I think the above points hold. No question that FTX transfering funds to Alameda is the crux of the moral issue at play here. But financially speaking, and to flush out the liquidity issue… for such significant holdings of FTT, those funds should have only been considered with a massive haircut, maybe even upwards of 90%. Alameda said they had billions worth of FTT (in USD terms), and sure that was the case at market prices prior to all of this this. But as we know from what precipatated everything, sell pressure in that range (as was about to happen from Binance), absolutely nuked the market’s confidence and therefore value in FTT. So how much more so would this have been the case if FTX/Alameda ever had came along and said they needed to liquidate billions in FTT?
There was never going to be a way out. It’s truly sad to see the way moral lines were crossed with the transfer of funds across entities, yet to me it’s just bizarre that a bunch of seemingly brilliant folks would have organized their books in such a financially precarious manner when it came to liquidity… let alone in their own token.
The same theme holds but still fairly different scenarios. Asana/Amazon stock signifies partial ownership of those companies derived from the value of their future cash flows. FTT was just an invented token trading on the confidence of FTX, but with no intrinsic value, hence a greater probability of it nuking to 0/
Overall though, Dustin/Bezos’ holdings in each respective company are likely to warrant significant haircuts on their personal balance sheets. Rule of thumb is the more concentrated ownership, the higher the haircut, and the less liquidity, the higher the haircut. They both have significant ownership, so even though it’s fairly safe to estimate higher liquidity in public markets, their concentration of ownership warrants a significant haircut.
I think what’s so significant about the FTX/Alameda case tho, and why the FTT should have been considered effectively worthless on their balance sheet, even given the high market price, was the massive concentration of self-ownership (not to mention the Binance concentration risk) AND the very low liquidity.
FTT was just an invented token trading on the confidence of FTX, but with no intrinsic value, hence a greater probability of it nuking to 0/
Ah! My understanding was that FTX bought back some amount of FTT with their profits each week, giving it intrinsic value (conditional on FTX continuing to exist) dependent on FTX’s future cash flows, and making it feel fairly analogous to stock to me. Though I’m not aware of the exact mechanism, and can easily imagine eg the amount of money going into the pool being independent of the total amount of FTT issued, and the total amount issued being non transparent, making the actual intrinsic value ~0 (essentially really diluted stock)
Good call and looks like they were fairly trainsparent with most of the info you’re referencing here.
I guess I’m still not sure at what point, even in a best case scenario, the “buy and burn” mechanism actually would drive intrinsic value in the coin though? From a pure supply and demand perspective maybe, since the better FTX does, the more scarce the coin is and the more demand there is for it… but isn’t that just a sort of strategic market manipulation within the exchange?
Albeit that could have worked had FTX reached a point where it was strong enough, but I think they effectively nullified that opportunity by using so much FTT as collateral that needed to be more liquid while treating it as if it was.
I think the above points hold. No question that FTX transfering funds to Alameda is the crux of the moral issue at play here. But financially speaking, and to flush out the liquidity issue… for such significant holdings of FTT, those funds should have only been considered with a massive haircut, maybe even upwards of 90%. Alameda said they had billions worth of FTT (in USD terms), and sure that was the case at market prices prior to all of this this. But as we know from what precipatated everything, sell pressure in that range (as was about to happen from Binance), absolutely nuked the market’s confidence and therefore value in FTT. So how much more so would this have been the case if FTX/Alameda ever had came along and said they needed to liquidate billions in FTT?
There was never going to be a way out. It’s truly sad to see the way moral lines were crossed with the transfer of funds across entities, yet to me it’s just bizarre that a bunch of seemingly brilliant folks would have organized their books in such a financially precarious manner when it came to liquidity… let alone in their own token.
Would you apply the same reasoning to eg Dustin’s Asana stock? Or Bezos’ Amazon stock? If not, why?
The same theme holds but still fairly different scenarios. Asana/Amazon stock signifies partial ownership of those companies derived from the value of their future cash flows. FTT was just an invented token trading on the confidence of FTX, but with no intrinsic value, hence a greater probability of it nuking to 0/
Overall though, Dustin/Bezos’ holdings in each respective company are likely to warrant significant haircuts on their personal balance sheets. Rule of thumb is the more concentrated ownership, the higher the haircut, and the less liquidity, the higher the haircut. They both have significant ownership, so even though it’s fairly safe to estimate higher liquidity in public markets, their concentration of ownership warrants a significant haircut.
I think what’s so significant about the FTX/Alameda case tho, and why the FTT should have been considered effectively worthless on their balance sheet, even given the high market price, was the massive concentration of self-ownership (not to mention the Binance concentration risk) AND the very low liquidity.
Ah! My understanding was that FTX bought back some amount of FTT with their profits each week, giving it intrinsic value (conditional on FTX continuing to exist) dependent on FTX’s future cash flows, and making it feel fairly analogous to stock to me. Though I’m not aware of the exact mechanism, and can easily imagine eg the amount of money going into the pool being independent of the total amount of FTT issued, and the total amount issued being non transparent, making the actual intrinsic value ~0 (essentially really diluted stock)
Good call and looks like they were fairly trainsparent with most of the info you’re referencing here.
I guess I’m still not sure at what point, even in a best case scenario, the “buy and burn” mechanism actually would drive intrinsic value in the coin though? From a pure supply and demand perspective maybe, since the better FTX does, the more scarce the coin is and the more demand there is for it… but isn’t that just a sort of strategic market manipulation within the exchange?
Albeit that could have worked had FTX reached a point where it was strong enough, but I think they effectively nullified that opportunity by using so much FTT as collateral that needed to be more liquid while treating it as if it was.