Sam Bankman-Fried made his first cryptospace appearance since the collapse of FTX Trading on Thursday afternoon.
Twitter spaces was buzzing with anticipation with over 30k listeners piling into the Mario Nawfal lead roundtable. There was no waste of time with the straightforward questioning by both Mario and cohost Chet Long.
There has been confusion rising on the exact intentions of Bankman-Fried participating in these recent interviews. This was the first clarification that Mario requested with his opening question. With a repeat of the previous interviews Bankman-Fried responds that he has a “duty to the people” to speak.
“At the end of the day you all deserve to hear from me what happened, I feel incredibly bad about it and it is the least I can do.”
Emotions ran high, and frustrations grew throughout the interview leaving some to feel the space was improperly managed. There were many members allowed “up on stage” and allowed to speak with continual interruptions, breaking the flow of the interview.
This unfortunately did not allow for a thorough investigation into the allegations facing Bankman-Fried and FTX Trading. It allowed more individual questions that lead the interview into multiple different areas without a clear direction.
However, in breaking down the questions and the answers given I feel a couple of very key things were exposed.
Focusing On The Facts
Seeing through Bankman-Fried’s esoteric speech leaves us with the bare bones of what this is, criminal.
The criminal aspect became clearer as Bankman-Fried repeatedly took the time to explain, in detail, how the margin trading and leverage platform works. Yet, consistently leaning on his lack of knowledge about the massive position of Alameda, and anything data related to FTX at the moment.
How is a man with a masters and a minor from M.I.T so unaware of what is going on with his empire? While still walking you through how Alameda’s leveraged positions lost value so fast the margin calls couldn’t react fast enough to save the collapse.
To find a simple answer we go back to a November 2019 class action hearing. A lawsuit was filed alleging conspiracy to participate and participation in an enterprise engaging in a pattern of racketeering, cryptocurrency manipulation, price manipulation, and fraud among other charges.
Interestingly, the lawsuit says that FTX was allowed to thrive thanks to “Alameda’s unlicensed over-the-counter (OTC) money transmitting business.” The lawsuit also accuses FTX and Alameda Research of being a singular entity, rather than two separate companies.
“FTX was a derivative company, the collateral was equal to the sum of the positions. There was negative and positives to it”
It more seems that this is the time that Bankman-Fried and Alameda finally got caught up in their oversized Ponzi scheme. The perfect storm exposed the inner workings of FTX and Alameda to the world and Bankman-Fried will continue to label it as an “oversight” and not the fraud it is. If the market would have held sable the scheme would have continued under the cover of green candles.
No matter how Bankman-Fried paints this, the bottom line is Alameda was taking assets from users and moving the liquidity from the user’s liquidity pool. They then centralized the liquidity pool into one wallet owned by Alameda. This itself would not allow the token to know its own liquidity pool inside of your exchange hot wallet.
This would lead to what could be equated to printing false money. They were creating false tokens taking the place of the liquidity in the user wallet to give the appearance of user ownership. Once the move has been made Alameda would then use those assets they now own, to open margin trades on FTX International.
What Alameda and FTX were not ready for was a complete market crash.
The values of collateral Alameda used to open those margin trades fell rapidly, per Bankman-Fried. So rapidly that by the time FTX goes to call the margins, theoretically closing all trades and clearing liabilities in full. When the users went to close their positions, they found no liquidity to trade against as Alameda had placed it elsewhere like a margin trade on FTX.
“I wasn’t on top of things like I should have and that’s on me, no one was on top of international risk management. I was responsible for making sure someone was.”
There Is More
Another interesting bit that was scraped from the chaotic interview was Bankman-Fried’s admittance of what closely resembles wire-fraud. Scrolling back to 2019 when FTX was founded, the ability to obtain a banking account for a cryptocurrency business was impossible. While FTX did have crypto wallets, users had to wire money to Alameda. After that transfer Alameda would then credit that to FTX with a ledger transfer.
This essentially made Alameda the “middleman” in a transaction between a customer and an exchange. To do this that “middleman” would have to hold a brokerage license at the least. If they do not, they are dabbling in the realm of fraud.
Once again showing the long-standing relationship between FTX Trading and Alameda.
Even with Bankman-Fried claiming Alameda trading ties with FTX lessened, data sheets show 22% of FTX’s on chain interaction was with Alameda wallets. Also showing that from June 1st thru July 22nd Alameda was largest depositor of funds to wallets within FTX.
Sam Bankman-Fried glanced over this topic by stating, “Alameda was a large fraction of the ecosystem of cryptocurrency, they do a lot of stable coin deposits and withdraws on FTX and that’s why they had a large footprint there. I wish I would have done a deeper dive into that.”
While there were a few more topics touched on during this interview, I do not feel confident in sharing yet. I want to make sure that it has been confirmed and validated first. There are still unanswered questions, and that to me is the most disappointing thing about the interview.
We truthfully don’t know how far this goes down the rabbit hole, and it is up to the communities to find out. We must drag the dirty truth out and disprove the fluff mainstream media will attempt to portray. Unfortunately, we did not get to do that to the capacity needed in todays conversation.
I am however, looking forward to joining Mario and Chet’s roundtable again on Monday. There hopefully will be a lot more insight from a couple insiders who will be speaking. Did you get to listen to the interview? If you did I would love to hear your take on the content as well the outcome.