I have been quietly thinking “this is crypto money and it could vanish anytime.” But I never said it out loud, because I knew people like Eliezer would say the kind of thing Eliezer said in the tweet above: “you’re no expert, people way deeper into this stuff than you are putting their life savings in FTX, trust the market.” It’s a strangely inconsistent point of view from Eliezer in particular, who’s expressed that his “faith has been shaken” in the EMH.
What Eliezer’s ignoring in his tweet here is that the people who were skeptical of FTX, or crypto generally, mostly just didn’t invest, and thus had no particular incentive to scrutinize FTX for wrongdoing. As it turns out, the only people looking closely enough at FTX were their rivals, who may have been doing this strategically in order to exploit vulnerabilities, and thus were incentivized not to spread this information until they were ready to trigger catastrophe. If there’s money in scrutinizing a company, there’s no money in releasing that information until after you’ve profited from it.
In my opinion, we need dedicated risk management for the EA community. The express purpose of risk management would be to start with the assumption that markets are not efficient, to brainstorm all the hazards we might face, without a requirement to be rigorously quantitative, to try and prioritize them according to severity and risk, and figure out strategies to mitigate these risks. And to be rude about it.
I think this does point to a serious failure mode within EA. Deference to leadership + insistance on quantitative models + norms of collegiality + lack of formal risk assessment + altruistic focus on other people’s problems → systemic risk of being catastrophically blindsided more than once.
I’m not trying to take credit for my silent suspicion. One of the reasons the crypto industry is notorious is because of fraud. I think that’s a natural case a dedicated risk team could have considered if we’d had one.
I initially interpreted your comment as being only about things other than fraud. You’re right that “person makes a lot of money in crypto” probably boosts the base rate for fraud by more than 10x, so your point is great. I think a lot of people, myself included, thought “surely he wouldn’t do anything too blatant (despite crypto).”
Also, the point of risk management isn’t to identify, with confidence, what will happen. It almost certainly was not possible to predict FTX’s collapse, much less the possibility of fraud, with high confidence.
What we probably could have done is find ways to mitigate that risk. For example, it sounds possible that money disbursed from the Future Fund could be clawed back. Was there an appropriate mechanism by which we could have avoided disbursing money until we were sure that grantees could feel totally secure that this would not happen? In fact, is there a way this could be implemented at other grantmaking organizations?
Could we have put the brakes on incorporating FTX Future Fund as an EA-affiliated grantmaker until it had been around for a while?
There are probably prudent steps we could start taking in the future to mitigate such damages without having to be oracles.
I have been quietly thinking “this is crypto money and it could vanish anytime.” But I never said it out loud, because I knew people like Eliezer would say the kind of thing Eliezer said in the tweet above: “you’re no expert, people way deeper into this stuff than you are putting their life savings in FTX, trust the market.” It’s a strangely inconsistent point of view from Eliezer in particular, who’s expressed that his “faith has been shaken” in the EMH.
What Eliezer’s ignoring in his tweet here is that the people who were skeptical of FTX, or crypto generally, mostly just didn’t invest, and thus had no particular incentive to scrutinize FTX for wrongdoing. As it turns out, the only people looking closely enough at FTX were their rivals, who may have been doing this strategically in order to exploit vulnerabilities, and thus were incentivized not to spread this information until they were ready to trigger catastrophe. If there’s money in scrutinizing a company, there’s no money in releasing that information until after you’ve profited from it.
In my opinion, we need dedicated risk management for the EA community. The express purpose of risk management would be to start with the assumption that markets are not efficient, to brainstorm all the hazards we might face, without a requirement to be rigorously quantitative, to try and prioritize them according to severity and risk, and figure out strategies to mitigate these risks. And to be rude about it.
I think this does point to a serious failure mode within EA. Deference to leadership + insistance on quantitative models + norms of collegiality + lack of formal risk assessment + altruistic focus on other people’s problems → systemic risk of being catastrophically blindsided more than once.
Yeah but that’s different from fraud. I think a 99% crypto crash would’ve been a lot easier to handle. (While still being very disruptive for EA.)
I feel like the OP (“How could we have avoided this?”) is less about the collapse of pledged funding and more about fraud.
I’m not trying to take credit for my silent suspicion. One of the reasons the crypto industry is notorious is because of fraud. I think that’s a natural case a dedicated risk team could have considered if we’d had one.
Feel free to take credit for it!
I initially interpreted your comment as being only about things other than fraud. You’re right that “person makes a lot of money in crypto” probably boosts the base rate for fraud by more than 10x, so your point is great. I think a lot of people, myself included, thought “surely he wouldn’t do anything too blatant (despite crypto).”
Also, the point of risk management isn’t to identify, with confidence, what will happen. It almost certainly was not possible to predict FTX’s collapse, much less the possibility of fraud, with high confidence.
What we probably could have done is find ways to mitigate that risk. For example, it sounds possible that money disbursed from the Future Fund could be clawed back. Was there an appropriate mechanism by which we could have avoided disbursing money until we were sure that grantees could feel totally secure that this would not happen? In fact, is there a way this could be implemented at other grantmaking organizations?
Could we have put the brakes on incorporating FTX Future Fund as an EA-affiliated grantmaker until it had been around for a while?
There are probably prudent steps we could start taking in the future to mitigate such damages without having to be oracles.