This Week in Startups - EMERGENCY POD: FTX sells to Binance with Vinny Lingham and Sunny Madra | E1607

Episode Date: November 8, 2022

Vinny and Sunny join the show to cover all the angles of Sam Bankman-Fried selling FTX to Binance after a liquidity crunch! (0:54) (0:00) Intro! (0:54) Vinny Lingham and Sunny Madra join to break down SBF selling FTX to Binance after a liquidity crunch! (13:36) Squarespace - Use offer code TWIST to save 10% off your first purchase of a website or domain at https://Squarespace.com/TWIST (15:04) Comparing FTX's bank run to traditional finance, understanding leverage, culture of: make money first, clean up later, Vinny's theory on Alameda's locked Solana (23:24) Embroker - Use code TWIST to get an extra 10% off insurance at https://Embroker.com/twist (24:35) Three areas of crypto, understanding where FTX and FTT fall in this, risks of centralized exchanges (32:01) How this might impact broader crypto regulation, Bitcoin decoupling from the greater crypto market (37:33) Lemon.io - Get 15% off your first 4 weeks of developer time at https://Lemon.io/twist (38:57) Understanding what happened to Binance's FTT: Who is the bag holder? How might this unravel going forward? (42:55) FTX fundraising breakdown: could this situation break the crypto VC model? FOLLOW Vinny: https://twitter.com/VinnyLingham FOLLOW Sunny: https://twitter.com/sundeep FOLLOW Jason: https://linktr.ee/calacanis FOLLOW Molly: https://twitter.com/mollywood Subscribe to our YouTube to watch all full episodes: https://www.youtube.com/channel/UCkkhmBWfS7pILYIk0izkc3A?sub_confirmation=1

This week in startups is brought to you by Squarespace. Turn your idea into a new website. Go to Squarespace.com slash Twist for a free trial. And when you're ready to launch, use offer code Twist to save 10% off your first purchase of a website or domain. In Broker's Startup Insurance Program helps startups secure the most important types of insurance at a lower cost and with less hassle. Save up to 20% off of traditional insurance today. atembroker.com slash twist. While you're there, get an extra 10% off using offer code twist.

And lemon.io. Need to speed up your product development without draining your budget? Hire vetted engineers from Europe at lemon.io. Go to lemon.combe. To get 15% off for the first four weeks. All right, everybody, all heck is broken loose. Sam, Bankman, Freeds, FtX Exchange, Molly. maybe you could tee up as best you can.

Yep. What has happened? We're having an emergency podcast for those of you joining us live. We haven't been alive in a while. It's a double red flag situation. I mean, you know, we're going to dive into this, but I think we can safely say that we have this is a hinge event in the crypto economy. Sam Bankman-Fried's FTX Exchange is being acquired by its primary competitor,

Binance after what appeared to be a run triggered by Binance on FTX. primarily related to FTT, if I'm doing this right, the currency that FTX created. And then now there's this buyout in process where you have two competitors, like they just basically fought to the death like Godzilla and King Kong. And Godzilla, in the form of CZ at finance is emerging victorious. There are still, however, very large questions about Alameda research, SBF's hedge fund and market maker related to FTT. it's all an insane hot mess. Guys, tell me what I got right and what I got wrong here and what's happening.

Yeah, let's go to Sunny because I thought all of this stuff was supposed to be on the blockchain and completely transparent. Isn't that the value of crypto? Why is this so confusing what's going on? These exchanges are centralized. He makes a you bastard face too. He's like, yeah, these exchanges are centralized and they're showing that they're, you know, have some weakness. No, that's mostly correct. Let me just add a couple other interesting tidbits because they add.

the right color to it. So Binance was actually an investor in FTX. And that's how they ended up with their FTT tokens. So as the two started out in the early days, they were quite friendly. And then over the course of the years, and I think sometime, maybe within the last 24 months, Binance wanted to sell its stake in FTX. And FTCS gave Binance FTT tokens, roughly about $2 billion worth of tokens for their stake that they had in there. And then what subsequently happened is FTX has grown and we've seen super high profile, right? They have stadium sponsorships. They have F1 sponsorships.

They have Tom Brady, you know, all kinds of great stuff. Had. Had. Had. Had. Okay. Well, they still might. But, you know, what also happened is Sam and has spent a lot of time in Washington and talking about

crypto regulation. In fact, we even spoke with that in the last podcast. J.Cal actually did an interview with SBF, and he can touch on this. And what really hit the head in the last, say, seven days was an article came out that was questioning the assets, the balance sheet of Alameda. And that the balance sheet of Alameda was holding a lot of FTT tokens. And that also pointed back to some liabilities associated with FTX. And ultimately, that, Also tied back into some word, I guess, CZ, who's the founder of finance, was getting about what Sam was saying about him in Washington. And that led to him, you know, basically saying, hey, I want to sell my tokens. And that started the run on the business in the last 24, 48 hours here.

Right. Vinnie. Yeah. What is your take on this insane chess match and what just happened? because it does seem like Sam overplayed his hand and maybe flew a little close to the sun, the sun in this metaphor being regulators. Is that what is the spark here?

Is that Sam was talking smack about finance to regulators? And then that made CZ go hand. Are you trying to get into the reason why it unraveled? Or are you trying to get to the, like what, what, but let's fundamentally I was like, okay, Sam's a U.S. citizen. He was living in Hong Kong and then he moved to Bahamas to run his operations.

Why would you do that? Why would you be operating offshore like that? Because he ran two organizations. You ran Elmator and he ran FTX. And these two should have been barred from doing any business with each other. I mean, from a corporate governance perspective, you know, I can, like you guys know, you can't have a, you can't have a situation where you're, you know, you have another another company that's borrowing from a company where you have deposit of funds where you can

issue your own currency like FTT, et cetera. So there was just no like corporate governance across these structures because they were based outside the US and there was no real regulation, regulatory oversight. And it basically created a mess. If you look at the way that Alamed, I mean, Alamed is a trading organization and FTC is a trading platform, but it's owned effectively by the same person. And so you, you know, even though there there's a business, illusion of two separate entities, Alameda would invest in crypto projects and companies. FTX would list the perps, and there's lots of reasons why this is a bad thing,

but like they'd list the perps, the perpetual swaps basically and allows you to just hedge out your wrist. So they would take maybe a 12-month saft or 24-month saft. They'd list the perp, and then we'd just hedge out and make the margin. So they don't really care about the project. They'd take liquidity out of the market, that sort of thing. So this has been hanging on for years. This is not news.

This is all over Twitter. People have been talking about this for months now. And the bottom line is you had double dealing here, and it eventually unraveled. So let's, yeah, let's break down. Let's start with the relationship between FTX and Alameda that you're alluding to. So for people who don't know and what this kind of looks like, even though these are separate businesses, sister companies, let's say, Alameda's balance sheet included a large amount of FTX's FTT token.

In fact, FTT is the largest asset. We don't know what is on the balance sheet. All we have is like these, we have these rumors of what's on there. And by the way, you know, the way balance sheets work is you have $8 billion on the one side. You have $8 billion liabilities on the other side or whatever. Like it's not as simple as like, I mean, you can have a balance sheet with a trillion dollars of liabilities and $1 trillion of assets and it's a net zero balance sheet. So no matter how big the, it's really like, what's the nav? And then also what's the, what's, I should clarify, this is based on this leaked balance sheet seen by CoinDisc, date of June 30.

And those numbers don't look right. For example, like the salana that they've quoted on the balance sheet, there wasn't, there isn't that much lock Solana in the market. So that number's just wrong because they would have to have more locks Solana than what is out there. So that number is wrong. So when you see, as of June 30th, Alameda holds $3.66 billion of unlocked FTT and $2.16 billion of FTT collateral, if you're saying you think those numbers are wrong, you think what, that they're wrong. I'm not saying I think they're wrong. But here's the point, which is that that document. is what started to create questions, right, about this conflict of interest?

The document basically started off a rum-amil cycle where people started digging in. And when people started looking at the actual on-chain wallets and start tracing things, there's a lot of good crypto sleuths out there. And they find this stuff. And I think it created some sort of a catalyst where CZ was looking at this going, why am I holding a half a billion dollars with this FTT, which may not be worth this? And these guys are printing money. they probably don't have, you know, like, there's no guardrails, right?

And he knows just as well as everyone that Alameda and FTT, O FTX are, you know, two separate entities for legal reasons, but reality is just controlled by the same person on both sides, even though it has its own CEO. And, you know, if you look, it's very clear. I mean, it's always in hindsight, it's clear, but like, if you go, if you just look back six months, 12 months, the assent of Sam, three, years from zero to, you know, the next Warren Buffett, I mean, there's just not that much money to be made in crypto that fast. I mean, you can't just go in a mass $15 billion with a fortune money in crypto that quickly doing, running in exchange for all the reasons. So something had to be up. So, someone was printing money out of nowhere. So you had Red Flagg won this connection and the fact that Alameda's balance sheet appeared to include a significant

portion of a token that FTX and SBF made up. Issued. So that was issue one, right? Then issue two is SBF starts making a ton of noise. He is buying all of this stuff. Let me just correct something quickly. I want to correct something. So they didn't make up the token.

So Binance has the B&B token. FTA has the FTT token. These tokens are used by traders to reduce fees. There's some utility. People hold it. It's an investable asset. That wasn't the issue. It actually works.

There's a burn down. whatever. That's not the issue. The issue is it's just not as liquid as it should be for the purpose. They were trying to use it as collateral. So they would go and say, can we borrow dollars? We'll print $2 billion worth of FTT. It's on chain. Everyone knows it's there. But if you try and sell two billion worth of FTT in a day to get your loan back, you can't. It's not liquid enough. So basically, it's a liquidity issue. But let's not get away from the fact that this couldn't happen in the U.S. legally. You couldn't do this in the U.S. So then SBF starts to make a bunch of noise. He is rescuing companies. He's also, it seems,

courting regulation maybe in a way that the community starts to dislike. Well, well, well, so, so rescuing companies doesn't mean, so the BlockFi and BlockFi and FTX or Alameda, we'll just lump them together for now, had a relationship where there was some collateral posted to BlockFi. He had. had to save him. Otherwise, what happens is, and he knew this, the regulators come in, the administrator of the company comes in, and they just dump it. And so they're going to be dumping all the collateral that they posted into the open market because they have to get funds back for the depositors, et cetera. So you had to save it. And I suspect something similar with Voyager

happened as well. However. So his goals to prevent them from selling FTT. 100%. And it seems that some of these actions started to court some controversy. He seemed to be maybe, promoting some regulation that would make things less decentralized. The CZ got the impression that SBF was smack-talking. Like there were some precipitating events that caused CZ and Binance to all of a sudden liquidate all this FTT and effectively cause a run on FTCS, right? Sunny, if this had been... Bill in this color, yeah.

Well, Vinnie, if this had... Or Sunny, rather. If this had been, if these assets were all held in Bitcoin, or Ethereum or something, and there had been buyers available, then CZ liquidating a bunch of Bitcoin he had, or this would not have been an issue. This is all based on the fact that Sam, SBF, as he's called, printed his own currency,

and then splashy cashy used that token to do commerce in the world while having this conflict of interest. So there's three possibilities here of how to operate a business in crypto. One is to be in the United States, and follow as closely as possible, to the extent it's possible, securities regulation. Then there's to be on-chain and let the algorithms or, you know, the rule set

operate in complete transparency as Bitcoin does, as Ethereum does. And then there's a third choice to have some centralized Luna, I guess, falls into this or did at some point. What was the other one that collapsed recently? and SBF, right? It seems like there's a group of people who tried to centralize what should have been essentially a Bitcoin or Ethereum-like

process. Is that correct, Sonny? Yeah, you know, kind of Vinny's theme was correct here, so I'll just jump in to let me run with it. I think it just comes down to when you print your own money, which is what FTT was,

and you start using that as an analog for money, and then someone wants to turn it into Fiat, in the case of what, you know, say CZ was trying to do yesterday, and there's not enough liquidity there, the price of that thing will crash. And if on the flip side, someone has taken that same printed money

and borrowed against it or levered with it or done any of the financial things that you can do with these type of things, that's going to create a serious problem. And that's what we saw unfold very, very quickly. Listen, Squarespace is the platform where you can build or sell anything. And you all know, I've talked about it forever.

I've been talking about Squarespace for a decade. We love it here. We use it for all of our websites. It's beautiful. It's responsive. They have 24-hour, seven-day-a-week, 365-day-a-year, amazing support. And you know, they have these beautiful templates. So your website looks like you spent a quarter million dollars on it.

They've also added all this powerful e-commerce functionality. And what is saying that e-commerce functionality? Inventory management APIs, advanced analytics. Now they have the ability to sell content. and membership. This is critical. So for example, maybe you're a piano teacher or you're a chef. You want to sell cooking lessons. You can do that. All of that is built in to Squarespace. And this is why Squarespace is such a brilliant company. The team sits there. They study the customers. They talk to the customers. They say, hey, what can we build for you to make your life better and

easier? And they just include it in the product. You can add online booking and scheduling too now. Think about that. You've got classes or maybe you're a hairdresser, your tennis teacher. Now you've got booking and scheduling built right in. Your clients can see your availability. right? And you don't have to worry about coordinating calendars. It's all just done easy, peasy, lemon, squeezy right inside there. Head to Squarespace.com slash twist for a free trial. And when you have friends in your life, well, I need to build a website. You don't need to hire a developer. Just go to Squarespace.com slash twist and tell your friends, start a free trial. When you're ready to check out and you're going to use it, use the offer code twist. They get 10% off your first purchase

of a website or domain. Related to all this, the noise that got created yesterday, and this has nothing to do with FTT started to create a lot, like a bank run. And, you know, that's happened in traditional finance. I think the number that I saw, and you guys can confirm, was $6 billion, was withdrawn from FTCS in the last 24 hours. Now, what that circles back to is nothing to do particularly with FTT, although that's what probably started that run, because people got afraid that it was, you know, because of what's happened recently. But now the secondary question that comes in is how much of that $6 billion was actually there, or had they further lent out or levered or pledged in other places so they could go by Voyager and these other assets.

So this is the intermingling that's happened here that we don't fully understand. It'll take us months to understand what happened here. This is not a simple thing. I want to go back to basics, Jason. And with FDX started off, they allowed anyone onto the platform to trade things which U.S. persons are not allowed to trade. So you could log into FDX with a VPN with no limits, no KIC, no AML, and they built their business that way. And so you had a ton of people coming in from America using FTCS. It was a fast

platform. You could get a hundred times leverage or whatever it was. I didn't use it, but I have a ton of friends of American. And when everyone is trying to clamp down and not let the U.S. citizens use these products, FDX open it up. And he did it for about a year or two. And he grew the exchange massively. And then they kind of cleaned it up. It's kind of Uber style, Jason. Like, you know, they go, okay, well, we'll have this FTX U.S. site and then we'll do these other things. But the company culture was regulators, you know, we'll just get around them and we'll keep doing this stuff. And that's the company culture. And then what happened recently was, I think, with all this collapse, Sam was trying to go to Washington and figure out, you know, donating a billion dollars to the Democrats, whatever.

He was trying to like, you know, it's part of the cleanup act, right? You first you make your money with a little bit of shade and then you try and clear it up afterwards. But it failed because Cizzi saw right through him to some extent and said, well, this is going to affect me. and that was it. And Vinnie, if I can add something, like, look, like this type of situation is not unheard of in traditional banking. You know, if we remember back to the great financial crisis, we had very similar situations there where banks were not able to handle us,

you know, not a stress test, an actual test of the banking system, and they were about to go under, and then the government had to come in and save them. So this type of situation is not isolated to crypto. It's happened in traditional finance for a long time. Now those banks have stress tests and rules that say that govern how much they have, you know, what kind of holdings they have to have around that. And that regulation doesn't exist in this space.

The irony here, a little bit, SBF was out there talking to these regulators. And clearly, you know, they didn't have a one-for-one situation because if they did, the run on their assets yesterday wouldn't have created a problem. They could have just given everybody their assets back and they would have had less inside their platform. And so I think that to me is like the real. If you're really kind of zooming into everything, that's the real problem yesterday is that people get unnerved. They see FTT crashing.

Then they say, I want to get my Bitcoin out. I want to get whatever asset I may have inside FTX. And they don't have all those assets. And that's what they, I think even said today, they've frozen that now. Just so I'm clear, FTX, the exchange, just so everybody who's listening who maybe is a neophyte to this is similar to Coinbase or even Robin Hood when they trade cryptocurrency. They had $6 billion pulled out, but that $6 billion pulled out is not this FTT token that they created, I guess essentially like a stable coin, their in-house token, their in-house currency. It wasn't a stable coin. It was just a variable.

Okay. So their in-house token that they used to move money around without fees. The $6 billion taken out were people who just saw the headline, oh, FTX is having a problem. Well, screw it. I'll just pull down my Bitcoin. I'll take my Ethereum out, I'll take my salon out, whatever they're holding. So what impact I wonder does that take? Because I don't know what their complete holding is at FTX.

I don't know if that's public. But essentially they're losing all their customer base. Is that what's happening? And they don't have the money to cover those withdrawals. Yeah. So let's just say, you know, we're going to theoretical example, right? This is not accurate, but just for illustrative purposes. Let's just say they had taken in 10,000 Bitcoin and 10,000 Ethereum.

and 10,000 soul. And yesterday, people show up and ask for those 10,000 back. But they had in turn gone and lent that in other places to generate fees or to use that to get the capital to go buy Voyager. Like, you know, your bank does that as well. It takes your deposits and goes and lends it out to other people, does mortgages and other things like that. And so we don't know what that ratio was, but whatever it was, that $6 billion caused a real

problem for them yesterday. day to that led to CZ coming in and go ahead, Vinnie. I have a bit of speculation here and I'll throw it out there. Now, the leaked document that you saw, Molly, was, it says there's a bunch of Locke Salana. Now, let's just assume it's, you know, it's 800 million or 700 million or whatever it is. If you multi, if you like multiply that back up for what Solana's price was a year ago, so go 5x on that, that's probably $1.5 to $2 billion in Seoul, which, they bought at market prices in theory.

Now, I don't think they would have bought that much salon at market prices. I think what they would have done is bought the saffs, the loxsafs, and they would explain what that is. Yeah, what's a luck. Basically, it's like a, you know, with token projects, you can get, you can acquire the rights to tokens that they get distributed over time. So let's say it's 24 months worth of distributions. So you buy that.

But Alameda is a trading company. They don't really want to take a position in anything. They just traders. They'll buy, you know, they'll buy, buy, for five, sell for seven. Like, they don't care. So when you buy something with a 24-month unlock or even longer, whatever it is, you want to hedge out.

So you wouldn't say, okay, I'm guaranteed 100 sold over the next 24 months. Can I go in, can I go borrow 100 sold from someone, pay a fee, and then sell that into the market and get the cash right now? And there's a spray that you make and, you know, whatever the percentage is. Now, if it's purely like a, you know, a theory, if they did do this, that because I think it's very likely that they hedged out the position. Okay. Sell spot by, you know, 24 months, whatever, they're effectively net short sole right now. So the people that they gave the collateral to you, so if I go to Sunny and borrow a hundred soul from me, he's like,

what's your collateral? Hey, Sunny, I'll give you three times the value in FTT. And you're like, okay, fine, I'll lend you the soul. Now, if the ratio between the two drops too fast, I have to, you get a margin call, I'll either top up or whatever. Once you get down to a liquidation threshold, suddenly he's going to sell that FTT and buy Sall back from the market because he's borrow a soul for one of his customers and he's making a margin on the interest. This could unravel in a weird way in the next 24 hours where the market suddenly realizes that these guys sold short a whole bunch of Solana and now the market has to go repurchase it and you could see the price of Solana skyrocket because it went down from very high numbers

lower down and my suspicion is that someone sold it heavily down and I think it was possibly them last year. That's just a theory. I don't have anything to back it up, but we will see in the next 24 hours. To be clear, you do own a ton of soul and you were involved in the project early on. Exactly. But it sounds like what you're saying is there are likely, if there are some shenanigans,

there are others, so there are likely a lot of knock on effects. Well, the thing is it's a, so what's strange to me is how they would have so much locks soul on the balance sheet or that statement that you saw. 863 million is what that leaked to. she said. And Caroline said in the tweet, the CEO of Olameda said that they've got hedged positions. That was probably one of their

biggest position. They can't hedge FTT because that's their position, right? So their second biggest position looked like it was Salana and they may have hedged it. Now, I don't know for certain it's speculation, but it makes perfect sense to me that someone lent them soul and held FTT as collateral.

I'm going to quickly explain. One of the crucial types of insurance that every startup needs It's cyber insurance. Obviously, this covers hacks, which happened more than you think. The world is crazy right now. We all know that cyber hacks are happening constantly. So if you don't have business insurance, you failed.

One of the first steps of being a founder. And even startups need to get this insurance in place early because crazy things happen. It's not that expensive. And it doesn't take a lot of time thanks to our friends at Mbroker. Their technology saves you so much time, so much money, because prices are 20% lower. and you get better coverage than the incumbents. You go from sign up to quote and purchase in just 10 minutes. Think about that.

When you work with imbroker, instead of these large, slow incumbents, you're not dealing with big companies that want to talk to you on the farm for hours and hours and then they forget about you. They never call you back. No, you get a professional, nimble organization. Sign up takes only days, not weeks,

and the process is completely transparent. There's no one pay pricing. No, they're going to treat you right. To instantly buy custom-built insurance for startups go to Mbroker.com slash twist. While you're there, get an extra 10% off by using the offer code

TWI-S-T. Thanks, and broker, you do a great job over there. The thing I'm interested in and you can pick which way you want to take this mile, I'll let you direct it. And maybe this is where you're going to go.

Didn't a bunch of venture capitalists pour hundreds of millions of dollars into F-T-X? And wouldn't they, as venture capitalists, have done some level of diligence and understood more fully, Molly?

she's laughing at me. I'm sorry, wait. I need my flag. And I don't want to pick out any ones that either I'm friendly with or whatever, but I specifically have stayed away from this whole mess because I was like, I don't understand, you know, what's going on here. But if a bunch of venture capitalists poured hundreds of millions of dollars while this was all going on, would they not have understood these positions and done some sort of

risk assessment, Molly. And then if the research team could pull up who's invested and when, I'd like to maybe hear from our panel here and some speculation as to what impact this will have on venture capitalists going forward and them wanting to participate in crypto. Because this to me seems like one of the biggest, somebody correct me if I'm wrong, I think the two biggest bets in crypto venture, which is a subset of all crypto, were the NFT sites like OpenC, if my memory serves me correctly, and specifically FTX. Am I right? Am I wrong, Molly, here? I think that's correct. And I think before we even get there,

we should sort of say that there's still a pretty outstand. There was a great Twitter thread today about what is still an outstanding question. So we know that CZ and Binance came in and said, and by the way, CZ, I thought was a little salty in his tweet in which he would, Because SBF had tried to sort of say, everything is fine. There's no liquidity crisis. CZ comes in, tweets, there is a significant liquidity crisis. We are coming in with this rescue. But there's still an outstanding question of Alameda research,

which is not included in this deal between FTX and finance, and which may still have this huge hole in its balance sheet related to FTT, meaning, to come back to your point, JCal, that VCs might still lose a ton more money. here if Alameda research comes apart. Is that accurate? Yeah, what do you think, Sunny? Let's get Sunny in a nice. Yeah, what do you think, Sunny?

Either of those topics. Yeah, can I actually just frame one thing on top of it? And then I'll dive into those two things real quick. I think one thing that we really mix up, in the broader industry mix up, there's like sort of, and I'm happy to iterate this with you guys, but I think there's three different things to look at. There's cryptocurrencies, there's blockchain technologies,

and then there's like kind of web, three related, you know, apps and infrastructure. And that all gets mixed into different things. I think when we looked at the biggest class of investment, you're right. It covered the exchanges that were trading

NFTs. It covered our marketplaces and then exchanges. The other thing that a lot of investment has gone into L-1s, right? So basically people trying to create the equivalent of like the next Ethereum or the next Solana. And because in the rationale there is those things become quite liquid.

as soon as the utility starts running on them. And so those would be the, I would just add L1s as another area where we've seen a lot of investment go into. You know, we talked about Aptos and a bunch of different things in the previous podcasts, right? And so I think those are the three areas where probably the heaviest investment has been so far. But then you have to kind of step back up and say, well, what is cryptocurrency investing? What is blockchain technology investing?

And what is, like, people investing in applications and services built around those technologies? Like, let's call that Web3. apps. Where does FTX fall for you and FTT fall for you? FTT is a startup that is a marketplace, you know, like Coinbase is. And then FTT is just a to... So what I see is the marketplace.

FTT is the token. So I'm not like, I'm not a big fan of what's kind of the... So let me frame it from my perspective. I believe FTCS and it was primarily a cryptocurrency, exchange. Now, they've added more features over time. They allow people to trade, I think in the US, you can even trade stocks on it now, but primarily in first most it was a cryptocurrency exchange. So that was built around the speculation around cryptocurrencies, and Vinny touched on this earlier, and we've seen it, and they would list assets that maybe shouldn't be listed or we don't

know what's so happening behind them and allow people to trade those things. So that falls into the cryptocurrency speculation. And then what they've did along the way is they created their own currency in FTT. So that it all is amongst the same first bucket of like cryptocurrency speculation that it falls in. And then they have a sister company that is a market maker. A market maker to their exchange. Yeah. To their exchange.

Exactly. So really, fundamentally, everything we've been saying since the first time we did this roundtable is you financialized before you made the financialization, the product. And right? And it seems like it got a little out of hand. But so fundamentally before like fundamentally when it comes to this entire ecosystem and and then let's talk more about VC. How big a deal is this?

I think it's really huge, right? And then Vinny jump in right after, because you're about to say something. Why? Why is it huge? Well, Sam was in front of all the regulators, right? From the funny pictures of the shoes not tied properly to him speaking in front of folks. You know, Jake Howell, we sat in a session with him

with a bunch of really, you know, high-profile institution of LPs, right? At a private event. We wouldn't say the name of it. We will not, right? But, you know, these type of things, like he was, he was, he was one everyone was pointing to as, you know, credibility. He was donating a lot of money to the political parties. And so this really shakes the stability of the ecosystem pretty heavily. So because he was so credible, because he was so out front, he was supposed to be the golden child in a way that would take crypto from this dark alley.

put it in the light, and he would lead it to a clean regulatory environment, which when I did a favor for a friend, had interviewed him at this event, which I won't say the name of, because I was asked not to. It was unpaid, by the way, Molly. I made $0.0 for this incredible interview. Why? Friends like these.

We can't even run it. I can't run it. It's just lost in time. I mean, there's a recording out here. Well, somebody can leave it. I'm not asking them to, but. but well, that'll be interesting. Anyway, this just happened two or three weeks ago, Molly.

And so at that interview, there was a lot of discussion. I kept going back to regulation. And he is, he had set up, I think he was the number two donor in this cycle of elections on the Democratic side. It was either one or two. And it was very interesting that he was going to be the one to clean it up. And now the person who was meeting with all these people, Vinnie, is the person who blew it up. That takes huge credibility away for,

crypto. This makes anybody who was saying, hey, let me get in here and work with this guy to clean it up and it blew up in their laps. Am I correct? Vindy? Or is that too cynical? The issue is that, like, I thought it was really rich for a guy to be up there, you know, trying to talk to regular days.

When he fluttered all the laws initially when he set up his company and he's based offshore, based in the Bahamas, throwing money around the politicians. I thought it was kind of weird. And, yeah, and it's just disingenuous. You know, I mean, obviously, he was running a facade and he knew it and when the market started tanking you know he was

kind of scrambling and when Celsius blew up and 3ac blew up and you know it's contagion contagion spreads it just takes a while sometimes but but but coins on a precipice right now i mean it's trying to hold the 18,000 level it did a bit of a spike down um it's climbing back up this this could be the bottom because quite frankly after this there's just no one else that's big you know except there's no one left there's no one left right that has to be yeah yeah so this this is the is probably the bottom, and if the bottom doesn't, if the bottom holds, it's a double bottom from the earlier crash earlier this year. That's actually a good thing, and I think we're up from there.

But if the bottom doesn't hold... Why is it double bottom a good thing? Why is it double bottom? From a technical analysis perspective, double bottoms tend to show that there's lots of buy support below a certain level. And so if we hit, you know, we're really in the double bottom zone right now. If it breaks, then crypto has basically gone backwards. Look, we're going backwards anyway for a while.

there's, you know, the developer needs to slow down. There's just, there's too many people trying to make money out of crypto, and crypto doesn't make money by itself. So the industry is pretty big, big ecosystem. I mean, I still think it's, I still think the play is Bitcoin, funny enough right now. I think with all those drama that's happened globally in crypto, I put a tweet about it today. I think Bitcoin is probably the best risk-adjusted bet right now in crypto.

So owning Bitcoin is, you know, reasonably safe. It's going to be, you know, it's a global, effectively. It's a reserve asset for the crypto industry. And, you know, I've had my criticism of Bitcoin, but I think it's got a lot less dependencies. And in fact, if you're looking at a hard currency to borrow money against, you should like lend money against Bitcoin, not FTT, for example, right? And so that's the issue. Sonny, I saw you give a little head tilt there. Does you're not occurred or do you disagree with this Bitcoin assessment?

No, no, no, sorry. Never. I don't ever disagree with the Bitcoin assessment. I think like it to me is just a different. class of asset now. It's not related to any of these other things that we're seeing. And so when we kind of start merging them, it's, it's unrelated for me. I think it's uncorrelated to all this stuff. Exactly. Exactly. It's uncorrelated. It's actually, it's reasonably uncorriated. But he's like, yeah, that's the point. That's the good, that's a good thing. Yeah.

So I think, I think, I think these are, this is probably like, let's just keep, keep this in mind. Like, Bitcoin right now is 10% below the peak five years ago before you adjust for all inflation that's happened in the US dollar and just the time and how the netflix been built out. It's actually pretty cheaper at these levels, if you assume that, you know, like, I mean, like five years ago, Bitcoin hit $20,000. It's an 18K right now. I just think that, you know, as a former Bitcoin maxi, I'm like, and then I got reformed, I'm kind of heading back, I wouldn't say I'll ever be a maxi again, but Bitcoin is probably going to be the saving grace for crypto because it's just, you know, it's just widely held.

Well, Molly, here's that one-year chart we were just referring to with the double bottom. If you remember, a year ago, this is an exactly one-year chart. So this shows November of last year. Remember, we hit that 70K-ish moment, and people are like, wow, it's going to a million dollars a coin. It comes crashing down to the 40. And then comes crashing down again to 30. And that was arguably a double bottom there. And then the triple down to 1918, which is where we live today.

So this is either two. or two and a half bottoms, as Vinny is talking about. But your point, Vinny, if I may summarize, it is you saw support at 40K. People wanted to own it there. You saw some support at 30 and you see very long support at 18 to 20. And even if it goes down to 12 to 15, you're suspecting there's going to be support there as well. Yeah. I think I think Bitcoin is, look, Bitcoin dominance should go over 50%.

The crypto industry shouldn't be operating with the Bitcoin dominance of less than 50%. Dominance basically is the measure of the relative value of crypto, crypto's market caps, I think the top 1, 50 to Bitcoin. And that should always be, in my opinion, above 50. If it's below 50, there's a lot of speculation going on, especially in a tight monetary environment, 50% should be the minimum. So Bitcoin, you know, either alt's going to collapse further and, you know, and Bitcoin's dominance goes up or Bitcoin's undervalued.

I think it's the latter. I think the alts have been having, nobody's selling, nobody wants to sell stuff with these levels anyway. So I just think Bitcoin needs to go up in value. And I think Bitcoin, you know, if you look at what's happening in the rest of the world, the Fiat and Gavin Printing and debt and everything else, Bitcoin's probably the right play right now. So is Bitcoin, this might sound kind of dumb, but is it decoupling in some ways?

I mean, and is it decoupling like, or do you feel like it's so safe because it has so much institutional backing at this point? No, it's safe because no one can mess with it. You know, someone like Sam Banking Fried, like, you know, if he had to go borrow against Bitcoin, we wouldn't be having a, this issue right now because the people who, you know, they would liquidate the Bitcoin into liquid markets and everything would be fine. It wouldn't be liquidate issues. The moment you start, the further or further away you move from Bitcoin, the more, you know, volatile. I mean,

it's just highly leveraged place. Take it for me. Hiring developers is really hard. And so many startups struggle to hire fast enough to keep up with demand. So lemon.io is going to help you hire better developers and they're going to help you do it faster. Okay? That's the key. They have a network of engineers from Europe and Latin America, and every candidate has been tested and interviewed by their team. Here's how lemon.com will help you. No more wasting time with unqualified candidates. No, these are all vetted and tested. And you're going to have easy access to global talent. And they can get your developer up and running. You're not going to believe this in under a week. And of course, it's more affordable. I can't tell you how many

companies I know are burning money every month, but their product's not improving. And if your product doesn't improve, well, then you can't make money. You can't hit your milestones. You need developers to hit your milestones. Investors will not put more money in and you won't get revenue coming in from your customers. Okay. So if you want to save time, you want to get a great developer, you want to save money, all you have to do is go to lemon.io slash twist and they'll give you 15% off your first four weeks. That's right, 15% off your first four weeks when you go to Lemon, L-E-M-O-N-O-S-T-T-T-T-S.

It is so hard to find developers. They are so expensive, and that's why you need Lemon.com. And a lot of times, like, I feel like, you know, in this industry, we just relive the moments of the past. Like, this is the difference between trading, like, you know, an S&P 500 stock or like an OTC stock, right?

Pink slips or something. Pink sheets, exactly, right? Where, you know, you can see those stocks have tremendous volatility when they don't have a lot of liquidity. And I think this is what really just happened with FTT. And then what's tied behind it is people were allowing them to use FTT as like something that's quite liquid. Even someone as sophisticated as CZ. You got to remember, he took $2 billion in FTT as part of his return on his investment in FTC. So there's a lot of sophisticated players here that are all kind of intermingled into the same story.

He didn't say, hey, if you... Some might argue a shell game. Some might argue, yeah. Some might argue a bit of a shell game going. One thing I'm unclear of, Molly, did CZ actually sell his FTT and get Fiat and cash or Bitcoin? Was he able to get out some amount of it? Did he find a buyer? Yeah.

Yeah, well, he's FTT yesterday. He dumped it. He dumped it, but dumped it for what? That's what called it. That's what caused the run. Yeah. So he got cash. Somebody is the bag holder.

Yeah. Somebody was on the other side of that trade, bought it, and it's down 75% now. Okay, let's wrap with the impact on the venture. And the CEO of Alameda, the CEO of Alameda offered $22 for it in a tweet as well. What is it at now? Five, I think. I wonder if they're the ones who bought it. So wait, if they bought all that,

they would then have been depleting their cash reserves, clearing his position, and all of a sudden they're giving their enemy all of their ammunition? Jason, let me explain to what happened yesterday. So basically, the margin call number was, I think, 21. Okay. So at 21, you get a margin call from whoever you've borrowed money from, and you have to put up more collateral.

So they couldn't let it go below 22. So 21 was like the threshold. But then it dropped down and it hit 21. What then happens is now they're in margin call so that they're going to get liquidated if it drops any further. And the number I think was 14. So the moment it hit 14 today, then the liquidations happened. And so anyone who was holding FTT were just dumping it and selling it because they had to

because they remember when you borrow money from someone, typically they give, let's say for example, it was Salana, right? So you go borrow Salina and give FTT. When it hits a certain number, you're at risk as effectively the middleman in the transaction. Because you took Solana from one of your clients and you lent it to Alameda. And now the price of the collateral isn't worth it. So you've got to sell that collateral and buy back what you lend to replace it. Otherwise, you're on the hook.

And so that's why, I mean, as this thing hits, so I think it's gone down so fast that some of the collateral holders couldn't get rid of the FTT fast enough. and now they're all underwater. So we're going to find out very soon whether or not, well, first of all, we found out who these lenders are. Because it's not, guys, this is not $50 million and $100 million. This is billions. There's billions of dollars of loans on the books right now that are going to get pennies in the dollar back,

and it was collateralized by FTT. And now that's my presumption based upon the leaks that I've seen so far. I don't know. I haven't seen anything audited. I don't know. But on the presumption that there's $3 to $5 billion out there, it's they're sitting with, and it's going down to zero very soon, they're sitting with no collateral and Elamader owes them money. We don't know what Elamator's balance sheet looks like, whether the

NAV exceeds, you know, whether assets exceed the liabilities or not. We don't know. We're going to figure out where these liabilities sit. We just don't know where they are right now. All right. Well, we do know that some of the jet fuel. Let's do the VC part of this and then we'll let you get to your dinner there in Lisbon. Okay, let's just look at FTCX. January 2020, FTCS raises $40 million at a $1.2 billion valuation. Investors include Pantera Capital, Evangelion, never heard of them, BitScale Capital, BR Capital. They have 15x valuation in 20 months.

By July 2021, FTX raises a billion dollars at $18 billion. Investors include Altimiter, Toma Bravo, Tom Brady, Tom Brady, Tamasek, Sequoia, Multi-CCoyne SoftBank, Tiger, and Coinbase VC. Then, three months later, more. jet fuel, they raise at a 40% higher valuation, 420 million at a $25 billion valuation in October of 2021 with Tiger, Sequoia, Paradigm, Temasek, Lightspeed, Black Rock Bond, iconic. You can see that as we go on, these names are getting more and more recognizable. And then finally, in January 2022, they raise at yet another 30% higher valuation.

$500 million raise at a $32 billion valuation. Investors are Insight, Lightspeed, Paradigm, Tiger, and SoftBank. I mean, that's all going to zero, right? I personally passed on those rounds. I was offered positions. So now it's going to go to zero now, right? This thing gets liquidated. CZ owns it.

People get some equity in finance? No, those guys go, I personally think it's all going to go to zero. Equity is always going to lose out. Wow. Because CZ stepped into protect deposit of funds. Because this is the thing, like effectively leverage was used. Okay. So using the FTT tokens, it's not hard, it's not hard collateral.

It's leverage. You know, it's like, it's like, Jay, can I, can I, like, borrow a thousand bucks from me? I'll give you an IOU. That's leverage, you know? Yeah. Because you don't have a collateral for it. It's just an IOU. And FTT is, FTT was just IOUs from FTCX.

And so if you wipe out all the leverage, they've got nothing. I mean, at the very least, they've just lost a $7 billion asset in one day. Wow. So that was on their balance sheet. So the balance sheet is basically tilted. They basically have liabilities now in no assets because that whole thing's been marked down to zero. Why did you pass? Well, I mean, I just never believed in the, I'm not a big fat.

I never was. I never have been. Sunny, as we wrap here, a year from now, when we look back at this moment in time, will this be framed as the end of crypto, the beginning of crypto 2.0? When we're here a year from now, we have some clarity and distance, and maybe they do the post-mortem and they figure out what the hell happened here. What is this going to look like? Is somebody going to jail?

Is Sam going to be, you know, like our friend Doe Kwan at Luna on the run? What will this look like in 12 months? We never wish that on people, but I think, you know, we'll just come back to something, which is like a fundamental. I think there's a lot of goodness that can come out of regulation. Here's another reason that we've seen now in terms of limits and rules that the government provides to protect, you know, the depositors in the users of these platforms. So I think we're going to see more of that here. I think what we'll also see is a push back towards sort of decentralized technology, right? You know, at the end of the day, the reason we don't know what's happened here

is that these exchanges are centralized. And we don't have a full view as what blockchain promises us to say, how much is levered and how much of the deposits are there and what's been lent out against it. And so when you go into decentralized, like the defy world, you can see that. And so I think we'll see a push towards that. And there's been a lot of folks that have been saying that's been a key problem in the ecosystem is that we are really been celebrating centralized exchanges. And that, you know, those kind of, sorry, go ahead and check out. Well, I was just going to say, so we trust decentralized technologies, trust in regulation, do not trust centralization and individuals. Vinnie, the final word for you, what will this look

like in a year. I just posted in the chat. So five years ago, unfortunately, my article vision is still too far ahead sometimes. I posted a tweet saying exactly what Sonny just said. I'm almost certain for those who are not watching us live. I'm almost certain we will see a top 25 crypto exchange fail or be shut down in the coming months. This will be the catalyst for the emergence of decentralized exchanges. And this is a key theme I'm expecting in 2018. Yes. You said out of your time, Penny. Four years too soon. Four years too soon.

Four years soon. Yeah. So, but the, the, the principle is exactly, as Sunny said, like that we have to move to decentralized exchanges. And by way, like, you know, I might as well plug this while I'm at it. Like, this is what civics been building, right? We decentralized on-chain K-Y-C. We worked with like, you know, we have the solidized decks where it's a decentralized exchange with K-Y-C built into it, on-chain. Like, the stuff is it out there.

Nobody wants to use it. They still want to use centralized exchanges, but they don't realize when using centralized exchanges. but they don't realize when using Central Exchange, you have no visibility, no transparency, and this happens, and we keep making the same mistakes over and over as a community, and it's just got to stop, guys. We've just got to move to transparency.

We should say one last thing before we let you go. FTX investors tell Dan Primak the company has not yet sent them any information on the deal and says all he knows is what he's seeing on Twitter. Wow. So those VCs who put in billions of dollars are getting on the own communication. Wow.

There's nothing to send. There's a due diligence. It's a non-binding LOI. It's an expression of interest to acquire, to try and stabilize the markets, which it hasn't really done. Let's just be frank. It hasn't stabilized anything. Things are just getting worse.

FDT went from seven to three while we were talking. Yeah. What? What? Yeah. CZ can walk away at any point in time. So let's be frank. There's like there's nothing you tell investors.

And if you're an investor watching this, all you're looking at, all you should do right now is say, okay, it's a write-off and move on. You don't spend any more time thinking about it. Don't stress about it. If you have FTX shares, what will be will be. Kesar or so, that's it. LOIs, our as we call them in the business, letters of insignificance.

Gentlemen, thank you for doing this emergency pod and educating everybody here. Thank you. Literally, when an early stage startup says, I got three LOIs. I say, great, letters and nothing. Let me know when somebody puts a deposit down. This is going to be crazy.

And it's just so great to have you two gentlemen come at a moment's notice to explain this all to us. And it actually makes me, I got to say, Molly, while the centralized stuff collapses, it makes me more attracted to the power of the decentralized options that these gentlemen are working on and the power of regulation and centralized ones. I do wonder if this means, hey, Coinbase,

you know, as a public company, and here, you know, in the U.S. market, becomes more valuable. Because, hey, you know, if you're, operating here and not the Bahamas, you know, you got a lot more at risk. The management team and the board over there are insignificant risk. They can't go on the lamb if, in fact, that's what Doquan has done. Molly, any final thoughts while we're up? Coinbase is back up. So maybe it's a sign. I just checked my tiny little portfolio and the app is working again. So maybe it's a sign.

No, I'm with you. I think the future is, I talk about this with energy markets all the time. The future is decentralized. list. There's too much risk in centralization. We'll see everybody next time. Bye-bye.