Odd Lots - Matt Levine on the Collapse of FTX and Alameda

Episode Date: November 18, 2022

It was on an episode of the Odd Lots podcast in April 2022 that Sam Bankman-Fried infamously characterized yield farming as a "box," in a metaphor that made the practice sound a lot like a ponzi scheme. Of course, in the wake of the collapse of his two main firms — FTX and Alameda Research — that conversation looks more and more like a huge red flag, but also provides insight into the shaky finances of his crypto empire. Bloomberg Opinion columnist Matt Levine was also a guest on that episode and he joins us again this week to discuss where we are in the fallout out of the FTX saga.See omnystudio.com/listener for privacy information.

Hello, I'm Michelle Hussein, and for more than 20 years, I was at the BBC. But all the time I was delivering the headlines, I wanted to go further than the news of the day, to spend more time with the people shaping our world. And that's what I'm doing here on this podcast, speaking to people from Nigel Farage. To love you trying ever so hard. Russian needs to be taught a lesson. To tech journalist Karaswisher. And the tech industry is running wild.

You know, they've gotten what they wanted and they've seen a huge run-up in their stock prices. This will be a place where every weekend you can count on one essential conversation to help make sense of the world. So please join me, listen and subscribe to the Michelle Hussein show from Bloomberg weekend, wherever you get your podcast. You certainly ask interesting questions. Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Weisandthel. And I'm Tracy Allaway. So Tracy, we're continuing to talk about the implosion of FTX and Alameda, the Sam Bankman-Fried Empire.

Yesterday, we talked to two people who are involved in the story in different ways, one who is a market maker who had used and got caught out on the FTX site, another one who had attempted to blow the whistle. But of course, we're still just sort of like beginning to understand the story. Right. A very fast-moving story. But one of the things that people are talking about right now with the benefit of hindsight, of course, is the infamous Sam Bankman-Fried episode of Ottlots. And in that episode, we had him on with Bloomberg opinion columnist Matt Levine.

We were talking about how Defi works. And of course, he described it as the sort of magical money-making box. Right. And so in retrospect, and at the time, of course, people were pretty in shock by those comments. but now everyone's going back and listening to that in retrospect, and it also helps explain perhaps certain aspects of the FTX balance sheet, particularly the tokens that it used to capitalize its balance sheet. Anyway, so we have to have Matt Levine back on.

He's been writing a lot about this story. It's been a must read, his coverage, and of course he was there with us on that episode. So Matt Levine, thank you so much for joining us. Let me start kind of with a simple question, which is what is your summary or how would you describe why FTX collapsed? What's the basic model of what happened here? So it's a little bit unclear, but basically what seems to have happened is that FTX has an affiliated crypto hedge fund called Alameda.

Alameda seems to have made some bad bets somehow or other. It ran into trouble and to prop it up at some point over the summer, probably. FDX started sending a lot of FDX customer money to Alameda, which Alameda then posted to its own lenders or otherwise loss. And then last week, there were some doubts about FTCS in the market and customers started withdrawing their money from FDX and FDX realized it didn't have their money and it went bankrupt in about 20 minutes. That it did. So prior to recent events. What was your impression of the relationship between FTX and Alameda?

I have to say I didn't really have much of an impression, one way or the other. Obviously, there were a lot of conspiracy theories about what FTX and Alameda were doing because they were run basically by the same group of people, the same people who kind of were all roommates in a big apartment in the Bahamas. They were founded by the same person. They were clearly connected and there were sort of these vague representations about them being separate. But like, not a lot of necessarily enforceability to that. So I didn't really know. I assume that Alameda was a market maker on the FDX exchange and that, you know, it may or may not have had some benefits from being the affiliated market maker.

When you hear people complaining about these things, you often think that the essential complaint is Alameda has some advantage in making markets on FDX. It makes too much money by trading against FDX customers because it knows something that everyone else on the exchange doesn't know. I never find those stories that, like that's a story in standard equity market structure. And I don't find it like that exciting. It might be true, but it's not that exciting to be like, oh, they can see the order book a little bit faster than everyone else. That can be an advantage. But, I don't know.

Those stories aren't that compelling. But it seems increasingly likely that that is not at all what was happening here because the basic problem here was very much not that Alameda was making too much money. Alameda was losing too much money. So the actual problematic relationship here is pretty much that Alameda lost a bunch of money and FTX just bashed over its customer money to Alameda. There are other possible stories that are even worse. And I don't want to talk too much about them because they're all sort of speculative.

But some speculations are basically that Alameda was more or less in the business of losing money on FDX, that rather than Alameda being too good at trading on FDX, Alameda was bad at trading on FDX. And so if you went to FDX as someone else, as a crypto-hundred. hedge fund or even as a retail customer, and you traded an FDX. You got really good prices because Alameda was making really bad prices because they were losing money on every trade. And if you believe that, then you could tell a story that's like, well, FDX became a very popular exchange and made a lot of money in trading fees because it offered this really

good trading experience to customers by basically having its affiliated hedge fund lose money on every trade. And, you know, that's a great story, except that if the way that the affiliated hedge fund can afford to lose money on every trade is by taking the customer's money, then it becomes a really bad story. It becomes, you know, effectively a Ponzi scheme. So I don't know that that's what happened. There's certainly some speculation about that. But in any case, the sort of standard story of like Alameda has too many advantages and makes too much money by trading on FDX does not really seem to be true. I want to just that point is really key because when I talked to sort of like professional crypto

traders prior to all this, like back of the summer or early. this year, they really liked FTCX. And they'll, you know, the liquidation engine, which I think we talked about on one of the episodes with you and SBF was something they really liked it. They really liked the professional. It seemed very professional. It worked really well for them. And so this idea that, and again, we don't really know for sure that maybe some of this was only sustainable because of the loss making trading arm of the SBF empire. Again, we don't really know, but that would sort of explain many things at once potentially. Yeah.

Like there's sort of two points there. One is, yeah, the liquidation engine is one possible avenue that people have pointed to as a way that Alameda could be like losing money to provide a good customer experience on FTX and then through the back door of taking customer money, like, you know, that being a bad story. But the other thing is that like, you know, investors liked FDX because like it had good technology and it had like good products and it was, you know, there's a lot of like sort of finger pointing at like venture capitalists and and sort of.

of everyone who dealt with FTX saying, like, you know, they were bamboozled by this. But, like, there was something there, you know, like the exchange was good. Now, part of why the exchange was good might have been, you know, sort of deeply problematic financial dealings. But part of it was like, you know, it was a good exchange. I built it well. Like, I often find myself in crypto thinking, like, there was so much money to be made. Like, why did you have to make money in bad ways when, like, you could have just taken fees and gotten super rich? So I think there's, there's an element of that, too. So maybe now is a good time to bring in the infamous box episode of odd lots where we had Sam Bankman-Fried plus Matt Levine on talking about the business.

Matt asked Sam to describe yield farming to him and he famously described it as basically a magic box that you put money into and more money comes out. And I think, you know, all of us were there when Sam said this. And we were all pretty shocked. we were shocked to hear someone describe DFI basically as a Ponzi. But in retrospect, the really surprising thing about all of this was that it seems like Sam was basically describing what he ended up doing with two tokens. So FTT and serum or SRM. Yeah. I mean, in some ways it's not that shocking that the head of a centralized exchange would say a lot of

stuff and defy as Ponzi schemes, right? Like, in some ways, he was, you know, he wasn't talking about crypto as a sort of broad concept. He was talking about a specific element of defy, where, you know, in some loose sense, defy as a competitor to centralized exchanges like FTX, and he might not like them, just, you know, they might be a, you know, he might, you might have incentive or, you know, he might have reason to talk to say bad things about them. So that's one thing. Like, one thing I did take away from that was just like a sort of general level of, you know, in hindsight, I'd say cynicism, but like I would have said something like agnosticism about crypto, right? Like what he said was not that, you know, every cryptocurrency is this brilliant project that will change the world. What he said was

like, look, you can abstract away from the claims that are made about these cryptocurrencies and just sort of talk about like their financial characteristics. And, you know, at the time, their financial characteristics were kind of that they went up. And so, you know, as the guy running in exchange, who is making money from crypto volatility and from interest in crypto, you know, I interpreted that as sort of like this clear-eyed, like, I am making money because people keep putting their money into this asset class, and I don't fully understand it, but I'm going to keep making money for it, which is like, when I put it that way, like a cynical view, but like I also think that a lot of people in traditional finance are not, you know, necessarily vouching for the business model

of every company who stocked their trade, right? It's just like, you know, you're a market structure guy. You don't worry too much about the underlying business. So I sort of, I was not, you know, I was, I was shocked that he said it because it was great tape, but I wasn't like, oh my God, this guy is running a Ponzi scheme, right? I sort of was like, this is the market structure guy. But yeah, as you said, you know, FTX had its own token and the token is not entirely just a magic money box, right? I mean, the token is sort of like shares of stock in FTCX. It's not really. FTCs is a company. It has shares of stocks that it raised money. But like the FTT token is kind of like a tokenized version of, you know, a bet on the future cash flows of FTX. And there's also another token called serum, which is sort of a weirder case. Serum is like this decentralized finance, like a decentralized exchange protocol on the Solana blockchain that, you know, is not exactly owned by FDX, but is, you know, it's kind of started by FDX and Alameda and like clearly has ties to them. And it's sort of like, you know, I would interpret it as kind of like FDX's bet on like if everyone really wants decentralized exchanges, then they won't want to trade on FTX. But like serum will be sort of like the FtX of decentralized exchanges. And fine, he started these companies or whatever, these entities and issued these tokens because like, you know, you do that in crypto. But it turns out that when he was sort of shopping for a rescuer last week, he was circulating this balance sheet. And it basically showed that like to exaggerate slightly,

basically everything at FTCX. All they had was like these tokens. So they started these companies, whatever. These like, you know, FTX and CRM are like, you know, trading entities, exchanges. They issued these tokens, CRM and FTT. And like, that's fine. That's sort of part of the crypto business. But then it turned out this balance sheet that circulated last week when SBF was shopping

for rescue financing for FDX, like most of their assets or like a lot of their assets, certainly more than their net equity, were in. these tokens and at like really implausible valuations. Basically they would issue like a little bit of these tokens. They trade a little bit in the market. It's unclear if anyone other than Alameda was actually trading them, but they had a market price. And then you take that tiny bit, you know, there's like 100 million circulating it and you multiply that by the millions more tokens they held in reserve and you say, oh, we've got like two billion dollars of serum token. It's very hard to imagine anyone putting a two billion dollar valuation on all those tokens. And so,

In some sense, like, what happened at FTX was kind of what he described to us on that oddlots, where he got a lot of money against the box. And what was in the box was these tokens that turned out to be worthless. And now the money is gone. On April 4, 2023, around 2 in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco. Hey, who did this to you? What happened next turned the store. story into a political firestorm.

Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg Podcasts, this is Foundering, the Killing of Bob Lee, beginning April 16. There's a lot of people in crypto who talk about changing the world. And you sort of have like, you know, whether it's like the Bitcoin view of the world about, you know, monetary disorder on the Fed, I think there's a different world. I don't know how to articulate Vitalik's philosophy. but like crypto itself can sort of reorganize society in a positive way. And my interpretation of the box comment was kind of like yours that he saw basically

crypto is a way to make money. And of course, SBF has his own vision or had or his own vision of how to change the world through the effect of altruism philosophy. But that basically my read at the time was he more or less cynically saw a huge opportunity to make money from all of these de facto Ponzi's to filter money through. his own causes. Now, on the tokens, serum and FTT, here's something that I'm like a little confused about, and you've written about this a lot. So, okay, they were holding these tokens of their own creation on their books at these multi-billion dollar evaluations, which they almost certainly

couldn't get in the market. Who was that for? Because they're not a public company. So it wasn't like they needed to say show these to investors per se. Like what would what do you think the purpose of these this, uh, these sort of inflated marks on a private balance sheet were who are they trying? If the point was this was it self-deception about the strength of their balance sheet, was it about the auditor? Like what, what purpose did this serve? Yeah, it's a good question. I don't know the answer. Um, I mean, I think part of the answer is like the, the, the place where we immediately see this is this Excel sort of rough balance sheet that they circulated to rescue financiers, right? So that was the, that's the audience we know of, right? Where they were like,

we need rescue financing. We actually have positive net equity. So if you rescue us, you know, you'll do well. And, you know, if you look at the totals on the balance sheet, it's like, yeah, there's more assets than liabilities. And then you like, look at the actual, you know, entries. And you're like, oh, these are all just these weird tokens that you can never monetize there. So the immediate audience is like the people who might provide bailout financing were the audience for for like these inflated numbers. But, you know, that doesn't really answer your question because like, you know, the whole, like they had, they created these tokens before last week, you know, and like presumably they were thinking before this like, oh, you know, we have billions and billions of dollars worth of these tokens. So I do think that part of the answer, and I don't know, here I'm really speculating, but part of the answer seems to be that the FTT token, which is really the thing that brought this down. right? Like what triggered a crisis of confidence in FTX was basically

CoinDest publishing a story about how much FTT tokens Alameda had and then CZ at finance tweeting, you know, we're going to dump our FTT token and that kind of collapsed everything. So the FTT token was doing some work and I think the basic work that it was doing was that presumably Alameda was using it as collateral for loans. And I think it's a reasonable guess to say that it was using it as collateral for loans from FTX, you know, possibly of FTC customer money, and that the, you know, use of this inflated amount of FTT as collateral was designed to sort of like make everyone feel a little bit better about it, right? Like you can sort of, I don't know if you can necessarily tell your auditors, we got fair

value back in collateral, but you can like, you can tell your junior employees that, you can tell yourself that. You can sort of like point to that. I'm not really sure that's what's going on, what's going on, but clearly like somebody is posting FTT as collateral for something and having an inflated market value of FTT made that possible. The serum stuff, it's less clear to me that how that was done, you know, what purpose that served and it might be just, you know, we shopped that serum around as we're looking for bailout financing. So, Matt, one of the things that you hear from crypto proponents even now is this idea that, well, the FTX saw. It doesn't show that there's necessarily a problem with crypto.

It shows that there's a problem with bad actors in the crypto space. And FTX wasn't a truly decentralized exchange. It was a centralized one. And not only that, but it was performing all these different market functions all wrapped up in one entity. So, you know, brokerage, custodian, all of that. Is that like a valid excuse at this point? Is the problem here a market structure one, or is the problem something fundamental to the crypto business? Well, I don't know that you can completely separate those things insofar as like, I think it's true that like Bitcoin as like a concept is not really affected by this, right?

But I also think that like crypto is, you know, sort of refers to a broad ecosystem. And it's just clearly the case that big centralized. exchanges are a big part of crypto, right? And certainly there are people who do not use centralized exchanges and who sort of self-custody their coins and use decentralized finance and are very bullish on decentralized finance and think everyone who uses FTX or Coinbase or finance or any other centralized exchange is a chump and is not sort of true to the true meaning of crypto. And like, that's fine. But like it is hard to imagine a world where crypto is really big and really mainstream and really big institutional investors are putting money into crypto,

and there are no centralized exchanges and everything occurs on the blockchain. I just think that is a world where you can do some stuff like that, right, and where people are building stuff on that, but it's not the world of sort of mass mainstream adoption. The world of mass mainstream adoption is like, there's a company with a website and you have a password, and you can trade on a centralized platform that is fast and not run on the blockchain. and you have like a legible entity that a black rock can custody its coins with and all these things.

And so like when one of the biggest and most respected and most sort of like compliant seeming of the big the big offshore crypto exchanges, I'll talk about that. But like when FTX, which was like sort of viewed as a good actor turns out to be very much not a good actor, like you, I think it is fair to say like, like, it is fair to say like, Like, you know, the crypto system broadly needs to do some introspection about that. And I think that, like, some of that is, like, you have these giant levered financial institutions that don't have public balance sheets and don't really have a regulator, right? Or, like, sort of have a regulator, but they have a million different entities and no one knows which one runs the exchange. And the regulator is, like, you know, the Bahamas and, like, they're, like, one of the bigger, you know, contributors.

There's a lot of like, what you don't have is like an ecosystem where the biggest players are headquartered in like, you know, the U.S. and Europe and have like a regulator who has, you know, 50 examiners in their offices every day looking over their books and who have capital regulation and stress tests and public balance sheets and all these things. And I don't, I mean, I know, Joe, you are, you are skeptical. about the future for crypto regulation. And I am too, because I think, like, the path of crypto is that these big firms have sort of grown up in a sort of, like, you know, jurisdictional limbo where, like, they all live offshore and are sort of, you know, get to choose their own regulation a little bit. There's an advantage to a bank of being an American bank, right? And the advantage is, like, the Fed, but also, like, the sort of market confidence that comes of, like, you're an American bank you're listed on the New York Stock Exchange, like your balance sheets are audited by American

auditors. All the like U.S. regulatory apparatus is helpful for banks that want to raise money and trade. And in crypto, like, that doesn't really exist. Like it is a little bit, right? There are some, you know, crypto entities that make the choice of we're going to be in the U.S. we're going to try to be regulated by the U.S. We're going to try to be U.S. public companies because that is going to be really onerous

and annoying. And I think they all find that because U.S. Crypto regulation is tough. But also it's going to, in the long run, lead to more confidence because we are going to be more trustworthy than people who form their exchanges offshore and don't publish their balance sheets. I'm June Grasso, inviting you to join me for the Bloomberg Law podcast. Every weekday, we help you make sense of the legal stories that shape the nation and the world. Listen for complete analysis of the biggest court cases. The latest actions from Congress and regulators.

and the legal moves driving the markets. From corporate law to constitutional law and from state courts to the Supreme Court. At Bloomberg Law, we go beyond the day's headlines. We speak with top attorneys, judges, scholars, and policy experts to break down what the rulings really mean. We do this every weekday, then bring you the best conversations in our daily podcast. Search for Bloomberg Law on YouTube, Apple, Spotify, or anywhere else you listen. Listen. On the East Coast, listen as you start your day. And on the West Coast, catch up in the evening. That's the Bloomberg Law podcast with me, June Grasso. Subscribe today wherever you get your podcast. I guess it's sort of like, you know, when any financial entity implodes, you know, you can just in finance, you can implode for sort of like benign reasons. You make bets. You thought they were going to go one way. They go the other way. You have to close up shop. And then there's fraud. Like, it is weird when it's in exchange because we don't think of exchanges as making bets.

And typically, you know, they say, or holding our, or holding your money and they don't take positions, et cetera. Yeah. I do want to push back on that a little bit just because like, like, the crypto exchange is not, is a broker dealer. Well, so I was, so this is, and this basically the question I was going to ask, which is like, is there a version of this story that, I don't know, not benign because people are destroyed and. like, you know, they may have a million people who have lost money and, you know, massive damage. But is there, you know, you talked earlier about, like, there's this sort of like worse version of the mainstream narrative. Is there like a better version of the mainstream narrative that we perhaps aren't thinking about? It's tough.

I mean, you know, as I was saying, like, like, crypto exchanges are not just, like, people use the word exchange. And so they think of like this neutral thing that doesn't like, that just matches buys themselves, right? I mean, crypto exchanges are broker-dealers. They hold their customers money for them. They provide leverage to their customers. And so if you're a futures exchange, like you're sort of taking risk, right? You're taking market risk. And so there are versions of the story where you get sort of mismatched on that risk

and then you implode. And it's a series of understandable but bad market judgments. I think that the reporting about this has been pretty bad. I'm sorry, I don't mean the reporting is about. I mean, like the sort of facts that have come up seem pretty bad for FTX, right? I mean, I think that, you know, FDX's terms of service says we can't use your crypto deposits for our own purposes. And SPF tweeted that we don't invest customer deposits even in treasuries. And then it turns out, as far as I can tell, in fact, customer deposits were being sent over to Alameda to make some sort of bets that lost money, right?

So that's bad. You could tell a version of the story that's not so bad, right? where it's like Alameda as a customer on the exchange, we made a reasoned, possibly biased, possibly, you know, unfortunate decision to extend credit to Alameda as, you know, part of her function as a crypto exchange and like, you know, the crypto exchange that extends leverage to customers. Alameda was a customer, extended leverage to that customer. And it blew up and took all of, you know, took all of the exchanges capital with it.

And the exchanges capital is, you know, in some ways synonymous. as with the other customer deposits. Like, I don't know, in the abstract, you can tell a story like that, but it's not the most likely explanation at this point. So I have one more question, and it's kind of a process question, but with your former lawyer's hat on, the complicated structure of the FTX empire, and I think there was a sort of a diagram floating around recently that showed something like 130 corporate entities. And I think in the diagram they mixed up some non-tiex empire.

on FTX entities with actual FTCX entities, but that just shows how confusing it all is. The fact that there's FTX U.S. and FTX International and, you know, one of them is based in the Bahamas and Alameda itself is based in Hong Kong, how much does that complicate, I guess, the resolution and potential prosecution of what we've been talking about? It's a mess in terms of, and particularly, like, the thing that I'm very, really in the dark about is FTX US, which is like the U.S. entity, which exists because U.S. crypto regulation is really tough. And so you can't do it. Like a lot of the products that are the bread and butter of FTX, you can't trade in the U.S. because of some, you know, interaction

with either securities law or like futures law. And so FDX U.S. offers sort of a subset of FTX products and is, you know, possibly more regulated and possibly safer. And for a while, the storyline was that FDX.com was bust and bankrupt, but that FtX.U.S. was, like, you know, walled off from that. And now there's, you know, there seems to be some trouble at FTCS, too. And it's just unclear, like, how intertwined these things are financially. But, like, you know, regulatory, they were different. You know, in terms of, like, prosecution and in terms of, like, like, broadly speaking, like, FTCs.com is in the Bahamas because it offers products that would have required, like, regulatory, like, let's say, registration in the U.S.

products that would be securities in the U.S. and would have to get securities registration and require FTCS to register as a stock exchange or products that would be like regulated futures where the FTCS would have to register as a futures exchange. There would be, and, you know, the U.S. regulation is tough enough that it might be hard to actually do those things. And so FTX didn't trade those products in the U.S. And FtX.com is not, not, I think, technically open to U.S. persons.

but if the question is, can the U.S. Attorney's Office for the Southern District of New York go after FDX.com for wire fraud, which is like kind of the question here? Like the answer is, yeah, of course, like, easy. Like, and I don't know the exact mechanism, but basically like, you know, at some point someone's moving dollars from a bank into FDX.com. And probably a lot of the people whose money got lost at FDX.com are not like, you know, U.S. retail investors, but are, you know, Cayman Islands, crypto hedge funds that are run by New Yorkers or whatever, right? Like, there's enough, like, connection to New York that I don't think, you know, I think in general, like, the federal prosecutors are aggressive and creative about finding U.S.

jurisdiction for foreign companies doing things to foreigners abroad when they want to. And I don't think this is like, this is like one of their harder challenges. Like, I think there's going to be enough kind of U.S. stuff here that if, like, U.S. prosecutors are going to feel very comfortable looking into it, which is not to say that I'm, you know, I don't want to prejudge whether they'll find any crimes. But, like, I think that they'll find jurisdiction. In other words, the problem won't be as like, oh, they committed these crimes, but they're in the Bahamas. We can't do anything. If they conclude that there were crimes, they'll find a way. Yeah.

Being in the Bahamas is a way to avoid securities registration requirements. it's not a way to avoid U.S. criminal fraud law. Matt Levine, thank you so much for your perspective. Great to have you back. And this was a very helpful conversation. Thank you, guys. Thanks, Matt. Obviously, Tracy, talking to Matt, is always helpful.

And I want to start with actually just that last point. We don't know, as of recording this right now, on November 16th, whether there is going to be criminal charges ultimately brought in the FTCS case, but it's sort of useful to know that simply by virtue of technically domiciling FTCS, or I guess not technically because that's where they were based in the Bahamas, that that is not some sort of like escape card, so to speak. Yeah, absolutely. It certainly seems like it isn't.

The other thing that's standing out to me as I think back to all of this is I think the FTX Alameda relationship, I think there was always a perception in the industry that there was something there, that there was some sort of, you know, beneficial relationship. as Matt described it, maybe they were getting like early info on tokens that were about to list on FTCS and then flipping them and things like that. But in retrospect, in retrospect, it seems like what they were doing was pretty simple and just going massively long various coins. Like there wasn't really a secret sauce. There wasn't necessarily like some amazing liquidation engine. It seems like they were just taking outsized bets. on digital tokens.

Yeah, you know, that's the thing. I think it's the Jane Street pedigree, right? It's not just Sam, but others who he worked with who had gone through the sort of like famous quant trading shop, Jane Street, which we talked about with Sam the first time. And so you sort of get the impression like, okay, Alameda is going to recreate Jane Street in some way but for crypto. But, I mean, maybe not. And this idea, you know, I think everyone, right, as Matt was saying, and, you know,

one way or another, it seems like Alameda lost a ton of money. So either they were trying to do something sophisticated and they couldn't do it, or maybe they were taking bad directional bets, or they were spending badly, or it was sort of like this loss leader to make the FTX platform more attractive to institutional investors. But whatever it is, it does not seem to have been that sort of like super brilliant Kwan shop that you would sort of expect from like Jane Street alum. No. And the other thing that stands out to me, and this has been a recurring theme on the podcast recently, but this idea of truly decentralized crypto versus centralized players and exchanges. And I've said this before on Twitter, but I very much agree with Matt, this idea that like everyone is going to be running their own node and storing their keys in like cold storage. And no one's ever going to need to interact with a centralized. player, I think is unrealistic because not only, A, not only is a lot of crypto stuff still very difficult for people to figure out and do on their own, but B, people want to do stuff with their

money, right? You want to get additional credit for it. You want to trade it. You don't want to necessarily just keep it on a wallet and never actually use it. And that's what a lot of the centralized entities and exchanges actually did. Yeah. I mean, look, you can trade and speculate on a defy exchange, but I think Matt is right. And I think it's definitely true that in the last few years, there is no way crypto would have gotten as big had it not been for numerous websites where you log in and you have a password and you move your money onto a website, which is like the idiom of normal finance, right? And so maybe there is like an alternate scenario in which everyone in crypto really adhered to like these sort of like defy principles. And maybe that would have been better.

and maybe that would have been more, you know, less, I don't know, something. But I don't think there's any way in that world it would have gotten nearly as big or like attracted this sort of like money risk-seeking behavior in such volume that it has. Yeah, I agree. All right. Shall we leave it there for now? Let's leave it there. This has been another episode of the Odd Thoughts podcast.

I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway. And I'm Joe Wisenthall. You can follow me on Twitter at the stalwart. Follow our guest, Matt Levine. He's at Matt Levine. follow our producers, Carmen Rodriguez at Carmen Armin and Dash Bennett at Dashbot, and check out all of the Bloomberg podcasts under the handle at Podcasts.

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