Thread by @Frances_Coppola

Dear @SBF_FTX. This is not a balance sheet. A balance sheet doesn't record "balances", it records assets on one side of the sheet and liabilities plus equity on the other. The "balance" is whether the totals on the two sides agree. #basicaccounting

Dear @SBF_FTX. Since FTX was channelling customer funds to Alameda, we already know FTX was not dependent on Alameda for liquidity. Where is the chart showing Alameda's dependence on FTX?

Dear @SBF_FTX. Revenue is not profits.

Dear @SBF_FTX. Valuing assets on your company's balance sheet according to "your model" is known as "mark to model" (or "mark to fantasy"). It is only acceptable if the market for the assets is too small for price discovery.

Dear @SBF_FTX. The problem with marking assets to fantasy is that you end up with wholly unrealistic valuations, and as a result you develop wholly irrational beliefs such as "an $8bn shortfall of liquid assets wasn't risky". (Also this isn't a balance sheet, as previously noted)

And this is what happens when your marks to fantasy unwind.

Switching substack posts. Dear @SBF_FTX, as noted before, this is not a balance sheet. It therefore does not, and cannot, show FTX US "overcapitalised by roughly $350m".

@SBF_FTX Dear @SBF_FTX. Contrary to the claim in your substack post, S&C's presentation does appear to include $428m in FTX US's bank accounts as an asset. It is the cash balance for the WRS silo and is included in the total cash balance of $1.7bn.

I admit I had to do some hunting to find it, as it's not immediately apparent that WRS silo includes FTX US. @SBF_FTX says he only had an hour to write that post, so maybe he didn't have time to look properly?

Alternatively, maybe @SBF_FTX misunderstood the executive summary. Total cash reported in this summary included $428m from WRS silo, which includes FTX US. The summary also reported $181m of digital assets (NOT cash) for FTX US.

The shortfalls are clearly in digital assets, not cash.

The $428m cash in WRS silo does not entirely belong to FTX US. It includes $128m of primarily restricted cash in LedgerX, which wouldn't be available to disburse to FTX US customers (tho @SBF_FTX seems to think it should).

Here's the evidence that @SBF_FTX thinks the restricted cash in LedgerX should be available to disburse to FTX US customers. In this spreadsheet, he's counted it in the $428m cash "in FTX US bank accounts".

In the substack post, @SBF_FTX says he doesn't know what the restricted cash at LedgerX is. Twenty seconds of Googling would have told him. bloomberg.com/news/articles/…

@SBF_FTX Dear @SBF_FTX, I'm afraid S&C's data does not confirm your claim that FTX US was solvent at the time of the Ch 11 filing. At that time, $250m of cash in LedgerX was set aside for a CFTC filing and could not be counted as part of FTX US's assets. So FTX US was probably insolvent.

Furthermore, customer balances are unlikely to be the only liabilities. Whether FTX US is solvent depends on whether total assets exceed total liabilities, not whether total assets exceed customer balances.

To be fair to @SBF_FTX, confusion between customer balances and total liabilities seems to be endemic in cryptoland. I do wish crypto people would learn basic accounting.

Related - the fact that total liabilities can be much more than customer balances is the reason why the Merkle tree "proof of reserves" beloved of several crypto exchanges proves absolutely nothing.