Speaker 1: f t X collapsed. What's the basic model of what 30 00:01:51,920 --> 00:01:55,960 Speaker 1: happened here? So it's a little bit unclear, but basically 31 00:01:56,000 --> 00:01:57,720 Speaker 1: what seems to have happened is that f t X 32 00:01:57,760 --> 00:02:03,920 Speaker 1: has a affiliated cryptoh called Alameda h Alameda seems to 33 00:02:03,960 --> 00:02:08,520 Speaker 1: have made some bad bats somehow or other, it ran 34 00:02:08,560 --> 00:02:11,400 Speaker 1: into trouble, and to prop it up at some point 35 00:02:11,680 --> 00:02:14,639 Speaker 1: over the summer, probably ft X started sending a lot 36 00:02:14,680 --> 00:02:17,440 Speaker 1: of ft X customer money to Alameda, which Alameda then 37 00:02:17,480 --> 00:02:21,119 Speaker 1: posted to its own lenders or otherwise lost. And then 38 00:02:22,120 --> 00:02:27,079 Speaker 1: last week, uh, there were some doubts about fd X 39 00:02:27,560 --> 00:02:31,400 Speaker 1: in the market, and customers started withdrawing their money from 40 00:02:31,400 --> 00:02:34,240 Speaker 1: fd X, and ft X realized that didn't have their money, 41 00:02:34,400 --> 00:02:39,600 Speaker 1: and it went bankrupt in about twenty minutes m um 42 00:02:39,639 --> 00:02:44,280 Speaker 1: that it did so prior to recent events. What was 43 00:02:44,320 --> 00:02:47,520 Speaker 1: your impression of the relationship between f t X and Alameda. 44 00:02:47,840 --> 00:02:49,640 Speaker 1: I have to say I didn't really have much of 45 00:02:49,639 --> 00:02:52,400 Speaker 1: an impression one way or the other. Obviously, there are 46 00:02:52,400 --> 00:02:55,120 Speaker 1: a lot of conspiracy theories about what ft X and 47 00:02:55,120 --> 00:02:59,239 Speaker 1: Alimata were doing because they were run basically by the 48 00:02:59,280 --> 00:03:01,520 Speaker 1: same group. Would be the same people who kind of 49 00:03:01,520 --> 00:03:04,400 Speaker 1: were ball roommates and a big apartment in the Bahamas Um. 50 00:03:04,440 --> 00:03:08,119 Speaker 1: They were founded by the same person. They were clearly connected, 51 00:03:08,480 --> 00:03:11,320 Speaker 1: and there were sort of these vague representations about them 52 00:03:11,320 --> 00:03:13,120 Speaker 1: being separate, but like you know, not a lot of 53 00:03:13,280 --> 00:03:16,239 Speaker 1: necessarily enforceability to that, so I didn't really know. I 54 00:03:16,320 --> 00:03:19,440 Speaker 1: assume that alimated as a market maker on the Atactic exchange, 55 00:03:19,560 --> 00:03:21,320 Speaker 1: and that you know, it may or may not have 56 00:03:21,400 --> 00:03:25,480 Speaker 1: had some benefits from being the affiliated market maker. When 57 00:03:25,520 --> 00:03:29,320 Speaker 1: you hear people complaining about these things, you often think 58 00:03:29,440 --> 00:03:34,240 Speaker 1: that the essential complaint is Alameda has some advantage in 59 00:03:34,320 --> 00:03:36,960 Speaker 1: making markets on ft X. It makes too much money 60 00:03:37,560 --> 00:03:40,720 Speaker 1: by trading against FTX customers because it knows something that 61 00:03:40,760 --> 00:03:44,400 Speaker 1: everyone else in the exchange doesn't know. You know, I 62 00:03:44,400 --> 00:03:46,920 Speaker 1: I never find those stories that like, that's the story 63 00:03:46,960 --> 00:03:49,400 Speaker 1: in in standard equity market structure, and I don't find 64 00:03:49,440 --> 00:03:52,240 Speaker 1: it like that exciting. Might be true, but it's not 65 00:03:52,320 --> 00:03:55,040 Speaker 1: that exciting to be like, oh, they can see the order, 66 00:03:55,080 --> 00:03:57,000 Speaker 1: but a little bit faster than everyone else. That can 67 00:03:57,040 --> 00:03:59,880 Speaker 1: be an advantage. But um, but I I don't know 68 00:04:00,120 --> 00:04:03,480 Speaker 1: that those stories aren't that compelling. But it seems increasingly 69 00:04:03,560 --> 00:04:06,080 Speaker 1: likely that that is not at all what was happening here, 70 00:04:06,120 --> 00:04:08,440 Speaker 1: because the basic problem here was very much not that 71 00:04:08,480 --> 00:04:11,760 Speaker 1: alimadd was making too much money Elamated it was losing 72 00:04:11,760 --> 00:04:14,960 Speaker 1: too much money. So the actual like problematic relationship here 73 00:04:15,120 --> 00:04:17,520 Speaker 1: is pretty much that Alamada lost a bunch of money 74 00:04:17,520 --> 00:04:21,520 Speaker 1: in fd X just bashed over its customer money to Alamada. 75 00:04:21,960 --> 00:04:24,200 Speaker 1: There are other possible stories that are even worse, and 76 00:04:24,240 --> 00:04:25,760 Speaker 1: I don't want to talk too much about them because 77 00:04:25,880 --> 00:04:29,240 Speaker 1: they're all sort of, you know, speculative. But some speculations 78 00:04:29,240 --> 00:04:32,320 Speaker 1: are basically that Alamada was more or less in the 79 00:04:32,360 --> 00:04:35,159 Speaker 1: business of losing money on fd X, that rather than 80 00:04:35,240 --> 00:04:37,960 Speaker 1: Alimated being too good at trading on fd X, Alamated 81 00:04:38,080 --> 00:04:39,920 Speaker 1: was bad at trading on ft X. And so if 82 00:04:39,920 --> 00:04:42,040 Speaker 1: you went to FDx as someone else, as as a 83 00:04:42,080 --> 00:04:44,599 Speaker 1: crypto hedge fund, or even as a retail customer and 84 00:04:44,640 --> 00:04:46,840 Speaker 1: you traded on FX, you've got really good prices because 85 00:04:46,839 --> 00:04:49,720 Speaker 1: Alimated was making really bad prices because they were losing 86 00:04:49,760 --> 00:04:53,000 Speaker 1: money on every trade. And if you believe that, then 87 00:04:53,040 --> 00:04:55,320 Speaker 1: you could tell a story that's like, well, ft X 88 00:04:55,360 --> 00:04:57,120 Speaker 1: became a very popular exchange and made a lot of 89 00:04:57,120 --> 00:04:59,800 Speaker 1: money in trading fees because it offered this really good 90 00:04:59,800 --> 00:05:04,080 Speaker 1: trade getting experience to customers by basically having its affiliated 91 00:05:04,080 --> 00:05:07,160 Speaker 1: hedge fund lose money on every trade. And you know, 92 00:05:07,600 --> 00:05:10,680 Speaker 1: that's a great story, except that if the way that 93 00:05:10,720 --> 00:05:13,400 Speaker 1: the affiliated hedgehund can afford to lose money on every 94 00:05:13,440 --> 00:05:17,640 Speaker 1: trade is by taking the customers money, then it becomes 95 00:05:17,640 --> 00:05:20,799 Speaker 1: a really bad story, becomes you know, effectively a Ponzi scheme. 96 00:05:21,120 --> 00:05:22,920 Speaker 1: So I don't know that that's what happened. There is 97 00:05:22,920 --> 00:05:25,440 Speaker 1: certainly since speculation about that. But in any case, the 98 00:05:25,480 --> 00:05:27,800 Speaker 1: sort of standard story of like Alameda has too many 99 00:05:27,800 --> 00:05:29,920 Speaker 1: advantages and makes too much money by trading on ft 100 00:05:30,080 --> 00:05:32,479 Speaker 1: X does not really seem to be true. I want 101 00:05:32,520 --> 00:05:35,360 Speaker 1: to just that point is really key because when I 102 00:05:35,560 --> 00:05:39,719 Speaker 1: talked to sort of like professional crypto traders prior to 103 00:05:39,800 --> 00:05:43,120 Speaker 1: all this, like back up the summer or earlier this year. 104 00:05:43,680 --> 00:05:46,160 Speaker 1: They really liked f t X and they you know, 105 00:05:46,279 --> 00:05:48,800 Speaker 1: the liquidation engine, which I think we talked about on 106 00:05:48,800 --> 00:05:52,719 Speaker 1: one of the episodes with you and SPF was something 107 00:05:52,880 --> 00:05:54,960 Speaker 1: they really liked it. They really liked the professional It 108 00:05:55,040 --> 00:05:57,400 Speaker 1: seemed very professional, worked really well for them. And so 109 00:05:57,480 --> 00:05:59,960 Speaker 1: this idea that again we don't really know for sure, 110 00:06:00,480 --> 00:06:03,960 Speaker 1: that maybe some of this was only sustainable because of 111 00:06:04,080 --> 00:06:08,320 Speaker 1: the loss making trading arm of the SPF empire. Again 112 00:06:08,360 --> 00:06:11,120 Speaker 1: we don't really know, but that would sort of explain 113 00:06:11,200 --> 00:06:14,640 Speaker 1: many things at once at once potentially. Yeah, Like there's 114 00:06:14,640 --> 00:06:16,440 Speaker 1: sort of two points there. One is is, yeah, the 115 00:06:16,480 --> 00:06:19,559 Speaker 1: liquidation engine is one possible avenue that people have pointed 116 00:06:19,600 --> 00:06:22,560 Speaker 1: to as a way that alimated could be like losing 117 00:06:22,560 --> 00:06:24,880 Speaker 1: money to provide a good customer experience on ft X 118 00:06:24,960 --> 00:06:27,640 Speaker 1: and then through the back door of taking customer money 119 00:06:27,720 --> 00:06:29,960 Speaker 1: like you know, that being a bad story. But the 120 00:06:30,040 --> 00:06:31,920 Speaker 1: other thing is that like you know, investors like ft 121 00:06:32,040 --> 00:06:33,720 Speaker 1: X because like it had good technology and it had 122 00:06:33,760 --> 00:06:36,320 Speaker 1: like good products, and it was you know, there's a 123 00:06:36,320 --> 00:06:38,080 Speaker 1: lot of like sort of finger pointing it, like venture 124 00:06:38,120 --> 00:06:40,560 Speaker 1: capitalists and and and sort of everyone who dealt with 125 00:06:40,600 --> 00:06:43,440 Speaker 1: ft X saying like, you know, they were bamboozled by this, 126 00:06:43,640 --> 00:06:45,640 Speaker 1: but like there was something there, you know, like the 127 00:06:45,680 --> 00:06:48,520 Speaker 1: exchange was good. Now, part of why the exchange was 128 00:06:48,560 --> 00:06:51,080 Speaker 1: good might have been, you know, sort of deeply problematic 129 00:06:51,360 --> 00:06:53,520 Speaker 1: financial dealings, but part of it was, like, you know, 130 00:06:53,520 --> 00:06:54,960 Speaker 1: it was a good exchange that I built it well. 131 00:06:55,000 --> 00:06:58,160 Speaker 1: Like I often find myself in crypto thinking like there 132 00:06:58,240 --> 00:07:01,800 Speaker 1: was so much money to be made, Like why did 133 00:07:01,839 --> 00:07:04,240 Speaker 1: you have to make money in bad ways when like 134 00:07:04,400 --> 00:07:06,719 Speaker 1: you could have just taken fees and gotten super rich. 135 00:07:07,200 --> 00:07:09,840 Speaker 1: So I think there's there's an element of that too. 136 00:07:10,120 --> 00:07:12,360 Speaker 1: So maybe now is a good time to bring in 137 00:07:12,560 --> 00:07:16,520 Speaker 1: the infamous Box episode of All Lots, where we had 138 00:07:16,760 --> 00:07:20,280 Speaker 1: Sam Bankman Freed plus Matt Levin on talking about the business. 139 00:07:20,680 --> 00:07:24,320 Speaker 1: Matt asked Sam to describe yield farming to him, and 140 00:07:24,360 --> 00:07:28,240 Speaker 1: he famously described it as basically a magic box that 141 00:07:28,280 --> 00:07:31,600 Speaker 1: you put money into and more money comes out. And 142 00:07:31,960 --> 00:07:34,720 Speaker 1: I think, you know, all of us were there when 143 00:07:34,760 --> 00:07:38,880 Speaker 1: he when Sam said this, and we were all pretty shocked. Um, 144 00:07:38,920 --> 00:07:44,280 Speaker 1: we were shocked to hear someone describe defy basically as 145 00:07:44,280 --> 00:07:48,720 Speaker 1: a pond z. But in retrospect, the really surprising thing 146 00:07:48,720 --> 00:07:50,640 Speaker 1: about all of this was that it seems like Sam 147 00:07:50,720 --> 00:07:54,440 Speaker 1: was basically describing what he ended up doing with two 148 00:07:54,480 --> 00:07:59,600 Speaker 1: tokens so f t T and serum or SRM. Yeah. 149 00:07:59,640 --> 00:08:03,320 Speaker 1: I mean, in some ways, it's not that shocking that 150 00:08:03,760 --> 00:08:07,960 Speaker 1: the head of a centralized exchange would say a lot 151 00:08:08,000 --> 00:08:11,760 Speaker 1: of stuff and defies Bonzi schemes, right Like, in some 152 00:08:11,840 --> 00:08:15,480 Speaker 1: ways he was you know, he wasn't talking about crypto 153 00:08:15,560 --> 00:08:17,200 Speaker 1: as a sort of broad concept. He was talking about 154 00:08:17,240 --> 00:08:20,960 Speaker 1: a specific element of defy where you know, in some 155 00:08:21,080 --> 00:08:25,280 Speaker 1: loose sense, defy as a competitor to centralized exchanges like FTX, 156 00:08:25,720 --> 00:08:28,680 Speaker 1: and he might not like them just you know, they 157 00:08:28,760 --> 00:08:30,880 Speaker 1: might be a you know, he might he might have 158 00:08:30,960 --> 00:08:34,000 Speaker 1: incentive or you know, he might have reason to talk 159 00:08:34,160 --> 00:08:36,040 Speaker 1: to say bad things about them. So that's one thing. 160 00:08:36,480 --> 00:08:38,120 Speaker 1: The one thing I did take away from that was 161 00:08:38,160 --> 00:08:41,520 Speaker 1: just like a sort of general level of you know, 162 00:08:41,640 --> 00:08:44,160 Speaker 1: in hindsight, i'd say cynicism, but like I would have 163 00:08:44,160 --> 00:08:49,320 Speaker 1: said something like agnosticism about crypto, right Like, what he 164 00:08:49,400 --> 00:08:53,040 Speaker 1: said was not that, you know, every cryptocurrency is this 165 00:08:53,080 --> 00:08:55,560 Speaker 1: brilliant project that will change the world. What he said 166 00:08:55,679 --> 00:08:57,840 Speaker 1: was like, look, you can abstract away from the claims 167 00:08:57,840 --> 00:09:01,280 Speaker 1: that are made about these cryptocurrencies and just sort of 168 00:09:01,280 --> 00:09:05,040 Speaker 1: talk about like their financial characteristics, and you know, at 169 00:09:05,040 --> 00:09:07,000 Speaker 1: the time, the financial characteristics were kind of that they 170 00:09:07,040 --> 00:09:10,079 Speaker 1: went up. And so you know, as the guy running 171 00:09:10,080 --> 00:09:13,920 Speaker 1: in exchange who is making money from crypto volatility and 172 00:09:14,000 --> 00:09:16,920 Speaker 1: from from interest in crypto, you know, I I interpreted 173 00:09:16,960 --> 00:09:19,680 Speaker 1: that as sort of like this clear eyed, like I 174 00:09:19,679 --> 00:09:22,720 Speaker 1: am making money because people keep putting their money into 175 00:09:23,040 --> 00:09:25,920 Speaker 1: into this asset class and I don't fully understand it, 176 00:09:25,960 --> 00:09:28,120 Speaker 1: but I'm gonna keep making money for it, which is like, 177 00:09:28,200 --> 00:09:29,880 Speaker 1: when I put it that way, like a cynical view. 178 00:09:30,200 --> 00:09:31,800 Speaker 1: But like, I also think that a lot of people 179 00:09:31,840 --> 00:09:34,800 Speaker 1: in traditional finance are not, you know, necessarily vouching for 180 00:09:35,080 --> 00:09:37,600 Speaker 1: the business model of every company who stocked their trade. Right. 181 00:09:37,600 --> 00:09:39,280 Speaker 1: It's just like, you know, you're a market structure guy. 182 00:09:39,280 --> 00:09:41,560 Speaker 1: You don't worry too much about the underlying business. So 183 00:09:41,600 --> 00:09:44,760 Speaker 1: I sort of I was not you know, I was 184 00:09:45,200 --> 00:09:47,040 Speaker 1: I was shocked that he said it, because it was 185 00:09:47,080 --> 00:09:50,320 Speaker 1: great tape, But I wasn't like, oh my god, this 186 00:09:50,360 --> 00:09:52,320 Speaker 1: guy is running upon the scheme, right. I sort of 187 00:09:52,360 --> 00:09:54,440 Speaker 1: was like, this is the market structure guy. But yeah, 188 00:09:54,559 --> 00:09:57,240 Speaker 1: as you said there, you know, f t X had 189 00:09:57,240 --> 00:10:01,880 Speaker 1: its own token, and the token you not entirely just 190 00:10:02,200 --> 00:10:04,360 Speaker 1: a magic money box, right, I mean, the token is 191 00:10:04,400 --> 00:10:06,160 Speaker 1: sort of like shares of stock and f t X. 192 00:10:06,200 --> 00:10:08,120 Speaker 1: It's not really f t X as a company has 193 00:10:08,160 --> 00:10:10,280 Speaker 1: SHOs of stocks that did raise money, but like the 194 00:10:10,360 --> 00:10:13,760 Speaker 1: f t T token is kind of like a tokenized 195 00:10:13,880 --> 00:10:16,440 Speaker 1: version of, you know, a bet on the future cash 196 00:10:16,520 --> 00:10:18,680 Speaker 1: loose of f t X. And there's also another token 197 00:10:18,880 --> 00:10:22,040 Speaker 1: called Serum, which is sort of a weirder case. Sirium 198 00:10:22,160 --> 00:10:26,080 Speaker 1: is like this decentralized finance, like a decentralized exchange protocol 199 00:10:26,440 --> 00:10:30,040 Speaker 1: on the Salona blockchain that you know, it's not exactly 200 00:10:30,040 --> 00:10:32,400 Speaker 1: owned by f t X, but is you know, it's 201 00:10:32,400 --> 00:10:34,200 Speaker 1: kind of started by f t X and Alimta and 202 00:10:34,240 --> 00:10:36,800 Speaker 1: like clearly has ties to them, and it's sort of like, 203 00:10:37,840 --> 00:10:39,679 Speaker 1: you know, I had interpreted as kind of like FTX 204 00:10:39,760 --> 00:10:42,480 Speaker 1: is bet on like if everyone really wants decentralized exchanges, 205 00:10:42,800 --> 00:10:44,400 Speaker 1: then they won't want to trade on ft X, but 206 00:10:44,480 --> 00:10:45,880 Speaker 1: like sirium will be sort of like the f t 207 00:10:46,120 --> 00:10:50,040 Speaker 1: X of decentralized exchanges. And fine, he started these companies 208 00:10:50,160 --> 00:10:52,400 Speaker 1: or whatever, these you know, these entities and issued these 209 00:10:52,400 --> 00:10:54,520 Speaker 1: tokens because like you know, you do that in crypto. 210 00:10:55,120 --> 00:10:58,360 Speaker 1: But it turns out that when he was sort of 211 00:10:58,360 --> 00:11:01,040 Speaker 1: shopping for a rescuer last week, he was circulating this 212 00:11:01,080 --> 00:11:05,679 Speaker 1: balance sheet and it basically showed that, like to exaggerate slightly, 213 00:11:06,200 --> 00:11:08,400 Speaker 1: basically everything at ft X they were all they had 214 00:11:08,559 --> 00:11:10,920 Speaker 1: was like these tokens. So they started these companies or whatever, 215 00:11:10,960 --> 00:11:12,800 Speaker 1: these like you know, f t X and Serum are 216 00:11:12,840 --> 00:11:16,360 Speaker 1: like you know, trading it to these exchanges. They issued 217 00:11:16,400 --> 00:11:20,720 Speaker 1: these tokens SERUM and ft T and like that's fine, 218 00:11:20,760 --> 00:11:22,520 Speaker 1: that's sort of part of the crypto business. But then 219 00:11:22,520 --> 00:11:25,120 Speaker 1: it turned out this balance sheet that circulated last week 220 00:11:25,360 --> 00:11:29,040 Speaker 1: when when SPF was was shopping for rescue financing for 221 00:11:29,080 --> 00:11:32,080 Speaker 1: fd X, like most of their assets are like a 222 00:11:32,120 --> 00:11:34,679 Speaker 1: lot of their assets, certainly more than their net equity, 223 00:11:35,040 --> 00:11:41,040 Speaker 1: were in these tokens, and at like really implausible evaluations. 224 00:11:41,040 --> 00:11:43,079 Speaker 1: Basically they would issue like a little bit of these tokens. 225 00:11:43,080 --> 00:11:45,080 Speaker 1: They trade a little bit in the market. It's unclear 226 00:11:45,080 --> 00:11:46,559 Speaker 1: if anyone other than all I made it was actually 227 00:11:46,600 --> 00:11:48,840 Speaker 1: trading them, but they had a market price. And then 228 00:11:49,080 --> 00:11:50,959 Speaker 1: you take that tiny bit you know, there's like a 229 00:11:51,080 --> 00:11:55,280 Speaker 1: hundred millions circulating it, and you multiply that by the 230 00:11:55,520 --> 00:11:57,680 Speaker 1: you know, millions more tokens that held in reserve, and 231 00:11:57,679 --> 00:11:59,800 Speaker 1: you say, oh, we've got like two billion dollars of 232 00:12:00,080 --> 00:12:02,760 Speaker 1: room token. It's very hard to imagine anyone putting a 233 00:12:02,800 --> 00:12:05,400 Speaker 1: two billion dollar valuation on all those tokens. And so 234 00:12:05,800 --> 00:12:09,840 Speaker 1: in some sense, like what happened at FTX was kind 235 00:12:09,880 --> 00:12:11,839 Speaker 1: of what he described to us on that add box 236 00:12:11,880 --> 00:12:15,800 Speaker 1: where he got a lot of money against the box, 237 00:12:15,880 --> 00:12:17,840 Speaker 1: and what was in the box was these tokens that 238 00:12:17,880 --> 00:12:20,440 Speaker 1: turned out to be worthless, and now the money has come. 239 00:12:36,000 --> 00:12:38,600 Speaker 1: There's a lot of people in crypto who talked about 240 00:12:38,679 --> 00:12:40,920 Speaker 1: changing the world, and you sort of have like, you know, 241 00:12:40,960 --> 00:12:43,640 Speaker 1: whether it's like the Bitcoin view of the world about 242 00:12:43,800 --> 00:12:46,680 Speaker 1: you know, monetary disorder and the FED. I think there's 243 00:12:46,720 --> 00:12:51,199 Speaker 1: a different world. I don't know how to articulate vitalis philosophy, 244 00:12:51,240 --> 00:12:54,520 Speaker 1: but like crypto itself can sort of reorganize society in 245 00:12:54,559 --> 00:12:58,120 Speaker 1: a positive way. And my interpretation of the box comment 246 00:12:58,600 --> 00:13:01,920 Speaker 1: was kind of like yours that he saw. Basically, crypto 247 00:13:02,040 --> 00:13:04,000 Speaker 1: is a way to make money, and of course SBF 248 00:13:04,080 --> 00:13:07,080 Speaker 1: has his own vision or head or his own vision 249 00:13:07,080 --> 00:13:08,680 Speaker 1: of how to change the world through the effect of 250 00:13:08,720 --> 00:13:13,280 Speaker 1: altruism philosophy but that basically my read at the time 251 00:13:13,360 --> 00:13:16,280 Speaker 1: was he more or less cynically saw a huge opportunity 252 00:13:16,320 --> 00:13:19,559 Speaker 1: to make money from all of these de facto ponzis 253 00:13:19,600 --> 00:13:24,360 Speaker 1: to filter money through his own causes. Now on the 254 00:13:24,360 --> 00:13:27,400 Speaker 1: tokens Serum and F T T here's something that I'm 255 00:13:27,440 --> 00:13:30,000 Speaker 1: like a little confused about. But and you've written about 256 00:13:30,040 --> 00:13:33,760 Speaker 1: this a lot, so okay, No, there they were holding 257 00:13:33,800 --> 00:13:36,360 Speaker 1: these tokens of their own creation on their books at 258 00:13:36,400 --> 00:13:40,280 Speaker 1: these multibillion dollar evaluations, which they almost certainly couldn't get 259 00:13:40,360 --> 00:13:43,680 Speaker 1: in the market. Who was that for? Because they're not 260 00:13:43,760 --> 00:13:46,520 Speaker 1: a public company, so it wasn't like they needed to say, 261 00:13:46,559 --> 00:13:51,400 Speaker 1: show these two investors per se, Like what would what 262 00:13:51,440 --> 00:13:54,880 Speaker 1: do you think the purpose of these this uh, these 263 00:13:54,920 --> 00:13:57,800 Speaker 1: sort of inflated marks on a private balance sheet? Where 264 00:13:57,840 --> 00:14:00,240 Speaker 1: who are they trying? If the point was was it 265 00:14:00,360 --> 00:14:03,360 Speaker 1: self deception about the strength or balance sheet? Was about 266 00:14:03,400 --> 00:14:06,880 Speaker 1: the auditor? Like what what what purpose did this serve? Yeah, 267 00:14:06,920 --> 00:14:08,680 Speaker 1: it's a good question. I don't know the answer, Um. 268 00:14:08,720 --> 00:14:10,320 Speaker 1: I mean, I think part of the answer is, like 269 00:14:10,360 --> 00:14:14,680 Speaker 1: the place where we immediately see this is this excel 270 00:14:14,880 --> 00:14:18,040 Speaker 1: sort of rough balance sheet that they circulated to rescue financers, Right, 271 00:14:18,200 --> 00:14:20,440 Speaker 1: so that was the that's that's the audience we know 272 00:14:20,520 --> 00:14:23,080 Speaker 1: of right where they were like, we need rescue financing. 273 00:14:23,520 --> 00:14:26,840 Speaker 1: We actually have positive net equity, so if you rescue us, 274 00:14:27,760 --> 00:14:30,960 Speaker 1: you know you'll do well. And you know, if you 275 00:14:31,000 --> 00:14:32,720 Speaker 1: look at the totals on the balance sheet, it's like, yeah, 276 00:14:32,720 --> 00:14:35,240 Speaker 1: there's more assets than liabilities. And then you like look 277 00:14:35,240 --> 00:14:37,720 Speaker 1: at the actual you know, entries, and you're like, oh, 278 00:14:37,760 --> 00:14:39,240 Speaker 1: these are all just these weird tokens that you can 279 00:14:39,320 --> 00:14:42,040 Speaker 1: never monetize. That So the immediate audience is like the 280 00:14:42,080 --> 00:14:46,120 Speaker 1: people who might provide bailout financing, where the audience for 281 00:14:46,120 --> 00:14:50,920 Speaker 1: for like these inflated numbers. But you know, that doesn't 282 00:14:50,920 --> 00:14:52,920 Speaker 1: really answer your question because like, you know, the whole 283 00:14:53,560 --> 00:14:55,720 Speaker 1: like they had they created these tokens before last week, 284 00:14:55,760 --> 00:14:57,920 Speaker 1: you know, and like presumably they were thinking before this 285 00:14:58,080 --> 00:14:59,840 Speaker 1: like oh, you know, we have billions and billions of 286 00:14:59,840 --> 00:15:01,920 Speaker 1: dollar was both of these tokens. So I do think 287 00:15:01,960 --> 00:15:03,440 Speaker 1: that part of the answer and I don't know here, 288 00:15:03,480 --> 00:15:05,640 Speaker 1: I'm really speculating, but part of the answer seems to 289 00:15:05,640 --> 00:15:08,840 Speaker 1: be that the f T T token, which is really 290 00:15:08,880 --> 00:15:11,080 Speaker 1: the thing that brought this down, right, like like what 291 00:15:11,200 --> 00:15:13,480 Speaker 1: triggered or crisis of confidence in f t X was 292 00:15:13,520 --> 00:15:17,280 Speaker 1: basically coined us publishing a story about how much ft 293 00:15:17,400 --> 00:15:22,560 Speaker 1: T tokens Alameda had, and then CZ and Finance tweeting, 294 00:15:22,840 --> 00:15:24,280 Speaker 1: you know, we're going to dump our our f t 295 00:15:24,360 --> 00:15:26,240 Speaker 1: T token and that kind of collapsed everything. So, like 296 00:15:26,360 --> 00:15:29,240 Speaker 1: the ft T token was was doing some work, and 297 00:15:29,960 --> 00:15:32,360 Speaker 1: I think the basic work that it was doing was 298 00:15:32,400 --> 00:15:36,000 Speaker 1: that presumably Alameda was using it as collateral for loans, 299 00:15:36,640 --> 00:15:39,040 Speaker 1: and I think it's a reasonable guest to say that 300 00:15:39,080 --> 00:15:42,080 Speaker 1: it was using it as collateral for loans from ft X, 301 00:15:42,200 --> 00:15:44,880 Speaker 1: you know, possibly of f t X customer money, and 302 00:15:44,960 --> 00:15:48,880 Speaker 1: that the you know, use of this inflated amount of 303 00:15:48,920 --> 00:15:52,120 Speaker 1: f t t is collateral was designed to sort of 304 00:15:52,160 --> 00:15:54,800 Speaker 1: like make everyone feel a little bit better about it, right, 305 00:15:54,840 --> 00:15:56,040 Speaker 1: Like you can sort of I don't know if you 306 00:15:56,040 --> 00:15:58,600 Speaker 1: can necessarily tell your orders we got fair value back 307 00:15:58,600 --> 00:16:00,880 Speaker 1: in collateral, but you can, like you can tell your 308 00:16:00,920 --> 00:16:03,920 Speaker 1: junior employees that, you can tell yourself that you can 309 00:16:03,920 --> 00:16:06,640 Speaker 1: sort of like point to that. I'm not really sure 310 00:16:06,680 --> 00:16:08,400 Speaker 1: that's what going on. What's going on, but clearly like 311 00:16:08,480 --> 00:16:11,680 Speaker 1: somebody is posting f tt is collateral for something and 312 00:16:11,920 --> 00:16:15,920 Speaker 1: having an inflated market value of FTT made that possible. 313 00:16:16,280 --> 00:16:20,000 Speaker 1: The serum stuff, it's less clear to me that how 314 00:16:20,080 --> 00:16:22,920 Speaker 1: that was done, you know what what what purpose that served, 315 00:16:22,960 --> 00:16:25,840 Speaker 1: And it might be just you know, we shopped that 316 00:16:25,880 --> 00:16:29,640 Speaker 1: serum around desert looking for valad financing. So, Matt, one 317 00:16:29,720 --> 00:16:33,320 Speaker 1: of the things that you hear from crypto proponents even 318 00:16:33,400 --> 00:16:37,720 Speaker 1: now is this idea that, well, the f t X saga, 319 00:16:37,800 --> 00:16:40,840 Speaker 1: it doesn't show that there's necessarily a problem with crypto. 320 00:16:41,000 --> 00:16:44,080 Speaker 1: It shows that there's a problem with bad actors in 321 00:16:44,120 --> 00:16:48,120 Speaker 1: the crypto space. And f t X wasn't a truly 322 00:16:48,280 --> 00:16:52,240 Speaker 1: decentralized exchange. It was a centralized one. And not only that, 323 00:16:52,280 --> 00:16:54,840 Speaker 1: but it was performing all these different market functions all 324 00:16:54,880 --> 00:16:59,560 Speaker 1: wrapped up in one entity, so you know, brokerage, custodian um, 325 00:16:59,800 --> 00:17:04,800 Speaker 1: all of that. Is that like a valid excuse at 326 00:17:04,880 --> 00:17:08,360 Speaker 1: this point. Is the problem here a market structure one, 327 00:17:08,560 --> 00:17:13,080 Speaker 1: or is the problem something fundamental to the crypto business? Well, 328 00:17:13,480 --> 00:17:16,800 Speaker 1: I don't know that you can completely separate those things. 329 00:17:17,200 --> 00:17:21,480 Speaker 1: Insofar as like, I think it's true that like bitcoin 330 00:17:22,320 --> 00:17:25,000 Speaker 1: as like a concept is not really affected by this, right, 331 00:17:25,560 --> 00:17:28,720 Speaker 1: But I also think that like crypto is you know, 332 00:17:28,880 --> 00:17:32,080 Speaker 1: sort of refers to a broad ecosystem and it's just 333 00:17:32,240 --> 00:17:37,080 Speaker 1: clearly the case that big centralized exchanges are a big 334 00:17:37,160 --> 00:17:40,800 Speaker 1: part of crypto, right, And certainly there are people who 335 00:17:40,920 --> 00:17:43,240 Speaker 1: do not use centralized exchanges and who sort of self 336 00:17:43,280 --> 00:17:46,080 Speaker 1: custody their coins and use decentralized finance and are very 337 00:17:46,080 --> 00:17:50,000 Speaker 1: boulish on decentralized finance and think everyone who uses f 338 00:17:50,080 --> 00:17:51,879 Speaker 1: t X or coin based or binance or any other 339 00:17:51,880 --> 00:17:54,240 Speaker 1: centralized exchanges is a chump and is not sort of 340 00:17:54,280 --> 00:17:56,760 Speaker 1: true to the true meaning of crypto, And like that's fine, 341 00:17:56,920 --> 00:17:59,680 Speaker 1: but like it is hard to imagine a world where 342 00:18:00,119 --> 00:18:03,600 Speaker 1: crypto is really big and really mainstream and really you know, 343 00:18:03,640 --> 00:18:07,840 Speaker 1: big institutional investors are putting money into crypto and there 344 00:18:07,880 --> 00:18:11,080 Speaker 1: are no centralized exchanges and everything occurs on the blockchain. 345 00:18:11,480 --> 00:18:15,119 Speaker 1: I just think, like that is a world where you 346 00:18:15,160 --> 00:18:17,040 Speaker 1: can do some stuff like that, right, and where where 347 00:18:17,040 --> 00:18:18,960 Speaker 1: people are building stuff on that, But it's not the 348 00:18:19,000 --> 00:18:21,600 Speaker 1: world of sort of like mass mainstream adoption. The world 349 00:18:21,600 --> 00:18:23,719 Speaker 1: of mass stream mainstream adoption is like there's a company 350 00:18:23,720 --> 00:18:25,919 Speaker 1: with a website and you you know, you have a password, 351 00:18:26,240 --> 00:18:28,240 Speaker 1: and you can trade on a centralized platform that is 352 00:18:28,280 --> 00:18:31,440 Speaker 1: fast and not run on the blockchain, and you have 353 00:18:31,680 --> 00:18:36,080 Speaker 1: like allegible entity that a black rock can custody its 354 00:18:36,080 --> 00:18:41,000 Speaker 1: coins within all these things. And so like when one 355 00:18:41,000 --> 00:18:44,239 Speaker 1: of the biggest and most respected and most sort of 356 00:18:44,280 --> 00:18:50,280 Speaker 1: like compliant seeming of the big the big offshore crypto exchanges, 357 00:18:50,680 --> 00:18:53,040 Speaker 1: I'll talk about that, But like when when at the 358 00:18:53,080 --> 00:18:54,680 Speaker 1: extra was like sort of viewed as a good actor 359 00:18:54,880 --> 00:18:57,240 Speaker 1: turns out to be very much not a good idea, 360 00:18:57,359 --> 00:18:59,639 Speaker 1: Like you, I think that it is fair to say, like, 361 00:18:59,680 --> 00:19:02,040 Speaker 1: you know, the crypt cryptosystem broadly needs to do some 362 00:19:02,080 --> 00:19:05,800 Speaker 1: introspection about that. And I think that like some of 363 00:19:05,840 --> 00:19:10,040 Speaker 1: that is like you have these giant levered financial institutions 364 00:19:10,080 --> 00:19:12,720 Speaker 1: that don't have public balance sheets and don't really have 365 00:19:12,760 --> 00:19:15,480 Speaker 1: a regulator, right or like sort of have a regulator, 366 00:19:15,480 --> 00:19:17,200 Speaker 1: but they have a million different entities and no one 367 00:19:17,240 --> 00:19:19,639 Speaker 1: knows which one runs the exchange, and the regulator is 368 00:19:19,680 --> 00:19:23,399 Speaker 1: like you know, the Bahamas, and like they're like one 369 00:19:23,400 --> 00:19:25,800 Speaker 1: of the bigger you know, contributors. You know, like there's 370 00:19:25,840 --> 00:19:30,000 Speaker 1: a lot of like what you don't have is like 371 00:19:30,359 --> 00:19:36,160 Speaker 1: an ecosystem where the biggest players are headquartered in like 372 00:19:36,600 --> 00:19:39,840 Speaker 1: you know, the US and Europe and have like a 373 00:19:39,880 --> 00:19:43,400 Speaker 1: regulator who has you know, fifty examiners in their offices 374 00:19:43,480 --> 00:19:47,480 Speaker 1: every day looking over their books, and who have capital 375 00:19:47,480 --> 00:19:50,840 Speaker 1: regulation and stress tests and public balance sheets and all 376 00:19:50,840 --> 00:19:53,840 Speaker 1: these things. And I don't. I mean, I know, Joe, 377 00:19:53,880 --> 00:19:56,720 Speaker 1: you are. You're skeptical about the future for crypto regulation. 378 00:19:56,720 --> 00:19:58,720 Speaker 1: And I am too, because I think, like the path 379 00:19:58,800 --> 00:20:02,200 Speaker 1: of cryptos, that these big firms have sort of grown 380 00:20:02,280 --> 00:20:05,800 Speaker 1: up in a sort of like you know, jurisdictional limbo, 381 00:20:05,880 --> 00:20:09,600 Speaker 1: where like they all live offshore and are sort of 382 00:20:11,200 --> 00:20:13,680 Speaker 1: you know, get to choose their own regulation a little bit. 383 00:20:13,880 --> 00:20:16,920 Speaker 1: There's an advantage to a bank of being an American bank, right, 384 00:20:16,960 --> 00:20:20,520 Speaker 1: and the advantage is like the FED, but also like 385 00:20:20,560 --> 00:20:23,479 Speaker 1: the sort of market confidence that comes of like you're 386 00:20:23,520 --> 00:20:25,640 Speaker 1: an American bank, You're listed on the New York Stock 387 00:20:25,680 --> 00:20:28,720 Speaker 1: has change, like your balance sheets are audited by American auditors, 388 00:20:28,720 --> 00:20:32,440 Speaker 1: like all the like US regulatory apparatus is helpful for 389 00:20:32,640 --> 00:20:35,760 Speaker 1: banks that want to raise money and trade and in 390 00:20:35,840 --> 00:20:40,320 Speaker 1: crypto like that doesn't really exist like it is. It's 391 00:20:40,359 --> 00:20:43,200 Speaker 1: a little bit, right, there are some you know, crypto 392 00:20:43,640 --> 00:20:45,280 Speaker 1: entities that make the choice of we're gonna be in 393 00:20:45,280 --> 00:20:47,400 Speaker 1: the US, We're gonna try to be regulated by the US, 394 00:20:47,400 --> 00:20:49,920 Speaker 1: we're gonna try to be US public companies because that 395 00:20:50,960 --> 00:20:52,760 Speaker 1: is going to be really onerous and annoying, and I 396 00:20:52,800 --> 00:20:56,119 Speaker 1: think they all find that because US crypto regulation is tough, 397 00:20:56,600 --> 00:20:58,159 Speaker 1: but also it's going to in the long run lead 398 00:20:58,200 --> 00:21:00,680 Speaker 1: to more confidence because we are going to be more 399 00:21:00,720 --> 00:21:05,240 Speaker 1: trustworthy than people who form their exchanges offshore and don't 400 00:21:05,240 --> 00:21:24,639 Speaker 1: publish their balance. I guess it's sort of like you know, 401 00:21:24,800 --> 00:21:28,919 Speaker 1: when any financial entity implodes, you know, you can just 402 00:21:29,440 --> 00:21:33,640 Speaker 1: in finance, you can implode for sort of like benign reasons. 403 00:21:33,680 --> 00:21:35,439 Speaker 1: You make bets, you thought they were going to go 404 00:21:35,520 --> 00:21:37,280 Speaker 1: one way, they go the other way. You have to 405 00:21:37,840 --> 00:21:41,280 Speaker 1: close up shop, and then there's fraud. Like it is 406 00:21:41,320 --> 00:21:44,000 Speaker 1: weird when it's an exchange because we don't think of 407 00:21:44,080 --> 00:21:47,280 Speaker 1: exchanges as making bets and typically you know, they say 408 00:21:47,720 --> 00:21:49,920 Speaker 1: or holding our or holding your money and they don't 409 00:21:49,960 --> 00:21:52,560 Speaker 1: take positions, etcetera. Yeah, I do want to push back 410 00:21:52,560 --> 00:21:55,520 Speaker 1: on that a little bit, just because like like crypto 411 00:21:55,520 --> 00:21:57,600 Speaker 1: exchange is not as a broker dealer. So I was 412 00:21:57,760 --> 00:22:00,520 Speaker 1: so this is this is basically the question I was 413 00:22:00,520 --> 00:22:03,360 Speaker 1: going to ask, which is like, is the version of 414 00:22:03,400 --> 00:22:08,480 Speaker 1: this story that I don't know not benign because people 415 00:22:08,560 --> 00:22:11,159 Speaker 1: are destroyed and like you know, they may have a 416 00:22:11,160 --> 00:22:14,840 Speaker 1: million people have lost money and you know, massive damage. 417 00:22:15,320 --> 00:22:17,320 Speaker 1: But is there a you know you talked earlier about 418 00:22:17,359 --> 00:22:20,399 Speaker 1: like there's this sort of like worse version of the 419 00:22:20,440 --> 00:22:23,679 Speaker 1: mainstream narrative. Is there like a better version of the 420 00:22:23,720 --> 00:22:28,240 Speaker 1: mainstream narrative that we perhaps aren't thinking about. It's tough. 421 00:22:28,280 --> 00:22:29,840 Speaker 1: I mean, you know, as I was saying, like, the 422 00:22:29,880 --> 00:22:33,200 Speaker 1: crypto exchanges are not just like people use the word exchange, 423 00:22:33,240 --> 00:22:35,280 Speaker 1: and so they think of like this neutral thing that 424 00:22:35,359 --> 00:22:38,280 Speaker 1: doesn't like that just matches buys themselves, right, I mean 425 00:22:38,280 --> 00:22:40,800 Speaker 1: the crypto exchanges are broken dealers. They hold their customers 426 00:22:40,800 --> 00:22:44,040 Speaker 1: money for them, They provide leverage to their customers. And 427 00:22:44,080 --> 00:22:46,399 Speaker 1: so if you're a futures exchange, like you're sort of 428 00:22:46,440 --> 00:22:50,760 Speaker 1: taking risk, right, You're taking market risk, and so there 429 00:22:50,760 --> 00:22:52,679 Speaker 1: are versions of the story where you get sort of 430 00:22:52,720 --> 00:22:56,440 Speaker 1: mismatched on that risk and then you implode and it's 431 00:22:56,880 --> 00:23:01,359 Speaker 1: a series of understandable but bad market judgments. I think 432 00:23:01,359 --> 00:23:05,360 Speaker 1: that the reporting about this has been pretty bad. I'm sorry, 433 00:23:05,320 --> 00:23:06,760 Speaker 1: I don't mean the reporting is bad. I mean, like 434 00:23:06,760 --> 00:23:08,960 Speaker 1: the sort of effects that have come up seemed pretty 435 00:23:08,960 --> 00:23:11,480 Speaker 1: bad for for fd X, right. I mean I think 436 00:23:11,520 --> 00:23:15,120 Speaker 1: that you know, fd X is terms of service as 437 00:23:15,119 --> 00:23:17,879 Speaker 1: we can't use your crypto deposits for our own purposes, 438 00:23:18,040 --> 00:23:21,400 Speaker 1: and SPF tweeted that we don't invest customer deposits even 439 00:23:21,400 --> 00:23:23,679 Speaker 1: in treasuries. And then it turns out, as far as 440 00:23:23,680 --> 00:23:26,480 Speaker 1: I can tell, in fact, customer deposits a ring center 441 00:23:26,480 --> 00:23:29,560 Speaker 1: over to Alimata to make some sort of bets that 442 00:23:29,720 --> 00:23:33,680 Speaker 1: lost money, right, so that's bad. You could tele aversion 443 00:23:33,720 --> 00:23:35,760 Speaker 1: of the story that's not so bad, right, where it's 444 00:23:35,800 --> 00:23:40,600 Speaker 1: like Alimated as a customer on the exchange, we made 445 00:23:40,600 --> 00:23:45,359 Speaker 1: a reason possibly biased, possibly you know, unfortunate decision to 446 00:23:45,440 --> 00:23:49,320 Speaker 1: extend credit to Alamada, as you know, part of our 447 00:23:49,320 --> 00:23:52,479 Speaker 1: function as a as a crypto exchange, and like you know, 448 00:23:52,640 --> 00:23:55,560 Speaker 1: the crypto exchange, that exchange that extends leverage to customers, 449 00:23:55,720 --> 00:23:58,280 Speaker 1: Alimada as a customer extended leverage to that customer, and 450 00:23:58,640 --> 00:24:01,040 Speaker 1: it blew up and took all of you know, took 451 00:24:01,040 --> 00:24:03,639 Speaker 1: all the exchanges capital with it, and the exchanges capital 452 00:24:03,720 --> 00:24:06,399 Speaker 1: is usually in some ways anonymous with the with the 453 00:24:06,400 --> 00:24:09,960 Speaker 1: other customer deposits, Like I don't know, in the abstract, 454 00:24:10,000 --> 00:24:12,080 Speaker 1: you can tell a story like that, but it's not 455 00:24:12,080 --> 00:24:16,520 Speaker 1: not the most likely explanation at this point. So I 456 00:24:16,560 --> 00:24:19,359 Speaker 1: have one more question, and it's kind of a process question, 457 00:24:19,440 --> 00:24:24,800 Speaker 1: but with your former lawyer's hat on the complicated structure 458 00:24:25,000 --> 00:24:27,360 Speaker 1: of the f t X empire, and I think there 459 00:24:27,480 --> 00:24:30,879 Speaker 1: was a sort of a diagram floating around recently that 460 00:24:30,880 --> 00:24:33,560 Speaker 1: showed something like a hundred thirty corporate entities, and I 461 00:24:33,560 --> 00:24:35,560 Speaker 1: think in the diagram they mixed up some non f 462 00:24:35,720 --> 00:24:38,159 Speaker 1: t X entities with actual f t X entities. But 463 00:24:38,200 --> 00:24:40,800 Speaker 1: that just shows how confusing it all is. The fact 464 00:24:40,840 --> 00:24:43,280 Speaker 1: that there's f t X U S and f t 465 00:24:43,640 --> 00:24:47,399 Speaker 1: X International and you know, one of them is based 466 00:24:47,400 --> 00:24:51,280 Speaker 1: in the Bahamas, and Alameda itself is based in Hong Kong. 467 00:24:51,840 --> 00:24:56,359 Speaker 1: How much does that complicate I guess the resolution and 468 00:24:56,480 --> 00:25:01,680 Speaker 1: potential prosecution of what we've been talking king about. It's 469 00:25:01,720 --> 00:25:04,439 Speaker 1: a mess in terms of entertinuing. Like the thing that 470 00:25:04,480 --> 00:25:06,919 Speaker 1: I'm really in the dark about is f t X 471 00:25:07,000 --> 00:25:10,639 Speaker 1: U S, which is like the US entity which exists 472 00:25:10,680 --> 00:25:13,879 Speaker 1: because U SCRIPTA regulation is really tough and so you 473 00:25:13,920 --> 00:25:15,320 Speaker 1: can't do it. Like a lot of the products that 474 00:25:15,359 --> 00:25:16,960 Speaker 1: are the bread and butter of f t X, you 475 00:25:17,000 --> 00:25:20,000 Speaker 1: can't trade in the US because of some you know, 476 00:25:20,080 --> 00:25:23,479 Speaker 1: interaction with either securities law or like futures law. And 477 00:25:23,560 --> 00:25:26,879 Speaker 1: so fd X US offers sort of a subset of 478 00:25:26,880 --> 00:25:31,119 Speaker 1: ft X products and as you know, possibly more regulated 479 00:25:31,160 --> 00:25:35,560 Speaker 1: and possibly safer. And for a while the storyline was 480 00:25:35,600 --> 00:25:38,520 Speaker 1: that fd X dot Com was bust and bankrupt, but 481 00:25:38,600 --> 00:25:41,680 Speaker 1: that f t X dot u S was was like 482 00:25:41,840 --> 00:25:45,199 Speaker 1: you know, walled off from that. And now there's you know, 483 00:25:45,200 --> 00:25:46,719 Speaker 1: there seems to be some trouble at ft X u 484 00:25:46,760 --> 00:25:48,760 Speaker 1: S two and it's just unclear like how intertwined these 485 00:25:48,760 --> 00:25:52,040 Speaker 1: things are financially, but like, you know, regulatorily, they were different, 486 00:25:52,280 --> 00:25:54,560 Speaker 1: you know, in terms of like prosecution and in terms 487 00:25:54,560 --> 00:25:58,199 Speaker 1: of like like broadly speaking, like FTX dot com is 488 00:25:58,200 --> 00:26:01,320 Speaker 1: in the Bahamas because it first products that would have 489 00:26:01,400 --> 00:26:05,400 Speaker 1: required like regulatory like let's say registration in the US, 490 00:26:05,480 --> 00:26:08,359 Speaker 1: like products that securities in the US and would have 491 00:26:08,400 --> 00:26:11,760 Speaker 1: to get security registration and like require FTX to registers 492 00:26:11,760 --> 00:26:14,719 Speaker 1: a stock exchange or products that would be like regulated futures, 493 00:26:14,720 --> 00:26:16,960 Speaker 1: where the ft X would have to registers the futures exchange. 494 00:26:17,160 --> 00:26:19,399 Speaker 1: There would be and and you know, the u S 495 00:26:19,440 --> 00:26:21,240 Speaker 1: regulation is tough enough that it might be hard to 496 00:26:21,280 --> 00:26:25,280 Speaker 1: actually do those things. And so f t X didn't 497 00:26:25,720 --> 00:26:29,680 Speaker 1: trade those products in the U S. UM and ft 498 00:26:29,840 --> 00:26:32,280 Speaker 1: X dot Com is not not I think, technically open 499 00:26:32,320 --> 00:26:36,000 Speaker 1: to US persons. But if the question is, can the 500 00:26:36,080 --> 00:26:38,159 Speaker 1: U s. Attorney's Office for the Southern District of New 501 00:26:38,240 --> 00:26:41,200 Speaker 1: York go after x ft X dot Com for wire fraud? 502 00:26:41,480 --> 00:26:43,399 Speaker 1: Which is like kind of the question here, like the 503 00:26:43,400 --> 00:26:45,760 Speaker 1: answer is yeah, of course, like easy, like and I 504 00:26:45,800 --> 00:26:48,080 Speaker 1: don't I don't know the exact mechanism, but basically, like 505 00:26:48,440 --> 00:26:50,480 Speaker 1: you know, at some point someone's moving dollars from a 506 00:26:50,480 --> 00:26:54,600 Speaker 1: bank into fd X dot com and probably a lot 507 00:26:54,680 --> 00:26:57,560 Speaker 1: of the people his money got lost at FTX dot 508 00:26:57,600 --> 00:27:00,600 Speaker 1: com or not, like you know, US retail invests. But 509 00:27:00,720 --> 00:27:04,320 Speaker 1: are you know Cayman Islands crypto hedge funds that are 510 00:27:04,400 --> 00:27:06,720 Speaker 1: run by New Yorkers or whatever? Right, Like there's enough 511 00:27:06,800 --> 00:27:10,639 Speaker 1: like connection to New York that I don't think, you know, 512 00:27:10,680 --> 00:27:15,240 Speaker 1: I think in general, like the the federal prosecutors are 513 00:27:15,720 --> 00:27:22,199 Speaker 1: aggressive and creative about finding US jurisdiction for foreign companies 514 00:27:22,600 --> 00:27:27,120 Speaker 1: doing things to foreigners abroad when they want to UM, 515 00:27:27,160 --> 00:27:28,959 Speaker 1: and I don't think this is like this is like 516 00:27:29,000 --> 00:27:31,040 Speaker 1: they're one of their harder challenges. Like I think there's 517 00:27:31,040 --> 00:27:35,320 Speaker 1: gonna be enough kind of US stuff here that if that, 518 00:27:35,480 --> 00:27:38,280 Speaker 1: like US prosecutors are gonna feel very comfortable looking into it, 519 00:27:39,080 --> 00:27:41,240 Speaker 1: which is not to say that I'm you know, I 520 00:27:41,240 --> 00:27:43,320 Speaker 1: don't want to pre judge whether they'll find any crimes, 521 00:27:43,359 --> 00:27:46,960 Speaker 1: but like I think that they'll find jurisdiction they did. 522 00:27:47,040 --> 00:27:49,040 Speaker 1: In other words, the problem won't be it's like, oh, 523 00:27:49,359 --> 00:27:52,200 Speaker 1: they committed these crimes, but during the Bahamas, we can't 524 00:27:52,240 --> 00:27:54,840 Speaker 1: do anything. If they conclude the door crimes, they'll find 525 00:27:54,840 --> 00:27:57,280 Speaker 1: a way. Yeah, being in the Bahamas is a way 526 00:27:57,320 --> 00:28:00,600 Speaker 1: to avoid securities registration requirements is not a way to 527 00:28:00,840 --> 00:28:05,560 Speaker 1: record as criminal frog law. Matt Levine, thank you so 528 00:28:05,640 --> 00:28:07,879 Speaker 1: much for your perspective. Great to have you back, and 529 00:28:08,240 --> 00:28:31,280 Speaker 1: this was a very helpful conversation. Yes, thanks Matt. Obviously, 530 00:28:31,560 --> 00:28:34,000 Speaker 1: Tracy talking to Matt is always helpful. And I want 531 00:28:34,040 --> 00:28:37,520 Speaker 1: to start with actually just that last point. We don't 532 00:28:37,560 --> 00:28:40,520 Speaker 1: know as of recording this right now on November six, 533 00:28:40,880 --> 00:28:44,480 Speaker 1: whether there is going to be criminal charges ultimately brought 534 00:28:44,520 --> 00:28:46,440 Speaker 1: in the f t X case, but it's sort of 535 00:28:46,520 --> 00:28:50,880 Speaker 1: useful to know that simply by virtue of technically domiciling 536 00:28:50,960 --> 00:28:53,400 Speaker 1: ft X. I guess not technically because that's where they 537 00:28:53,400 --> 00:28:55,680 Speaker 1: were based in the Bahamas that that is not some 538 00:28:55,760 --> 00:28:59,120 Speaker 1: sort of like escape card so to speak. Yeah, absolutely, 539 00:28:59,560 --> 00:29:02,280 Speaker 1: certainly seems like it isn't. The other thing that's standing 540 00:29:02,320 --> 00:29:04,320 Speaker 1: out to me as I think back to all of 541 00:29:04,320 --> 00:29:08,000 Speaker 1: this is, I think the f t X LaMDA relationship. 542 00:29:08,440 --> 00:29:10,840 Speaker 1: I think there was always a perception in the industry 543 00:29:10,880 --> 00:29:13,200 Speaker 1: that there was something there, that there was some sort 544 00:29:13,240 --> 00:29:17,440 Speaker 1: of you know, beneficial relationship as Matt described it. Maybe 545 00:29:17,480 --> 00:29:21,000 Speaker 1: they were getting like early info on tokens that we're 546 00:29:21,040 --> 00:29:23,200 Speaker 1: about to list on f t X and then flipping 547 00:29:23,240 --> 00:29:28,520 Speaker 1: them and things like that. But in retrospect, in retrospect, 548 00:29:28,760 --> 00:29:31,120 Speaker 1: it seems like what they were doing was pretty simple 549 00:29:31,360 --> 00:29:36,480 Speaker 1: and just going massively long various coins, Like there wasn't 550 00:29:36,520 --> 00:29:40,720 Speaker 1: really a secret sauce. There wasn't necessarily like some amazing 551 00:29:41,120 --> 00:29:45,080 Speaker 1: liquidation engine. It seems like they were just taking outside 552 00:29:45,120 --> 00:29:48,600 Speaker 1: bets on digital tokens. Yeah, you know, there's the thing 553 00:29:48,680 --> 00:29:52,240 Speaker 1: I think it's it's the James Street pedigree, Right, It's 554 00:29:52,240 --> 00:29:54,800 Speaker 1: not just Sam, but others who he worked with who 555 00:29:54,840 --> 00:29:58,360 Speaker 1: had gone through this sort of like famous quant trading 556 00:29:58,400 --> 00:30:00,640 Speaker 1: shop Jane Street, which we talked about the same the 557 00:30:00,640 --> 00:30:02,960 Speaker 1: first time, and so you sort of get the impression like, okay, 558 00:30:03,000 --> 00:30:07,520 Speaker 1: Alameda is going to recreate Jane Street in some way 559 00:30:08,000 --> 00:30:11,960 Speaker 1: but for crypto, but I mean maybe not. And this idea, 560 00:30:12,040 --> 00:30:14,240 Speaker 1: you know, I think everyone writ is Matt was saying, 561 00:30:14,320 --> 00:30:16,600 Speaker 1: and you know, one way or another, it seems like 562 00:30:16,640 --> 00:30:19,520 Speaker 1: Alameda lost a ton of money. So either they were 563 00:30:19,560 --> 00:30:23,640 Speaker 1: trying to do something sophisticated and they couldn't do it, 564 00:30:23,800 --> 00:30:26,959 Speaker 1: or maybe they were taking bad directional bets, or they 565 00:30:26,960 --> 00:30:29,600 Speaker 1: were spending badly, or it was sort of like this 566 00:30:29,760 --> 00:30:32,959 Speaker 1: lost leader to make the ft X platform more attractive 567 00:30:33,080 --> 00:30:36,640 Speaker 1: to institutional investors. But whatever it is, it does not 568 00:30:36,760 --> 00:30:39,240 Speaker 1: seem to have been that sort of like super brilliant 569 00:30:39,280 --> 00:30:42,320 Speaker 1: quawn shop that you would sort of expect from like 570 00:30:42,440 --> 00:30:45,640 Speaker 1: Jane Street alone. No, and the other thing that stands 571 00:30:45,640 --> 00:30:48,920 Speaker 1: out to me, and this has been a recurring theme 572 00:30:49,040 --> 00:30:53,000 Speaker 1: on the podcast recently, but this idea of truly decentralized 573 00:30:53,040 --> 00:30:58,600 Speaker 1: crypto versus centralized players and exchanges. And I've said this 574 00:30:58,720 --> 00:31:01,600 Speaker 1: before on Twitter, but I very much agree with Matt 575 00:31:01,600 --> 00:31:05,440 Speaker 1: this idea that like everyone is going to be running 576 00:31:05,440 --> 00:31:09,880 Speaker 1: their own node and storing their keys in like cold storage, 577 00:31:10,200 --> 00:31:12,520 Speaker 1: and no one's ever going to need to interact with 578 00:31:12,560 --> 00:31:16,320 Speaker 1: a centralized player, I think is unrealistic because not only 579 00:31:16,600 --> 00:31:18,640 Speaker 1: a not only is a lot of crypto stuff still 580 00:31:18,720 --> 00:31:21,400 Speaker 1: very difficult for people to figure out and do on 581 00:31:21,440 --> 00:31:24,800 Speaker 1: their own, but be people want to do stuff with 582 00:31:24,840 --> 00:31:28,479 Speaker 1: their money, right, You want to get additional credit for it, 583 00:31:28,520 --> 00:31:31,280 Speaker 1: you want to trade it, you don't want it necessarily 584 00:31:31,320 --> 00:31:34,200 Speaker 1: just keep it on a wallet and never actually use it. 585 00:31:34,240 --> 00:31:36,520 Speaker 1: And that's what a lot of the centralized entities and 586 00:31:36,600 --> 00:31:39,800 Speaker 1: exchanges actually did. Yeah, I mean, look, you can trade 587 00:31:39,800 --> 00:31:42,920 Speaker 1: and speculate on a defy exchange. But I think Matt 588 00:31:42,960 --> 00:31:46,000 Speaker 1: is right, and it's I think it's a definitely true 589 00:31:46,560 --> 00:31:49,280 Speaker 1: that in the last few years there is no way 590 00:31:49,360 --> 00:31:52,320 Speaker 1: crypto would have gotten as big had it not been 591 00:31:52,360 --> 00:31:55,400 Speaker 1: for numerous websites where you log in and you have 592 00:31:55,440 --> 00:31:58,320 Speaker 1: a password and you move your money onto a website like, 593 00:31:58,360 --> 00:32:01,320 Speaker 1: which is like the idiom of normal finance, right, And 594 00:32:01,400 --> 00:32:04,640 Speaker 1: so maybe there is like an alternate scenario in which 595 00:32:04,760 --> 00:32:07,440 Speaker 1: everyone in crypto like really adhered to like these sort 596 00:32:07,480 --> 00:32:10,560 Speaker 1: of like defy principles, and maybe that would have been better, 597 00:32:10,560 --> 00:32:12,960 Speaker 1: and maybe that would have been more you know less. 598 00:32:13,040 --> 00:32:15,480 Speaker 1: I don't know, it's something, but I don't think there's 599 00:32:15,520 --> 00:32:17,520 Speaker 1: any way in that world it would have gotten nearly 600 00:32:17,600 --> 00:32:20,160 Speaker 1: as big or like attracted this sort of like money 601 00:32:20,280 --> 00:32:24,400 Speaker 1: risk seeking behavior in such volume. Then I agree, al right, 602 00:32:24,520 --> 00:32:26,400 Speaker 1: shall we leave it there for now? Let's leave it there. 603 00:32:26,640 --> 00:32:29,440 Speaker 1: This has been another episode of the ad Thoughts podcast. 604 00:32:29,480 --> 00:32:31,880 Speaker 1: I'm Tracy Alloway. You can follow me on Twitter at 605 00:32:31,920 --> 00:32:34,280 Speaker 1: Tracy Alloway and I'm Joe wi Isn't All. You can 606 00:32:34,320 --> 00:32:37,520 Speaker 1: follow me on Twitter at the Stalwart. Follow our guest 607 00:32:37,680 --> 00:32:41,240 Speaker 1: Matt Levine. He's at matt Levine. Follow our producers Carmen 608 00:32:41,360 --> 00:32:45,840 Speaker 1: Rodriguez at Carmen Armon and Dash Bennett at Dashbot. And 609 00:32:45,920 --> 00:32:48,720 Speaker 1: check out all of the Bloomberg podcasts under the handle 610 00:32:48,920 --> 00:32:52,520 Speaker 1: at podcasts, and for more Odd Lots content, go to 611 00:32:52,520 --> 00:32:55,360 Speaker 1: Bloomberg dot com slash odd Lots, where Tracy and I 612 00:32:55,440 --> 00:32:58,240 Speaker 1: blog to push the transcripts, and we even have a 613 00:32:58,280 --> 00:33:01,320 Speaker 1: once a week newsletter that you should check out and subscribe. 614 00:33:01,720 --> 00:33:02,520 Speaker 1: Thanks for listening.