The Last of the Boy Geniuses
Alameda probably isn't insolvent but SBF doesn't look as clever now.
In this issue:
The Last of the Boy Geniuses
Matt Levine is a national treasure
The pro-crypto voting bloc
Friends don’t let friends shop on Uniswap
Last of the Boy Geniuses
During the great deleveraging of crypto following the collapse of Terra/Luna and subsequently Three Arrows Capital there were a lot of comparisons between American financier J.P. Morgan (who used his personal wealth to intervene in several bank runs in his era) and crypto financier Sam Bankman-Fried, founder of FTX and trading firm Alameda Research. We talked about how FTX intervened to save BlockFi and Alameda ended up entangled in the Voyager bankruptcy.
SBF’s reputation took a bit of a hit recently when he posted an essay arguing that DeFi "needs regulatory oversight" and that everyone should implement voluntary blocklists for OFAC addresses in the meantime. That was not a popular perspective, although in practice OFAC compliance among ETH validators continues to grow. SBF is the second largest political donor on the left (after George Soros) and the fourth largest overall and FTX is working closely with policy makers to expand its access to American users — so he is not exactly a pillar of cypherpunk virtue. But he is super rich and widely regarded as a shrewd crypto trader.
That’s why reporting from Coindesk about SBF’s trading firm Alameda Research is so surprising. According to Coindesk Alameda’s balance sheet consists of ~$14.6B worth of assets and ~$8B of liabilities, which by itself doesn’t sound so bad — the problem is what they are counting as "assets" and how they are valuing them. Coindesk reports that Alameda’s assets include an alphabet soup of illiquid tokens: some SOL but also longer tail coins like OXY, MAPS, SRM and FIDA collectively grouped in a $3.4B bucket of "crypto held." Even more questionable is the valuation for the holdings of FTT, the native exchange token for Alameda’s sister company FTX: Alameda holds more FTT than the entire rest of the market combined.
The balance sheet notes these assets have been "conservatively treated at 50% of fair value marked to FTX/USD order book" but as my father might say you can put the word 'conservatively' in front of anything. The markets for these tokens absolutely do not have the liquidity to support billions of dollars in sales. A more realistic assessment of their total value is in the millions, not the billions.
It’s not clear from the article what the nature of Alameda’s liabilities are but if they are USD denominated (which seems plausible) that would be pretty bad news for Alameda. If they borrowed a lot of dollars to go leverage long on crypto they could end up blowing up just like Three Arrows Capital. On the other hand Alameda is famous for shorting crypto tokens, not betting on them. It seems unlikely that a bear market would render them insolvent? Never say never, I guess.
More likely IMHO is that they got that stockpile of FTT by borrowing it from FTX for free or nearly for free. That would be grimey, since it would amount to FTX printing free collateral for Alameda to trade with against FTX customers, but would also imply that a significant subset of their liabilities may be denominated in FTT not USD, and may also be on pretty friendly terms. It is premature to declare them insolvent, especially on the basis of a partially leaked balance sheet.
On the other hand, even if Alameda isn’t insolvent this certainly pokes holes in SBF’s legendary reputation as an infallible trader. Borrowing at artificially low rates and ending the market cycle holding billions in worthless tokens doesn’t exactly seem like the performance of a crypto wunderkind.
Other things happening right now:
Matt Levine (whose newsletter is the direct inspiration for my own) wrote a cover-to-cover opus about cryptocurrency. I am sad that Levine is so dismissive of cryptocurrency but I can appreciate why and his critiques are (mostly) fair.It's a fantastic introduction to the various concepts in crypto written in approachable language with wry humor. It is a great resource for people to start with.
According to a new poll sponsored by the Cryptocurrency Innovation Group around ~30% of Americans view cryptocurrency favorably and ~40% view it unfavorably. In another poll from Grayscale Inc more than half of respondents (53%) believed cryptocurrency was the future of finance and ~44% expected to own crypto as part of their portfolio at some point. Both polls found support for crypto split fairly evenly between the parties but found greater support among young, Black and Latin Americans. Most interesting to me was the finding that ~1 in 7 voters were more likely to vote for a pro-crypto candidate.
I’m not sure that percentage of tokens listed is the most meaningful metric but this is still a very striking observation. That amounts to only ~500 non-scams out of the ~20k tokens launched on Uniswap. Nobody tell Gary Gensler. 👀
Seeping into the culture:
Self custody is hard, y’all. Even for geniuses.
He is mistaken about proof-of-stake. Sadly he may not have read my essay on the topic yet.