Thread by @compound248

Dear Media,

Do you want a simple description of HOW @SBF_FTX did what he did?

Why does nobody seem capable of pinning Sam down? His SECRET is, when asked pointed questions, he switches to market-plumbing speak, hiding behind lingo.

Let me help you understand SBF's moves.
🧵👇

1) Anytime you hear or read "Alameda," replace with, "Sam's personal account."

When Alameda borrows FTX customer money, that means "Sam borrows customer money": Alameda is 100% owned by Sam & a few friends. Alameda had no clients. "Alameda's capital" is Sam's, Caroline's, etc.👇

2) Sam says he poorly "risk-managed" the FTX and Alameda relationship. Recall: Alameda=Sam. What transpired?
• Alameda (Sam) Had Liquidity Issues
• Alameda (Sam) Organized a Loan from FTX
• To Paper the Loan, Alameda Posted Collateral to FTX
• The Collateral Was Pretend Money

3) Alameda (Sam) Had Issues:

Nobody has nailed down what happened: was Alameda *always* a fraud or did it suffer losses at some point and then get desperate (perhaps the Terra Luna implosion in the spring)?

This is a question begging for an answer. I don't know, but...

4)...Sam claims he was no longer closely involved in Alameda (again, Alameda = Sam's personal capital). Sam claims Caroline & Team ran it independently (other than its venture investments).

This claim gives Sam cover to state he doesn't know the details about Alameda's issues.

5) Alameda (Sam) Organized a Loan from FTX:

At some point - time uncertain - Alameda (Sam) needed access to liquidity. It almost certainly had margin loans from 3rd parties being called (3rd parties like Gemini or Binance...maybe FTX?). To repay these, Alameda needed liquidity.

6) To Paper the Loan, Alameda Posted Collateral to FTX:

FTX client assets were the liquidity that Alameda (Sam) needed to repay its other loans. To pretend this was OK, FTX needed to hold collateral from Alameda as security against the loan (in case Alameda (Sam) didn't repay).

7) When you borrow cash on margin, you generally have to post MORE collateral than you borrow.

Ex: you might borrow against your Schwab account. Schwab holds your account's assets as protection against you defaulting on the loan. This lets you turn investments into liquidity.

8) Elon's $TSLA margin loan is a prominent example:

Elon can borrow $1 for every $5 of TSLA stock he posts (giving him cash to do anything, like buy $TWTR, without selling TSLA).

After borrowing from the facility, if TSLA stock falls below a certain threshold (say $1 to $3)...

9)...Elon needs to either add more collateral to the margin facility (post more $TSLA) or pay down the loan.

If he does neither, the lender can liquidate the $TSLA it holds as collateral and repay the loan from the proceeds.

Now back to Alameda (Sam)...

10) Together, FTX & Alameda (Sam & Sam) developed a few shitcoins...err "tokens": the most relevant are $FTT and $SRM.

Both FTX & Alameda received huge grants of $FTT and $SRM (I'm just going to use $FTT going forward).

F&A (Sam) controlled the VAST majority of the issuance...

11)...and only a tiny portion of $FTT / $SRM traded. Alameda was the largest trader. If you own 95% of something and then manipulate the price of the other 5%, you can make your 95% look REALLY valuable - just keep the price of that 5% up and look how valuable your 95% becomes!

12) Guess what Alameda (Sam) used as collateral for those margin loans we were talking about? $FTT and $SRM.

And it doesn't appear that FTX required a big haircut on those. Remember that Elon can borrow $1 for every $5 of $TSLA stock he posts? That's an 80% haircut. But...

13)...it doesn't appear FTX required a substantial haircut on the $FTT that Alameda (Sam) posted.

Ultimately, using these shitcoins...I mean tokens, as collateral, Alameda (Sam) "borrowed" $9-$10 billion from FTX. That money was, almost by definition, FTX customer money.

14) You might recall that Sam famously described tokens like these to @TheStalwart and @tracyalloway as "magic money in a box."

It was recognized immediately as Sam describing a Ponzi. But most of us didn't realize *Sam* was issuing these magic tokens.

15) Sam may argue this is just how banks (and brokerages) work: they take deposits, they lend them out based on credit judgments to earn a spread, and - as long as depositors don't ask for deposits back en masse - all is perfectly fine.

But let me tell you what banks don't do:

16) Banks do not:
• Lend 70% of their deposits to one borrower
• Have that borrower be the founder of the bank
• Accept made-up "tokens" as collateral - the actual worst collateral ever conceived
• Have almost all that collateral be just two (made up) assets

17)
• Apply de minimis haircuts to collateral
• Accept derivatives of the bank itself as collateral! $FTT is not random - it relates to FTX

As @matt_levine said, Goldman Sachs should not take $GS equity as collateral - it is circular risk. And definitely not pretend-GS equity.

18) This Collateral Was Pretend Money

Alameda (Sam) & FTX (also Sam) invented intrinsically worthless tokens, keeping almost all of it for themselves. They traded a tiny percentage, controlling the trading price.

This manipulated the implied value of all of Sam's $FTT tokens...

19)...then used the resultant implied token value as collateral to extract ("borrow") customer funds from FTX.

The bogus collateral was one giant identical (non-diversified) risk, funding related-party transactions.

And FTX lied about doing it via misleading Terms of Service.

20) When Sam says, "he poorly risk-managed" it means, "I, FTX's CEO Sam, should not have allowed Alameda Sam to use pretend Sam-money as collateral to take real-$$ from Sam's customers."

It's like in Dumb & Dumber when Lloyd spends all the found money, but replaced it with IOUs.

21) This insanity could have lasted longer, except Sam made one horrible mistake.

At FTX's founding, Binance/@cz_binance was a seed investor. As FTX evolved into a full-fledged Binance competitor, FTX reacquired Binance's seed stake using a mix of payments. One of those was...

22)... $FTT!

Amazingly, the only big part of $FTT's float that Sam did not control was controlled by his arch-f'ing-rival: CZ.

When it became public that Alameda was relying heavily on $FTT as collateral, CZ understood his $FTT wasn't worth the magic paper it wasn't written on.

23) If CZ didn't know before, he knew then: all of Sam's prior "bailouts" were attempts to prevent Alameda *itself* from being liquidated - it was built on magic token money. And CZ was the biggest independent owner of the magic money. CZ knew there were zero natural $FTT buyers.

24) CZ held the keys to killing his loudest, most annoying competitor & he used them. Good on CZ - hopefully Binance itself is sound.

We don't know what's next or where the $10B of customer $$ went. Perhaps Alameda lost it fair & square, perhaps it's stolen. Time MAY tell.
-END

The key question is, “who at FTX approved $10B of loans to Alameda (Sam)?”

Sam says he didn’t understand the exposure. He was CEO. Who approved it?

My “worlds colliding” dream is for @elonmusk to reply to my viral @SBF_FTX true crime thread. 👆

Like this to make my dream come true.😅

...or Retweet.

Strong to Quite Strong.

https://twitter.com/unusual_whales/status/1602411950356717568