Without trying to make an affirmative statement about what happened at FTX or saying there wasn’t any other factors, it seems likely that the idea “that customer funds solely belong to the customer and don’t mix with other funds” is simplistic and effectively impossible in any leveraged trading system. In reality, what happens is governed by risk management/capital controls, that would almost always blow up in a bank run scenario of the magnitude that happened to FTX.
For example, Robinhood, which no one believes was speculating on customer funds, had a huge crisis in Jan 2021, that needed billions of dollars. This was just due to customer leverage (and probably bad risk management, the magnitudes seem much than what FTX faced this week).
Your comment is valid. This reply is getting into sort of low quality/twitter/reddit style speculation and I might stop writing after this:
Some factors that seem different:
That was Jan 2021, when I think the economy was still in one of the greatest bull runs in human history, money is tighter now for various reasons
At RH, the underlying problem was pretty well defined, and easy to communicate/verify
RH probably had more integration/acceptance in conventional finance. Crypto can be openly hostile, SBF was probably relying on less conventional backstops from his other entities and informal networks
It is possible SBF’s preparations and backstops were formidable, but at the critical moment when withdrawals surged, the separate crisis of defending FTT at >$20 drained all of Alameda and FTX’s resources, that would otherwise almost always be available to satisfy even chaotic customer withdrawals. No one expected both things to happen at the same time
The dual crisis of the withdrawal and FTT issue was spooky, this was two distinct issues. This looked like solvency, and made it a lot harder to get money
It’s not clear the RH FDIC crisis had any visible effects (and it’s not even clear the feds would act in a public way if a violation occurred) while yesterday’s FTX’s withdrawal suspension was blatant, highly damaging and public, by the time FTX was making its phone calls. If they made the calls on Sunday, this may have solved quietly.
RH didn’t give $2M to grantees with a lot cultivated online clout (that the very grant paid to enhance!) who then turn around to unfairly negatively speculate online about deception.
Some other potential factors, are really sort of sad, not SBF’s fault, and I don’t want to write it.
Without trying to make an affirmative statement about what happened at FTX or saying there wasn’t any other factors, it seems likely that the idea “that customer funds solely belong to the customer and don’t mix with other funds” is simplistic and effectively impossible in any leveraged trading system. In reality, what happens is governed by risk management/capital controls, that would almost always blow up in a bank run scenario of the magnitude that happened to FTX.
For example, Robinhood, which no one believes was speculating on customer funds, had a huge crisis in Jan 2021, that needed billions of dollars. This was just due to customer leverage (and probably bad risk management, the magnitudes seem much than what FTX faced this week).
https://www.cnbc.com/2021/02/03/why-investors-were-willing-to-write-robinhood-a-3-billion-check-during-the-gamestop-chaos-.html
Is it not ominous that people were prepared to wriye Robinhood a check, but not FTX?
Your comment is valid. This reply is getting into sort of low quality/twitter/reddit style speculation and I might stop writing after this:
Some factors that seem different:
That was Jan 2021, when I think the economy was still in one of the greatest bull runs in human history, money is tighter now for various reasons
At RH, the underlying problem was pretty well defined, and easy to communicate/verify
RH probably had more integration/acceptance in conventional finance. Crypto can be openly hostile, SBF was probably relying on less conventional backstops from his other entities and informal networks
It is possible SBF’s preparations and backstops were formidable, but at the critical moment when withdrawals surged, the separate crisis of defending FTT at >$20 drained all of Alameda and FTX’s resources, that would otherwise almost always be available to satisfy even chaotic customer withdrawals. No one expected both things to happen at the same time
The dual crisis of the withdrawal and FTT issue was spooky, this was two distinct issues. This looked like solvency, and made it a lot harder to get money
It’s not clear the RH FDIC crisis had any visible effects (and it’s not even clear the feds would act in a public way if a violation occurred) while yesterday’s FTX’s withdrawal suspension was blatant, highly damaging and public, by the time FTX was making its phone calls. If they made the calls on Sunday, this may have solved quietly.
RH didn’t give $2M to grantees with a lot cultivated online clout (that the very grant paid to enhance!) who then turn around to unfairly negatively speculate online about deception.
Some other potential factors, are really sort of sad, not SBF’s fault, and I don’t want to write it.