General Cryptocoin Discussion

[Bomby569]

Okay, so fractional reserve banking? How would that work without a central bank? And as far as I can tell, there would never be a "central bank of cryptocurrencies". Ratio of "what" to "what" needs to be in reserves?

Lets say customers deposit 100 BTC into some ... security, or bank, or entity. The bank lends out 80 BTC to someone else, in return for... what? What is the bank allowed to trade for? Shares? Bonds? Other cryptocoins? Derivatives? Commodities? Futures? 80 BTC worth of FTT tokens? It doesn't matter, its all "not BTC", meaning you open up the bank to market risk. Lets say you trade the 80BTC for US dollars, what happens when BTC skyrockets +20%? Well, your 20 BTC + 66.6 BTC worth of dollars is now insolvent. (86.6 BTC in the vaults, but there are 100BTC deposits you need to return).

Because if its too open-ended, you simply allow the FTT for BTC trade that ruined FTX. There's no entity out there that can "print BTC" like the Fed can print dollars into existence, so there's no central bank whose promises we can rely upon for a fractional-reserve like system. The entire concept falls flat on its face immediately.

A bank sells short-term liquidity to trade for long-term bonds. That is: the $100,000 people put into a USA bank can be traded away for $20k in cash, and $80k in highly rated bonds (ex: a promise that the $80k will come back), likely sometime between 1-week and 12-weeks. Even in a bank-run situation, the central bank can just print money to tide us over until the 4-week bond (or whatever) turns back into cash, and all is well.

The very concept of central reserve banking just doesn't work in the cryptocoin world, because no one can be a reliable printer for BTC to serve as the basis of these promises. The concept of selling short-term liquidity and buying long-term bonds (and skimming off the excess money from that) just doesn't exist in the cryptocoin world yet.

Exchanges are not banks, and aren't supposed to. They aren't supposed to do nothing with your coins. They should make money from the fees. FTT was making a lot of money, it was the other shit that lost the money, Alameda, derivatives, the hundreds of other companies they had. And Celsius fiasco shows it's not really a good idea anyway. The price is too volatile and they have no real way to get money back or manage guarantees like real banks. One simple swing in crypto value and it all goes to shit.

But if they are going to do something with your money, and Coinbase lends money for example, there should be a minimum ratio of guaranteed deposits to "investments". That's why regulation is needed.

 

[Aquinus]

Of course. But that means the exchanges can't exist without destroying the things that make crypto worth owning (vs fiat) in the first place. In fact, fiat would have a distinct advantage.

That's not an advantage, it's a built in mechanism to enable people to defraud others and make risky financial decisions. It's anti-regulation built in for people who don't want others to know what they do with their money which usually means that it's a questionable use in the first place. People want this for the same reason that rich people who avoid taxes don't want to fund the IRS; the advantage of being a lazy crook goes away. Regulation is not a bad thing, it's only an impediment to satiating the greed for these people who make the most noise about it.

Once again, we can't trust people to keep their greed in check. We can't have no regulation because people suck and will always abuse it. Period.

 

[dragontamer5788]

Exchanges are not banks, and aren't supposed to. They aren't supposed to do nothing with your coins. They should make money from the fees.

Uh huh... you know that ETrade, TDAmeritrace/Schwab, Fidelity, and Vanguard are $0 per trade now and almost solely make money off of cash holdings / interest now, right?

FTT was making a lot of money

Do... you want to guess where things went wrong with FTT? That cliff in early November is what caused this whole collapse.

Alameda

Alameda lost money, but it had collateral in the form of FTT tokens. It turns out the FTT tokens were worthless. So when FTX took the collateral and tried to sell it and stabilize itself, everything collapsed.

I'm not sure if you understand what happened here. The Alameda investments were collateralized by FTT. Its not much different than say, a mortgage where the collateral is the house. If the mortgage goes unpaid, the banks take the collateral (ie: the house) and then try to sell the house. If a ton of bankers do this all at the same time, 2007 happens (housing market collapses, a lot of math trusting that the "collateral is good" goes to shit and a contagion event begins to happen).

Except... ya know... FTT is shitter collateral than a house for many reasons. (One of which is that it was made up by FTX and had a circular dependency upon FTX). I'm not sure if there's regulations against collateral in yourself (ex: it might be legal for you to offer Bank of America shares as collateral to a Bank of America personal loan). Its one of those "no way anyone is stupid enough to actually try this" situations... except in the cryptocoin world, their understanding in basic financials is so shit that the 2nd/3rd largest exchange in the world did this constantly. (Collateralizing their debt/investments in self-made coins)

But if they are going to do something with your money, and Coinbase lends money for example, there should be a minimum ratio of guaranteed deposits to "investments". That's why regulation is needed.

You're missing my point. The regulations clearly state what those "investments" will be. See Money Market funds, which are regulated to only hold high-grade corporate debt and 3-month US Treasuries or less.

If those investments are allowed to be... say FTT token, you're left with... well... the FTX situation. Its not like banks are allowed to gamble away our money in the open market. There are only a very limited number of things a bank can buy (ex: Bank of America debt, or a US Treasury with 8-weeks remainin, or... other such very very high quality debt). Its not JUST a 30% limit on liquidity, but also very strong measures on investments.

I'm trying to get you to say what "investments" an entity like FTX "should" be allowed to invest into. Because if its "none", then you're "worse than a bank", and if its "anything", then its also worse than a bank. The devil is in the details, and writing good regulations is surprisingly difficult.


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EDIT: I realize this might be abstract to people who don't think about banking very much. So lemme get more specific.

Money Market Mutual Funds: Stress Testing & New Regulatory Requirements

In July 2014, the Securities and Exchange Commission (SEC) adopted a package of reforms to the regulatory framework governing money market mutual funds. ...

corpgov.law.harvard.edu

This here discusses a set of regulations, called the "Stress Tests", that were put into place for MMFs (funds like VUSXX) that claim to be like-cash, though riskier with a %APY return on today's market. VUSXX, SWVXX, VMFXX, and many other such funds exist that follow these mutual fund regulations.

In this hypothetical example, there's almost no "cash" in this fund at all. Its all just high-quality debt. There's almost no "cash" in this vault. The legal requirement is that "this security can get 30% of its liquidity within a week", IE, assurances that this stuff "can easily turn into cash" within a week. Its a relatively free-form regulation (much less strict than a "savings account"), but these looser rules allow an MMF to make a few BPS more yield than a savings account. Its riskier, but none of these MMFs have failed since 2007 (and even the big bank-run was over an MMF going from $1.00 to $0.97, a consistent occurrence in the world of Stablecoins like USDT let alone failed ones like UST / Luna)

But you see, all of these "regulations" only make sense because an MMF only claims to "Be like cash". And all of this paper / bonds / notes will become cash soon (from 1-day to 90-days), so its relatively low risk. Even if almost no cash actually exists in that vault at any given time. Its 99% invested into bonds and other junk.

Its not just hypothetical either. We can look at VMFXX (https://investor.vanguard.com/investment-products/mutual-funds/profile/vmfxx#portfolio-composition) and see its holdings.

Look ma, THERE"S NO CASH AT ALL here. Its 100% invested.

The key is that VMFXX has ~70% of its debt coming due tomorrow. But it almost never holds any cash on any given particular day. Since VMFXX buys/sells only at 4pm (market close) each day as a mutual fund, it works out pretty well. Anyone who enters / exits from VMFXX knows that "they're good for the money" by tomorrow.

 

[Bomby569]

Uh huh... you know that ETrade, TDAmeritrace/Schwab, Fidelity, and Vanguard are $0 per trade now and almost solely make money off of cash holdings / interest now, right?

All of those are regulated, money is insured in most if not all (i don't know all of them in detail) the exact point of this discussion

FTT token had no value, the crash was caused by the Coinbase sell off but that was not the problem, that was the catalyst. It also has nothing to do with the FTT core business.

 

[R-T-B]

the crash was caused by the Coinbase sell off

No the crash was caused by the CEO literally gutting the planes engines and jumping.

Have you even been following the news on this? I'm unsure how anything FTX did could be considered "legit business" or anything remotely "profitable" to anyone but the CEO.

 

[RandallFlagg]

No the crash was caused by the CEO literally gutting the planes engines and jumping.

Have you even been following the news on this? I'm unsure how anything FTX did could be considered "legit business" or anything remotely "profitable" to anyone but the CEO.

Given what SBF told people who were depositing with FTX, it sounds like straight up fraud to me. It's no different than someone who says lets go in together on buying this toll bridge, takes your money and buys mansion with it in their name.

Yeah the investors are stupid, but it's still fraud and it's illegal.

I don't get why this guy is still walking around free, and not on a bail bond. The US does have an extradition agreement with the Bahamas. Even Turkey of all places is being tougher on FTX than the US.

 

[Bomby569]

No the crash was caused by the CEO literally gutting the planes engines and jumping.

Have you even been following the news on this? I'm unsure how anything FTX did could be considered "legit business" or anything remotely "profitable" to anyone but the CEO.

read before replying, he asked what caused the crash on the chart for the tokens

 

[R-T-B]

read before replying, he asked what caused the crash on the chart for the tokens

Which... was what I said?

 

[dragontamer5788]

BlockFi formally files for bankruptcy.

 

[dragontamer5788]

 

[80-watt Hamster]

View attachment 272212

That has to be in tight competition for the most ridiculous financial orobouros of all time.

 

[dragontamer5788]

That has to be in tight competition for the most ridiculous financial orobouros of all time.

Somewhat. BlockFi asked for more money to be lent to BlockFi on November 7th, while this whole FTX disaster was unfolding. So its... actually missing a few interesting steps.

But yeah, what has happened here is incredibly ridiculous. And it might get even more ridiculous the more-and-more information comes forward.

 

[lexluthermiester]

View attachment 272212

OOooo, someone on twitter said something. PANIC AND FLEE!!!

 

[80-watt Hamster]

OOooo, someone on twitter said something. PANIC AND FLEE!!!

Are they wrong?

 

[ThrashZone]

Hi,
Already plenty of fleas around so yeah time to flee as well while the exterminators are at it

 

[dragontamer5788]

OOooo, someone on twitter said something. PANIC AND FLEE!!!

Its a really good summary of the BlockFi bankruptcy filing, actually. (As I stated in an earlier post: its main error is... missing a few steps that make it even more ridiculous. There's only so much they could fit into 280 characters after all)

https://assets.bwbx.io/documents/users/iqjWHBFdfxIU/rB6b3dXLT378/v0

I mean, if you prefer the 41 pages of legal text, you're welcome to read that too. But... its actually a really good tweet that summarizes the legal text.

------

EDIT: I guess its not a 100% reliable document. It only represents BlockFi's side of the bankruptcy argument. But its at least BlockFi's official filing / official claims as they enter bankruptcy.

 

[R-T-B]

Are they wrong?

Usually. But not in this case.

 

[lexluthermiester]

Are they wrong?

Better question: Why should we assume they're right?

Usually. But not in this case.

Oh? Is there a citation for that? It's a bit convoluted..

ts a really good summary of the BlockFi bankruptcy filing, actually. (As I stated in an earlier post: its main error is... missing a few steps that make it even more ridiculous. There's only so much they could fit into 280 characters after all)

https://assets.bwbx.io/documents/users/iqjWHBFdfxIU/rB6b3dXLT378/v0
I mean, if you prefer the 41 pages of legal text, you're welcome to read that too. But... its actually a really good tweet that summarizes the legal text.

On page 39 of that document, there is shown a clearly defined corporate sturcure, which to me, does not resemble the scheme suggested by the earlier twitter post. Falsifying that kind of data is a crime, will get the legal counsel disbarred, the debtor(or exec officer) thrown in jail and the bankruptcy thrown out. So you can bet real money that the information is accurate. It is FAR more likely that the twitter post, like so many others like it, is complete BS.

EDIT: I guess its not a 100% reliable document. It only represents BlockFi's side of the bankruptcy argument. But its at least BlockFi's official filing / official claims as they enter bankruptcy.

But again, any information submitted to the courts must be accurate and truthful, even if it's not the whole picture.

 

[R-T-B]

Better question: Why should we assume they're right?

Oh? Is there a citation for that? It's a bit convoluted..

It is, and you are right to be skeptical of random twitter posts. You'd have to be pretty deep in the nitty gritty to properly verify though. @dragontamer5788 here has a pretty decent set of links.

 

[lexluthermiester]

It is, and you are right to be skeptical of random twitter posts.

Not by the looks of that legal document(see edit above).

You'd have to be pretty deep in the nitty gritty to properly verify though.

Yeah, just read through it. That info and the depiction in the twitter post do not match up. I'm going to take the data in a legal document before taking the word of someone on twitter. Just throwing it out there.

 

[R-T-B]

Not by the looks of that legal document(see edit above).

Yeah, just read through it. That info and the depiction in the twitter post do not match up. I'm going to take the data in a legal document before taking the word of someone on twitter. Just throwing it out there.

I'm admitedly not a lawyer but have read some interpretations that lean that way of the twitter post. As a pleb on these matters though I'll just admit "shits confusing."

 

[dragontamer5788]

Yeah, just read through it. That info and the depiction in the twitter post do not match up.

4. While BlockFi has fared better than many of its peers in the market, this confluence of pre-November 2022 events led it to seek an injection of liquidity in an effort to protect its clients from harm. FTX offered to supply that liquidity through a loan agreement and an option agreement (providing an option to FTX to purchase the equity of BlockFi at a later date) that would protect clients and BlockFi’s ability to continue operating as a going concern. BlockFi accepted this offer to stave off a liquidity crisis and avoid harm to its clients, despite it requiring its executives and employees to sacrifice hundreds of millions of dollars in equity value while continuing to work increasingly hard without the potential upside that equity ownership otherwise offered.

[snip]

6. BlockFi has substantial exposure to FTX, through the FTX Loan Agreement and FTX Option Agreement (as defined herein), as well as loans that BlockFi made to Alameda Research Ltd. (“Alameda”) and cryptocurrencies held on FTX’s platform for trading activities which became trapped on FTX’s platform due to its bankruptcy filing. [snip]

This establishes that:

1. In #4, BlockFi began to have liquidity issues. So they borrowed money from FTX.

2. In #6, BlockFi also was pointing out that FTX / Almeda Research was ALSO borrowing from BlockFi.

Its definitely an orobouros (Snake eating its own tail) structure. There's a bunch of _OTHER SHIT_ that's crazy that's going on in here (allegedly / from BlockFi's perspective), but I think the loop is proven with just the two points above.

EDIT: And of course, in the "causes for BlockFi's bankruptcy" section.

96. Alameda thereafter defaulted on approximately $680 million of collateralized loan obligations to BlockFi, the recovery on which is unknown.

And earlier...

67. On June 30, 2022, BlockFi Inc., as borrower, entered into a loan agreement with West Realm Shires Inc. (d/b/a FTX US, “FTX US”), as lender (the “FTX Loan Agreement”), which provides for loans (the “Loans”) to be made to BlockFi Inc. in an amount of up to $400 million outstanding at any time, of which: (a) $300 million is available for general corporate purposes; and (b) $100 million is available solely to fund BlockFi Inc.’s obligations to its clients (the “Client Payment Obligations”). BlockFi Inc.’s obligations under the FTX Loan Agreement are guaranteed by BlockFi Trading and BlockFi Lending (together, the “Guarantors”).

The further details on BlockFi's loan to Alameda + FTX's loan to BlockFi.

 

[Aquinus]

BlockFi formally files for bankruptcy.

It's a freaking house of cards.

This establishes that:

1. In #4, BlockFi began to have liquidity issues. So they borrowed money from FTX.

2. In #6, BlockFi also was pointing out that FTX / Almeda Research was ALSO borrowing from BlockFi.

Its definitely an orobouros (Snake eating its own tail) structure. There's a bunch of _OTHER SHIT_ that's crazy that's going on in here (allegedly / from BlockFi's perspective), but I think the loop is proven with just the two points above.

This feels like fraud at a massive scale.

 

[dragontamer5788]

This feels like fraud at a massive scale.

I think this part was unusual, but not fraud.

The fraud part is...

https://pacer-documents.s3.amazonaws.com/109/1094078/118164201903.pdf

The Emergent / Robinhood portion. I guess I didn't include that document earlier. But "Emergent" is SBF's company that holds all of the Robinhood. So this document is pretty much BlockFi asking "where the hell are the Robinhood shares you promised me SBF??", even though its somewhat unstated.

SBF promised Emergent / Robinhood as collateral. Now SBF lost all his money, and BlockFi is playing collector and demanding the collateral that was promised.

 

[lexluthermiester]

"shits confusing."

True. Remember I worked for several law firms in my day and finding details in filings was part of my job. And I was good at it.

This establishes that:

1. In #4, BlockFi began to have liquidity issues. So they borrowed money from FTX.

2. In #6, BlockFi also was pointing out that FTX / Almeda Research was ALSO borrowing from BlockFi.

Its definitely an orobouros (Snake eating its own tail) structure. There's a bunch of _OTHER SHIT_ that's crazy that's going on in here (allegedly / from BlockFi's perspective), but I think the loop is proven with just the two points above.

EDIT: And of course, in the "causes for BlockFi's bankruptcy" section.



And earlier...



The further details on BlockFi's loan to Alameda + FTX's loan to BlockFi.

Ah, but that structure does not match the twitter post, that's all I'm saying. I agree with you that it's a snake eating it's own tail scenario.

I think this part was unusual, but not fraud.

The fraud part is...

https://pacer-documents.s3.amazonaws.com/109/1094078/118164201903.pdf

The Emergent / Robinhood portion. I guess I didn't include that document earlier. But "Emergent" is SBF's company that holds all of the Robinhood. So this document is pretty much BlockFi asking "where the hell are the Robinhood shares you promised me SBF??", even though its somewhat unstated.

SBF promised Emergent / Robinhood as collateral. Now SBF lost all his money, and BlockFi is playing collector and demanding the collateral that was promised.

Counts Three, Four and Five, on pages 7, 8 and 9 are the meat & bones of the document. Those points describe a company trying to buffer itself against market crashes at the expense of the investors. Not illegal if structured properly, but definitely janky.

I'm not taking the side of Sam Fried. Only offering some perspective from a previous professional angle.