Thank you. Great that this is coming from senior people in key EA orgs. Looking at the forum yesterday, there seemed to be a risk that attempts to say plain truths or try to derive hard lessons from this whole episode would be discouraged by the community and dismissed as out-group attacks (as reflected in the general pattern of disagreement votes). This is sending the right message. It is OK to be outraged at what went on. It is OK to own up to mistakes. It is OK to learn whatever needs to be learned from this, regardless of how much it hurts preconceptions.
A lot more thinking will be required but this is a good place to start.
A few initial, tentative reflections:
1) my charitable interpretation as a noninitiate is that betting on SBF was a swing for the fences, “the best we could get”, and that the closest counterfactual was not a robust portfolio of equal funding value, but much lower funding value altogether. Many others, with the same objectives and armed with the same information, might’ve made the same calls based on the positive upside
2) nonetheless, it is true that crypto is a highly volatile and speculative sector, where it is easy to get burned by unscrupulous actors. I don’t quite buy that anyone should have known that “all crypto was a Ponzi scheme from the start” (not that Robert is implying this).
Yet there was a reasonable possibility that a lot of the specific kind of crypto manifested by exchanges such as FTX was essentially a Ponzi scheme, more analogous to 19th century Poyaisian government bonds or the Mississipi Scheme than to a legitimate financial business.
This possibility could appear by pattern matching to past frauds and financial scandals, looking at 4 particular reoccurring characteristics: a) a “get rich quick” feature—where did this sudden massive wealth come from? b) a “getting something for nothing” feature—what value is being provided? c) a “disconnection from the real economy” feature—what’s the underlying useful asset? d) related to b and c, a “circular” feature—money coming from aligned actors betting on themselves VS money coming from providing concrete value to outside actors who have no ulterior motive to prop them up.
Another possible warning sign was knowledgeable people alerting to the risk. Nassim Taleb (knowledgeable about finance, regardless of his other opinions) intimating that the proper value of crypto was zero. Liron Shapira (knowledgeable about entrepreneurship, regardless of his other opinions) noting that most blockchain based applications seemed to have zero actual use cases, etc.
3) if there is a reasonable possibility that one of your main sources of funding is tied to a fraud, I would argue (of course hindsight is 20⁄20, but looking at the future...) that the expected value of taking the deal is negative, regardless of how much money on the table. That is because it comes with a risk of ruin, both financial and, in EA’s case, moral. As it stands I’m fairly confident EA as a whole will survive this, perhaps diminished somewhat, but through its actions it put itself at danger of death—an existential danger, one might say.
Practical takeaways would appear to be close to what Robert is suggesting here—more skepticism, more due diligence, more attentiveness to risk of ruin. Time will tell!
Thank you.
Great that this is coming from senior people in key EA orgs.
Looking at the forum yesterday, there seemed to be a risk that attempts to say plain truths or try to derive hard lessons from this whole episode would be discouraged by the community and dismissed as out-group attacks (as reflected in the general pattern of disagreement votes). This is sending the right message.
It is OK to be outraged at what went on.
It is OK to own up to mistakes.
It is OK to learn whatever needs to be learned from this, regardless of how much it hurts preconceptions.
A lot more thinking will be required but this is a good place to start.
A few initial, tentative reflections:
1) my charitable interpretation as a noninitiate is that betting on SBF was a swing for the fences, “the best we could get”, and that the closest counterfactual was not a robust portfolio of equal funding value, but much lower funding value altogether. Many others, with the same objectives and armed with the same information, might’ve made the same calls based on the positive upside
2) nonetheless, it is true that crypto is a highly volatile and speculative sector, where it is easy to get burned by unscrupulous actors. I don’t quite buy that anyone should have known that “all crypto was a Ponzi scheme from the start” (not that Robert is implying this).
Yet there was a reasonable possibility that a lot of the specific kind of crypto manifested by exchanges such as FTX was essentially a Ponzi scheme, more analogous to 19th century Poyaisian government bonds or the Mississipi Scheme than to a legitimate financial business.
This possibility could appear by pattern matching to past frauds and financial scandals, looking at 4 particular reoccurring characteristics:
a) a “get rich quick” feature—where did this sudden massive wealth come from?
b) a “getting something for nothing” feature—what value is being provided?
c) a “disconnection from the real economy” feature—what’s the underlying useful asset?
d) related to b and c, a “circular” feature—money coming from aligned actors betting on themselves VS money coming from providing concrete value to outside actors who have no ulterior motive to prop them up.
Another possible warning sign was knowledgeable people alerting to the risk. Nassim Taleb (knowledgeable about finance, regardless of his other opinions) intimating that the proper value of crypto was zero. Liron Shapira (knowledgeable about entrepreneurship, regardless of his other opinions) noting that most blockchain based applications seemed to have zero actual use cases, etc.
3) if there is a reasonable possibility that one of your main sources of funding is tied to a fraud, I would argue (of course hindsight is 20⁄20, but looking at the future...) that the expected value of taking the deal is negative, regardless of how much money on the table. That is because it comes with a risk of ruin, both financial and, in EA’s case, moral. As it stands I’m fairly confident EA as a whole will survive this, perhaps diminished somewhat, but through its actions it put itself at danger of death—an existential danger, one might say.
Practical takeaways would appear to be close to what Robert is suggesting here—more skepticism, more due diligence, more attentiveness to risk of ruin. Time will tell!