Tech Brew Ride Home - Wed. 11/09 – CZ & SBF Make FTX Go Boom?

Episode Date: November 9, 2022

The Meta layoffs are here and they’re brutal. But rumors are, TikTok is cutting back also. What even is the new Twitter subscription product at this point? Does anybody know? And if you look at today’s show title, and it’s just a bunch of gibberish, hopefully I can explain the big crypto blowup from yesterday. Sources: Kinsta.com Storyblok.com Links: Meta confirms 11,000 layoffs, amounting to 13% of its workforce (TechCrunch) TikTok slashes global revenue targets by at least $2bn (Financial Times) Twitter’s solution for ruining verification is another check mark (The Verge) Disney+ reaches 164.2M subscribers as it prepares for ad-supported tier launch (TechCrunch) The Story of Sam Bankman-Fried’s Backroom Deal With Binance’s CZ (CoinDesk) Lucas Nuzzi (Twitter Thread) FTX Venture Investors Fear Total Wipeout in Binance Rescue Deal (The Information) Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to the Tech meme right home for Wednesday, November 9th, 2020. I'm Brian McCullough today. The meta layoffs are here and they're brutal. But rumors are TikTok is cutting back also. What even is the new Twitter subscription product at this point? Does anybody know? And if you look at today's show title and it's just a bunch of gibberish, hopefully I can explain to you the big crypto blowup from yesterday. Here's what you miss today in the world of tech. The meta layoffs are here. Mark Zuckerberg this morning announced plans to lay off 13, percent of its staff or more than 11,000 employees worldwide. Meta will also cut discretionary spending and extend its hiring freeze through at least Q1, quoting TechCrunch.

I want to take accountability for these decisions and for how we got here. CEO and co-founder Mark Zuckerberg wrote in a statement, I know this is tough for everyone, and I'm especially sorry to those impacted. Meta's current headcount equates to around 87,000 around the world, meaning that 11,000 people will be leaving Meta, according to Zerner. Zuckerberg, each U.S.-based employee will receive 16 weeks of severance pay plus two extra weeks for each year of service. So, for example, someone who has worked for Meda for four years will effectively get six months pay. On top of that, Meta said that workers will also be paid for

all remaining unused time off and receive stock-based compensation that was vested through November 15th. Additionally, health insurance for employees and their families will be offered for six months. Outside the U.S., Zuckerberg said that support packages will be similar, but tailored for each market. What's notable, perhaps, is that Zuckerberg barely acknowledges the metaverse at all in his open letter to employees, aside from affirming that it's a long-term vision that remains one of its, quote, high-priority growth areas. At the start of COVID, the world rapidly moved online and the surge of e-commerce led to outsize revenue growth. Zuckerberg wrote, many people predicted this would be a permanent acceleration that would continue even after the pandemic ended. I did too, so I made the

decision to significantly increase our investments. Unfortunately, this did not play out the way I expected. Not only has online commerce return to prior trends, but the macroeconomic downturn, increased competition, and ads signal loss have caused our revenue to be much lower than I'd expected. I got this wrong, and I take responsibility for that, end quote. Kind of think this is worth pairing with that segment. Sources say that TikTok has cut its 2020 revenue target from $12 to $14.5 billion to only around $10 billion, as some staff have been complaining of overspending on salaries, social events, and more, quoting the Financial Times. Targets were cut by 20% in late September by TikTok chief executive Suuji Chu in a virtual all-hands

meeting, according to four people familiar with the move. TikTok originally projected revenues between $12 and $14.5 billion this year, but actual revenue is now believed to be closer to $10 billion, these people added. During the meeting, staff were blamed for not driving enough sales in both advertising and e-commerce, the platform's main sources of income, these people said, but several current and former employees told the financial times that TikTok had overspent in other areas from salaries to social events. In the same meeting, staff were told that the Hong Kong IPO of ByteDance, TikTok's Chinese parent company, was unlikely to take place this year. The company had previously shelved plans to list overseas after Beijing launched a crackdown on Chinese

tech giants last year. It is the first sign that TikTok, though still growing quickly, is struggling with the same issues that have ailed its older social media rivals, end quote. Apparently, Twitter plans to label select accounts as official when the new Twitter blue product launches. It's scheduled to launch any minute now today. And when it does so, not all previously verified accounts will get this new official label, which also will not be for sale. So again, what are you actually going to be paying for if you pay Elon his $8 a month? Do you think even Elon knows at this point? Quoting the Verge.

Twitter is rolling out another type of checkmark to help distinguish accounts that users actually need to know are real. Although you can pay $7.99 per month for a blue checkmark with the new version of Twitter Blue, select accounts for governments, companies, or public figures will get a gray official checkmark, according to a thread from Twitter's Esther Crawford, who is heading up the new Twitter Blue Initiative. A lot of folks have asked about how you'll be able to distinguish between at Twitter Blue subscribers with blue checkmarks and accounts that are verified as official, which is why we're introducing the official label to select accounts when we launch,

Crawford says. Accounts that will receive it include government accounts, commercial companies, business partners, major media outlets, publishers, and some public figures, according to Crawford. Being previously verified doesn't automatically mean you'll get the new official label, and you can't buy the new label, meaning Twitter will be the one making the call on who gets to have it, end quote. Quoting, as always, from Dar Obisancho. So the blue check is becoming a paid user badge while the old notion of being verified becomes a gray check. I don't really understand working nights and weekends to charge $3 extra for a paid user badge from $5 for tweet editing in Twitter Blue. Who asks for this?

Not sure why Twitter is stopping at two checkmarks. go all in and make an entire rainbow of tears, then commit to the cash grab. There should be a $10,000 gold checkmark just like the gold Apple Watch, make it the new ape profile pick, go wild, end quote. And quoting Casey Newton. In other words, a near perfect replication of the existing verification scheme under a different name. So much for power to the people, end quote.

Worth noting, I think, that Disney announced it has hit 235.7 million global streaming subscribers, pushing it past Netflix global tally of 223.1 million subscribers. Disney Plus had 164.2 million subscribers. Hulu had 47, and ESPN Plus had 24.3 million, quoting TechCrunch. The company overtook rival Netflix for a second time, despite Netflix reaching 223.09 million global subscribers during its third quarter. Disney previously decreased its 2024 guidance for the Global Disney Plus subscriber total last quarter. order to between 2015 and $245 million. The prior target was between 230 to $260 million. ESPN Plus reported 24.3 million subscribers, a slight increase from 22.8. Hulu only gained

1 million subscribers, bringing the new total from 46.2 million to 47.2 million. However, the company fell short of expectations for total revenue, which was reported to be 20.15 billion. Wall Street estimated that Disney would report a 15% year-on-year jump in revenue to 21.3 billion, the direct-to-consumer division lost $1.5 billion. We expect our DTC operating losses to narrow going forward and that Disney Plus will still achieve profitability in fiscal 2024, assuming we do not see a meaningful shift in the economic climate. CEO Bob Cheapek added, end quote. Okay, to the really big news. Binance CEO Chang Peng Xiao tweeted the company had signed a non-binding letter of intent to acquire FTX.com to help cover its liquidity crunch pending due diligence.

So the answer to my question in yesterday's episode title of, FTCS, you okay, bro? The answer was no. FTX apparently saw around $6 billion of net withdrawals in about 72 hours leading to a liquidity crisis that basically only Binance could step in and bail out, although one notes that it's a non-binding letter of intent to acquire, not a done deal, CZ could basically let FtX die. It already is effectively dead. Sam Bankman-Fried, the dude on the cover of fortune just a few months ago, the dude who was running around bailing out everyone in the earlier crypto blowups this year, the one everyone was calling the new J.P. Morgan is now himself blowed up. His estimated $15.6 billion fortune has been eviscerated in mere days, dropping to around $1 billion, the

largest one-day collapse of wealth ever for a single human being's wealth, I believe. Now, questions remain. Was he pushed into blowing up? Quoting CoinDesk. We may never know how close Sam Bankman-F's crypto empire came to collapse or the collateral damage that would have caused for the industry, but we do know the principal risks at play. And sadly, it's the same issues Bitcoin was created to solve over a decade ago. financial self-dealing, human hubris, and untransparent markets. What just happened? Binance, the world's largest crypto exchange by volume, has agreed to buy a competitor it

had initially nurtured and then almost tanked, FTX. Binance CEO Chang Peng Zhao, or CZ, confirmed the deal on Twitter, saying the two exchanges signed a non-biting letter of intent. The deal, still subject to due diligence processes and not completed, is a stopgap measure to save SBF's crypto exchange from insults. It will likely calm markets that had been rocked by a public rift between the two crypto-titans so well known as to go simply by their initials, CZ and SBF. Things have come full circle, and FTCS's first and last investors are the same. We have come to an agreement on a strategic

transaction with Binance for FtX.com pending due diligence, etc. Bankman Freed tweeted Tuesday using shorthand for due diligence. Keeping with the full circle motif, it's worth noting that SBF always saw blockchain more as a means to an end. He entered crypto after a few years as a Jane Street-Quant with the stated aim of making as much money as possible to gain as much influence as possible. That would be a fine mentality in crypto had SBF any apparent love of the tools and protocols that made him rich. Instead, SBF, a political mega-donor who has spent $50 million during the past U.S. election cycle, has used his influence to push for regulations that ruffled his customers and competitors' feathers.

He was a vocal proponent of the DCCPA bill that would create a brokerage-like licensing system for decentralized finance and argued against financial privacy. That's what he said in public. For CZ, the bigger concern was what was said behind closed doors. We won't support people who lobby against other industry players behind their backs, the Binance CEO tweeted this weekend. This was CZ's attempt at being transparent. said, explaining a large transaction of over 500 million FTT tokens to Binance made the day before.

He announced that Binance would be selling these tokens into the open market and drew a worrying comparison to Luna. Another project Binance was early to back that later collapsed after a bank run. CZ was seizing the moment caused by market uncertainty after Alameda research's financials were leaked to CoinDesk. The links between FTX and its sister firm, the hedge fund Alameda, have historically been unclear beyond that both were founded by SBF. The leaked financial statement showed that the majority of Alameda's assets were illiquid or locked alpcoins, many of which SBF had a stake in, including FTT, Seoul, and SRM, the token from the serum decentralized exchange, Bankman-Fried co-founded.

Alameda will never be able to cash in a significant portion of FTT to pay back its debts, Mike Berzenberg, an independent market analyst for Dirty Bubble Media, which was also early to call the collapse of Terra Luna said, bank runs can be self-fulfilling prophecies, although several analysts said it was unlikely that either FTX or Alameda would suffer a margin call. Investors began pooling funds, concerned their capital would be locked up in bankruptcy proceedings, like with Neobanks, Celsius, and Voyager Digital. Bankman freed and Alameda CEO Carolyn Ellison did what they could to calm investors' nerves, offering to mitigate a steep sell-off of FTT by offering CZ $22 per token.

Ellison said the leaked financial statement did not account for another $10 billion Alameda allegedly had, while SBF said that client funds were safe and never re-hypothicated into other crypto deals. On-chain analytics showed a more worrying story. Stable coins and other assets were draining from FTX. Before the Binance buyout was announced today, traders had pulled all the Bitcoin FTX had off the platform, according to CoinCC. glass. Alameda was unlocking funds from various defy platforms to send ETH to FDX, seemingly unconcerned with steep withdrawal fees. Yesterday, it became clear that Binance would reject SBF's offers to sell its FTT tokens over the counter to minimize the sell-off. Instead, it would hold these assets

the fruit of what CZ called a divorce, like a sort of Damocles. Bellwether cryptos like BTC and ETH trading sideways yesterday began to slip in overnight trading. It was clear the contagion would be severe if SBF's empire fell. Crypto is tied up in intricate knots, and once it frays, the whole system can unravel, like after the collapse of hedge funds three arrows capital, end quote. So here's the thing. It was well known that CZ and SBF, so Binance and FTCS effectively didn't like each other. Most recently, they were beefing over how they hoped crypto would be regulated, as that piece just said. Was this basically a cutthroat market move straight out of the wild West days of the 1800s on Wall Street, did CZ engineer SBF's destruction? Some people think so.

Some people think this was a McAvellian plan from the beginning. But this morning, Lucas Nuzzi, head of R&D at Coin Metrics, came out with another theory in a tweet thread that I'll link to in the show notes. In short, Nuzzi's theory is based on his own on-chain analysis, and it goes like this, that actually Alameda blew up earlier this year along with all the other blow-ups. from the late spring and early summer, but because it could move that FTT coin back and forth between Alameda and FTX, it could remain solvent. So basically, Sam Bankman-Fried actually blowed himself up months ago. It's just that the explosion was delayed until yesterday, quoting from the thread. Here's what I think happened. Alameda blew up in Q2 along with 3AC and others. It only survived

because it was able to secure funding from FTX using as collateral, the 172 million FTT. that was guaranteed to vest four months later. Remember, the FTT ICO contract vests automatically. Had FTX let Alameda implode in May, their collapse would have ensured the subsequent liquidation of all FTT tokens vested in September. It would have been terrible for FTX, so they had to find a way to avoid this scenario. The timing actually makes sense. Alameda and FTX essentially put all chips on the table in Q2 and use that cash to bail others out. This solidified FTC's image as a solvent and responsible institution, which actually helped FTT's price. So did SBF's political moves. The Alameda bailout likely put a dent on FTX's balance sheet to the point where it was no longer

solvent. This would have been fine if the price of FTT didn't collapse and a bank run ensued. This is why Alameda tried their best to protect FTT's price. Here's where I think it gets crazier. There's a chance the folks from Binance knew about this arrangement between FTX and Alameda, and so an opportunity emerged. As large holders of FTT, they could start deliberately tanking that market to force FTX to face a liquidity crunch. Lo and behold, Binance comes to FTX's rescue. Did CZ just walk out with one of his largest competitors at the expense of a relatively large FTT bag, he was going to unwind anyway? Huge if true, end quote. Well, I guess we'll find out the truth someday. Meanwhile, Solana has crashed more than 30% to $18

a coin. Bitcoin is down more than $10,000 to $17,500 a coin and briefly hit $17,300 yesterday. It's lowest since November 2020. Ether has dropped 15% to $1,250 per coin. And behind the scenes of all of this, potentially one of the biggest wipeouts of venture capital investments since, well, at least since we work, quoting the information. The crypto exchange FTX had raised nearly $2 billion in VC funding most recently at a $32 billion valuation and counts Sequoia Capital and Paradigm as its largest VC backers, according to two people familiar with the matter. The three-year-old startup valued at just $1.2 billion in early 2020, raised nearly $2 billion

since then from investors including Tiger Global Management, Ontario Teachers' Pension Plan, Insight Partners, and Ribbett Capital. Sequoia first invested in FTX last year, valuing the company at $18 billion in July 2021. The firm quickly doubled down on its investment in an October financing that valued FTX at $25 billion. Paradigm, a crypto-focused VC fund co-founded by a former Sequoia partner, also participated in the October investment. Paradigm then participated in a $400 million investment that valued FTX at $32 billion earlier this year. FTCS, as late as September, had been seeking to raise a fresh $1 billion from investors at a valuation that would be roughly flat to its last $32 billion valuation, according to a person familiar with the matter.

As recently as two weeks ago, Bankman Freed was talking publicly about making big acquisitions, end quote. Quite frankly, this is another big blow to folks working in the Web3 space, I think, because those are huge potential losses for huge VCs, like portfolio busting losses. You could see a lot of big VCs shy away from future crypto and Web3 investments, simply after losses like that. Nothing for you today. Talk to you tomorrow.