Okay, so the U.S. created the FDIC deposit insurance scheme, because banks kept investing customers funds and then not being able to pay back those customers. Banks and insurance companies models are based on investing customer funds and keeping a fraction of those funds on hand for redemptions. The idea of using customer funds for investing is a well-established financial practice and if done correctly is an incredibly effective way of generating money. Both Full Tilt and FTX misapplied the idea, not realizing how risky their respective businesses were.

I'm not claiming that FTX didn't violate securities law or their customers trust, but I do think that this sort of behavior was predictable in a lightly regulated market. I also think it's unreasonable to expect a group of twenty somethings with little experience in markets or gambling games to not make colossal mistakes in a highly volatile market. Most people, even very smart people, struggle with understanding probability distributions much less managing the risks described in them. (And in this case, I don't think probability distribution on crypto can even be described accurately.)

Everybody talks about how tough quantum physics is to understand, because it's describing an unseen world using probability distributions. There isn't much difference between quantum physics and effectively describing the crypto markets. In some sense quantum physics is easier, because the historical data is more reliable.

As side-note, I still think it's humorous that the poker forum feels so high and mighty about this. There's no difference between Alameda and some broke degenerate trying to win back his losses on somebody else's money. It's not good business practice, but it's something that happens literally every single day in a casino.

I disagree; I think that a crypto exchange can function well and profitably without holding custody of customers coins for more than the time needed to match and execute a locked-in trade. Literally, trades can be done trustlessly, a couple of minutes tops for enough confirmations on the BTC blockchain. .That confirmation time/risk time can be cut further if there is a market-maker available


FTX was not a failure of sufficient information to educate an exchange operation on running an exchange. Rather, that "exchange" and others got into issuing their own crypto and trading for their own account, using customer assets as their own.

Currently Coinbase ostensibly charges zero fee for implementing trades on its platform, in return for a monthly subscription charge. It seems to me however that there may be a silent middling going on as the pricing is not as favorable as other fee-charging sites offer. Still, that is an issue of pricing, not misusing customer funds.

I mean, you're wrong - it's not just that they "invested" customer funds into some interest generating products (like bonds), as a bank would do. They amongst other things:

- borrowed $1bn to insiders of the company
- spent $5bn in various non liquid private equity investments
- had no financial statements of the group
- allowed Alameda to trade on margin

This isn't about "lightly regulated" markets - it's just fraud.

For instance, they also purchased $250kk usd of real estate in the bahamas

In the last 9 months, Coinbase has lost $2.15b on revenue of $2.55b. TWO BILLION DOLLARS LOST. They're spending nearly twice as much as they collect in revenue.

If Coinbase hasn't yet figured out how to stop puking money, what makes you think that the much less experienced clowns running FTX could somehow be "informed and educated" enough to run a profitable exchange?

Do you have a car payment or mortgage? You've had somebody else pay your bill, then committed to pay back the bank with future income. Maybe (hopefully not), you misjudged your future income and ended up not being able to pay back the bank. Is this fraud or just poor judgement? My layman understanding of this is that fraud is intentional. That's tough to prove when poor judgement is a valid explanation.

FTX did the same thing with the personal loans and the real-estate, they assumed that future cash-flow would cover the purchases. It's a little grayer, because unlike you, there was no bank to judge them credit-worthy (the bank is partially at fault when you default), so they judged themselves credit-worthy.

On the margin trading, again, well-established financial practice to get better returns, if done correctly little-to-no risk. If done poorly, bankruptcy.

On the accounting --- I have absolutely no idea what they were doing. It seems absurd, incompetent, and possibly malicious. I think it's the strongest argument to the fraud idea, because it seems completely unsustainable as a long-term strategy.

seldomly have i seen so many misplaced analogies at once. everyone in this thread is now dumber for having read this. i award you no points, and may good have mercy with your soul.

It sounds like you think spending investor funds is fine so long as x>y>z, where x=investor deposits, y=penthouse condos, and z=investor withdrawals. If you put in a few different sets of numbers in there, you should be able to see what the problem is and why it's called stealing.

Both his parents are compliance attorneys and also teach at Stanford. There is zero chance he didn't pick up a thing or two about the most very basic business ethics by the time he was 30.

Coinbase provides trades for FREE to subscribers. The subscription costs like $29.95 per month. They must be missing out on revenue on that offer.

Without even taking a 30 sec search, I'm sure the money lost on COIN is from investments on various crypto sectors with the market downturn, than the loss of volume on the exchange in a bear market. The exchange itself is constantly profitable I would bet.

"i bet" ftx would not have gone bankrupt this year if the kids running the company had not shoveled billions of dollars out the door with their gambling, pilfering, and bribing.

But they did, and it did, snd I am baffled how anyone in this thread could consider SBF + cronies as competent and honest.

Funny and true

also.. The "legal" campaign contributions were known. now the illegal ones coming to light via masking the source. also ones sourced back to foreign sources (alameda I think) straight our illegal.

some good comes from this as will shine a light on just how effed up campaign finance /lobbying laws are here...maybe some small improvements finally get pushed thru. as the stink on this one spreads all up an down the hill

Why not "take a 30 sec" spat of research before opining ?

When you say money lost "on" Coinbase, do you mean money lost "by" Coinbase ?

What was Coinbase "investing" its own assets or those custodial accounts of its account holders ? I hope it was the former, without involving the latter.

Do you know ?

Well your exchange is generating income, you can spend that income. If you assume that income will continue, what's wrong with borrowing against future income? I'm really not seeing the problem with this idea, given that almost everyone does it.

I think the real problem is when you screw up and borrow too much money. The thing is that the amount of redemptions is relatively small on any given day, so you start thinking that you can borrow a lot of money from your customers, because they'll never know and over time you'll generate that much money from trading frees, investment income etc, so you'll always be able to pay everybody back.

The idea works until some black-swan event comes along and causes a panic and everybody wants their money today. Then you go bankrupt and everybody thinks you are a crook.

I think you'll be surprised how many businesses use their customer funds for operating expenses (including employee perks). It's been far more common than anybody really wants to admit.

One needs to look no further than Full Tilt and PokerStars. As soon as Stars said the DOJ said you can withdraw your money and to withdraw it in full, I got my balance wired to me within hours. Full Tilt players got diddly squat. That is the difference between a business that realizes what their assets and liabilities are. Customer deposits are a liability.

I guess you think it's okay for an employee to take $500 cash for weekend "sure thing" poker games so long as he puts it back on Monday morning before anyone notices the money is missing? He's just borrowing from his employer against future earnings and people will mislabel him a crook if he gets a bad run of cards and "borrowed" too much that he can't put it back, yeah?

But anyway, the real hilarity in your post is your assertion that you're somehow wise to which businesses steal customer deposits and which segregate deposits.

It's not stealing that's the thing. You 're just taking a loan from future income (those deposits get turned into cash flow eventually). There's a big assumption that there's no bankruns, but you can go decades between them in stable businesses. FDIC insurance was created because basically every bank did this type of malarkey prior to 20th century and people got tired of losing their deposits.

Truthfully, I'm not FTX side on this on shape or form --- though I do think incompetence seems more likely an explanation than maliciousness --- but I don't really think this a terribly novel or surprising outcome for an unregulated business and I do think that the people who decided to put their money in a unregulated, opaque business are partially at fault for their losses. Buyer be ware.

Who's the employer in this example in the FTX example? The customer gave his money to FTX, who issued an (unenforceable) guarantee that they would give it back. So FTX I guess is the employee, and the customer is the employer? But the employer knew he was giving money to some offshore unregulated company.

So if I as the employer give Joey the drug addict a $1000 dollars, and then I am irate when Joey somehow doesn't have the money 6 months later. Is Joey at fault or am I fault for giving the money to a drug addict? I'd argue we both are. Joey certainly has been behaved unethically, but he has behaved predictably. I have demonstrated at the least poor judgement in giving him the money, because giving drug addicts money is -EV.

In some sense it seems like everyone is mad, because Joey wasn't supposed to have a heroin problem, even though Joey had track marks.

Bro, you can rationalize it however you like, but it's called stealing. This is why Full Tilt couldn't pay the players when the **** hit the fan - because they stole the players' money instead of keeping it segregated. Just because if Black Friday didn't happen they would still be operating today, doesn't mean they were not stealing.