Unchained - The Chopping Block on FTX/Alameda: Is Sam Bankman-Fried 'Crypto Kanye'? - Ep. 424

Episode Date: November 22, 2022

Welcome to The Chopping Block! Crypto insiders Haseeb Qureshi, Robert Leshner, Tom Schmidt, and Tarun Chitra chop it up about the latest news concerning the collapse of FTX.  Show topics: the statements of newly appointed CEO John Ray in the first day declaration why Tarun, Robert and Haseeb think SBF is possibly delusional or at least in denial whether the assets of FTX and Alameda were commingled from the beginning or whether they had been separate and at a certain point, FTX loaned money to Alameda whether the Bahamian government was the 'FTX' hacker the theories of why Alameda started falling how regulators and legislators are assessing the failure of FTX whether SBF will get a pardon like Mark Rich and the chances of him being charged criminally whether Genesis will go insolvent and its potential contagion effects Take Unchained's 2022 survey!   https://www.surveymonkey.com/r/unchained2022 Unchained is doing its annual survey. Tell us how you think we’re doing and how we could improve, whether it be on the podcast, in the newsletter, or in our premium offering. Looking forward to hearing your thoughts!  Hosts Haseeb Qureshi, managing partner at Dragonfly Capital Tarun Chitra, managing partner at Robot Ventures Robert Leshner, founder of Compound  Tom Schmidt, general partner at Dragonfly Capital Episode Links Previous coverage of Unchained on FTX: Jesse Powell and Kevin Zhou on How FTX and Alameda Lost $10 Billion Is the Collapse of Crypto Lending Over, or Is It Just Starting? Did the Bahamian Government Direct SBF and Gary Wang to Hack FTX? The Chopping Block: Why Lenders Didn’t Liquidate Alameda When It Was Underwater  Erik Voorhees and Cobie on Why FTX Loaned Out Customers’ Assets The Chopping Block: FTX: The Biggest Collapse in the History of Crypto? Sam Bankman-Fried on How to Prevent the Next Terra and 3AC FTX Collapse: First declaration document Unchained: FTX Bankruptcy Overseer Says Company’s Collapse Is Worst He’s Ever Seen Unchained: Bahamas Regulator Directed SBF to Transfer FTX Assets to Government Wallet SBF tweet: FTX files for Chapter 11 bankruptcy protection WSJ: FTX’s Sam Bankman-Fried Cashed Out $300 Million During Funding Spree Vox interview with SBF: Sam Bankman-Fried tries to explain himself NYT: How Sam Bankman-Fried’s Crypto Empire Collapsed Arthur Hayes’s article on SBF: ‘White Boy’ NYT: Elizabeth Holmes Is Sentenced to More Than 11 Years for Fraud Learn more about your ad choices. Visit megaphone.fm/adchoices

Hey everyone, just a quick note before we begin. Unchained is doing its annual survey. Head to surveymonkey.com slash R slash Unchained 2022 to tell us how you think we're doing and how we could improve, whether it be on the podcast, in the newsletter, or in our premium offering. Looking forward to hearing your thoughts. Again, the link is surveymonkey.com slash R slash unchained 2022. And you can also check the show notes for the link. Not a dividend. It's a tale of two pawn. Now, your losses are on someone else's balance. generally speaking, air drops are kind of pointless anyways.

I'm named the trading firms who are very involved. D5.8 is the ultimate problem. D5 protocols are the antidote to this problem. Hello, everybody. Welcome to the chopping block. Every couple weeks, the four of us get together and give the industry insider's perspective on the crypto topics of the day.

So quick intros. First up, we got Tom, the D5 Maven and Master of Memes. Next up, we've got Robert, Cryptoconisurer, and Captain of Compound. Then we've got Turun, the Gigabrain, and Grand Puba at Gondlet. And finally, you got myself,

and the Seeb the head-hipe man at Dragonfly. All four of us are early-stage investors in crypto, but I want a caveat. Nothing we say here is investment advice, legal advice, or even life advice. Robert, Tarun, you guys are at a brick wall. I take it. You guys are trying to hide your location. I think they're in the same elementary school with gymnasium. That's what they're going live from right now.

This is a metaphor about the state of the industry is what it is. That is true. It's been a pretty dark and depressing couple weeks. Normally we run the show every couple weeks. We're doing another show on basically one week after we did our previous show, just because the amount of news and craziness was going on with this FTX fallout has been just absolutely incredible. We go ahead and get into it and kind of walk through what's happened since last Monday. If you recall last Monday, FTX has already entered into bankruptcy proceedings.

On that Friday night before last week, Friday before last, there was this midnight massacre when FTX got hacked. And we've learned much more about each of these things to understand exactly what took place in this, quote-unquote, unauthorized access to FTCS accounts. So the first thing that, the first and most important thing that happened was that there was an affidavit released by the new CEO, John Ray, who's basically the liquidator who liquidated Enron. And he essentially described the absolute pandemonium that was the books and records and corporate controls at FTX. And so what he stated in the filing, and it's absolutely incredible filing, I recommend you read it. it's pretty light reading if you can skim through like kind of the perfunctory stuff. But there's a choice quote at the beginning of this filing.

He says, never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here. From compromised systems integrity and faulty regulatory oversight abroad to the concentration of control in the hands of a very small group of inexperienced, unsophisticated, and potentially compromised individuals, this situation is unprecedented. So there's all these revelations that we're now getting of just how horribly managed and horribly run FTCS was to having all of the private keys in one shared Google spreadsheet that apparently everybody in the core team had access to. Private loans being given from the company to Sam personally as well as to buy Bahamian property for employees, almost negative accounting. Like just absolutely incredible oversights in just understanding where the money was going and keeping.

keeping things running. Of course, I think we alluded last time to the Mickey Mouse accounting firm that actually did their audits for 2021. And, you know, John Ray basically stated in the affidavit, it's like, look, I do not believe that these audits should be considered to be reliable because, you know, these auditors are just not serious people. I don't know if that's true. The way he called them out was pretty hilarious. He was like, he was like, FTXUS was audited by Arminino, you know, a firm I have heard of. F.EX International was audited by whatever the name of that firm was. A firm I've never heard of,

and whose only claim to fame is to have opened the first CPA in the Metaverse. Something like that was, like, amazing. Like, that line was, there were so many zingers that were like, I, you know, I've read some pretty staid and boring bankruptcy filings, but that one has a lot of, like, character in it. Like, you know, and like bankruptcy filings aren't exactly where you're like, wow, the great American novel was written. But that one actually could be. There was a lot more in there as well. So beyond the self-dealing that was taking place on the balance sheet of FTX, it was also

revealed in there that Alameda was explicitly exempted from liquidations within their risk engine. So confirming what many people had suspected that there was an enshrined special relationship between Alameda and FTX. And now again, we don't know the extent of it, but at the very least, they had a different status in the risk engine compared to any other market makers. I'll have to say if you followed any DGN and on trading accounts since 2019, you would have already known that. There was like there was tons of evidence and analysis. I don't know how investors who invested in it did not look into that because that was like pretty public knowledge. In fact, actually, you know, Alex Pack who used to work with you actually talked about his experience investing in or not investing in.

Alameda in 2019. And I feel like a lot of the stuff there should have been stood out as diligence for like any future investor, but somehow like everyone just kind of ignored it. Well, so my assumption was that that was obviously true in the early days, right? I mean, it was explicitly part of the strategy of FTX in the early days was that Alameda was going to be the kind of point market maker. But the idea was that they cleaned up their act over time, right? And that, you know, if Guinea was on Oddlots, the founder of Winchamute, and he said explicitly like, yeah, we kind of assumed that they clean things up. Same thing that Kyle Davies said is that the reason why Three Arrow's was trading on FDX, that they assumed that there were just corporate controls in place that prevented this

after they went big. So it's one thing to have this as a bootstrapping mechanism when you're a small Hong Kong exchange and you're kind of trying to get something up and running. It's another thing when you're a $40 billion company, you've got all these stalwarts investing on the cap table. I would not be surprised if there were again misrepresentations that were made to investors about this because almost certainly is one of the most obvious things investors would have asked for. And it's also almost certainly the case that they did not turn over source code to investors for diligence. And you can tell from all the stuff that we're hearing now about how diligence went that it was gunned to the head. It was very like, look, you've got to commit now.

You've got to put money in now. These audits and this data room is all you're getting. And if you're not in, then we're going to go to the next guy. And there's many next guys that are lined up ready to put checks in. I think there's this narrative battle going on right now between, I guess, Sam. and everyone else as to whether this was incompetence or whether there was malice in FTX. And I think from this Vox D-N leak that happened with Sam, I think he's still trying to lean into and tell the story around, oh, we got way over levered, you know, we made some mistakes around how we were

marking our books. And ultimately, you know, I didn't intend to be in this situation, but I want to make it whole. But the more details that come out, it seems very premeditated. There were explicit actions taken to Grant Alameda, these, these benefits, obviously, you know, using customer or FTCS funds to go purchase this real estate. It seems like it was very like methodically planned and done versus being an accident of, you know, having bad collateral and having some bad liquidations and then ending up in a, in a hole on your balance sheet. Yeah, so this Vox interview was absolutely incredible.

So is Kelsey Piper who is, she's a journalist at Vox, works on this segment called Future Perfect, which is actually very EA aligned portion of Vox. saved like this little corner that does a lot of effective altruist reporting and investigative journalism. And so she, apparently she was close with SBF or just kind of, you know, somebody who SBF trusted. And they started DMing on Twitter and is one of the few people who was actually getting responses from SBF. And she ended up publishing the entire Twitter DM exchange. It was very clearly something that Sam was not expecting to be reported on, unlike his correspondence with the New York Times. And in that, you know, in, in, in, in, in, in, in, in, in,

those DMs, basically, it's just like the Joker kind of taking the mask off. It's very, very striking the way he's communicating with Kelsey, where basically he's saying, like, yes, it was all an act. Yeah, I don't really, you fuck regulators. I don't really, you know, people are, you know, it's not really about morality. It's just about winning and losing. It was, it was just so incredibly Machiavellian, the way that he was describing all of his intentions through his time at FTX. And basically, he says, a couple choice things in there. One, he says that it was a mistake to file for bankruptcy. And now that I filed for bankruptcy, I've lost control of the company. I can no longer go and raise money to save the company. And Kelsey was like, what? Do you really think you can raise

money at this point? Like the hole is massive. And he's like, look, I up until three days ago, I was one of the best fundraisers in the world. I must be at least pretty good at this point. I mean, maybe I'm not where I was, but there are a lot of people who are willing to take a bet on somebody who's gone through a catastrophe because they might have been through it themselves. And so he still believes that he can raise enough money to pull FTX out of the grave. The grand doors of illusion here are kind of funny, right? You know, when you think of like people who in financial history who have been able to repeatedly raise money post losing lots of money, like the poster child of that is

John Merriwether, who founded long-term capital management. And after that blew up, he's, like, continued to, like, be able to raise these billion dollars funds. The difference is he doesn't just go raise them immediately, right? It's not like he raised the fund, like two seconds after LTCM blew up. He's like, hey, double or nothing right now. And I think the, like, lack of self-awareness that that's not possible, even if it was, like, a better scenario suggests, like, I don't think he's totally been able to realize what's happened, like, if anything. like it feels like he's living in some totally delusional world. Yeah, I'm not a psychologist, so I can't like, you know, say this with any medical

certainty. But just reading that interview, like, he came across as delusional, sociopathic and like, you know, just in denial about the entire situation where like you just didn't even believe the reality, like, of like what was happening around him. I mean, so, you know, I, I think that's part of what it takes to create. a multi-10 billion dollar fraud, I think. I think all the ingredients are that have to be there. I don't think you accidentally, you know, misplaced $10 billion.

I don't think anyone could accidentally misplace $10 billion unless you have all of those traits like running at the same time. You know, he did not strike me as like a normal person. Yeah. It's hard to tell if the shock of the last week has just untethered him and he just has lost all frame of reference of like what the hell is. actually going on, or if, like, that everything up till now has been, like, very self-consciously orchestrated to kind of make it seem as though he hasn't lost the plot, but perhaps he has from the beginning. I don't know. It's really hard to tell, right? Because, like, it's kind of like, look, you cannot have gotten this far without having some grounding in what is and is not possible

and how the world is perceiving you. But it seems like he, you're absolutely right. He's stuck in this delusion of grandeur. I do think he lived in a world of sycophants. It's a little bit like Kanye, right like everyone was kind of like yo you're the best you're the best you're the best enabling it and like fbf is just crypto conier right now i feel like that's the that the most you can say he's crypto conier mixed with crypto bernie madeoff yeah well crypto conier by definition got to be a ponsu schemer right and i feel like i feel like the two of those together sounds like well here's the thing the thing with made off is that when made off turned himself in right first of all the feds never caught made off right Madoff turned himself in admitting that it was a Ponzi and that basically it was over.

Sam is still claiming to the people around him that it was an accounting mistake. He's not claiming in any way that there was anything untoward that took place with respect to basically funneling customer money into his affiliated marketmaker. It seems like he's basically setting up now his criminal defense, which is going to be that this was an error, it was a mistake. He probably perceives that his biggest exposure, is that it's going to be very hard to prove that it was intentional

that he moved money to FDX and he's going to keep spinning this web that it was not intentional to take customer funds and move them to Alameda. His primary exposure is going to be on public statements, right? Statements that he made to investors

and statements that he made to customer depositors. And I think that's probably where most of his criminal liability is. He also admitted so much stuff on Twitter and in these articles. The public trail for this is very different than Madoff.

You probably actually had to like get some audit statements here, it's like actually just read all the Twitter posts. Right. Half of them basically did feel. So I just tweet about this. Elizabeth Holmes was just finally sentenced after six years after Theranos, finally, after Theranos, the fraud at Theranos is first uncovered.

She was sentenced to 11 years. And her charges were basically on like defrauding investors, not defrauding users of her products, but on defrauding investors. Much harder to prove fraud. with respect to the users of your products because, okay, well, it was a business failure, like, who knows, there was an honest attempt to trying to build this stuff, like, you know, other people should have done their due diligence, blah, blah, blah. I think it's likely that if there is a criminal prosecution, and I'm not a lawyer,

so this is totally talking out of my ass, but I would guess that the easiest thing to get Sam on would be lying to investors, lying to customers, lying to counterparties, as opposed to actually moving funds from, you know, proving that it wasn't a mistake, blah, blah, blah. their books and records are so bad that obviously it's hard to prove anything. Well about the fact that the lawyer dropped him. I don't think you can read into that. I mean, again, not a lawyer. Like I think the most obvious glaring issue for him is, you know, one of the things we haven't talked about yet, which is the bank fraud.

So when you wired money into and out of FTX, you weren't actually wiring money to FTX as advertised. you were actually wiring money directly to Alameda's bank account and receiving wires and ACHs directly from Alameda's bank account. This was, at least for me over the last week, the most shocking revelation was that, and this is like hiding in plain sight for years now, that FTCS didn't have a bank account. They just never had one in the first place. And they used Alameda's bank account as the back end for the exchange, which is what created this like, $8 billion incorrectly labeled account. This is the incorrectly labeled account itself is the fact that they were using Alameda

as the on and off ramp to FDX. And so, you know, you wonder how Alameda got $8 billion. All the wires went directly to Alameda. But how would banks not know this, right? Like that is not what a market maker's banking patterns look like. People did go ask their bank for ACH confirmation and ACH confirmations did say Alameda.

Just as I know and check, We're just kind of like, we're like, oh, maybe it was fine, which is crazy also. Right. The root cause of how did $8 billion go missing and like what is the $8 billion, like, incorrectly labeled account, like is the fact that Alameda was the on and off ramp to the exchange. Well, so that explains why the, no, that explains why the fiat accounts were commingled from the beginning, right? But we've gotten confirmation now from Caroline's own admissions that there was a loan of customer funds that took place this year from

FTX to Alameda, right? So Alameda was, you know, potentially for a long time. I don't know, I didn't follow all the details, but definitely Alameda was one of the Fiat funnels for FTX from U.S. depositors. That alone, like that, that, that, the $8 billion hole seems like it was a recent phenomenon, right? It took place this year as a result of that loan that took place. But that explains why their assets were commingled for a very long time. I mean, my read of it was that there was a net $8 billion of assets transferred into FTA. all through Alameda and that's how the if you looked at his spreadsheet the balance sheet the one that everyone made fun of and Matt Levine made fun of like I think that was the $8 billion mislabeled fiat account in that the fiat account was funds that should have been in an FTX account but instead were Alameda the whole time I see so like if I wired $10,000 into FtX you know FTX is like you know portal would say oh you have $10,000 with FTX but the money was still sitting at Alameda. Right. I see.

That was my read, and I could be incorrect, but that was... Yeah, yeah, yeah. It's hard to get a good sense of it. I mean, Sam personally pulled out so much money out of the, out of FTCS as well. I mean, you took out a $300 million private loan. It was also revealed that in the, what was it, the $420 million? A billion dollar private loan and then $300 million out of the funding ground. Oh, you're right, right. I'm sorry. So there's a billion dollar loan from Alameda to Sam, and then there was a $300 million

cash out from FTCS equity. that Sam did in the $420 million round. And so Sam was pulling tons and tons of cash out of this whole combined entity. And the other thing that's going on that's also very strange is that there's this jurisdictional battle between the Bahamas and the U.S.

So John Ray, he originally filed for bankruptcy in the U.S. And the Bahamas, the Bahaman SEC, basically fired back and said, hey, this entity is in the Bahamas, therefore this is subject to Bahamian bankruptcy. And later it was revealed that supposedly, and again, this is still very unclear exactly what happened, but supposedly the Bahaman government instructed Sam

to actually take the digital assets left in FTX and move them under Bahaman custody for like Bahaman, the Bahman government for some reason. And it's all very vague. Did this actually happen? How did this happen? Is that the FTX unauthorized access slash FTX hacker that we were talking about on Friday night?

If so, like, what the hell were they doing? Why were they selling off all the all coins to get access, to put everything into ETH and die? And so it's a very, very strange pattern of behavior. Well, they were also doing it on like one-inch and curve, right? Exactly. Exactly. I know how many regulators actually know how to use the curve.

Well, the suggestion is that they instructed Sam to do this. And so it was Sam who was actually going on chain and, you know, dumping these assets. And so, you know, the story at least makes sense. Like the pattern of behavior does look. like, okay, this is somebody who's sophisticated about defy who's doing a lot of this liquidating. Yeah, I think I've kind of come around on this. Like, I think there's something else going on there, because I agree, like, if it's just a matter of moving the assets into their custody, like, that that's one thing. But we also saw them basically eating a bunch of slippage on these, like,

on-chain swaps and then moving them into, you know, censorship-resistant assets. And then, I think recently they, they like cashed out some of their renn BTC for BTC. And so they'll probably shove that through a mixer. And so I think of this. might actually just be a vanilla hack. And maybe the bohemian, like, jurisdictional battle and custody battle is like a different thing that we haven't yet seen. But I think the hack was maybe just an actual hack. And that seems to be what Sam was implying in his DMs with Kelsey Piper, which is that

this was either a straight-up hack or it was a disgruntled employee, who I guess had access to the Google Sheet where they had all the private keys. So, yeah, it's hard to tell at this point. It was crazy that they did everything in like a Google, like shared a good Gmail. I mean, that's, yeah, it's such bad OPSEC for like how did they not get back already. Right. For managing a small amount of money, let alone a large amount of money, it's just preposterous. Like no one in crypto is that done besides.

Yeah. I mean, this was like everything that we're learning about what was happening inside of FTX, it just belies so much amateurishness. Yeah, everyone listening to this stream right now is smarter than that. Like, that is so stupid. The other thing, so as the fallout from FTX has continued, we're getting more and more people kind of speaking out and more and more revelations of people who either worked at FTX

or worked at Alameda. And one of the things that we're now seeing over and over again is that Alameda was not some brilliant kind of, you know, n-dimensional chess next level market making firm. In reality, they were making some money doing some pretty basic arbitrage in 2018, 2019. But basically, when the bull market came, they kind of just became alt-coin punters. And they started going long a bunch of crazy alts and kind of basically trading on future listings. The idea is that their alpha started eroding after 2019 when a lot of the bigger trading firms started getting into crypto.

And they made basically their whole strategy was like, okay, let's just go long. a bunch of chip coins and farm and dump stuff with really bad OPSEC. And they basically kept doing that through 2022. The story that's now being spun as a speculation, let's say, about how Alameda lost so much money was that because they were in this privileged position on FTX, they were very often the market maker that was going to kind of take liquidations OTC. One of the most toxic liquidations you could be stuck with was Luna and UST. So the FTX was very, very deeply intertwined with Luna and Luna.

UST, they had enormous amount of trading volume. And a lot of the thickest order books for those two assets were on FTX. And so when this mass liquidation spiral was taking place in Luna and in UST, supposedly the story is that automatically this stuff was getting sold off to Alameda. And Alameda was just stuck with so much toxic flow from the bank run on Terra, that that may be why it lost so much money. And so the theory now, increasingly, is that actually, before we thought that maybe what's happening is that Alameda is monetizing FTX,

not through FTX having trading fees, but rather Alameda being able to front run, being able to buy things before they get listed, to do all the stuff to profit from their position on this exchange, and potentially be able to trade on God mode, stop out positions, like do all this crazy stuff. But it seems now actually it was the opposite, that in a bull market, sure, that's what it looks like.

in a bear market, really what's happening was that all of the liquidity, like the abnormally high level of liquidity on FTX was a result of Alameda getting just poured tons and tons of toxic flow through all of the crashes that we saw this year. And that is perhaps what ultimately ended up to Alameda getting destroyed. What do you guys think of this theory? It seems like more and more people seem to be advocating that this is what happened. So I would say I'm like 80, 20 on it being true. Like, I'm sure a lot of the losses came from that. There is certainly a clear sense in which Alameda was always sort of a subsidy for FTX and vice versa. It's like ironic, right? Like in the beginning, FTX was actually created to bail out Alameda because like they have this huge $10 million loss in Korea,

whatever. And then, you know, FTX kind of grew and then, you know, became like the place Alameda made money. But I think sort of like the numbers do add up. up for that. But the one thing I do think is weird is that FTS did delist Luna way before Binance did. In particular, I remember Binance was very aggressive on like the relisting on when the chain went back up before it like crack. You know how like validated or shut off the chain, then I went back online and Binance was extremely aggressive in that. And that was like, that was probably a huge loss if you had to take the other side of the restart. The restart was like incredible. So I'm more, I could believe it, but like if we just do the back of the envelope

numbers, let's just say you lost $5 billion doing that. That means you, you know, if we look at the total Luna market cap drop was like $20 billion, I guess. Like it was already, it was already down somewhat. So you have to buy, you have to basically buy 20 billion dollars of Luna and like be unable to sell $5 billion. That seemed sort of reasonable, but I can't really square away the fact that they turned off their engine matching engines earlier than finance with their ability to realize the entire loss of market cap. That's sort of the one thing that I can't square with this theory.

I mean, it's clear that Luna was not the only thing that ended up comparing Alameda, right? So, I mean, in addition to that, there was all the venture investing. I mean, that's what when Caroline stood up and gave her speech about what, what exactly went wrong. One of the things that she specifically called that was all the venture investments that they made that were highly liquid, right? But the other thing, too, is that as serum and FTT were declining in value, like, basically

what's happening potentially, like one explanation of what's happening is that the most toxic assets from FTX liquidations are getting gradually transferred from traders on FTX to Alameda. And, of course, the most toxic of those assets are serum, FTT. And so as these things are getting. unwound, you can just see them accumulating more and more of it on their balance sheet. And so that's, in a way, another explanation. I don't know if this is correct, but you can imagine some portion of the losses that ended up

coming into Alameda basically may have been that traders were basically selling out of their positions in toxic assets at abnormally high prices. And so where the deposit, like where did the money go is one of the questions people keep asking. And some of it, okay, some of it's Sam. Some of it is like these venture investments. but some of it might be traders that were getting abnormally good prices because, like, liquidity on FTX was too good because it was getting stuck on Alameda's balance sheet at the expense of actual other depositors.

Yeah, I totally agree with this, actually. It's like, yeah, if you sold this stuff at a massively inflated valuation to Alameda, like, you made money, right? You were the ones selling them FTT and SRM. And, like, that's kind of where the money went. It's not like they have some, you know, big offshore account where they're holding $8 billion. They just started to become underwater in this levered position and you're kind of stuck in it. Yeah.

So ultimately, ironically, the people who invested into FTT or invested into Sampoins who got liquidity, there where the money went. Because there was basically a net transfer of the cash, the Bitcoin, the ether, the USDC or whatever it was trading against that went to the people who originally invested in those assets and sold a big part of their portion to Alameda. Alameda got the FTT. Alameda got the serum and the other people ended up with the cash. That's at least a partial explanation. But of course, there's a lot more that was missing than can be explained with just those assets alone. Yeah, I mean, it went to a lot of places, as you said. Like the forensic accounting on all this stuff is going to be years, probably.

But like we do know someone went into real estate. Like we do know it went into a lot of venture capital. We do know it likely was huge trading losses because, you know, the irony is Alameda's privileged position as the liquidator. on the exchange and being immune to liquidation meant themselves never got liquidated, and they picked up all of the toxic flow from their customers. It went to a lot of places, but this, yeah, is probably one of larger ones. So we've started to see some of the regulatory responses, you know, coming into all this. And it seems like it's pretty clear a lot of people lost faith from this.

A lot of lawmakers are calling for there to be an expedited. bill to address crypto regulation and kind of some of what's gone on here. I've actually been surprised that things don't seem quite as shrill as I was expecting them to. I was expecting people to be pitchforks out, extremely angry at the industry and like trying to shut this whole thing down. It doesn't seem like that's the predominant response we're seeing from regulators or from lawmakers, at least not right now. Robert, among the four of us, you're the closest to this. What has been the temperature that you've been hearing from lawmakers, regulators about kind of the post-FTX saga? Yeah, I mean, the first thing that's happening that's like on the schedule is like multiple

hearings have been scheduled, right? And like I think the first step, you know, besides what is going to go through the bankruptcy process of like, you know, what actually went down in FTX from like a technical and financial perspective, there's also the, you know, I think the first step for legislators and regulators is partially hearings, right? It's what went down. down and like having them hear it in their own words, having experts, you know, provide testimony, allowing them to hear from SBF and CZ, you know, multiple hearings are being scheduled. And I think that's the first step. And I don't think, you know, anyone's going to rush a solution or legislation until after everyone feels like they have a grasp on like what went down and how to

prevent it again. In the immediate aftermath, people were talking about trying to pass like, you know, the same legislation, the ECCPA, you know. But like, I, I think that very quickly lost steam because why pass the legislation promoted by the perpetrator of a pervertific crime, right? So, you know, I think in the next session of Congress, they'll probably be after hearings, after everyone's heard, you know, from the industry, from those directly involved, like what led to this, you know, they'll be able to start to craft some solutions. And, you know, hopefully, you know, the right message gets through. And the right message, I think, is that this was financial fraud perpetrated by. someone that previously, you know, had a good reputation. The scope of it is massive, but it's not a failure of crypto. It's a failure of the system that allowed him to commit this $10 billion

broad. And so we'll see like what the correct steps are to address is, but it wasn't a failure of crypto. It wasn't a failure of a blockchain. It wasn't a failure of defy. It wasn't a failure of our industry. It was a crime committed by a sociopath. Granted, though, I'd I do think the investors at some level probably, hopefully should somehow, I feel like they probably should take more responsibility than they have, if we're going to be honest. Like some of the ways I've been talking are a little bit tone deaf of like, I actually thought ironically the best investor update of FTX was TAMASIC, the Singapore and Southern Ralph Fund, because they were they owned up to it.

They're like, yeah, we fucked up. And like we actually, you know, like, and I kind of feel like that day of reckoning is still to come. like no one wants to own up to this. And I think there will be like tons of stuff that comes out that forces people too. Yeah, the Tamasec letter and weirdly enough, JPMorgan's statement on this, we're both actually very optimistic and sort of, you're doubling down on this fact that this was specifically FTX, you know, abusing this technology, but it's, they're still overall optimistic about decentralized finance

and sort of the solutions that, you know, we're sort of working towards. So it's sort of like isolating out these two components to the FTX story is kind of important. Yeah, I've been surprised at how much that's resonating. Like I sort of assumed that, okay, that's what crypto people are going to say. There was a great tweet by somebody I retweeted. I can't remember their name. But it was basically, I think what they said was, it's funny how FTX confirms whatever you already believed about crypto. And so if you're a crypto person, you're like, oh, this just proves decentralization is so important.

And that's why, you know, centralized custodians or exchanges are terrible. and if you're anti-crypto, you're like, oh, that proves all of crypto is a fraud and you can't trust any of this stuff. I've been surprised, to be honest, I thought that it was going to get lost in the noise, this idea that, like, look, well, this is not an indictment of crypto. This is an indictment of a centralized company doing things Wall Street style in an unaccountable, overseas, you know, kind of shady operation. Like, yes, okay, that's what should be indicted, not the idea of decentralized, permissionless, self-executing, autonomous, transparent blockchains. Clearly, nothing about the, like, that is not what's to blame. for what happened at FTX. And if anything, the fact that we had, you know, clear forensics and we had the ability

to go on chain and actually see what was going on helped us to uncover this much faster than the mainstream press. And so, well, speaking of the mainstream press, that's been another angle of the story, which has been just so bizarre to see the coverage that came out of the New York Times and came out of Washington Post, which was almost just like a bizarre world depiction of Sam as being this like, you know, this, this humble entrepreneur who flew too close to the sun. He was trying to do such great things for pandemic prevention and climate change and democratic causes. And he's sort of like a temporarily disgraced billionaire. But it's like,

oh, he's going to get back on his feet and he's going to try again. And, you know, that's that's the, that's what happens when you try too hard and doesn't work out. And it was, it was just so striking that there was no sense of, okay, this person almost certainly committed fraud. Right. At this point, even you've got, you know, John Ray, you've got the freaking liquidator from Enron, basically saying this is the worst, most catastrophic situation he's ever found himself in. And the New York Times is basically praising him. It's just absolutely bizarre to see. Now, not every mainstream of publication did this. Most of them were very, very clear that, okay, this is like an absolute catastrophe. The Wall Street Journal in Bloomberg have been on point at, you know, getting the play-by-play and breaking a lot of

news about what's been going on in the saga. But the New York Times in particular has just been just strikingly tone-deaf, not just tone-deaf, but almost like, seemingly. It seems to be I don't even know what the word is for this. Like, it's just bizarre to see. I think the more interesting thing to me is, like, some of the publications he invested in, and I guess rugged because some of them didn't get all their money, have actually had some very good stuff, like semaphore, which is this new online publication.

I still, like, had a really good take down of both the actual, like, some of the, like, lawyer stuff of, like, they were the first ones to report that, like, Paul Weiss dropped to him. And also, like, McCaskill's moral lapses, which, you know, I'm always here to lap up. But they actually had some very good reporting on that. And also on the early Alameda crash, which led to them trying to fundraise from you guys a long time ago or your predecessors a long time ago. So I think that's been interesting to see all these, like, the small publications have, like, way bigger scoops. And then the New York Times can't tell the difference between investment loss and fraud.

Yeah, I mean, it's just shocking to me because, you know, The situation is being handled with like, you know, very soft gloves. Whereas, you know, they've never given that privilege to really anyone else in tech, anyone else in crypto, anyone else ever. The spin on this is just perplexing, especially when it's like to see how aggressively they like excoriated like cracking and Coinbase over internal like employee issues, well, you know, relative to this. is just like, it's perplexing. And at the end of the day, I think, you know, people's, you know, gut on this is pretty much correct, which is it's because SBF and FTX were winning the game, which, and SBF admitted over text messages that this was a game, right?

And this was a strategy that SBF had won the strategy of spraying money to media organizations, spraying money to aggressive causes, spraying money into politics, and buying a lot of favor in like essentially reputation laundering before the reputation was destroyed. You know, he had invested hundreds of millions of dollars into buying friends in the media in Washington. I think it's hard for folks to admit that they've been had. You know, I think it's only now really starting to come out. But it makes sense that the very first reaction from the media in Washington was like, hold on, you know, this is a collapse. We know it's a collapse, but it's not because of it.

Do you think we'll end up with something that looks more like Enron, where, you know, like, I guess like the executive team was sort of like friends with the president at that time. And then like because it was such a big thing, like the president had to like throw them into the fireplace because like otherwise it would like make him look bad much worse. Like he had to like cut off the arm because it was like too, too close. Or do you think it will be like Mark Rich who got pardoned on Clinton's last day? because I actually feel like there is, there's a non-trivial possibility of that one. No, there's absolutely a story.

It's like some weird securities that people didn't really understand, got a ton of leverage on them, blew up. I mean, Glenn Cours still exists. And then there was some like bribing of governments and stuff, right? But he, you know, he got this like very last minute pardon. And I wouldn't be surprised if like something of that line. Well, the only reason that I don't think that will happen

is because the public outcry will be so great. And I think at the end of the day, you know, politicians are just trying to get reelected and they, like, do what the people want them to do. And I think this is a very clear case of, like, the people in, you know, en masse, like, don't like SBF. You know, Mark Rich, I don't think the average person had heard of, right, or cared about. Like, Mark Rich didn't personally screw them. You know, they might just.

Okay. Yeah, but, like, you know, Mark Rich did some commodities trade that, like, no one has ever heard of, right? SBF. Enron, though, too, right? To be honest, right? They both did these kind of like esoteric commodities trades that took it to that. Totally. But SBF wrecked the lives of like one million

like individuals. Okay, that is so much more direct than yeah, Enron or like some commodities thing that like, yeah, whatever, you know, a lot of individual people, a lot of trading firms, like, a lot of like people we know have gotten like completely wrecked by this in a way that like no one ever like felt like wrecked by you know, Mark Rich or Enron.

It's also true, not just for retail, but also for institutions, right? I mean, FTX was very institution-heavy exchange. And so I think there will be a lot of calls for blood, not just from individuals and voters, but from people who also have, you know, kind of other influence in how these things get decided. So I would tend to agree. I think SBF is not going to find a way to snake out of this at this point. Although he'll try. He will try.

Yeah. Yeah, at this point, I mean, he's so unmoored that I just don't know that he will understand how to try at this point. I mean, I think that my favorite text in that Vox thing was the thing where he was like the ethics was stuff was all alarm. And he like said that directly, right? Like that was unreal. I was like, wow, you really, you just admitted to being kind of, yeah, like, as Haseeb said, Machiavellian character so directly that it's like it's impossible to find an ounce of sympathy. Right. It's impossible to unsee that now, right?

No matter what he says from now until the end of time, it's very difficult not to have that unveiling kind of burn into your memory. Actually, there's another element of this. So there was a piece that was written by Arthur Hayes, the co-founder of Bitmex, where he basically, he linked a lot of what was going on with Sam, and why Sam was put on such a pedestal is a lot to do with race. Like, not just race, but also his status, his class, right? Born to the Stanford professors, kind of having, basically being like American aristocracy,

from when he was born and kind of pattern matching a lot of things that people wanted to see in somebody who was going to be kind of the hero of this crypto generation. I don't know how much

explanatory power that has but it's certainly true that both Sam and Arthur were overseas unregulated exchange founders who, like Arthur, remember, Arthur faced a criminal trial

for basically a few Americans you know, they knowingly allowed a few Americans to trade derivatives overseas. Right? That was what they got caught for criminal charges on it, as far as I recall.

It's basically not implementing an AML program. And relative to what Sam did, it seems just like so, like just so tiny of an indiscretion to, okay, we didn't have a good enough AML program in like 2019. Relative to that, you've still, you've the New York Times is writing puff pieces about Sam when, you know, Arthur is this like dangerous criminal who's like, and a large part of this, one has to assume. A large part of this is just what they look like. I agree.

I did like Arthur's piece. It was very good. It was very good. But let us not, you know, whitewash history. Arthur was going on Twitter and taunting regulators and like really playing up sort of this, you know, entire narrative around himself where Sv was doing the exact opposite. So it's also, you know, not just who you are, but like literally how you're presenting yourself that I think sort of goes into this, this bit. That's 100% true. I don't want to claim that Arthur didn't bring us some amount of pain onto himself.

But, you know, the actual crime of which he is accused is of such, such incredibly paltry consequence relative to the crime that Sam is being accused of. Probably agree. I think Lee Sam hasn't been accused of a crime yet, right, legally. That's true. That's not been... That's another important part to point out. To be clear, he has been accused of a crime by many people, not being.

But not formally, not as a criminal case. Not by a governmental body. Yes, there's no governmental body as far as we know that it's charging with anything. Although there were reports that the DOJ was preparing charges, but we don't know if those are confirmed or not. So, yeah, this is actually one thing I've been wondering. Like, if he's really going to go speak at Congress in this hearing, that's supposed to be in two weeks or three there, won't he just get arrested? Like, I'm just, I don't know if they do file something, like, seems like the right time to do. The block wrote an incredible.

article about these hearings with some like incredibly choice quotes in them to your point to Rooms. Like one of them was that Brad Sherman, who's unbelievably anti-crypto, said, I assume that SBF is on a private submarine headed to Dubai. So I think it's going to be hard to get him unless Maxine has some depth charges referring to Maxine Waters, who also hates crypto. But like, they assume he's not coming. And they actually reference the fact that they assume that in his place will be the SEC or somebody else on the investigative side to speak in his place. So he probably won't show up. I don't think there's going to be some scene where, like, you know, they arrest him at the airport when he flies in from the Bahamas to go testify to Congress. I think they're going to invite him

to speak knowing that the odds from showing up or zero. He can't just video in? Is that not a thing? That's a great question. They don't do Zoom in congressional hearings? I mean, they had to have in 2020, but I don't know now, yeah. Okay. I know there have been some other. issues with like other committee hearings where people refuse to show up and they threaten like them well i mean also bahamas has extradition treaty with the u.s right so it's it's like i don't it doesn't seem like there's any additional risk in him coming in person like if he actually is going to get charged with something and place under arrest i mean that's going to be a circus either way like i feel bad for everyone involved yeah well all right let's let's let's move on a bit from

FTCX. So after FDX going down, there's been a lot of fears about other contagion. So FTX is dead. Alameda is dead. What else is getting caught up in the cyclone of disaster? And so there was a lot of fingers being pointed at the lenders initially. And the lenders early on, basically kind of all in locksups, up said, no, no, no, we're fine. We've lost a a little bit of money from what we held in deposits at FTX. But other than that, we're totally okay. So Genesis, for those who don't know, they're the largest lender in crypto, owned by DCG. digital currency group, which is their parent company. So Genesis, they are, you can sort of think of them, they are like the bank of crypto.

They announced that they'd lost $7 million, liquidating Alamata, which is a very small amount of money. So basically, not significant. They were like, yeah, we have no exposure to Alameda. Then when FTCS went under, they confirmed that they had $175 million in trading balance that was stuck on FTCS, that was basically now obviously impaired. From their trading arm, from their trading arm, from their lending arm. From their trading arm.

And so they said, look, where businesses used? but I think it was Friday before last, a bunch of people started really getting afraid, a bunch of rumors were circulating, that Genesis was insolvent. And the Genesis decided that, okay, we got to do something about this. They got DCG, the parent company, to do a $130 million infusion of capital into Genesis to basically bring them back up and running. And so after that, they're like, look, we got the $130 million back in store. We're now solvent. Everything is okay, business as usual. But over the weekend and going into Monday, more and more withdrawals kept coming through Genesis. Basically, people, you know, kind of pulling back

their balances or recalling loans. And Genesis basically started facing effectively a bank run. By Monday and Tuesday, they were trying to calm the markets. Apparently they were in the market trying to raise a billion dollars seemingly unsuccessfully. And then on Wednesday, Genesis announced that they were freezing withdrawals. So no more withdrawals from Genesis. If you have an account at Genesis lending, you cannot get any money out anymore. And so basically, stemming the bank run. And they're now, as far as we understand, according to reports, they are now looking for an injection of capital and trying to raise money. Now, if Genesis blows, you know, dies or has to file for bankruptcy, this is going to be really, really, really bad.

There are a lot of people who are tied up with Genesis. So almost every other big lender in crypto has big relationships with Genesis. A lot of downstream products depend on Genesis as being basically where they get yield from. So they lend them on to Genesis and Genesis or lends them on somebody else. If you can't rely on Genesis, a lot of things die off. And so the first, an obvious example was Genocide, oh, sorry, Gemini Earn, which is Gemini's yield bearing product, but a bunch of other yield products use Genesis on the back end. And so this is going to cause massive, massive ripple effects if Genesis does die. It doesn't seem to me like that's what markets are pricing in. I think markets seem to think that Genesis is going to get recapitalized, but it's going to take some

time. That would be my guess. Because otherwise, I feel like there would be much, much worse carnage in the markets when people perceive that Genesis is frozen. I would say, like, Sam trying to raise $8 billion has zero probability. Barry Silver trying to raise a billion dollars, probably 75%, 70%, 80%. I lose that's my guess. Yeah, I think, like, our understanding is a large percentage of this debt is really like duration mismatch issue where, as you see, you were saying, a lot of these sort of consumer-facing

yield products like Circle Earn, Gemini Earn, they basically just route out those stable coins to Genesis on the back end who then issues the loans. And of course, those are not dated. Users can just deposit, withdraw whenever they want. And usually there's enough float or unallocated capital that they can do that. But the loans that they then issue to trading firms or market makers are fixed date. And so obviously, even if those loans, are still good, you know, they have appropriate collateral. They can't just recall them before the loan is over. And so that seems to be a large percentage of the issue, not that there's a bunch of bad debt, bad loans on the balance sheet. Yeah. In full disclosure, I have assets that I can't

withdraw from Genesis Capital. So I might have slight bias in this conversation. But I think it is potentially a liquidity issue, not a solvency issue. If there are statements around liquidating, Alameda and closing those positions is accurate. I do think it's like a traditional liquidity issue. Other things like FTCS are a solvency issue. There's negative equity. All the money's gone. Ha, ha, ha, ha.

Like they screwed everybody. Versus something like Gemini, where people hear that they have a relationship with FTX and all the, and Alameda, and people start with drawing from Gemini Earn, and they start with drawing from a circle lend or whatever that product was called. That's also built on top of it. I feel like there's a couple of it.

classic bankrun scenario where everybody withdrew whatever liquidity they could. And Genesis no longer has the money on hand. I mean, most of their addresses are extremely public. You can go on ether scan and, you know, see how many stable coins they hold. I mean, they ran out of stable coins. And so they have to suspend withdrawals. You know, it's possible that, you know, if they do enter bankruptcy, they have a relatively fast and simple, you know, restructuring where they just say, okay, we're going to wait

for everyone to repay what they naturally owe. the whole book closes organically over a period of a year and then a year, you know, if they haven't lost anyone's money, they get, you know, they can distribute everything. But we'll see. It's very clearly a situation where I don't think they have any, you know, dollar liquidity available. Yeah. I think this is not a situation where you would think, okay, there's fraud or that Genesis is like, you know, that people who have money with Genesis are going to be getting pennies on the dollar. it's very clearly liquidity and duration mismatch. The problem, though, is that so many things are dependent on Genesis, that it freezes up so many things downstream, right? What other market makers, what other lenders, what other, you know,

how does this end up cascading if this continues on for very long or they have to go through a restructuring? I think I agree with Teru, there's a good chance that they can raise enough capital to unfreeze this whole system because everyone needs it, right? Like a lot of their counterparties would honestly be, You know, if you can do like some kind of dominance assurance contract type thing with all your counterparties, say, look, if everybody puts in 10 million, we can get this thing humming again and everything's good. Definitely a mutually assured destruction here.

But I do think, like, the one thing is the GBT stuff. Like, no one really knows how much they lent against GBTC. Like, you know, they obviously took GBT collateral a long time ago. That's like how Ferros grew from like a $10 million fund to 100 to hundreds, whatever. first. And clearly those loans are, I mean, those are not clear. And they did do some very silly things. I feel like being like, oh, yeah, we're going to do security via obscurity and not prove to you how much Bitcoin we have. And I feel like their PR on this has been kind of whimsically bad. Yeah. So just to sketch out here, because I think for a lot of people, the details are hard to

follow. So DCG, the parent company of Genesis, also owns Grayscale. which is an asset management firm that runs GBT and ETHE, which are these giant trusts, exchange traded products that you can buy out of a brokerage account. Now, GBTC and EFEE, as we covered when we were talking about the Three Arrow Saga, they are now trading at significant discounts to NAV. So there's more BTC in there in the trust in GBTC than you would think from the underlying asset value for GBTC to the trust. And so now this discount has widened by a significant margin over the last week and a half.

And a lot of people now are starting to get afraid that the reason why the discount is widening is because there's some monkey business going on underneath the surface that perhaps there's not as much a BTC in there as it was originally claimed because blah, blah, blah, something, something. So there's a lot of conspiracy theories flying around right now. Grayscale, in response to this, posted a tweet thread where they basically said, look, we all of the money is there. This is just business as usual for us. However, we are not going to do proof of reserves because we don't, that's just not what we're

about. but Coinbase has always, you know, Coinbase is the custodian. They've always verified that the assets are all there and correctly accounted for. But for security and, do they just cite security reasons? What was the reason why they said they wouldn't do proof reserves? Just security reasons? Okay. So for security reasons, we are not going to do proof of reserves.

And this caused crypto Twitter to freak out even more and say, oh, well, what's the security reason that doesn't make sense? If all the exchanges can do it, why can't you do it? And so now all these people seem to be afraid that GBT is going to have some kind a meltdown or there's fraud or there's something else ridiculous going on, which doesn't seem likely to me. But to be honest, after this whole thing with FTX, I'm now downweighing all the things I'm very confident on. But I still think it's very, very unlikely that there's any funny business going on here, just that grayscale is just kind of a Wall Street-style firm and they're

kind of secretive and maybe they have other agreements with counterparties that require them not to disclose the on-chain addresses. So it's hard to say exactly why they're not disclosing. But if Coinbase is the custodity for this thing, I'm fairly confident. And it's an exchange trade product. I'm fairly confident that all the BTCs are there. I don't think the custody of the actual gray scale shares BTC is the problem. I think the problem is like how big are the loans against GPDC shares that they happen? Like that is not at all clear.

So I agree, but I think that should be isolated to Genesis that those of the issues, right? The very popular trade in 2020, 2021 was Genesis would lend. Bitcoin or ETH to funds to then go mint GBT or ETH shares while they were trading at a premium. And then they could sell on the market. And so you're basically getting this free spread. Obviously, that has moved against most of those funds, you know, for the past year, which, it was a large part of the reason why, you know, someone like three arrows sort of ended up going underwater. But like that's Genesis doing those loans against GPTC. It's not like, gray scale. The product is somewhat in distress.

Yeah. The other thing, too, is like with liquidity locked up like this. markets are extremely illiquid. And so it's going to be a lot harder for Genesis to liquidate people or to unwind a lot of these loans with liquidity being so impaired. And of course, the fact that Genesis itself is frozen is part of what's contributing to that impairment of liquidity because the market makers have no money. Credit is basically completely stopped flowing through crypto right now. This is worse than what it was during the Three Aros crisis.

Yes, it all goes back to the origins of crypto, which I feel like, you know, have led to this crisis, which is, you know, an extremely complex web of CFI has been built around digital assets. And the whole reason we have crypto is so that you wouldn't get these crazy C5 financial disasters. And, you know, FTX and Genesis and so many different knock on effects and GPDC are all intertwined, you know, crises of finance, not of crypto. but a finance. And it just goes all the way back full circle to like I think right now in this moment, you know, people see not your keys,

not your crypto. Like if you don't have the assets and they're tied up in some financial structure, like they're not yours. There's someone else's and, you know, you're going to have to wait for finance to unwind. And that's what's happening. You know,

I kind of think this is like, this whole thing is this, you know, chancellor on brink of the second bailout moment for crypto, which is like the chancellor's on the brink of the third bailout. like it's one where we built finance too deeply around crypto assets. And, you know, I'm saddened by this and I hate that like the system is seizing up, but like it's a really complex system that replicates the system we were meant to fix.

But long term, I think the death of centralized lenders and the perils of starting one, hopefully will just migrate assets to like higher collateralization ratios way, better sort of like monitoring of the stuff. I mean, most of this comes from like, arguably incompetence from, from Genesis's like, underwriting, right? They didn't really do much underwriting. They were just like, oh, if you're using GBTC because like there's a premium, we're always going to give you like a loan to value of one.

And like, obviously the market makers abuse that. Then they abuse themselves. Then they cause this. Now, the biggest irony of this whole thing and someone had this on Twitter is that CoinDesk, which is owned by DCG, broke the story that caused FTCX to fail, which then caused Genesis to have this liquidity crunch. And so it's sort of like DCG caused was the beginning and the end of their own problem. Well, so, okay, this is an interesting philosophical question of like how much.

So, Tarun, I mean, you were harping on this in our last episode and you brought it up again, this idea that the lenders were really at fault. the lenders kind of had such poor underwriting standards that they kind of brought this on themselves. And were it not for their bad behavior, perhaps all this could have been avoided. I kind of take a more fatalistic view is that in a market, in a market economy, right, there is basically no way to avoid, I mean, what you're describing is a credit cycle, right? Where credit gets cheaper and cheaper. And because of competition for deposits, people have to start loosening underwriting standards

in order to just compete, otherwise they're going to die. And I kind of think, look, you could look at sort of the idiosyncratic individual, like, oh, well, do you really have taken FTT at this collateral ratio or not? Like, not every lender did it. But the broader thing that was happening in the overall market, whether you were lending against GBT or FTT or not, right? This loosening of credit standards. I'll push back on your-in-evitable market dynamic. I'll push back on this in one particular way, which is I now have talked to enough people who worked at centralized lenders in the last few weeks. to basically have learned that 90% of loans never got liquidated, even when they were deep in default, because everyone wanted to keep, they're like, they have the same eight customers. There's no other borrowers.

So they were like, okay, yeah, we're just going to like never liquidate you. That is not the way a loan should work, right? Like a loan should get liquidated when it's in default. If you believe that tenant, then these CFI lenders were stupid as shit.

They should have actually tried to preserve themselves. in some ways, right? They had no inclination to do that because they wanted to basically, they wanted their customers to, like, not die themselves, but then they, like, killed themselves by supporting those. It's like a, you know, anti-symbiotic relationship. And I think this is one of the best arguments for why Defi actually works is, like, you're getting liquidated no matter what. So, like, just take it. And like, the liquidation thing has been the number one thing we brought up, whether it was starting with FTX being forced to buy bad liquidations, whether it was these centralized lenders being dumb as shit and not being able to compute a loan to value other than less than one or being able to liquidate anyone.

There's just so much incompetence that I think you don't even see in normal finance. Like this just shows that like you had too many idiotic cowboys running these organizations. And like, yeah, sure. I agree there's some tendency to for capital costs to be in a crunch. but some of the negligence and malfeasance of decentralized lenders is ridiculous. Yeah, I think that that's well said, and I do agree with you there.

I don't know how much of it is market structure and how much of it is just incompetence and greed. And maybe a part of this is also the fact that VCs were backing all this stuff and looking for this meteoric growth, and the only way to give it to them was to continue relying on, like you said, the eight people who actually were able to pay yield.

So what's clear now, though, We haven't seen the end of this. There's more contagion that needs to work its way to the system, and we don't know if Genesis is going to be the end of it and when they're going to recover. But there's a lot yet to follow. I really appreciate you guys jumping on and trying to continue doing the play-by-play

and help people understand what's going on with FTX. But yeah, there's more coming. And so we'll be back again soon to keep. I hope not. I hope there's no more coming. Like, let's go to the end. Robert, there's one thing we've learned is that it took six months from Luna for this to happen.

I think very recently the six-month anniversary of Luna just a few days ago. So there's definitely more coming if there was any indication from Luna, but it might take a while for us to understand exactly where it pops up. Happy Thanksgiving. Happy Thanksgiving, everybody. And best of luck in explaining to your family what the hell was going on. Hopefully this podcast can be a little help to you at the Thanksgiving dinner. So that's it.

Thanks, everybody. Yep.