wassielawyer Profile picture
Nov 8 10 tweets 2 min read
1/ Ok so just processing this out loud because I am pretty mindblown that FTX chose - of all options, a buyout from Binance.

These were the options open to SBF: (a) seek emergency debt financing, (b) seek new money investment, (c) liquidate assets and/or (d) buy time...
2/ via seeking bankruptcy protection to facilitate (a) - (c). Sam has chosen to seek a bailout from Binance - the very party that has triggered the bank run in the first place.

What we can gather from this is that FTX was indeed lending out customer funds to other parties...
3/ likely to Alameda. This means that, as I speculated earlier, FTX was working on a fractional reserve model where it was not prepared to meet withdrawals on the bank run which CZ triggered on FTX. In order to meet these bank runs, FTX needed to unwind its Alameda loans.
4/ Alameda itself did not have the liquidity to return the funds to FTX, thus leading to it liquidating whatever liquid assets it could and returning whatever it could so that FTX could try to continue to meet the withdrawals.
5/ But this was not enough since customer confidence was not returning - there were no deposits, only withdrawals. So some sort of external third party funding was required to meet the cash outflows.
6/ Instead of seeking finance from any other party or buy more time by throttling withdrawals or seeking a moratorium, SBF bent the knee to Binance.

Does this mean that FTX was in such a deep hole that we weren't talking about an emergency swingline but full on rescue financing?
7/ Rescue financing would have been incredibly expensive - which means SBF didn't believe that FTX would be able to meet those financing costs. SBF also didn't think that buying time via a process like Chapter 11 would have done any good.
8/ The conclusion? FTX must have had a massive hole in its balance sheet (likely Alameda) that could not be plugged by other financiers which forced SBF to kiss the ring. But what now?

CZ is only buying FTX which means the liability likely owing from Alameda to FTX remains.
9/ So customers are going to be made whole (because CZ is plugging the gap) but FTX (under new management) will surely be looking to recover the outstanding amounts from Alameda.

Are we now then looking at a potential Alameda insolvency scenario?
10/ Thats enough excitement for one night. Going to go to sleep and see what spicy shit comes out of this.

Can't wait to see the details of the Alameda-FTX relationship.

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More from @wassielawyer

Nov 9
1/ Had some time to think things through more thoroughly so here are some further thoughts on the current state of play, factors influencing whether the Binance acquisition of FTX will be completed and what happens if it doesn't.
2/ To recap, Binance and FTX have a handshake deal for Binance to tide FTX over the liquidity crunch. An LOI (Letter of Intention) has been signed but note that this is not binding and as @SBF_FTX has stated - is subject to due diligence.
3/ Over the course of the due diligence process, Binance and its legal counsel will gain a far better insight into what FTX and Alameda have been up to. It is fairly clear I think at this point that FTX has a hole in its balance sheet because it lent monies to Alameda either...
Read 17 tweets
Nov 8
1/ A lot of speculation floating around re FTX's solvency.

Here's 2 cents from a hentai anime penguin in a suit on why FTX probably isn't collapsing (but is likely facing short-term liquidity issues) based on FTX's current behavior and this Wassie's anecdotal experiences.
2/ First off - a key point to note is that FTX-Alameda is structurally different from Terra-Luna. Unlike Terra which issued UST 'debt' on-chain without a real incorporated entity as the issuer of said debt, FTX and Alameda are incorporated entities.
3/ This means that even if FTX-Alameda are truly in trouble - they have far more options available to them to dig themselves out of the hole and even if they are unable to dig themselves out, an FTX-Alameda collapse will look nothing like Luna.

This is why a comparison is dising
Read 23 tweets
Nov 7
1/ Disingenuous to reference LUNA imo - FTX-Alameda are so fundamentally structurally different from Terra that an FTX failure scenario would look very different.

CZ knows this of course but he also knows that the average FTX user does not.
2/ CZ is pissed at SBF’s anti-competitive political lobbying BS and is hitting back by trying to trigger a bank run on FTX using such language to trigger the average crypto participants PTSD from LUNA.

If CZs play here is to knock out FTX’s alleged FTT collateralised loans…
3/ and he truly believed FTX were illiquid, he would simply market dump FTT.

Instead he is choosing to create ongoing sell pressure for months (allegedly in the name of transparency) and being cute about the amount of FTT he is holding (referencing the 2.1bn figure).
Read 5 tweets
Jul 25
1/ So what is @SBF's latest proposal to 'save Voyager's customers' all about? Why is Voyager so pissed with his offer?

Join your friendly neighborhood hentai anime penguin in a suit as we delve into the latest move from the @FTX-@AlamedaResearch Distressed Opportunities Fund.
2/ First a recap - Voyager has now gone into Chapter 11 and has appended in one of its filings a draft plan of reorganization which provides us with some indication of what the company and its advisors are thinking.

To be clear, Voyager's chapter 11 filing...
3/ is said to be a 'stalking horse' proposal. This means that the intention is to have the standalone restructuring (without considering new money injection) so that the company has a solid base from which to negotiate with new financiers. You would naturally not get a..
Read 26 tweets
Jul 18
1/ Had a chance to skim through this document. Interesting points (which I will go through in more detail):

(1) The yacht
(2) Why 3AC went under
(3) Kyle / Su being uncooperative
(4) Tai Ping Shan
2/ Firstly, this document is a filing in the Singapore High Court for recognition of the BVI liquidation proceedings. It is incredibly meaty because it essentially gives us an update as of 9 July 2022 by the liquidators. Big thank you to whoever leaked it.
3/ It is exceptionally long because it attaches other court filings which in turn attach other court filings etc. Some of it is a bit repetitive. So fairly safe to scroll through most of it - many affidavits from pissed off creditors, but there are some gems there...
Read 21 tweets
Jul 9
1/ Ever wanted to learn more about the Chapter 11 process from a hentai anime penguin in a suit? Or maybe you are a Voyager account holder and you are wondering what happens next.

Here is a thread on Chapter 11, the Voyager filing and what it all means.
2/ So Voyager has entered Chapter 11 which is a bankruptcy procedure under the US Bankruptcy Code. But not all bankruptcy procedures are the same and Chapter 11 is quite different from the insolvency processes in other leading jurisdictions which tend to be English law inspired.
3/ Firstly, lets understand what happens when a business becomes insolvent.

You don't instantly liquidate a business just because it is insolvent - there is often more value in keeping a viable business operating than straight up selling everything in a fire sale.
Read 26 tweets

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