The FTX crypto bezzle continues to make waves.
Yves Smith remarks on Sam Bankman-Fried, the front-man of the fraud:
Yours truly must admit that if SBF does participate in the New York Times Dealbook conference on the 30th as scheduled, it would either indicates that his judgement is severely impaired and he is ignoring legal advice or he has good reason to believe that his risk of being prosecuted is extremely low. Given the rush of press stories that go insanely easy on this crypto grifter by skipping over inconvenient facts, like SBF “borrowing” over $3 billion that appears to have gone poof (see one shredded below), one has to suspect that the Southern District of New York effort to develop a case is unserious.
Mind you, this is not over until the fat lady sings. What it took with the very connected Elizabeth Holmes was tenacious reporting by the Wall Street Journal, which refused to back down in the face of thuggish threats by star litigator David Boies (and despite, or perhaps because, Rupert Murdoch had invested $125 million in Theranos). There’s a lot of Silicon Valley money riding on the crypto project. A full or even partial but revealing expose of what went on at FTX and Alameda could readily cast more well warranted doubt on the entire ecosystem.
The New York Times and other top news sites are running cover for the FTX culprits:
A piece on the interconnections between Bankman-Fried’s exchange (FTX) and the investment company he controlled (Alameda) soft-pedaled the outright illegality of his making trades with customer funds. To hear the Times tell it, “Alameda’s need for funds to run its trading business was a big reason Mr. Bankman-Fried created FTX in 2019. But the way the two entities were set up meant that trouble in one unit shook up the other as crypto prices began to drop in the spring.”
But that’s not what happened. When customers demanded their money, Fried didn’t have it, because he had been using it and losing it, illegally, for his own trades.
Not only that. To me the most egregious part of the FTX story is the use of 'tokens' which essentially were some kind of discount ticket one could buy to trade on better terms:
A giant part of understanding exactly what went down at FTX is understanding the Tokens they had launched or partnered with. In 2019 FTX launched FTT, an Ethereum ecosystem token which represented a cut of exchange fees and offered discounts to traders for holding it. It was the same model that Binance launched their token with in 2017. Tokens would be bought out of the market with a portion of exchange profits on a regular basis, delivering a return to investors.
A huge portion of FTT tokens were held on the FTX balance sheet as an asset.
Think of a grocery that offers a $10 discount ticket to regular customers. The ticket gives them 15% off of their next $100 grocery buy. The total discount ticket sale is limited to 50 tickets. The people who did not get a ticket see good value in them and soon start to trade a few of them at $12.50.
But the FTX grocery did not only print the 50 discount discount tickets it had planned to sell but a total of 50,000 discount tickets. It then claimed that the 49,950 tickets times the market price of $12.50 per ticket were $624,375 in capital assets supporting the business. The grocer then went to a bank to get a real money loan of maybe $500,000 while offering those self printed assets as collateral. The money he got was then used to finance his grand lifestyle.
FTX was worse than that:
Even more egregious were the Solana ecosystem tokens which FTX helped launch. The leaked balance sheet showed that FTX had large holdings of Serum, Maps and Oxy.
It showed Serum tokens marked as a $2.2 billion asset. Available market cap at the time was less than $500 million.
We don’t know for sure, but it seems likely that loans were taken out backed by FTT and other minor tokens.
Essentially, it seems that SBF invented his own currency from this air and then took out US dollar loans against it from anyone that would offer.
That last sentence essentially describes the whole crypto Ponzi scheme including bitcoin. It is build on the assumption that worthless things can be converted in something of value. Well, as P.T. Barnum may have said: "There's a sucker born every minute." Bitcoin and other tokens become 'assets' because eventually some sucker will pay real money for them.
The Bankman-Fried trick can only work when the lenders do not really care about the collateral because they think that the grocery business is doing great:
And why wouldn’t Crypto lenders offer loans to FTX on whatever collateral was offered?
FTX was the fastest growing exchange in industry history. It had prestigious investors. Its CEO was throwing around cash on advertising and political donations. Surely FTX was profitable enough to service their loans.
They lenders were all suckers.
There are also lots of suckers in Ukraine.
Until November 15, four days after FTX was officially bankrupt, the official website https://aid-for-ukraine.io/ still looked like this:
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There was the FTX logo and a quote from its founder and CEO Sam Bankman-Fried:
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A day later the logo and the quote were gone:
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But Ukraine continues to be in the crypto scam business. It had planned to integrate the international crypto scammer Binance into its official government app. Local crypto scammers protested against that:
Ukraine has paused its planned integration of Binance's crypto payment service into the government's official app after backlash by the embattled nation’s crypto community.
That integration is now on hold to “clarify a few moments” first, according to a government minister.
The outrage was prompted by the government’s plans to integrate the service from the world’s largest exchange by volume at a time when Binance continues to do business with Russia, which invaded Ukraine in February. The nation's crypto exchanges don't want a foreign company to provide a service they can do as well. They showed their displeasure by blocking trades of Binance's BNB token on their platforms.
Binance had integrated its know-your-customer (KYC) process into Ukraine's Diia mobile app in late October, local crypto news media Forklog reported. Diia allows Ukrainians to make digital copies of their state-issued documents and government services online.
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Using the Binance system would allow Ukrainians to register on the crypto exchange faster by using their Diia profile, said Kyrylo Khomyakov, Binance’s general manager in Ukraine, to Forklog.
The Binance scam had bribed someone to become the most easily accessible crypto 'exchange' in Ukraine. The app integration would have sucked in new Ukrainian customers into the Binance system. The local crypto scam entities protested against that:
Exchanges Kuna, WhiteBit and crypto lending service Trustee Plus filed a petition to Ukraine President Volodymyr Zelensky asking him to block the move. They also froze trading of BNB, Binance’s token, on their platforms.
“All the attention now is on Binance, and local exchanges are upset,” said a Ukrainian crypto entrepreneur who asked not to be named.
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While Kuna, WhiteBit and Trustee are all officially registered outside Ukraine, the founders and teams are Ukrainian, and all three used to be based in the country before relocating after the invasion of Ukraine.
While being safely outside of the country, and having avoided the draft, the Ukrainian embezzlers want to continue to feast on their compatriots' funds. No foreign competition should be allowed for that.
I find it a bit astonishing that Ukrainian government employees have time for such nonsense. Are they on the winning side of such scams?
