Waldo Jaquith
In defense of FTX, there was just no way to know that cryptocurrency was a house built on sand. I've certainly never heard anybody mention any concerns about it. Just a shocking discovery. I wish we'd all seen sooner that it's a Ponzi scheme, but there was no way to know.
Nov 11, 2022 at 3:04amWeb
Show threadWaldo JaquithNov 11, 2022

The story of the collapse of FTX highlights the extent to which cryptocurrencies are being legitimacy-laundered by VCs and the financial sector, in a way that's striking similar to the mortgage-backed securities that caused the 2008 financial collapse.

In both cases, an absolutely worthless asset was repackaged as being highly valuable, by a finance system that figured they wouldn't be left standing when the music stopped playing. But there's one big difference this time.

Show threadWaldo JaquithNov 11, 2022

In 2008, nobody outside of the financial sector had heard of mortgage-backed securities. The whole scheme (bundle subprime mortgages together, get them insured, sell them as A+ investments) was surely known to be crooked within the industry, but the rest of us knew nothing.

And then there's Bitcoin et al. The fact that it's bullshit has been in the open for *a decade*. It stopped being a punchline over a year ago. And yet Sequoia, BlackRock, and SoftBank all put a fortune into FTX.

Show threadWaldo JaquithNov 11, 2022

Sequoia alone put $254 million into FTX, an investment now worth $0. …Why? There are only two explanations: they subscribed to the "greater fool" theory of investing, but didn't understand that they were the greater fool, or they actually thought that somehow a hot company could overcome the fact that their business plan was based on fairy dust and rainbows.

Best case, they hoped to rip off every-day investors. Worst case, their due diligence consisted of being unaware of any event since 2010.

Show threadWaldo JaquithNov 11, 2022

With the collapses of Twitter and FTX, we see the same phenomenon at play: hundreds of thousands of subject-matter experts loudly saying "the emperor has no clothes," while VCs say "and what a fine tuxedo that is, my good sir." And then precisely the warned-about thing happens.

Any VC who invested in FTX should have their offices razed and the earth salted. This yet again reveals that many VCs treat investments as lottery tickets, never mind how many people are harmed by the businesses.

Show threadWaldo JaquithNov 11, 2022
And that's what I have to say about that.
Show threadJohannes  Nov 11, 2022
@waldoj the thing is, crypto may be a scam through and through, and yet running a trading platform could have still been a solid business model.
Charging deposit and cash-out fees is actual USD revenue, i.e. an actually business model if you just treat it as a vice industry (i.e. just charging gamblers for buying play tokens and cashing out).
Their problem was that they got high on their own supply and binance triggered a run on their illiquid made-up token. They could have just… not made up that token and run a sustainable business.
Show threadPeter GriesarNov 11, 2022
@waldoj sequoia will make it all back when the $800 million invested in Twitter becomes worth 8 quadrillion birdcoins.
Show threadJim DuncanNov 11, 2022
@waldoj and yet, these places always seem to get more money.
Show threadEdmund EdgarNov 11, 2022
@waldoj Was it all fairy dust and rainbows? Seems like the current information is that the exchange was making money and would have been OK if the CEO had let his *other* company go bust instead of embezzling the exchange's customer funds?
Show threadEyeInHandNov 11, 2022
@waldoj Great thread. And spot-on.
Show threadEyeInHandNov 11, 2022
@waldoj In college, there was always some guy in shorts passed out on the couch of every frat house couch, who all the other bros said was a genius. Those guys became the captains of crypto. And here we are.
Show threadSean BootsNov 11, 2022
@waldoj 😂 👏
Show threadJeff UphoffNov 11, 2022

@waldoj FTX crossed a line with me when they started advertising with a patch on MLB umpires’ uniforms. First time for that—now I fear it’ll wind up turning into NASCAR.

(I know it’s really more MLB’s fault, but I’ve already done that rant.)

Show threadLesley Carhart Nov 11, 2022
@waldoj it’s so exhausting, truly! 😅🤷🏻‍♀️🍸
Show threadEvilKiru 🇮🇸 he/himNov 11, 2022
@waldoj People have been talking about it for years over on Bruce Schneier's blog.
Show threadTrifster Nov 11, 2022
@waldoj great analogy. A TikTok just told me the story of an SF building sinking and leaning because it was built into the sand layer not the bedrock. https://en.wikipedia.org/wiki/Millennium_Tower_(San_Francisco)
Millennium Tower (San Francisco) - Wikipedia

Show threadLarsGNov 12, 2022
@waldoj Honest question: aren't all cryptocurrencies by definition ponzi schemes unless they are backed by a state or assets that can be liquidated? (No I'm not trolling, just sceptic)
Show threadWaldo JaquithNov 12, 2022
@Larg I think so, with the narrow exception for those that are virtual versions of equivalents of local currencies, e.g. Ithaca Hours.
Show threadDavid Chase (dr2chase)Nov 12, 2022

@Larg @waldoj
I don't think they make big money unless they are ponzi schemes.

There's also the issue of "why would you want that?" There are block-chain-like logs that we use to help verify provenance (git hash chains, for example, another example is the Go checksum database, https://sum.golang.org/) but these are not currencies. One thing these actual practical blockchains share is that they're not trust-nobody; we trust Google, Github, etc., there's no "proof" involved.

Go modules services