WEBVTT - Matt Levine on the Collapse of FTX and Alameda 0:00:10.880 --> 0:00:14.880 Hello, and welcome to another episode of the Odd Lots podcast. 0:00:14.920 --> 0:00:18.680 I'm Joe Wisenthal and I'm Tracy Alloway. So, Tracy, we're 0:00:18.720 --> 0:00:22.759 continuing to talk about the implosion of f t X 0:00:22.920 --> 0:00:27.080 and Alameda the Sam Bankman Freed empire. Yesterday we talked 0:00:27.120 --> 0:00:29.680 to two people who are involved in the story in 0:00:29.760 --> 0:00:33.040 different ways, one who is a market maker who had 0:00:33.159 --> 0:00:35.440 used and got caught out on the f t X site, 0:00:35.680 --> 0:00:38.440 another one who had attempted to blow the whistle. But 0:00:38.520 --> 0:00:41.080 of course we're still just sort of like beginning to 0:00:41.159 --> 0:00:45.519 understand the story, right a very fast moving story. But 0:00:45.720 --> 0:00:48.440 one of the things that people are talking about right now, 0:00:48.479 --> 0:00:52.400 with the benefit of hindsight, of course, is the infamous 0:00:52.520 --> 0:00:57.000 Sam Bankman Freed episode of Odd Thoughts. And in that 0:00:57.080 --> 0:01:01.120 episode we had him on with Bloomberg opinion columnist Matt Levine. 0:01:01.320 --> 0:01:04.160 We're talking about how DeFi works, and of course he 0:01:04.440 --> 0:01:08.280 described it as the sort of magical money making box, right, 0:01:08.319 --> 0:01:11.120 and so in retrospect, and at the time, of course, 0:01:11.200 --> 0:01:14.040 people were pretty you know, in shock by those comments. 0:01:14.080 --> 0:01:17.120 But now everyone's going back and listening to that in retrospect, 0:01:17.280 --> 0:01:21.040 and it also helps explain perhaps certain aspects of the 0:01:21.080 --> 0:01:23.959 f t X balance sheet, particularly the tokens that it 0:01:24.080 --> 0:01:27.720 used to capitalize its balance sheet. Anyway, so we have 0:01:27.800 --> 0:01:30.200 to have Matt Levine back on. He's been writing a 0:01:30.280 --> 0:01:33.520 lot about this story. It's been a must read his coverage, 0:01:33.520 --> 0:01:35.920 and of course he was there with us on that episode. 0:01:35.959 --> 0:01:39.440 So Matt Levine, thank you so much for joining us. 0:01:39.959 --> 0:01:43.160 Let me start kind of with a simple question, which is, 0:01:43.800 --> 0:01:48.160 what is your summary or how would you describe why 0:01:48.360 --> 0:01:51.760 f t X collapsed. What's the basic model of what 0:01:51.920 --> 0:01:55.960 happened here? So it's a little bit unclear, but basically 0:01:56.000 --> 0:01:57.720 what seems to have happened is that f t X 0:01:57.760 --> 0:02:03.920 has a affiliated cryptoh called Alameda h Alameda seems to 0:02:03.960 --> 0:02:08.520 have made some bad bats somehow or other, it ran 0:02:08.560 --> 0:02:11.400 into trouble, and to prop it up at some point 0:02:11.680 --> 0:02:14.639 over the summer, probably ft X started sending a lot 0:02:14.680 --> 0:02:17.440 of ft X customer money to Alameda, which Alameda then 0:02:17.480 --> 0:02:21.119 posted to its own lenders or otherwise lost. And then 0:02:22.120 --> 0:02:27.079 last week, uh, there were some doubts about fd X 0:02:27.560 --> 0:02:31.400 in the market, and customers started withdrawing their money from 0:02:31.400 --> 0:02:34.240 fd X, and ft X realized that didn't have their money, 0:02:34.400 --> 0:02:39.600 and it went bankrupt in about twenty minutes m um 0:02:39.639 --> 0:02:44.280 that it did so prior to recent events. What was 0:02:44.320 --> 0:02:47.520 your impression of the relationship between f t X and Alameda. 0:02:47.840 --> 0:02:49.640 I have to say I didn't really have much of 0:02:49.639 --> 0:02:52.400 an impression one way or the other. Obviously, there are 0:02:52.400 --> 0:02:55.120 a lot of conspiracy theories about what ft X and 0:02:55.120 --> 0:02:59.239 Alimata were doing because they were run basically by the 0:02:59.280 --> 0:03:01.520 same group. Would be the same people who kind of 0:03:01.520 --> 0:03:04.400 were ball roommates and a big apartment in the Bahamas Um. 0:03:04.440 --> 0:03:08.119 They were founded by the same person. They were clearly connected, 0:03:08.480 --> 0:03:11.320 and there were sort of these vague representations about them 0:03:11.320 --> 0:03:13.120 being separate, but like you know, not a lot of 0:03:13.280 --> 0:03:16.239 necessarily enforceability to that, so I didn't really know. I 0:03:16.320 --> 0:03:19.440 assume that alimated as a market maker on the Atactic exchange, 0:03:19.560 --> 0:03:21.320 and that you know, it may or may not have 0:03:21.400 --> 0:03:25.480 had some benefits from being the affiliated market maker. When 0:03:25.520 --> 0:03:29.320 you hear people complaining about these things, you often think 0:03:29.440 --> 0:03:34.240 that the essential complaint is Alameda has some advantage in 0:03:34.320 --> 0:03:36.960 making markets on ft X. It makes too much money 0:03:37.560 --> 0:03:40.720 by trading against FTX customers because it knows something that 0:03:40.760 --> 0:03:44.400 everyone else in the exchange doesn't know. You know, I 0:03:44.400 --> 0:03:46.920 I never find those stories that like, that's the story 0:03:46.960 --> 0:03:49.400 in in standard equity market structure, and I don't find 0:03:49.440 --> 0:03:52.240 it like that exciting. Might be true, but it's not 0:03:52.320 --> 0:03:55.040 that exciting to be like, oh, they can see the order, 0:03:55.080 --> 0:03:57.000 but a little bit faster than everyone else. That can 0:03:57.040 --> 0:03:59.880 be an advantage. But um, but I I don't know 0:04:00.120 --> 0:04:03.480 that those stories aren't that compelling. But it seems increasingly 0:04:03.560 --> 0:04:06.080 likely that that is not at all what was happening here, 0:04:06.120 --> 0:04:08.440 because the basic problem here was very much not that 0:04:08.480 --> 0:04:11.760 alimadd was making too much money Elamated it was losing 0:04:11.760 --> 0:04:14.960 too much money. So the actual like problematic relationship here 0:04:15.120 --> 0:04:17.520 is pretty much that Alamada lost a bunch of money 0:04:17.520 --> 0:04:21.520 in fd X just bashed over its customer money to Alamada. 0:04:21.960 --> 0:04:24.200 There are other possible stories that are even worse, and 0:04:24.240 --> 0:04:25.760 I don't want to talk too much about them because 0:04:25.880 --> 0:04:29.240 they're all sort of, you know, speculative. But some speculations 0:04:29.240 --> 0:04:32.320 are basically that Alamada was more or less in the 0:04:32.360 --> 0:04:35.159 business of losing money on fd X, that rather than 0:04:35.240 --> 0:04:37.960 Alimated being too good at trading on fd X, Alamated 0:04:38.080 --> 0:04:39.920 was bad at trading on ft X. And so if 0:04:39.920 --> 0:04:42.040 you went to FDx as someone else, as as a 0:04:42.080 --> 0:04:44.599 crypto hedge fund, or even as a retail customer and 0:04:44.640 --> 0:04:46.840 you traded on FX, you've got really good prices because 0:04:46.839 --> 0:04:49.720 Alimated was making really bad prices because they were losing 0:04:49.760 --> 0:04:53.000 money on every trade. And if you believe that, then 0:04:53.040 --> 0:04:55.320 you could tell a story that's like, well, ft X 0:04:55.360 --> 0:04:57.120 became a very popular exchange and made a lot of 0:04:57.120 --> 0:04:59.800 money in trading fees because it offered this really good 0:04:59.800 --> 0:05:04.080 trade getting experience to customers by basically having its affiliated 0:05:04.080 --> 0:05:07.160 hedge fund lose money on every trade. And you know, 0:05:07.600 --> 0:05:10.680 that's a great story, except that if the way that 0:05:10.720 --> 0:05:13.400 the affiliated hedgehund can afford to lose money on every 0:05:13.440 --> 0:05:17.640 trade is by taking the customers money, then it becomes 0:05:17.640 --> 0:05:20.799 a really bad story, becomes you know, effectively a Ponzi scheme. 0:05:21.120 --> 0:05:22.920 So I don't know that that's what happened. There is 0:05:22.920 --> 0:05:25.440 certainly since speculation about that. But in any case, the 0:05:25.480 --> 0:05:27.800 sort of standard story of like Alameda has too many 0:05:27.800 --> 0:05:29.920 advantages and makes too much money by trading on ft 0:05:30.080 --> 0:05:32.479 X does not really seem to be true. I want 0:05:32.520 --> 0:05:35.360 to just that point is really key because when I 0:05:35.560 --> 0:05:39.719 talked to sort of like professional crypto traders prior to 0:05:39.800 --> 0:05:43.120 all this, like back up the summer or earlier this year. 0:05:43.680 --> 0:05:46.160 They really liked f t X and they you know, 0:05:46.279 --> 0:05:48.800 the liquidation engine, which I think we talked about on 0:05:48.800 --> 0:05:52.719 one of the episodes with you and SPF was something 0:05:52.880 --> 0:05:54.960 they really liked it. They really liked the professional It 0:05:55.040 --> 0:05:57.400 seemed very professional, worked really well for them. And so 0:05:57.480 --> 0:05:59.960 this idea that again we don't really know for sure, 0:06:00.480 --> 0:06:03.960 that maybe some of this was only sustainable because of 0:06:04.080 --> 0:06:08.320 the loss making trading arm of the SPF empire. Again 0:06:08.360 --> 0:06:11.120 we don't really know, but that would sort of explain 0:06:11.200 --> 0:06:14.640 many things at once at once potentially. Yeah, Like there's 0:06:14.640 --> 0:06:16.440 sort of two points there. One is is, yeah, the 0:06:16.480 --> 0:06:19.559 liquidation engine is one possible avenue that people have pointed 0:06:19.600 --> 0:06:22.560 to as a way that alimated could be like losing 0:06:22.560 --> 0:06:24.880 money to provide a good customer experience on ft X 0:06:24.960 --> 0:06:27.640 and then through the back door of taking customer money 0:06:27.720 --> 0:06:29.960 like you know, that being a bad story. But the 0:06:30.040 --> 0:06:31.920 other thing is that like you know, investors like ft 0:06:32.040 --> 0:06:33.720 X because like it had good technology and it had 0:06:33.760 --> 0:06:36.320 like good products, and it was you know, there's a 0:06:36.320 --> 0:06:38.080 lot of like sort of finger pointing it, like venture 0:06:38.120 --> 0:06:40.560 capitalists and and and sort of everyone who dealt with 0:06:40.600 --> 0:06:43.440 ft X saying like, you know, they were bamboozled by this, 0:06:43.640 --> 0:06:45.640 but like there was something there, you know, like the 0:06:45.680 --> 0:06:48.520 exchange was good. Now, part of why the exchange was 0:06:48.560 --> 0:06:51.080 good might have been, you know, sort of deeply problematic 0:06:51.360 --> 0:06:53.520 financial dealings, but part of it was, like, you know, 0:06:53.520 --> 0:06:54.960 it was a good exchange that I built it well. 0:06:55.000 --> 0:06:58.160 Like I often find myself in crypto thinking like there 0:06:58.240 --> 0:07:01.800 was so much money to be made, Like why did 0:07:01.839 --> 0:07:04.240 you have to make money in bad ways when like 0:07:04.400 --> 0:07:06.719 you could have just taken fees and gotten super rich. 0:07:07.200 --> 0:07:09.840 So I think there's there's an element of that too. 0:07:10.120 --> 0:07:12.360 So maybe now is a good time to bring in 0:07:12.560 --> 0:07:16.520 the infamous Box episode of All Lots, where we had 0:07:16.760 --> 0:07:20.280 Sam Bankman Freed plus Matt Levin on talking about the business. 0:07:20.680 --> 0:07:24.320 Matt asked Sam to describe yield farming to him, and 0:07:24.360 --> 0:07:28.240 he famously described it as basically a magic box that 0:07:28.280 --> 0:07:31.600 you put money into and more money comes out. And 0:07:31.960 --> 0:07:34.720 I think, you know, all of us were there when 0:07:34.760 --> 0:07:38.880 he when Sam said this, and we were all pretty shocked. Um, 0:07:38.920 --> 0:07:44.280 we were shocked to hear someone describe defy basically as 0:07:44.280 --> 0:07:48.720 a pond z. But in retrospect, the really surprising thing 0:07:48.720 --> 0:07:50.640 about all of this was that it seems like Sam 0:07:50.720 --> 0:07:54.440 was basically describing what he ended up doing with two 0:07:54.480 --> 0:07:59.600 tokens so f t T and serum or SRM. Yeah. 0:07:59.640 --> 0:08:03.320 I mean, in some ways, it's not that shocking that 0:08:03.760 --> 0:08:07.960 the head of a centralized exchange would say a lot 0:08:08.000 --> 0:08:11.760 of stuff and defies Bonzi schemes, right Like, in some 0:08:11.840 --> 0:08:15.480 ways he was you know, he wasn't talking about crypto 0:08:15.560 --> 0:08:17.200 as a sort of broad concept. He was talking about 0:08:17.240 --> 0:08:20.960 a specific element of defy where you know, in some 0:08:21.080 --> 0:08:25.280 loose sense, defy as a competitor to centralized exchanges like FTX, 0:08:25.720 --> 0:08:28.680 and he might not like them just you know, they 0:08:28.760 --> 0:08:30.880 might be a you know, he might he might have 0:08:30.960 --> 0:08:34.000 incentive or you know, he might have reason to talk 0:08:34.160 --> 0:08:36.040 to say bad things about them. So that's one thing. 0:08:36.480 --> 0:08:38.120 The one thing I did take away from that was 0:08:38.160 --> 0:08:41.520 just like a sort of general level of you know, 0:08:41.640 --> 0:08:44.160 in hindsight, i'd say cynicism, but like I would have 0:08:44.160 --> 0:08:49.320 said something like agnosticism about crypto, right Like, what he 0:08:49.400 --> 0:08:53.040 said was not that, you know, every cryptocurrency is this 0:08:53.080 --> 0:08:55.560 brilliant project that will change the world. What he said 0:08:55.679 --> 0:08:57.840 was like, look, you can abstract away from the claims 0:08:57.840 --> 0:09:01.280 that are made about these cryptocurrencies and just sort of 0:09:01.280 --> 0:09:05.040 talk about like their financial characteristics, and you know, at 0:09:05.040 --> 0:09:07.000 the time, the financial characteristics were kind of that they 0:09:07.040 --> 0:09:10.079 went up. And so you know, as the guy running 0:09:10.080 --> 0:09:13.920 in exchange who is making money from crypto volatility and 0:09:14.000 --> 0:09:16.920 from from interest in crypto, you know, I I interpreted 0:09:16.960 --> 0:09:19.680 that as sort of like this clear eyed, like I 0:09:19.679 --> 0:09:22.720 am making money because people keep putting their money into 0:09:23.040 --> 0:09:25.920 into this asset class and I don't fully understand it, 0:09:25.960 --> 0:09:28.120 but I'm gonna keep making money for it, which is like, 0:09:28.200 --> 0:09:29.880 when I put it that way, like a cynical view. 0:09:30.200 --> 0:09:31.800 But like, I also think that a lot of people 0:09:31.840 --> 0:09:34.800 in traditional finance are not, you know, necessarily vouching for 0:09:35.080 --> 0:09:37.600 the business model of every company who stocked their trade. Right. 0:09:37.600 --> 0:09:39.280 It's just like, you know, you're a market structure guy. 0:09:39.280 --> 0:09:41.560 You don't worry too much about the underlying business. So 0:09:41.600 --> 0:09:44.760 I sort of I was not you know, I was 0:09:45.200 --> 0:09:47.040 I was shocked that he said it, because it was 0:09:47.080 --> 0:09:50.320 great tape, But I wasn't like, oh my god, this 0:09:50.360 --> 0:09:52.320 guy is running upon the scheme, right. I sort of 0:09:52.360 --> 0:09:54.440 was like, this is the market structure guy. But yeah, 0:09:54.559 --> 0:09:57.240 as you said there, you know, f t X had 0:09:57.240 --> 0:10:01.880 its own token, and the token you not entirely just 0:10:02.200 --> 0:10:04.360 a magic money box, right, I mean, the token is 0:10:04.400 --> 0:10:06.160 sort of like shares of stock and f t X. 0:10:06.200 --> 0:10:08.120 It's not really f t X as a company has 0:10:08.160 --> 0:10:10.280 SHOs of stocks that did raise money, but like the 0:10:10.360 --> 0:10:13.760 f t T token is kind of like a tokenized 0:10:13.880 --> 0:10:16.440 version of, you know, a bet on the future cash 0:10:16.520 --> 0:10:18.680 loose of f t X. And there's also another token 0:10:18.880 --> 0:10:22.040 called Serum, which is sort of a weirder case. Sirium 0:10:22.160 --> 0:10:26.080 is like this decentralized finance, like a decentralized exchange protocol 0:10:26.440 --> 0:10:30.040 on the Salona blockchain that you know, it's not exactly 0:10:30.040 --> 0:10:32.400 owned by f t X, but is you know, it's 0:10:32.400 --> 0:10:34.200 kind of started by f t X and Alimta and 0:10:34.240 --> 0:10:36.800 like clearly has ties to them, and it's sort of like, 0:10:37.840 --> 0:10:39.679 you know, I had interpreted as kind of like FTX 0:10:39.760 --> 0:10:42.480 is bet on like if everyone really wants decentralized exchanges, 0:10:42.800 --> 0:10:44.400 then they won't want to trade on ft X, but 0:10:44.480 --> 0:10:45.880 like sirium will be sort of like the f t 0:10:46.120 --> 0:10:50.040 X of decentralized exchanges. And fine, he started these companies 0:10:50.160 --> 0:10:52.400 or whatever, these you know, these entities and issued these 0:10:52.400 --> 0:10:54.520 tokens because like you know, you do that in crypto. 0:10:55.120 --> 0:10:58.360 But it turns out that when he was sort of 0:10:58.360 --> 0:11:01.040 shopping for a rescuer last week, he was circulating this 0:11:01.080 --> 0:11:05.679 balance sheet and it basically showed that, like to exaggerate slightly, 0:11:06.200 --> 0:11:08.400 basically everything at ft X they were all they had 0:11:08.559 --> 0:11:10.920 was like these tokens. So they started these companies or whatever, 0:11:10.960 --> 0:11:12.800 these like you know, f t X and Serum are 0:11:12.840 --> 0:11:16.360 like you know, trading it to these exchanges. They issued 0:11:16.400 --> 0:11:20.720 these tokens SERUM and ft T and like that's fine, 0:11:20.760 --> 0:11:22.520 that's sort of part of the crypto business. But then 0:11:22.520 --> 0:11:25.120 it turned out this balance sheet that circulated last week 0:11:25.360 --> 0:11:29.040 when when SPF was was shopping for rescue financing for 0:11:29.080 --> 0:11:32.080 fd X, like most of their assets are like a 0:11:32.120 --> 0:11:34.679 lot of their assets, certainly more than their net equity, 0:11:35.040 --> 0:11:41.040 were in these tokens, and at like really implausible evaluations. 0:11:41.040 --> 0:11:43.079 Basically they would issue like a little bit of these tokens. 0:11:43.080 --> 0:11:45.080 They trade a little bit in the market. It's unclear 0:11:45.080 --> 0:11:46.559 if anyone other than all I made it was actually 0:11:46.600 --> 0:11:48.840 trading them, but they had a market price. And then 0:11:49.080 --> 0:11:50.959 you take that tiny bit you know, there's like a 0:11:51.080 --> 0:11:55.280 hundred millions circulating it, and you multiply that by the 0:11:55.520 --> 0:11:57.680 you know, millions more tokens that held in reserve, and 0:11:57.679 --> 0:11:59.800 you say, oh, we've got like two billion dollars of 0:12:00.080 --> 0:12:02.760 room token. It's very hard to imagine anyone putting a 0:12:02.800 --> 0:12:05.400 two billion dollar valuation on all those tokens. And so 0:12:05.800 --> 0:12:09.840 in some sense, like what happened at FTX was kind 0:12:09.880 --> 0:12:11.839 of what he described to us on that add box 0:12:11.880 --> 0:12:15.800 where he got a lot of money against the box, 0:12:15.880 --> 0:12:17.840 and what was in the box was these tokens that 0:12:17.880 --> 0:12:20.440 turned out to be worthless, and now the money has come. 0:12:36.000 --> 0:12:38.600 There's a lot of people in crypto who talked about 0:12:38.679 --> 0:12:40.920 changing the world, and you sort of have like, you know, 0:12:40.960 --> 0:12:43.640 whether it's like the Bitcoin view of the world about 0:12:43.800 --> 0:12:46.680 you know, monetary disorder and the FED. I think there's 0:12:46.720 --> 0:12:51.199 a different world. I don't know how to articulate vitalis philosophy, 0:12:51.240 --> 0:12:54.520 but like crypto itself can sort of reorganize society in 0:12:54.559 --> 0:12:58.120 a positive way. And my interpretation of the box comment 0:12:58.600 --> 0:13:01.920 was kind of like yours that he saw. Basically, crypto 0:13:02.040 --> 0:13:04.000 is a way to make money, and of course SBF 0:13:04.080 --> 0:13:07.080 has his own vision or head or his own vision 0:13:07.080 --> 0:13:08.680 of how to change the world through the effect of 0:13:08.720 --> 0:13:13.280 altruism philosophy but that basically my read at the time 0:13:13.360 --> 0:13:16.280 was he more or less cynically saw a huge opportunity 0:13:16.320 --> 0:13:19.559 to make money from all of these de facto ponzis 0:13:19.600 --> 0:13:24.360 to filter money through his own causes. Now on the 0:13:24.360 --> 0:13:27.400 tokens Serum and F T T here's something that I'm 0:13:27.440 --> 0:13:30.000 like a little confused about. But and you've written about 0:13:30.040 --> 0:13:33.760 this a lot, so okay, No, there they were holding 0:13:33.800 --> 0:13:36.360 these tokens of their own creation on their books at 0:13:36.400 --> 0:13:40.280 these multibillion dollar evaluations, which they almost certainly couldn't get 0:13:40.360 --> 0:13:43.680 in the market. Who was that for? Because they're not 0:13:43.760 --> 0:13:46.520 a public company, so it wasn't like they needed to say, 0:13:46.559 --> 0:13:51.400 show these two investors per se, Like what would what 0:13:51.440 --> 0:13:54.880 do you think the purpose of these this uh, these 0:13:54.920 --> 0:13:57.800 sort of inflated marks on a private balance sheet? Where 0:13:57.840 --> 0:14:00.240 who are they trying? If the point was was it 0:14:00.360 --> 0:14:03.360 self deception about the strength or balance sheet? Was about 0:14:03.400 --> 0:14:06.880 the auditor? Like what what what purpose did this serve? Yeah, 0:14:06.920 --> 0:14:08.680 it's a good question. I don't know the answer, Um. 0:14:08.720 --> 0:14:10.320 I mean, I think part of the answer is, like 0:14:10.360 --> 0:14:14.680 the place where we immediately see this is this excel 0:14:14.880 --> 0:14:18.040 sort of rough balance sheet that they circulated to rescue financers, Right, 0:14:18.200 --> 0:14:20.440 so that was the that's that's the audience we know 0:14:20.520 --> 0:14:23.080 of right where they were like, we need rescue financing. 0:14:23.520 --> 0:14:26.840 We actually have positive net equity, so if you rescue us, 0:14:27.760 --> 0:14:30.960 you know you'll do well. And you know, if you 0:14:31.000 --> 0:14:32.720 look at the totals on the balance sheet, it's like, yeah, 0:14:32.720 --> 0:14:35.240 there's more assets than liabilities. And then you like look 0:14:35.240 --> 0:14:37.720 at the actual you know, entries, and you're like, oh, 0:14:37.760 --> 0:14:39.240 these are all just these weird tokens that you can 0:14:39.320 --> 0:14:42.040 never monetize. That So the immediate audience is like the 0:14:42.080 --> 0:14:46.120 people who might provide bailout financing, where the audience for 0:14:46.120 --> 0:14:50.920 for like these inflated numbers. But you know, that doesn't 0:14:50.920 --> 0:14:52.920 really answer your question because like, you know, the whole 0:14:53.560 --> 0:14:55.720 like they had they created these tokens before last week, 0:14:55.760 --> 0:14:57.920 you know, and like presumably they were thinking before this 0:14:58.080 --> 0:14:59.840 like oh, you know, we have billions and billions of 0:14:59.840 --> 0:15:01.920 dollar was both of these tokens. So I do think 0:15:01.960 --> 0:15:03.440 that part of the answer and I don't know here, 0:15:03.480 --> 0:15:05.640 I'm really speculating, but part of the answer seems to 0:15:05.640 --> 0:15:08.840 be that the f T T token, which is really 0:15:08.880 --> 0:15:11.080 the thing that brought this down, right, like like what 0:15:11.200 --> 0:15:13.480 triggered or crisis of confidence in f t X was 0:15:13.520 --> 0:15:17.280 basically coined us publishing a story about how much ft 0:15:17.400 --> 0:15:22.560 T tokens Alameda had, and then CZ and Finance tweeting, 0:15:22.840 --> 0:15:24.280 you know, we're going to dump our our f t 0:15:24.360 --> 0:15:26.240 T token and that kind of collapsed everything. So, like 0:15:26.360 --> 0:15:29.240 the ft T token was was doing some work, and 0:15:29.960 --> 0:15:32.360 I think the basic work that it was doing was 0:15:32.400 --> 0:15:36.000 that presumably Alameda was using it as collateral for loans, 0:15:36.640 --> 0:15:39.040 and I think it's a reasonable guest to say that 0:15:39.080 --> 0:15:42.080 it was using it as collateral for loans from ft X, 0:15:42.200 --> 0:15:44.880 you know, possibly of f t X customer money, and 0:15:44.960 --> 0:15:48.880 that the you know, use of this inflated amount of 0:15:48.920 --> 0:15:52.120 f t t is collateral was designed to sort of 0:15:52.160 --> 0:15:54.800 like make everyone feel a little bit better about it, right, 0:15:54.840 --> 0:15:56.040 Like you can sort of I don't know if you 0:15:56.040 --> 0:15:58.600 can necessarily tell your orders we got fair value back 0:15:58.600 --> 0:16:00.880 in collateral, but you can, like you can tell your 0:16:00.920 --> 0:16:03.920 junior employees that, you can tell yourself that you can 0:16:03.920 --> 0:16:06.640 sort of like point to that. I'm not really sure 0:16:06.680 --> 0:16:08.400 that's what going on. What's going on, but clearly like 0:16:08.480 --> 0:16:11.680 somebody is posting f tt is collateral for something and 0:16:11.920 --> 0:16:15.920 having an inflated market value of FTT made that possible. 0:16:16.280 --> 0:16:20.000 The serum stuff, it's less clear to me that how 0:16:20.080 --> 0:16:22.920 that was done, you know what what what purpose that served, 0:16:22.960 --> 0:16:25.840 And it might be just you know, we shopped that 0:16:25.880 --> 0:16:29.640 serum around desert looking for valad financing. So, Matt, one 0:16:29.720 --> 0:16:33.320 of the things that you hear from crypto proponents even 0:16:33.400 --> 0:16:37.720 now is this idea that, well, the f t X saga, 0:16:37.800 --> 0:16:40.840 it doesn't show that there's necessarily a problem with crypto. 0:16:41.000 --> 0:16:44.080 It shows that there's a problem with bad actors in 0:16:44.120 --> 0:16:48.120 the crypto space. And f t X wasn't a truly 0:16:48.280 --> 0:16:52.240 decentralized exchange. It was a centralized one. And not only that, 0:16:52.280 --> 0:16:54.840 but it was performing all these different market functions all 0:16:54.880 --> 0:16:59.560 wrapped up in one entity, so you know, brokerage, custodian um, 0:16:59.800 --> 0:17:04.800 all of that. Is that like a valid excuse at 0:17:04.880 --> 0:17:08.360 this point. Is the problem here a market structure one, 0:17:08.560 --> 0:17:13.080 or is the problem something fundamental to the crypto business? Well, 0:17:13.480 --> 0:17:16.800 I don't know that you can completely separate those things. 0:17:17.200 --> 0:17:21.480 Insofar as like, I think it's true that like bitcoin 0:17:22.320 --> 0:17:25.000 as like a concept is not really affected by this, right, 0:17:25.560 --> 0:17:28.720 But I also think that like crypto is you know, 0:17:28.880 --> 0:17:32.080 sort of refers to a broad ecosystem and it's just 0:17:32.240 --> 0:17:37.080 clearly the case that big centralized exchanges are a big 0:17:37.160 --> 0:17:40.800 part of crypto, right, And certainly there are people who 0:17:40.920 --> 0:17:43.240 do not use centralized exchanges and who sort of self 0:17:43.280 --> 0:17:46.080 custody their coins and use decentralized finance and are very 0:17:46.080 --> 0:17:50.000 boulish on decentralized finance and think everyone who uses f 0:17:50.080 --> 0:17:51.879 t X or coin based or binance or any other 0:17:51.880 --> 0:17:54.240 centralized exchanges is a chump and is not sort of 0:17:54.280 --> 0:17:56.760 true to the true meaning of crypto, And like that's fine, 0:17:56.920 --> 0:17:59.680 but like it is hard to imagine a world where 0:18:00.119 --> 0:18:03.600 crypto is really big and really mainstream and really you know, 0:18:03.640 --> 0:18:07.840 big institutional investors are putting money into crypto and there 0:18:07.880 --> 0:18:11.080 are no centralized exchanges and everything occurs on the blockchain. 0:18:11.480 --> 0:18:15.119 I just think, like that is a world where you 0:18:15.160 --> 0:18:17.040 can do some stuff like that, right, and where where 0:18:17.040 --> 0:18:18.960 people are building stuff on that, But it's not the 0:18:19.000 --> 0:18:21.600 world of sort of like mass mainstream adoption. The world 0:18:21.600 --> 0:18:23.719 of mass stream mainstream adoption is like there's a company 0:18:23.720 --> 0:18:25.919 with a website and you you know, you have a password, 0:18:26.240 --> 0:18:28.240 and you can trade on a centralized platform that is 0:18:28.280 --> 0:18:31.440 fast and not run on the blockchain, and you have 0:18:31.680 --> 0:18:36.080 like allegible entity that a black rock can custody its 0:18:36.080 --> 0:18:41.000 coins within all these things. And so like when one 0:18:41.000 --> 0:18:44.239 of the biggest and most respected and most sort of 0:18:44.280 --> 0:18:50.280 like compliant seeming of the big the big offshore crypto exchanges, 0:18:50.680 --> 0:18:53.040 I'll talk about that, But like when when at the 0:18:53.080 --> 0:18:54.680 extra was like sort of viewed as a good actor 0:18:54.880 --> 0:18:57.240 turns out to be very much not a good idea, 0:18:57.359 --> 0:18:59.639 Like you, I think that it is fair to say, like, 0:18:59.680 --> 0:19:02.040 you know, the crypt cryptosystem broadly needs to do some 0:19:02.080 --> 0:19:05.800 introspection about that. And I think that like some of 0:19:05.840 --> 0:19:10.040 that is like you have these giant levered financial institutions 0:19:10.080 --> 0:19:12.720 that don't have public balance sheets and don't really have 0:19:12.760 --> 0:19:15.480 a regulator, right or like sort of have a regulator, 0:19:15.480 --> 0:19:17.200 but they have a million different entities and no one 0:19:17.240 --> 0:19:19.639 knows which one runs the exchange, and the regulator is 0:19:19.680 --> 0:19:23.399 like you know, the Bahamas, and like they're like one 0:19:23.400 --> 0:19:25.800 of the bigger you know, contributors. You know, like there's 0:19:25.840 --> 0:19:30.000 a lot of like what you don't have is like 0:19:30.359 --> 0:19:36.160 an ecosystem where the biggest players are headquartered in like 0:19:36.600 --> 0:19:39.840 you know, the US and Europe and have like a 0:19:39.880 --> 0:19:43.400 regulator who has you know, fifty examiners in their offices 0:19:43.480 --> 0:19:47.480 every day looking over their books, and who have capital 0:19:47.480 --> 0:19:50.840 regulation and stress tests and public balance sheets and all 0:19:50.840 --> 0:19:53.840 these things. And I don't. I mean, I know, Joe, 0:19:53.880 --> 0:19:56.720 you are. You're skeptical about the future for crypto regulation. 0:19:56.720 --> 0:19:58.720 And I am too, because I think, like the path 0:19:58.800 --> 0:20:02.200 of cryptos, that these big firms have sort of grown 0:20:02.280 --> 0:20:05.800 up in a sort of like you know, jurisdictional limbo, 0:20:05.880 --> 0:20:09.600 where like they all live offshore and are sort of 0:20:11.200 --> 0:20:13.680 you know, get to choose their own regulation a little bit. 0:20:13.880 --> 0:20:16.920 There's an advantage to a bank of being an American bank, right, 0:20:16.960 --> 0:20:20.520 and the advantage is like the FED, but also like 0:20:20.560 --> 0:20:23.479 the sort of market confidence that comes of like you're 0:20:23.520 --> 0:20:25.640 an American bank, You're listed on the New York Stock 0:20:25.680 --> 0:20:28.720 has change, like your balance sheets are audited by American auditors, 0:20:28.720 --> 0:20:32.440 like all the like US regulatory apparatus is helpful for 0:20:32.640 --> 0:20:35.760 banks that want to raise money and trade and in 0:20:35.840 --> 0:20:40.320 crypto like that doesn't really exist like it is. It's 0:20:40.359 --> 0:20:43.200 a little bit, right, there are some you know, crypto 0:20:43.640 --> 0:20:45.280 entities that make the choice of we're gonna be in 0:20:45.280 --> 0:20:47.400 the US, We're gonna try to be regulated by the US, 0:20:47.400 --> 0:20:49.920 we're gonna try to be US public companies because that 0:20:50.960 --> 0:20:52.760 is going to be really onerous and annoying, and I 0:20:52.800 --> 0:20:56.119 think they all find that because US crypto regulation is tough, 0:20:56.600 --> 0:20:58.159 but also it's going to in the long run lead 0:20:58.200 --> 0:21:00.680 to more confidence because we are going to be more 0:21:00.720 --> 0:21:05.240 trustworthy than people who form their exchanges offshore and don't 0:21:05.240 --> 0:21:24.639 publish their balance. I guess it's sort of like you know, 0:21:24.800 --> 0:21:28.919