This means SBF has lost control of around ~50% of his resources. It will have damaged the value of FTX US and Alameda as well.
Two things have happened:
The value of FTX appears to have gone down (a lot).
Some part of FTX is potentially being sold to Binance.
(1) causes Sam to lose control of a lot of his resources, because those resources have essentially evaporated with the value of FTX. But conditional on (1) happening, doesn’t (2) just mean that whatever value SBF retains after (1) is converted from equity in (the relevant part of) FTX to cash? “Losing control” implies something bad has happened in addition to the loss of value of FTX. I’m not sure what else that is.
Nathan’s post is not entirely wrong though. If FTX.com sells at a discount, we have no idea who gets paid first. Maybe it takes FTX to sell and lose 50% of its value for SBF to get zero, maybe it takes 90% discount, maybe 99%?
This happens a lot when there are aqui-hires because of start-up going bankrupt, and employees with shares get 0 because investors have prefered payback clauses
I agree we have no idea what the terms of the deal are, which is why I don’t think we can say what the total effects on SBF’s assets are other than by informed guessing.
Not only we have no idea of the terms of the deal for FTX.com, but it seems hard to predict what it means for the value of FTX US (what does the probability of another bank run look like now?) and Almeda (did they actually use FTX.com’s info/cash as a significant generator of alpha?)
It’s easy for me to say this now, but the reason I said it was because I sensed that that chunk would be valueless and maybe much of the rest. ~50% was my median value between 20% and like 90%.
But it felt a little exhausting to say that given I couldn’t really justify it.
It’s cheeky of me to say this without evidence, (though I guess maybe we could find me rewording it in the original google doc)
FTX doesn’t seem to be able to pay its customers, so the value here looks like it’s negative (“in debt to customers;” and Binance may bail out customers rather than give money to FTX owners for the sale).
I mean, if you interpret “liquidity crunch” in the most optimistic way, then there’s still value from the sale. But I think that would be somewhat naive here given the drop of FTT token (which, according to the balance sheet that was floated recently, made up a lot of FTX/Alameda reserves) and the general prior for crypto that “liquidity crunch” is usually a euphemism for “sorry it’s gone.”
What also looks very serious is the fact that they have to sell to their competitor who was attacking them, as opposed to being able to sell to other buyers. If it was a more innocuous “liquidity crunch,” wouldn’t you be able to show balance sheets to interested buyers and offer them a good price and not give anything to the immediate competitor who’s been defecting (or retaliating, depending on how one sees it) against you? (But maybe there are other reasons why Binance is a good fit and I’m not aware of them.)
Some of the thoughts in this post and thread seem pretty half baked and very uncertain, I think the pace of writing should be lower.
For example, the withdrawals might be at $6B this morning, that would break systems in a purely ops or make movement of money impractical for very innocent, mundane reasons. This experience adds a lot of confusion and noise when reported and echoed.
The “Satan’s Apple” seems excessively abstract, looking at this from a regular business expansion/portfolio theory seems like more useful and this would benefit from more time.
The “Satan’s Apple” seems excessively abstract, looking at this from a regular business expansion/portfolio theory seems like more useful and this would benefit from more time.
It refers to a part of the text that was removed after receiving feedback that it would be better if we just stuck to the facts, given all the uncertainty. (Charles’ comment is one example of this, we got some more elsewhere)
Is it a good idea to communicate to Sam that CZ is emotionally manipulating him and that he could be making a suboptimal decision by selling for low cost?
“Losing control” implies something bad has happened in addition to the loss of value of FTX. I’m not sure what else that is.
(also commenting on the sale to Binance rather than deliberation with several potential buyers mentioned by Lukas_Gloor)
I happened to be learning full-time about FTX and its broader ecosystem for the past month or two. (ah, hah, I thought maybe next week I can apply)
CZ is a great diplomat. It can be argued that Binance runs on fear, abuse, and limiting the motivation to leave. (This is juxtaposed with FTX model, which is powered by consideration and support.)
In his announcement to sell FTT, CZ (or the team tweeting as CZ), used emotionally challenging language as well as alluded to social biases. This could have motivated SBF to act impulsively, as if to avoid the prospect of prolonged ‘emotional terror’ of the perception of wrongdoing, uncertainty, powerlessness, etc.
We will try to do so in a way that minimizes market impact. Due to market conditions and limited liquidity, we expect this will take a few months to complete. 2⁄4 [Tweet by CZ]
In context, one can imagine CZ enjoying liquidating FTT bit by bit, for an unknown extended period of time (which may not end), which can seem dreadful to customers and SBF, considering the somewhat ‘sadist’ reputation of CZ. People would just seek to avoid pain (that CZ implies to threaten).
… Our industry is in it’s nascency and every time a project publicly fails it hurts every user and every platform. 3⁄4
This can be read as further appealing to Sam to prevent the ‘hurting’ of vulnerable users (and platforms) (and sell impulsively).
I was out with friends yesterday when the topic of whale alerts came up. Following our principles, I decided to be transparent. So I wrote a thread in 5 mins, and posted it. Little did I know it was going to be “the straw that broke the camel’s back.” 1⁄4 (Tweet by CZ)
This portrays effortlessness, that may be disempowering to SBF, who is admired for his fast-paced decisionmaking. ‘was out with friends’ can seek to inspire loneliness, ‘whale alerts’ can be considered fatphobic, and the part with the straw broke back can further allude to physical disempowerment and implied physical threat. Thus, SBF can be motivated to feel powerless compared to CZ.
---
The counterargument to the hypothesis that SBF acted impulsively due to CZ’s threatening is that actually, the assets on FTX and Alameda had little value beyond that assigned to them by buyers. SBF can be thus collecting maximum value possible, greater than that which he would gain if further actors studied FTX/Alameda assets.
I am not sure about the valuation of FTX/Alameda. However, Binance is a very similar business. Thus, it can be that studying Binance can have similarly detrimental effects. I am uncertain about this, but it prima facie can seem that assessing the ‘actual’ value of Binance and estimating that of FTX based on that can provide decisive negotiation leverage to SBF.
---
One person who seems to be resistant to CZ’s threats is Anatoly Yakovenko (for example, read Binance CEO CZ mused on this very subject on Twitter:. Anatoly could be helpful in negotiating with CZ, creating leverage by seeing through (and shaming) aggression and threats.
I’d think Sam has enough experience in the space (incl. negotiating these types of deals from the position of the buyer) that he wouldn’t let himself be manipulated. So the fact that he’s interested in sealing the deal means he may be in a pretty poor negotiating position. :/
While I agree that FTX.com has more than enough experience negotiating deals objectively, I also think that this decision considers the fear that CZ is creating.
This is because as long as FTT gains value after Binance’s sell (due to speculation), then there is no need to agree to the deal. Whether FTT gains value is influenced by investor sentiments.
The deal with Binance shows that SBF does not expect FTT to appreciate after Binance’s sell. This would be the case when fear is associated with FTT. This is what CZ is creating.
Based on this line of reasoning, it is not necessary to agree to the deal with Binance, if one can mitigate the fear being caused by CZ.
Market price manipulation is illegal, so, technically, CZ cannot do anything besides influencing investor sentiments. One can argue that mitigating CZ’s ability to threaten can be the key here, because that is the only effective strategy to keep FTT value high.
One way to mitigate one’s ability to threaten is disclosing their techniques, such as deliberate motivation of negative emotions by appeal to biases, possibly using Twitter bots, etc.
On one hand, ignoring Binance’s offer had to be already thoroughly considered by FTX.com. On the other hand, introducing an external motivation to find a solution by ‘making CZ sincerely contribute’ or ignore him could improve the sentiments around FTT value and thus resolve the problem.
I’m confused why you say
Two things have happened:
The value of FTX appears to have gone down (a lot).
Some part of FTX is potentially being sold to Binance.
(1) causes Sam to lose control of a lot of his resources, because those resources have essentially evaporated with the value of FTX. But conditional on (1) happening, doesn’t (2) just mean that whatever value SBF retains after (1) is converted from equity in (the relevant part of) FTX to cash? “Losing control” implies something bad has happened in addition to the loss of value of FTX. I’m not sure what else that is.
Nathan’s post is not entirely wrong though. If FTX.com sells at a discount, we have no idea who gets paid first. Maybe it takes FTX to sell and lose 50% of its value for SBF to get zero, maybe it takes 90% discount, maybe 99%?
This happens a lot when there are aqui-hires because of start-up going bankrupt, and employees with shares get 0 because investors have prefered payback clauses
I agree we have no idea what the terms of the deal are, which is why I don’t think we can say what the total effects on SBF’s assets are other than by informed guessing.
Not only we have no idea of the terms of the deal for FTX.com, but it seems hard to predict what it means for the value of FTX US (what does the probability of another bank run look like now?) and Almeda (did they actually use FTX.com’s info/cash as a significant generator of alpha?)
It’s almost certain that the residual value after FTX.com’s sale will be very low.
There are also major implications for Alameda trading and the remaining FTX entities.
It’s easy for me to say this now, but the reason I said it was because I sensed that that chunk would be valueless and maybe much of the rest. ~50% was my median value between 20% and like 90%.
But it felt a little exhausting to say that given I couldn’t really justify it.
It’s cheeky of me to say this without evidence, (though I guess maybe we could find me rewording it in the original google doc)
Touché
FTX doesn’t seem to be able to pay its customers, so the value here looks like it’s negative (“in debt to customers;” and Binance may bail out customers rather than give money to FTX owners for the sale).
I mean, if you interpret “liquidity crunch” in the most optimistic way, then there’s still value from the sale. But I think that would be somewhat naive here given the drop of FTT token (which, according to the balance sheet that was floated recently, made up a lot of FTX/Alameda reserves) and the general prior for crypto that “liquidity crunch” is usually a euphemism for “sorry it’s gone.”
What also looks very serious is the fact that they have to sell to their competitor who was attacking them, as opposed to being able to sell to other buyers. If it was a more innocuous “liquidity crunch,” wouldn’t you be able to show balance sheets to interested buyers and offer them a good price and not give anything to the immediate competitor who’s been defecting (or retaliating, depending on how one sees it) against you? (But maybe there are other reasons why Binance is a good fit and I’m not aware of them.)
Illiquidity is not the same thing as insolvency.
Some of the thoughts in this post and thread seem pretty half baked and very uncertain, I think the pace of writing should be lower.
For example, the withdrawals might be at $6B this morning, that would break systems in a purely ops or make movement of money impractical for very innocent, mundane reasons. This experience adds a lot of confusion and noise when reported and echoed.
The “Satan’s Apple” seems excessively abstract, looking at this from a regular business expansion/portfolio theory seems like more useful and this would benefit from more time.
What do you mean by this?
It refers to a part of the text that was removed after receiving feedback that it would be better if we just stuck to the facts, given all the uncertainty. (Charles’ comment is one example of this, we got some more elsewhere)
Obviously I was too optimistic here :-(
Is it a good idea to communicate to Sam that CZ is emotionally manipulating him and that he could be making a suboptimal decision by selling for low cost?
(also commenting on the sale to Binance rather than deliberation with several potential buyers mentioned by Lukas_Gloor)
I happened to be learning full-time about FTX and its broader ecosystem for the past month or two. (ah, hah, I thought maybe next week I can apply)
CZ is a great diplomat. It can be argued that Binance runs on fear, abuse, and limiting the motivation to leave. (This is juxtaposed with FTX model, which is powered by consideration and support.)
In his announcement to sell FTT, CZ (or the team tweeting as CZ), used emotionally challenging language as well as alluded to social biases. This could have motivated SBF to act impulsively, as if to avoid the prospect of prolonged ‘emotional terror’ of the perception of wrongdoing, uncertainty, powerlessness, etc.
In context, one can imagine CZ enjoying liquidating FTT bit by bit, for an unknown extended period of time (which may not end), which can seem dreadful to customers and SBF, considering the somewhat ‘sadist’ reputation of CZ. People would just seek to avoid pain (that CZ implies to threaten).
This can be read as further appealing to Sam to prevent the ‘hurting’ of vulnerable users (and platforms) (and sell impulsively).
This portrays effortlessness, that may be disempowering to SBF, who is admired for his fast-paced decisionmaking. ‘was out with friends’ can seek to inspire loneliness, ‘whale alerts’ can be considered fatphobic, and the part with the straw broke back can further allude to physical disempowerment and implied physical threat. Thus, SBF can be motivated to feel powerless compared to CZ.
---
The counterargument to the hypothesis that SBF acted impulsively due to CZ’s threatening is that actually, the assets on FTX and Alameda had little value beyond that assigned to them by buyers. SBF can be thus collecting maximum value possible, greater than that which he would gain if further actors studied FTX/Alameda assets.
I am not sure about the valuation of FTX/Alameda. However, Binance is a very similar business. Thus, it can be that studying Binance can have similarly detrimental effects. I am uncertain about this, but it prima facie can seem that assessing the ‘actual’ value of Binance and estimating that of FTX based on that can provide decisive negotiation leverage to SBF.
---
One person who seems to be resistant to CZ’s threats is Anatoly Yakovenko (for example, read Binance CEO CZ mused on this very subject on Twitter:. Anatoly could be helpful in negotiating with CZ, creating leverage by seeing through (and shaming) aggression and threats.
I’d think Sam has enough experience in the space (incl. negotiating these types of deals from the position of the buyer) that he wouldn’t let himself be manipulated. So the fact that he’s interested in sealing the deal means he may be in a pretty poor negotiating position. :/
While I agree that FTX.com has more than enough experience negotiating deals objectively, I also think that this decision considers the fear that CZ is creating.
This is because as long as FTT gains value after Binance’s sell (due to speculation), then there is no need to agree to the deal. Whether FTT gains value is influenced by investor sentiments.
The deal with Binance shows that SBF does not expect FTT to appreciate after Binance’s sell. This would be the case when fear is associated with FTT. This is what CZ is creating.
Based on this line of reasoning, it is not necessary to agree to the deal with Binance, if one can mitigate the fear being caused by CZ.
Market price manipulation is illegal, so, technically, CZ cannot do anything besides influencing investor sentiments. One can argue that mitigating CZ’s ability to threaten can be the key here, because that is the only effective strategy to keep FTT value high.
One way to mitigate one’s ability to threaten is disclosing their techniques, such as deliberate motivation of negative emotions by appeal to biases, possibly using Twitter bots, etc.
On one hand, ignoring Binance’s offer had to be already thoroughly considered by FTX.com. On the other hand, introducing an external motivation to find a solution by ‘making CZ sincerely contribute’ or ignore him could improve the sentiments around FTT value and thus resolve the problem.
I would be very surprised if Sam was unaware of this dynamic