Sam and Shaan break down the FTX collapse — how a $32 billion exchange went bankrupt in a week, what the Alameda Research relationship really meant, and why the warning signs were always there. They share personal stories of missed red flags, losing trust in fintech, and make predictions about SBF’s prison sentence and the future of crypto.
Speakers: Sam Parr (host), Shaan Puri (host)
Introduction: SBF’s Sentence Prediction [00:00:05]
Shaan: He predicts that Sam Bankman-Fried is going to get life in prison, and I thought that was an incredibly interesting prediction. Bernie Madoff got hundreds of years. There’s this other Ponzi scheme guy I was reading about based out of Texas who also got like 150 years. So it’s not crazy that that could happen. People who commit these hundreds of millions and billions of dollars Ponzi schemes — they get life in prison.
Setting the Scene [00:00:40]
Sam: All right, we are live. Shaan, I’m in my official crypto hoodie.
Shaan: What is that?
Sam: This is fine.
Shaan: Oh yeah, that’s wonderful. Perfect hoodie for today.
Sam: This is all I’ve been wanting to talk about. I purposely haven’t texted you about this because this is all I want to talk about. Maybe just give a three-to-five minute background on what’s going on. I think you’re the guy that should be doing that, and then I want to tell you some of the more interesting points that I think maybe haven’t been covered — or are less covered — that I think are either hilarious or interesting.
Shaan: Okay, great. And by the way, should we check if I have a $25,000 withdrawal? We will see if FTX has any money left. I’m gonna check right now and see if it’s come through. What do you think — yes or no — did I get my $25 grand out?
Sam: I think you probably got it.
Shaan: I did it on November 9th. It’s now November 14th. It said it would happen by today, and it is not in the bank account.
Sam: All right, there we go. Just another disappointment.
Shaan: So why don’t I have my deposit? Actually, it’s not even a deposit — they advertised with us, and they paid me inside FTX, and I was just lazy and never withdrew it.
FTX Background: What It Was [00:01:50]
Shaan: Okay, so basically here’s what happened. For those who aren’t following it that closely: FTX is a big crypto exchange. It’s a place to go buy and sell different cryptocurrencies. It was the number two or three largest exchange in the world, used mostly internationally because 90-plus percent of people buying crypto are international. Bigger than Coinbase. Binance is number one. There’s technically something at number two, but really it’s Binance number one, FTX two, and then Coinbase and the others come after that.
Shaan: FTX was seen as this blue-chip thing — a mega success story. You would see top investors in the world putting money into this: Sequoia, a preeminent VC firm, plus like 50 others. He’s on the cover of Fortune Magazine with a headline about being the next JP Morgan. Because he’s this young guy who becomes one of the wealthiest men in crypto. FTX at its peak was worth about $32 billion, and the company is only like four years old. Crazy explosive growth and valuation. Sam was said to be worth $16 billion himself.
Shaan: He’s this genius trader and entrepreneur — this crazy eccentric guy. The guy looks goofy as hell. He’s a vegan who doesn’t wear shoes and gives away all of his money. Effective altruism, whatever. He’s got this character that everybody wants to talk about, which I bought into. Very easy to buy into — this crazy person who sleeps on a bean bag, doesn’t believe in normal stuff, and at 29 or 30 is worth north of $10 billion. He previously made a billion-plus by doing arbitrage with Korean crypto. Just some crazy stuff. I bought into it.
Shaan: That’s the background. Most people were on the train of like, okay, I guess that’s what it is. And then suddenly last week, there’s a series of events — we can go into however much detail we want — but basically a series of events that causes a bank run on FTX. Users lose confidence that FTX is solvent. They say, I’ve got to get my money off FTX, just as I did. You hit the withdrawal button, just in case there’s any weird stuff going on. We’ve seen many things crash in 2022 in crypto — Luna, Voyager, Celsius, a handful of these things. People said better safe than sorry, let’s start withdrawing our money.
Shaan: That creates a liquidity crisis for FTX. They don’t have the money to give. And everyone’s like, where the hell’s the money? Why don’t you have the money? That’s my funds. You go to the bank, you expect them to have your money. So FTX does not have their money. He comes out and says everything is fine, all assets are fine, guys — this is just a hoax from a competitor. Binance is that competitor he’s talking about. So he’s basically saying the number one guys are coming after us, but we’re fine, don’t panic. People still panic, and in fact he was lying. Turns out this guy was a giant fraud. Allegedly — we’ll say allegedly. This guy was lying, deceiving everybody, misusing customer funds. FTX goes under. It goes from a $20-$30 billion company to declaring bankruptcy, with like $10 billion in customer funds that are gone, vaporized, unaccounted for. This guy’s fled the country, and all kinds of crazy stuff. So that’s the background.
Twitter Is Doing Citizen Journalism [00:06:30]
Sam: All right, so there’s been a lot of interesting things that have happened and I want to name a few. The story’s a week old now, so a lot of the facts have been covered. I want to talk about some things that I think haven’t been covered.
Sam: First: what’s happening on Twitter is amazing. This is all unraveling in real time. One of the more interesting and funny ones — there’s a Twitter handle called Autism Capital. “The most based citizen journalism in crypto. We are currently following the FTX saga, but please be patient, we have autism.” That’s their source of truth. That is who we are reviewing in times of trouble right now. But listen, it’s hilarious, and I think a lot of it’s right. It’s sort of like TMZ. TMZ is considered trash because they’re fast-paced and say a lot of stuff, and every once in a while they have to recant — but you know what, they nail it. They called Prince being dead or about to die, they called all this other stuff. And that’s exactly what’s happening here.
Sam: There are all these interesting things Autism Capital is tweeting. SBF — that’s the founder, Sam Bankman-Fried — did a MasterClass on trading, and it was set to release in December. It’s already been filmed. Another thing they tweeted: SBF’s right-hand woman was this woman named Caroline, who rumors say they were also sleeping together. She ran the hedge fund. She had a Tumblr that Autism Capital found, and it says she had a post called “World Optimization” where her kink is “men who control most major world governments.” Like, I want a man who controls societies and governments — what the hell are you talking about?
Shaan: Yeah, dude. I mean, if you’re in crypto you follow these people. Sam was considered one of the more blue-chip founders. Of course there’s always some people who are like, this guy’s full of it, I don’t trust this guy. But they were the small minority. The majority of people believed FTX was this fast-growing company and that Sam was this really interesting, really smart founder.
The Hustle’s Red Flag Moment [00:09:00]
Shaan: And then you knew the one part that was always shady. When they advertised with us, they asked us to write a story on FTX, and we were like, okay great, we’ll write the story about how you guys grew so fast, what tactics you used. We write the story, and then me and Ben were talking: you know, the story’s all perfectly rosy, and that makes sense — this is basically a sponsored deep dive. But we should put in some of the concerns, just to balance it out so it’s not literally a fluff piece. So we were like, what are some of the criticisms?
Shaan: One was: well, before he started FTX, he started this company called Alameda Research. Not a research company — a trading company that just called itself research so it sounded more serious. The rumors are Sam said he wanted to call it Alameda Research because it had an official-sounding name, and he also didn’t want people to know that they were trading.
Sam: Yeah, and in entrepreneurial circles it was like, oh great, little growth hack, right? There’s a fake-it-till-you-make-it that’s acceptable, and then there’s a fake-it-till-you’re-a-fraud, which is where this guy went totally wrong.
Shaan: So he had this trading company. The legend is basically that at the time, Bitcoin was trading at, let’s say, $10,000 in America, but in other countries where it was harder to access, there was a slight premium. People were willing to pay more because the government was maybe not allowing exchanges to run properly there. In Japan and Korea, Bitcoin would be $10,000 here and $11,000 or $12,000 there. The origin story of FTX is that Sam saw this arbitrage opportunity, went to Korea, and set up a logistics chain where they could buy a million dollars of Bitcoin here, sell it for a slight premium there, wire the money back, and do it again the next day. And they made tons of money.
Shaan: Nobody really understood exactly how, and there were plot holes. Like, I don’t know, I guess these guys are just smarter than us. But it’s like — wait, you made a billion dollars doing this? That sounds a little unreasonable. Where did you get the seed capital for this? You weren’t rich. How much initial money went into this? There was never any clarity there. That was a little strange, but nobody really pursued it.
Sam: What’s the answer to that?
Shaan: Now it appears the answer might have been that that never even happened — it might have been a complete fabrication, or they might have done it at a much smaller scale. Nobody still knows the answer because this guy is on the run, hiding, right now.
Shaan: But the bigger part — the part that we wrote about — was the Alameda Research and FTX relationship. When FTX launched as an exchange, every exchange needs liquidity. When buyers and sellers come to the site, they need to be able to quickly get their order filled. So you usually have a market maker — a liquidity provider — who sits there and says, I’ll be the one who buys and sells things, and I’ll take a small fee for providing that liquidity. Alameda was the liquidity provider, the market maker for FTX.
Shaan: And everybody knew that. But it’s like — wait, Sam owns both. He owns the exchange and the market maker. Isn’t there a conflict of interest? Like, if this is a hedge fund that can go buy things, and then FTX can list those coins — they’ll know what they’re gonna list. There’s a conflict of interest. It’s a little bit of cousins kissing. So we wrote about that. We said they have this kissing-cousins thing that people don’t really like, and nobody knows the true extent of the relationship between the two.
Shaan: And they were like, “Hey, we need you to take that out.” And we were like, “Well, we don’t really think we should take it out, we’re going to keep it in.” And they were like, “Okay, but just pause this whole story — the crypto market prices are going down, we don’t want to be bragging about how well we’re doing right now.” So we were like, okay, you paid us, you don’t want us to run the story, we’ll never run it. So we never ran it.
Shaan: But I remember at the time, it was a small red flag. I was like, I’m surprised that instead of clarifying the relationship, they’re like, don’t talk about that. But when you’re reading nine out of ten things saying this is the wonder kid and this is the best company, and then you just have this one little red flag, you sort of brush it aside. At least that’s what I did. Which is a mistake.
Sam: The person that you worked with there — are they still there?
Shaan: Nobody’s there, dude. The company’s done.
Sam: But the person you worked with — what do they list on their LinkedIn now?
Shaan: I wasn’t working directly with them. Ben was running the Milk Road, so he would talk to the guy. I don’t know the guy’s name. Anyway, that was just one small thing.
How the Fraud Actually Worked [00:14:30]
Shaan: So what ended up happening — whether this was the cause — is essentially that FTX was illegally taking customer money, giving it to Alameda through either a loan or just straight-up funneling the money there. And Alameda was going and trading using the customer money, trying to turn a profit, and was actually just kind of bad at trading — losing money. So then they didn’t have the money to return when all the customers wanted out.
Shaan: When they quote-unquote “lent” them the money, the collateral that Alameda put up was FTT — FTX’s own internal token, which doesn’t have that much real value. So when they lost all the Bitcoin, all FTX had was the shitty FTT token that was worthless. There’s a huge hole — they lent basically $10 billion out and couldn’t return it. So they went under.
Shaan: And basically now every day there’s more leaks about how crazy this situation was. How these guys were liars. How they were doing this intentionally, how they were doing drugs, how there were 15 people sleeping together in this mega mansion while he pretended to be this big philanthropist. Maybe he’s an actor for the Chinese state — there are crazy theories all around. Nobody knows the truth.
Shaan: And this guy comes out, and yesterday he tweets for the first time. Everyone’s like, oh my God, here it comes. He tweets out a thread. You start a thread with “1” and then say your first point, then “2” and your second point. He tweets out “1” and all he says is “What.” Then he tweets out “2” and just the letter “H.” And then just now, an hour ago, he tweeted “a.” And 11 minutes ago, “p.” “Ants” maybe? He’s spelling something. I don’t know what he’s trying to do.
Sam: Maybe he’s having a breakdown.
Shaan: He might be having a breakdown. I knew a guy who was having a breakdown, and he had to be institutionalized, and he was tweeting crazy stuff. That’s how it started. Maybe this guy’s going through something like that.
Chamath’s Story and Elon’s BS Meter [00:17:30]
Sam: There’s another interesting thing that happened. Chamath, on the All-In Pod — I think Autism Capital clipped this — he said that when he was looking at investing in FTX, he was like, you know, it’s kind of weird how you guys are self-dealing, I think you need a board and rules around what you can and can’t do with this. And he said the person at FTX called him back and literally said, “Hey, go fuck yourself,” and just hung up. That was the end of the call.
Shaan: By the way, I think there’s a 70% chance that entire story is bullshit. I think Chamath is generally full of it, so I don’t believe that story for what it’s worth.
Sam: But dude, my point would be — if you knew that something effed up was going on with this company, the most popular company in crypto at the time, if you knew that there was fraud going on or deception, you would have said something, right? So maybe what he said is, I don’t feel comfortable with this, but I feel like he’s trying to take a victory lap.
Shaan: I believe the “go fuck yourself” part. That part I believe — they would say that. It’s the part where he goes, “I called them, they pitched me, I said this doesn’t make sense, my guys looked into it, we gave them a recommendation, you need governance…” and they said go fuck yourself. Something about that picture feels very white-knighty.
Sam: A few other interesting things. These guys have been doing these marathon Twitter Spaces. One of the guys’ names is Mario, and he hosted this Twitter Space where Elon popped in. Someone was like, “Hey Elon, what did you think when you first met SBF?” And he goes, “Well, people were telling me when I was buying Twitter that he had lots of money. But my bullshit meter was redlining. Even all these major investment banks were like, yeah, this guy’s walking on water, he’s the best, he has money — and I just didn’t think that he had the money.”
Sam: And I actually believe this story to be true. It was interesting because from the outside you think, well, these billionaires all know each other, they know what’s up. They know if someone does or doesn’t have money. And Elon’s like, I had no idea if he was legit, but he didn’t seem legit to me, even though everyone else said he was. And I was like — oh, I thought this was like a club where you had to show financials to get in. Turns out that’s not true.
Sam: And also, the balls of SBF — to be buying stadiums, to be hiring Tom Brady, Larry David, these huge celebrities. This guy took a scam to the next level. So much hubris to be DMing Elon like, hey, I’m down to put up $3 billion for buying Twitter.
The Leaked Elon-SBF Text Messages [00:20:00]
Sam: Did you see the text messages that leaked?
Shaan: Yeah. What did Elon say?
Sam: So basically, the text message that leaked — it’s on this Twitter handle called Internal Tech Email, you can go check it out — Michael Grimes, who I think is the managing director at Morgan Stanley, texts Elon: “Hey, do you have five minutes for a meeting that I think you’ll want to take? I’ll call you in half an hour.” Elon says: “Perfect.” Then Grimes says: “Sam Bankman-Fried is why I’m calling,” and links to a story. The story is basically that SBF was an effective altruist — his goal was to make as much money as possible so he could give it away. That was his way of causing positive change for society. Which is why there are all the memes of like, you did it, you took all her money and you gave it away.
Sam: Then Elon just replies two question marks. Like, “What?” And Grimes goes, “I’m backlogged with a mountain of critical work matters — is this urgent?” He says, “He wants one to five billion. Serious about partnering with you. Same security — you own. Not urgent unless you want him to fly out tomorrow. He could do $5 billion if everything is vision-locked. He would do engineering for the social media blockchain integration. He founded FTX. He believes in your mission. Major Democratic donor — he was the number two largest Democratic donor, $40-$50 million. I thought it was worth an hour tomorrow. He said he could shake hands on five billion if you like him, and I think you will.”
Sam: Elon replies: “Blockchain Twitter isn’t possible, as the bandwidth and latency requirements…” So basically: blockchain Twitter won’t work, this doesn’t make any sense. Then the banker goes, “Got it — afford the equity interest to this other guy instead. But even if there’s not the blockchain piece, he’s interested in investing in Twitter and your mission.” Elon goes: “As long as I don’t have to have a laborious blockchain debate.” Honestly, one of the cooler things Elon said in this whole thing. All right, I’ll meet the crypto bro, just don’t make me talk about blockchains for an hour.
Sam: And then he goes, “Does Sam actually have three billion liquid?” And the guy goes, “Yes. He actually said up to $10 at one point, but he said up to five. He’s into you. The blockchain is only if you’re interested, he won’t push it. This other super-rich guy Orlando referred him. Ultra genius, doer, builder — like your formula. Built FTX from scratch after MIT physics. Second to Bloomberg in donations to Biden campaign.”
Sam: So that’s Grimes — dude, he is on the grind. You are fired. We’re calling him Mark Crimes instead of Michael Grimes.
Shaan: We did this in the Milk Road too. It’s just hard to report bad news every day. Bad news: FTX, the biggest exchange, insolvent. Bad news: it wasn’t even a miscalculation in good faith, it was actually fraud. Bad news: the money that would have been left to pay out remaining customer deposits? Somebody just hacked it last night and took $600 million. There’s literally zero in the bank accounts now. And oh by the way, his private jet is flying to Argentina tonight — we’re tracking it here. It’s like, dude, this is horrible.
Shaan: We were like, we’re no longer calling this guy SBF. Nicknames are for winners. This guy is now Samuel. We’re calling him his government name.
Losing Trust in Fintech [00:24:30]
Sam: I want to ask you about Milk Road’s engagement. But first — you tweeted something I agree with basically. You’re talking about how you’re losing trust in so many things. SBF — FTX owned, I think, 10% of Robinhood, which I have money in. I’m going to sell. I’m getting all my money out of Robinhood. I don’t trust anything. I don’t trust any new startup that is in banking. By default I don’t believe you now, whereas before I would be like, oh, you have Mastercard’s logo on there, I guess you’re okay.
Shaan: Yeah, I’m not Team Innovation anymore.
Sam: No, fuck that. I’m going to E*Trade. I’m getting my money off Robinhood. To all the people who I said, “Oh, you just don’t get the disruptors” — I’m sorry. You are right. I was wrong. I’m sorry, Daddy. You are absolutely right. I think I trust Coinbase for some reason because the guy Brian seemed a little bit legitimate and they are publicly traded so they report quarterly. But I guess you gotta trust somebody.
Sam: I’m getting all my crypto off Robinhood at the minimum. Way back, I had bought crypto on Robinhood and I was like, wait, I can’t just send it to another wallet? “No, because Robinhood actually wasn’t buying crypto — you’re buying a crypto derivative.” I was like, what the fuck? Why did they say “buy Bitcoin” if this is not Bitcoin? This is a Bitcoin-tracking derivative. You don’t even own the coins.
Sam: Then years later it was like, okay, now you can transfer it off. So I hit send to my ETH wallet. “Oh, you’ve exceeded your $5,000 maximum.” I was like — $5,000 max? Every day you can only do $5,000? First of all, why? Second of all, that’s bullshit. This will take forever to get all my money off this thing.
Shaan: It’s not crypto. It’s not like Bitcoin did anything. It’s the people building the companies around this that are literally committing fraud or taking so much reckless risk that their whole exchange goes insolvent overnight or gets hacked. That’s insane.
Shaan: So I was like, you know what, I’m gonna self-custody or take this portion and move it here. Our buddy Greg — I was like, what do you think, should I do this? And he’s like, “Well, what would feel worse — if you lose your crypto, or if these guys lose your crypto?” And I was like, I’d rather self-custody. He’s like, “Okay, let me ask you a different question: how many AirPods do you own, and how many AirPods have you lost? If you can’t keep your AirPods, do you really think that for 10 years you’re gonna not lose your crypto?”
Shaan: And I was like, fair point. So I’m cycling through options of how to hold this stuff. But look, I wasn’t really that affected by FTX. A lot of people were, and that’s extremely sad. Those people are traumatized. They’re not coming back to the game and just being like, “Yeah, I understand.” Even if you intellectually acknowledge that okay, this guy was literally a criminal, misappropriating user funds — even if you acknowledge that was one bad actor, it’s like, dude, there are a lot of bad actors in crypto. How am I supposed to know? You don’t get to audit the books of these companies. They say one thing, they do another. Twenty-four hours before it went insolvent, the CEO comes out and says, “All assets are fine, we do not lend out customer deposits.” Twenty-four hours later: gone.
Silicon Valley Is Built on Trust — And That’s Naive [00:28:30]
Sam: An interesting thing about San Francisco and Silicon Valley, where we both kind of started our careers — it’s all based on trust. A lot of times you give people money, you just wire the money without contracts. You pump people up and make intros even though you don’t entirely check. You look at a slide deck and say, okay, this is what they’re saying the numbers are. You don’t say, I need to go into your database and check to see that this number isn’t fudged by bots, or check that your pixel isn’t firing twice, or you’re not hiding costs with shell companies. You don’t know all that stuff.
Sam: Our whole world is based on this type of trust. And you and I both kind of got started right when a great economy was kicking off, and I basically didn’t ever think people were lying. That was incredibly naive. Now, even though I haven’t really been burned by this, I feel like — oh, I don’t really trust anyone anymore. I think everyone might be lying just a little bit. It has changed my perspective on that.
Shaan: 100%. I used to see Robinhood as, oh, you’re the underdog, you’re on my side. Now it’s like: oh no, you can definitely lose my money. I don’t believe you.
Milk Road’s Engagement During Crisis [00:30:00]
Sam: What about Milk Road? For the new listeners: Shaan started this thing called Milk Road, it’s a daily email for crypto with hundreds of thousands of subscribers. Is your engagement skyrocketing, or are people telling you to fuck off because they hate the whole industry?
Shaan: No, engagement is very high because during a crisis a lot of people want to read. But what we will see over the coming months — that’s not going to bode well for us. Even if engagement is high right now during the play-by-play craziness, what happens three months from now when people are just sort of disillusioned? The crisis is over.
Shaan: It’s like — dude, nobody’s talking about Ukraine right now. In my world, day-to-day, people aren’t talking about Ukraine every day. I remember when that broke out, it was like my mom, my sister, everybody I knew was glued to their phone watching these videos, getting Zelensky tattoos, thoughts and prayers, oh my God, I can’t believe this. And then you’re on day 98 and you sort of revert. You stopped caring as much.
Shaan: In the same way, I think what’s going to happen for us with the Milk Road is that engagement spikes during this time, but actually it’s not good for anybody in the industry when customer trust gets shaken this badly. That sets it back potentially years.
Sam: Is it set back by years? Or is this going to ruin it? That’s how big this is in my mind.
Shaan: I think that one’s probably not. If crypto is going to fail, I don’t think it’s going to fail because of this. We’ve actually seen the number one exchange go down before. It’s just that as the industry grows, disasters cost a lot more money and affect a lot more people. We’ve literally seen this exact disaster before with Mt. Gox. And there’s a Netflix documentary — I’ve talked about it on the pod — about a Canadian exchange that was literally doing this same thing. Brilliant guy, everybody loves him, media loves him, starts this exchange, becomes the biggest one in Canada. Turns out there was literally never anything in the deposits. You would click “buy Bitcoin,” send them the money, and he would never buy Bitcoin — he’d just show you the number on your computer screen. He’d take the money and do whatever he wanted with it. It was literally just like a criminal.
Shaan: And then he mysteriously died or faked his own death. And Sam Bankman-Fried is tweeting one letter at a time here. Who knows what’s going on with this guy too.
Shaan: So we’ve literally seen this exact disaster before. But it’s higher profile, louder, it affects more people. Now instead of losing millions or hundreds of millions, it’s billions that got lost here. So I think it’s definitely bad, but I don’t think this is the death blow to crypto.
Shaan: Same thing with startups — startups don’t usually die due to competition. You don’t die because you got hunted, you die because you starved. If crypto dies, it’s going to be for the same reason. It’s not going to die because FTX blew up and people gave up forever. It’ll die if the use case and utility wasn’t strong enough to draw people in continually over time. Maybe the use case just wasn’t big enough. Crypto will die of starvation, not competition.
Martin Shkreli’s Prison Predictions [00:34:30]
Sam: You know who’s one of the big winners here? Martin Shkreli. So basically, Pharma Bro went to jail for a couple years for scamming his pharmaceutical company — finance guy, but very smart. I think a genuinely very smart guy. He has a Substack now that is incredibly interesting, and he’s been doing Twitter Spaces where he’s been commenting on this. He’s like, “Well, you know, jail’s not that bad.” Saying all this funny stuff.
Sam: He wrote in his Substack this morning that it’s kind of crazy that you can get life in prison for a non-violent crime. But his prediction is that SBF is gonna go to prison forever. The Enron guy got 24 years as his sentence. Bernie Madoff got sentenced in his 70s — the headline number was 150 years. There was another big Ponzi scheme guy — I believe his last name was Stanford, Mark Stanford — I believe he got 150 years at age 60-something. Regardless of when you get that 150 years, it’s a life sentence.
Sam: Now, this literally doesn’t appear to be a Ponzi scheme in the technical sense. A Ponzi scheme works in a specific way. Madoff basically had all the money in like one checking account — a million dollars at Chase. Whenever someone requested, he’d pay them out of that and show great returns. In this case, the effect is the same — he defrauded people to the tune of billions of dollars — but the mechanics were different.
Shaan: And not only that, but Bernie Madoff — do you know this? — he was the head of NASDAQ. He was like a big deal. So that was bold on his part. But SBF did this in an even bolder way, because he was mainstream. They had the naming rights to the Miami Heat. They had commercials with Tom Brady, Larry David, these huge celebrities. To me, if I’m a judge, I’m thinking: dude, you’re rubbing it in all of our faces. This is more egregious than Bernie Madoff, who was a little more quiet about it. You’re taunting me while you’re stealing. Of course I’m going to get you as hard as I possibly can.
Sam: Yeah, yeah. It’s very, very visible. Very, very painful. The gall of people. This guy is a real piece of work for what he did.
Was SBF a Fraudster From Day One? [00:37:00]
Sam: There’s one version of this which is that he wasn’t trying to steal people’s money. Like, when Luna blew up, Alameda lost a bunch of money. In order to save Alameda from having to liquidate everywhere, he’s like, okay, let me just loan you this money, you’ll make it back because you’re good, and I’ll make it all good in the end — no harm, no foul. He knew he shouldn’t do this. He didn’t tell anybody. That’s one version of reality.
Sam: But there’s evidence against that. It’s hard to know — we’re talking about Autism Capital as a source. I don’t know if this evidence is somebody just making a screenshot. So basically, there’s one version where he got stuck in a spot where he was going to lose a bunch of money, everything was going to go under, it was going to be very public and bad, and he tried to cover it up. He panicked. Made a terrible decision. Did something wrong, illegal, against terms of service for FTX. But he intended to make it all right.
Sam: And then there’s the other version, which as of now seems more likely. What makes you say that?
Shaan: Like, he was allegedly wiring himself $500 million. And coincidentally FTX was hacked. Things like that. I don’t feel like the “good intentions” version is going to be the outcome.
Sam: Yeah. So let’s say there’s some probability of that, and then there’s the more egregious possibility: basically, he’s like, screw everybody, we’re gonna take the money, funnel it over here. He lives in the Bahamas, so he’s greasing all the politicians there. He’s greasing U.S. politicians — being the second biggest donor to Biden. The girl who was running Alameda, her dad worked with Gary Gensler, who’s the SEC chair. That’s why SBF and Gensler kept meeting. They were about to pass a bill that was going to be very bad for DeFi but very good for FTX. All this like, you know, game to basically lock in this money machine he was going to continue using for his own benefit. And Alameda was abusing the information they had, front-running trades.
Sam: Like everything was evil. And then there’s the slippery slope type of thing. If you watch the Theranos stuff — she’s building something she thinks will be great, she’s sort of delusional about her own abilities, thinks she can prove everybody wrong, thinks the technology will work, is buying time to fake-it-till-you-make-it. And then at some point gets so trapped in the lie that she goes all in on it, because at that point her entire image, ego, company, fortune is based on this working. And she eventually starts actually lying and committing crimes. That wasn’t the intention from day one.
Sam: I think that’s the only real question here. But regardless, the result is the same. Scam happened — whether he intended it from day one, or halfway through got into a spot, panicked, and started to do what he did.
SBF’s Parents Are Stanford Ethics Professors [00:40:30]
Sam: Do you know who this kid’s parents are?
Shaan: Yeah, they’re like ethics teachers at Stanford.
Sam: Dude.
Shaan: Of course they are. They’re perfect.
Sam: They’re both professors of law at Stanford Law School. I think they also taught at Yale. And they literally teach ethics — in relation to law from a legal perspective. And the dad, Joseph, I believe was also involved in FTX, where he helped them raise some money.
Shaan: So if this guy is full-on lying, criminal, crazy — screwing people out of money is bad, but screwing your family and your parents is the worst. This whole story hurts a lot of people. But in terms of story arc and soap opera, it is just the best.
Sam: Are you not entertained?
Shaan: Yeah. If nothing else, it’s entertaining. Dude, I don’t even like crypto.
Final Predictions [00:42:00]
Sam: What is your prediction? Let’s put it on the record. What’s your prediction for crypto — not FTX, we basically know what happened there. For crypto overall. Do you think this all goes to zero? Does it Peter out for a long time? Does it rise again?
Shaan: Keep in mind my perspective here is only emotional. Basically I learned about crypto just from talking about it, so I’m not incredibly educated. But I think it’s gonna Peter out for the next five to ten years. I think NFTs are gonna go to zero. I think virtually all the altcoins — basically Ethereum and Bitcoin are the only ones that ever have a chance of being interesting. Virtually all of them go out of business. I think Coinbase stays in business and actually might grow, because people are like, okay, fine, you’re the only place I can trust. I think Luna and all the other stuff — another 100 of them go to zero and never work. And I think this guy gets sentenced to 25 to 50 years in prison.
Sam: All right. There’s the prediction. What do you think?
Shaan: I predict Bad News Bears for the next couple years. I don’t know the timescale, but a couple years of crypto winter. I think that’s probably true for the entire economy right now, but particularly worse for crypto.
Shaan: But I do think that in the end, crypto is real and is going to work. Maybe that’s unpopular — maybe it was always unpopular, I’m not sure. I think Bitcoin, Ethereum, and then replacements to some of the other use cases that were built are going to rise. Most of the current coins that are completely overvalued go to zero. But Bitcoin and Ethereum are here to stay. And I don’t think they’ll be the only two forever — I think there will be new ones that come and do well.
Shaan: I also think anyone who raised money with “web3” in their deck — I think virtually 100% of them are going to fail. Not necessarily because they’re bad entrepreneurs or their products are stupid, although I do think that’s the case in the vast majority. I think they’re just gonna get laughed out of existence. Consumers are going to say, not because they’re dumb, but because they’re pathetic.
Sam: I think that’s true for most startups.
Shaan: All right. I gotta go.
Sam: All right, that’s the pod.