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Three months ago, FTX was offering 8% interest APY. FTX knew they were in trouble, and needed new deposits to stay afloat. This makes it a ponzi.

gruez 4y ago
But was that the reason it collapsed? Matt Levine thinks it's something else[1] (tl;dr: bad loans given to alameda research backed by FTT tokens). 8% pretty close to the rates that decentralized lending protocols provided[2]. There might be other issues with the product (eg. inadequate disclosures), but if it does what it's promised (eg. invest your money into decentralized lending protocols and/or yield farming) and the underlying product collapsed that's not really a ponzi any more a ETF composed of junk bonds going under is a ponzi. [1] https://www.bloomberg.com/opinion/articles/2022-11-09/bankman-fried-s-ftx-had-a-death-spiral-before-binance-deal https://www.bloomberg.com/opinion/articles/2022-11-09/bankma... [2] https://www.gemini.com/earn https://www.gemini.com/earn says that 1inch is providing 8.05% APY right now
- HappyTypist 4y ago
  [2] is referring to 1inch offering 8.05% APY on the 1inch token _only_, which is easy when only 621m out of 1.5b tokens are circulating (i.e. more 1inch tokens are printed to pay the fake interest).
- DebtDeflation 4y ago
  Most of the well known historical Ponzis started out as legitimate investment funds. Then the fund manager started commingling funds and taking risks with customer money in an attempt to boost returns. Inevitably, there was a loss, and at that point the Ponzi component (paying existing investors with new investor's funds) got started, with the intent being to only do it until they could catch up on the losses and then return to being legitimate. The "catch up" never happens and eventually all new inflows are going to pay out existing investors. It blows up when outflows exceed inflows. In the case of FTX/Alameda it seems the blowup just happened earlier than usual, before they could reach "Full Ponzi".
  - telotortium 4y ago
    The blowup happened because CZ acres on the leaked balance sheet. It might have been years before FTX found out otherwise.
- notyourday 4y ago
  They collapsed because the outflows became higher than the inflow. Every Ponzi collapses this exact way.
  - s1artibartfast 4y ago
    Every legitimate company also collapses this exact way.
errantmind 4y ago
That doesn't make it a ponzi, otherwise offering corporate bonds at higher interest rates would also be a ponzi.
- adam_arthur 4y ago
  Using new user deposits to pay off old users is a ponzi. Issuing bonds to pay off old debt is not a ponzi because the premise that you will lose your money if the company defaults is known and evaluated up front. And the yield on the bond is commensurate with the risk. There is no reasonable expectation that an exchange will gamble and possibly lose the money you deposit

gruez 4y ago

But was that the reason it collapsed? Matt Levine thinks it's something else[1] (tl;dr: bad loans given to alameda research backed by FTT tokens). 8% pretty close to the rates that decentralized lending protocols provided[2]. There might be other issues with the product (eg. inadequate disclosures), but if it does what it's promised (eg. invest your money into decentralized lending protocols and/or yield farming) and the underlying product collapsed that's not really a ponzi any more a ETF composed of junk bonds going under is a ponzi. [1] https://www.bloomberg.com/opinion/articles/2022-11-09/bankman-fried-s-ftx-had-a-death-spiral-before-binance-deal https://www.bloomberg.com/opinion/articles/2022-11-09/bankma... [2] https://www.gemini.com/earn https://www.gemini.com/earn says that 1inch is providing 8.05% APY right now

HappyTypist 4y ago
[2] is referring to 1inch offering 8.05% APY on the 1inch token _only_, which is easy when only 621m out of 1.5b tokens are circulating (i.e. more 1inch tokens are printed to pay the fake interest).
DebtDeflation 4y ago
Most of the well known historical Ponzis started out as legitimate investment funds. Then the fund manager started commingling funds and taking risks with customer money in an attempt to boost returns. Inevitably, there was a loss, and at that point the Ponzi component (paying existing investors with new investor's funds) got started, with the intent being to only do it until they could catch up on the losses and then return to being legitimate. The "catch up" never happens and eventually all new inflows are going to pay out existing investors. It blows up when outflows exceed inflows. In the case of FTX/Alameda it seems the blowup just happened earlier than usual, before they could reach "Full Ponzi".
- telotortium 4y ago
  The blowup happened because CZ acres on the leaked balance sheet. It might have been years before FTX found out otherwise.
notyourday 4y ago
They collapsed because the outflows became higher than the inflow. Every Ponzi collapses this exact way.
- s1artibartfast 4y ago
  Every legitimate company also collapses this exact way.

errantmind 4y ago

That doesn't make it a ponzi, otherwise offering corporate bonds at higher interest rates would also be a ponzi.

adam_arthur 4y ago
Using new user deposits to pay off old users is a ponzi. Issuing bonds to pay off old debt is not a ponzi because the premise that you will lose your money if the company defaults is known and evaluated up front. And the yield on the bond is commensurate with the risk. There is no reasonable expectation that an exchange will gamble and possibly lose the money you deposit