why couldn’t people detect ftx shady behavior by auditing the blockchain?
"SBF/Alameda's initial strategy was arbitraging price differences between US and Korea/Japan. The different crypto exchanges in different countries would have different prices for the same coin. In theory this was possible but in practice it was basically impossible. They lost money in Korea due to capital controls, they made some money in Japan but still lost money overall due to the enormous amounts they had to borrow and the high interest rates they were paying.
The arbitrage strategy wasn't working so they switched to shilling shitcoins. Basically they would create a new token backed by say $5m seed money, put like 1% of the total number of tokens created on the market, then use their own money to pump up the token price by 100x. Since they owned and controlled 99% of the total amount of tokens, this was easy to do. Now their initial $5m is worth $500m, but only on paper because liquidity on these tokens is tiny and if they actually tried to sell it would immediately crash.
Alameda did this in order to get loans using the tokens that they created and pumped as collateral. Then they took the borrowed money to make large directional bets on crypto prices. However it turned out they were bad at trading crypto and took billions in losses and the margin calls started coming in for their loans.
At this point Alameda was stuck, the collateral backing these loans were all shitcoins and if they started selling them the price would crash causing the entire company to go under. Since SBF couldn't meet the margin calls by liquidating the underlying collateral, he and the other founders decided to steal money from customer accounts at FTX to meet the margin calls. Basically they would give Alameda their own FTX token(FTT) and then have FTX loan customer funds to Alameda using the tokens they just gave them as "collateral". It was essentially the same scam as the one they pulled on lenders, only now they're doing it to customers while promising they would never touch customer funds.
Alameda kept losing money and eventually the scheme was discovered and it ended up being they stole something like 2/3 of the customer funds at FTX. Current estimates are at about $10 billion they lost gambling on crypto with customer money. It was a classic case of a gambler kept doubling down and borrowing and stealing until it came crashing down."
I just don't understand the scale of it. Ten billion dollars is huge. It takes months if not years, even to lose that much in gambling. Did nobody notice anything off? Was the entire company in on it?
"In the Bahamas, I understand that corporate funds of the FTX Group were used to purchase homes and other personal items for employees and advisors"
Sam Bankman-Fried's hedge fund lent billions to... Sam Bankman-Fried (Paper Bird is his entity), so that's at least part of the answer where the money went.
What started as a way to anonymously pay for illegal services on the dark net, morphed into a Ponzi scheme aimed at low IQ tech bros.
That was never the point of Bitcoin. Read the whitepaper. Satoshi wanted to decentralize trust in the ecommerce world with the help of transparent P2P decentralized and distributed database called blockchain and he wanted to enable micropayments. There is no mention of buying drugs or any other illicit activities in the whitepaper.
Even in a charitable interpretation of history-- ignoring that Bitcoin wouldn't scale to micropayment levels-- any early interest in micropayments was quickly overwhelmed by speculation and illegal trade.
I think Dogecoin tips on Reddit circa 2014 are about as close as we ever got to viable crypto micropayments, and ISTR it was done off-chain by putting a balance in a bot.
The simple answer is that they were doing many transactions internally. If you kept your BTC at FTX, FTX should have put your BTC in their wallet. Even though FTX customers would have been able to trade with each other off-chain, the total amount of BTC at FTX should have been visible.
They must have been playing some kind of shell game that made this kind of auditing ineffective.
If FTX gave alameda shit tons of FTT and customer funds from FTX reserves by 'transferring' the amount, it should have been visible on the blockchain.
The FTX collapse happened only because of an internal balance sheet leaked to coindesk. Why did coindesk require a balance sheet to write the story? Coindesk probably could have just done it, by looking into the blockchain ledger instead of the balance sheet.
Nothing to do with any blockchain.
Decentralized exchanges like uniswap does live on a blockchain.
"Ledger suffered scalability issues amid FTX saga, says CTO"
Many will probably also go from FTX straight to Binance or other shady CEXs. The mainstream never learns. Funds are safu :)
