Did SBF know about the $10B hole all the while?
(1/27) It would have been impossible for SBF / FTX to have been ignorant to the $10B hole in their balance sheet much earlier than their November 8th insolvency.
— K A L E O (@CryptoKaleo) December 12, 2022
Here’s why:
(2/27) You might have seen my previous thread comparing the FTX Insolvency to what happened to Mango Markets.
— K A L E O (@CryptoKaleo) December 12, 2022
https://t.co/0hoWLO2Fcp
(3/27) While the logic is valid and there’s still a lot of valuable information in there, I made a mistake in my haste to finish. I want to rectify that here, and in the process add some important new information.
— K A L E O (@CryptoKaleo) December 12, 2022
(4/27) Before we go any further – I want to start this w/ an assumption that SBF is mixing in truths with lies.
— K A L E O (@CryptoKaleo) December 12, 2022
To help distinguish which is which, let’s start by breaking down the timeline he sent to FTX employees after the insolvency trying to explain what he thought happened. pic.twitter.com/tR48AVOk4r
(5/27) Interestingly enough, his timeline checks out based on the assets FTX shared they still had on their balance sheet post insolvency.
— K A L E O (@CryptoKaleo) December 12, 2022
Here’s what that looks like on the chart: pic.twitter.com/vfxsd8tnmQ
(6/27) So, does this mean Sam was telling the truth?
— K A L E O (@CryptoKaleo) December 12, 2022
Not really. It’s a partial truth.
There’s a chance he could try to use this to claim negligence to how his own exchange’s risk engine works.
Let’s continue and make sure this doesn’t happen.
(7/27) I claimed in my previous thread FTX had no system in place for adjusting collateral value to scale for position size (e.g. as the number of tokens someone wants to use as collateral increases, the weighted value of the collateral decreases).
— K A L E O (@CryptoKaleo) December 12, 2022
This was false.
(8/27) FTX *did* use IMF factors to adjust the weighted collateral value of each asset.
— K A L E O (@CryptoKaleo) December 12, 2022
Here’s what the math looks like. To show how it would have potentially affected the value of FTX’s remaining collateral, let’s crunch the numbers. pic.twitter.com/f7ObiM0RYv
(9/27) Using the average token prices from the week prior to FTX insolvency for FTT, SRM, and SOL (the three largest FTX collateral positions eligible for spot margin), we can calculate the rough position in terms of token size for each. pic.twitter.com/1rdN6uMDWd
— K A L E O (@CryptoKaleo) December 12, 2022
(10/27) You can see that the average collateral value for each asset should have been SIGNIFICANTLY affected by IMF (though still far too high). A total spot collateral valuation of ~$1.6B is an 88% reduction from the book value of $13.6B on the FTX “Less Liquid” portfolio page. pic.twitter.com/ZncxJWvCFV
— K A L E O (@CryptoKaleo) December 12, 2022
(11/27) Here’s where the risk management engine begins falling apart.
— K A L E O (@CryptoKaleo) December 12, 2022
There are no rules on the collateral management page that adjust IMF Factors for *all accounts* that are using a specific type of collateral.
What does this mean?
(12/27) It would have easily been possible to spread collateral out across multiple accounts to extract a higher collateral value for each asset.
— K A L E O (@CryptoKaleo) December 12, 2022
Here’s a visual representation of what that looks like: pic.twitter.com/rXGhNp4Dkd
(13/27) This quickly increases the valuation of the collateral on the exchange.
— K A L E O (@CryptoKaleo) December 12, 2022
It takes as little as 20 accts to increase the value of the collateral ~3x.
The more accts open, the closer the value of the collateral to the base Weights of each asset (e.g. 0.85 – 0.9 of $13.6B).
(14/27) [ Quick side note, there are still several moral issues I struggle with for allowing some of said collateral to be used in the first place…
— K A L E O (@CryptoKaleo) December 12, 2022
(15/27) …For example, the book value of SRM would mean that over 6 billion SRM tokens were potentially being used as collateral on the exchange, whereas publicly only 1 billion tokens were unlocked, meaning illiquid, locked tokens were being used as collateral. ]
— K A L E O (@CryptoKaleo) December 12, 2022
(16/27) Here's the timeline we looked at earlier, adjusted for Alameda's weighted (real) collateral value stored on one account.
— K A L E O (@CryptoKaleo) December 12, 2022
As you can see, even at their peak in April, they were already in jeapordy of being margin called (if they weren't playing the game using god mode) pic.twitter.com/9FwS9ByjJN
(17/27) Now, if we assume somehow Alameda was semi playing within the rules of the exchange – they would have to disperse their assets across ~250 accounts to justify FTX giving them another $6B of credit this June. pic.twitter.com/uRvRTS8pQY
— K A L E O (@CryptoKaleo) December 12, 2022
(18/27) The main issues w/ this?
— K A L E O (@CryptoKaleo) December 12, 2022
It couldn't have happened without signaling several red flags internally.
1) No type of disbursements ever happened on chain, so they would have happened from account to account on FTX. Moving millions of tokens would have raised some eyebrows.
(19/27)
— K A L E O (@CryptoKaleo) December 12, 2022
2) EACH of those accounts would have had to receive some type of special exemption from the rules of the borrow / lending program to explain the massive deficit on the books. pic.twitter.com/1X3Bu8ouxh
(20/27) So – though there was technically a way that Alameda *could* have used their collateral w/in the rules of the exchange using loopholes in the risk paramaters, it's incredibly improbable as it would have required more exemptions than keeping the position concentrated.
— K A L E O (@CryptoKaleo) December 12, 2022
(21/27) So, we can gather that this major line of credit was more than likely concentrated to 1 or 2 Alameda accounts, which had to have had massive negative USD balances that were off the books.
— K A L E O (@CryptoKaleo) December 12, 2022
(22/27) This is easily plausible considering their relationship with Sam and FTX. It would be far from the first time they were issued a special exemption by the exchange. pic.twitter.com/AStVQkZXdh
— K A L E O (@CryptoKaleo) December 12, 2022
(23/27) Off the book lending of user funds is a polite way of rephrasing theft.
— K A L E O (@CryptoKaleo) December 12, 2022
FTX / SBF is trying to justify this by claiming that they only allowed Alameda accounts to borrow within the limits of their spot collateral value.
(24/27) As you can see in this thread, there's no way of dodging the point SBF intentionally turned a blind eye to Alameda's massive line of credit.
— K A L E O (@CryptoKaleo) December 12, 2022
He made exemptions that never should have been made, gambling they could claw their way out of the hole they found themselves in.
(25/27) I discussed this topic extensively with @adamscochran last Thursday.
— K A L E O (@CryptoKaleo) December 12, 2022
For anyone who missed it, here's the recording.
It's worth the listen.https://t.co/7ZOYt76A9c
(26/27) Don't let him trick you into thinking he was clueless to some of the key rules and risk parameters of his own exchange.
— K A L E O (@CryptoKaleo) December 12, 2022
This was fraud.
This was theft.
A BTC leg-up could be imminent
Something I've noticed in the past is episodes of low 30-day realized volatility have coincided with lows in the crypto market…
— Raoul Pal (@RaoulGMI) December 12, 2022
The magic level in BTC is 20%… every time it got there it was the cyclical low or preceded a larger leg higher in an early bull market. 1/ pic.twitter.com/GidW9EtXCa
The same vol structure occurs in ETH… but the key 30-day vol level is 40%. October saw 30-day vol at 20%! Again, more evidence that the low was in June. pic.twitter.com/qiv54pTu2E
— Raoul Pal (@RaoulGMI) December 12, 2022
This likely cyclical low in BTC is the most oversold in history vs the long-term log trend (the Metcalfe's Law adoption curve) at 2 standard deviations… pic.twitter.com/OmvmYouXg9
— Raoul Pal (@RaoulGMI) December 12, 2022
And ETH is on its long-term log uptrend (the Metcalfe's Law adoption curve). pic.twitter.com/Jj1HlmJGJE
— Raoul Pal (@RaoulGMI) December 12, 2022
And this cyclical low which has pushed prices to the bottom of the long-term adoption curve is as ever driven by global liquidity… pic.twitter.com/2iID3XxhIX
— Raoul Pal (@RaoulGMI) December 12, 2022
And global liquidity is on the cusp of a major turn, as recession comes into view and central banks change their policies… pic.twitter.com/BXQmGoQuso
— Raoul Pal (@RaoulGMI) December 12, 2022
Don't expect any of this to be exact but the contextualization is very important.
— Raoul Pal (@RaoulGMI) December 12, 2022
Crypto cycles are all about adding positions at the long-term uptrend when everyone is at max fear and disgust, followed by boredom.
The boredom phase is usually the digestion after all the worst shocking news comes out and the markets and participants try to repair and take stock. Leverage is totally wiped out and we can start with a fresh slate…
— Raoul Pal (@RaoulGMI) December 12, 2022
Let's see how it plays out…
