#232—FTX edition

Greg Kidd’s take on SBF/FTX and CZ/Binance

Nov 14, 2022

Welcome to Yaka Stuff, our weekly newsletter that covers news, industry perspectives, and updates from the Hard Yaka ecosystem. Check out last week’s report here.

This week:

FTX and Greg’s take
Brian Armstrong on the All-In podcast
Stuff happens

1. FTX

Most of you have probably caught up on the story, and I don’t have any special insider knowledge or anything so I won’t get too much into the details. But it appears that SBF’s trading firm Alameda Research was already in trouble earlier in the year when TerraUSD and LUNA imploded. (Remember those pesky algorithmic stablecoins?)

In hindsight, when we were all painting SBF as the crypto version of JP Morgan or Buffett, he was really trying to prop up the whole machine. At some point, he made the regrettable decision to tap FTX customer assets to save his hedge fund in the form of loans backed by his exchange token, FTT. That was the seed.

“How does that Hemingway quote on bankruptcy go?” Greg asked, during our chat on this topic last Friday.

“Gradually, and then all of a sudden.”

Suddenly, SBF had a secret that only his inner circle knew. But then CZ got a whiff and pulled the trigger. And now we’re here.

If not for CZ, would SBF and FTX have gotten out of this unscathed until the next cycle? Maybe. Or “probably,” according to The Block Research call on the subject last week. But with such a large hole to fill, who knows? Some other event might have triggered a similar liquidity and solvency crisis.

As widely reported, SBF was highly influential on the political and regulatory front. His demise will shine a bright light on the entire industry. Of course, it was also the lack of regulatory clarity here in the US that created a chilling effect and helped fuel the rapid rise of offshore exchanges like FTX (and Binance). Would this have happened at a regulated US entity? At the very least, it’s a lot less likely. (Coinbase, a public company, has its audited balance sheet for anyone to glean over. Meanwhile, the crypto response will be: more DeFi, please.)

As such, most people expect a lot more public, political, and regulatory scrutiny going forward, which should, in turn, pave a path forward for US-based regulated entities. In that sense, SBF may get what he wanted—just not in the way he planned for.

Greg’s take:

Sam and FTX were playing a brilliant long term strategic game (chess). Unfortunately for them, CZ and Binance chose to play a short term tactical game (checkers) that put FTX under the spotlight on liquidity concentrations at Alameda that were vulnerable to price shocks that CZ/Binance could trigger by dumping particular assets. When FTX crossed the line to try to help Alameda weather the storm, the trap was sprung, bringing the whole SBF ecosystem to its knees.
CZ and Binance flexed their muscles last month by delisting Coinbase and Circle's USDC from their exchange, squelching liquidity from the world's second most popular stablecoin in favor of their own stablecoin. Highlander hardball tactics again carried the day strengthening Binance's hand at the expense of the #2 and #3 players in the industry.
It’s a rough and tumble world that just got rougher. CZ/Binance’s payback to FTX and Coinbase attempting to be more regulator friendly. Longer term, CZ/Binance may have their own comeuppance over their lenient compliance controls that have well benefited the likes of the Russian version of Silk Road and been a conduit of laundering proceeds for North Korean hackers.

Relevant:

Yaka Stuff

#232—FTX edition

Greg Kidd’s take on SBF/FTX and CZ/Binance

1. FTX

2. Brian Armstrong on the All-In podcast

3. Stuff happens

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