EA - Sadly, FTX by Zvi

Link to original articleWelcome to The Nonlinear Library, where we use Text-to-Speech software to convert the best writing from the Rationalist and EA communities into audio. This is: Sadly, FTX, published by Zvi on November 17, 2022 on The Effective Altruism Forum.It has been quite a past two weeks, with different spheres in deeply divided narratives. In addition to the liberation of Kherson City, the midterm elections that of course took forever to resolve and the ongoing hijinks of Elon Musk taking over Twitter, there was the complete implosion of Sam Bankman-Fried (hereafter ‘SBF’), his crypto exchange FTX and his crypto trading firm Alameda Research.The situation somehow kept getting worse several times a day, even relative to my updated expectations, as new events happened and new revelations came out.In the wake of those events, there are not only many questions but many categories of questions. Here are some of them.What just happened?What happened in the lead-up to this happening?Why did all of this happen?What is going to happen to those involved going forward?What is going to happen to crypto in general?Why didn’t we see this coming, or those who did see it speak louder?What does this mean for FTX’s charitable efforts and those getting funding?What does this mean for Effective Altruism? Who knew what when?What if anything does this say about utilitarianism?How are we casting and framing the movie Michael Lewis is selling, in which he was previously (it seems) planning on portraying Sam Bankman-Fried as the Luke Skywalker to CZ’s Darth Vader? Presumably that will change a bit.This post is my attempt to take my best stab at as much of this as possible, give my model of what happened and is likely to happen from here, what implications we can and should draw, and to compile as many sources as possible that I have found useful.This is a fast-moving complicated situation that involves a lot of lying and fraud. Anyone attempting to sort it all out, especially quickly, is going to make mistakes. I decided that this was the time when the value of synthesis exceeded the cost of such errors. Still, doubtless there will be mistakes here. I will correct them as they are discovered, either by myself or others. I apologize for them in advance.Thus I highly encourage you to read this post on the web rather than via an email or RSS version, in case there have been substantial revisions. There have as of yet not been any substantive revisions since publication, which was the morning of 11/17/22. The original version (and the one I will try hardest to keep updated) is here.Also, yes, long post is long. By all means read only the sections you care about.What The Hell Happened?Background: FTX is a crypto exchange largely owned and run by SBF. Alameda Research is a prop trading firm owned by SBF. FTT is FTX’s exchange token, where they commit a portion of profits to buying back FTT. Thus, FTT is a non-registered security, functionally similar to junior non-voting stock in FTX.The events of the past week, and the proximate cause of them, seem to have gone as follows, with some events likely slightly out of order or happening simultaneously.Alameda Research, SBF’s crypto trading firm, has its balance sheet leaked.The balance sheet contains a lot of FTT, such that if FTT loses its value it is not clear that Alameda would remain solvent.This raises questions. Some people notice. Caroline, CEO of Alameda, says this is incomplete and that Alameda is fine.CZ, head of Binance, who had been in various battles with SBF, notices. He announces the intention to sell >$500mm of FTT, but does not actually sell.Alameda offers to buy all his FTT at $22/coin, almost full market price at the time but a deal cannot be reached.Other people sell a lot of FTT. There are not other buyers. Alameda spends capital trying to defend the $22 price, and ultimately fails. They continue to sell everything they can to support FTT and to pay FTX depositors, but ulti...