I realize some people may be wondering WTF just happened so here's the unannotated short version...
The story begins when $SI, a small regional bank, decided to go full crypto.
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A bunch of crypto companies used $SI to hold user deposits, stablecoin backing, etc - $USD cash. As it got more crypto customers it grew - $SI went from being a small bank to a medium bank, holding IIRC ~$15 billion in customer deposits.
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Since it had all this cash around $SI execs decided to invest it in a very safe asset: US Treasury bills. Basically they loaned the government of the United States money in exchange for interest plus guarantee of getting it back in N years.
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Example:
1. you put $100 in an $SI account 2. $SI takes yr $100 and buys a $100 T-bill at 1%
Now the government will give $SI $1 / yr for N-years¹ and then $100 back at the end of N-years.
¹ depending on if it's a 3 month T-bill, a 1 yr, a 10 yr, etc.
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Unfortunately $SI bought these treasury bills ("t-bills") at a period of historically low interest rates. So maybe they were earning 1% interest¹, as in the example.
They also (this is critical) bought long-duration t-bills. Say 10yrs.
¹ dunno the real # but it's low
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The problem is as the fed increases interest rates (and it has) people don't want the t-bills that only pay 1% any more. Why would they? They can go to the govt and get a fresh new T-bill that pays 4%.
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This drives down the value of yr 1% t-bill if you have to sell it before the 10 years is up. Possibly by a lot. Maybe yr $100 / 1% T-bill is now worth only $90 on the bond mkt.
Of course if you don't have to sell it, no harm no foul bc in 10 years you get yr money back.
All of a sudden people wanted their money back, and they had to sell their 1% T-bills on the bond market. They got completely fucking rekt on the trade, losing ~$1 billion in a month.
That was all $SI's profits back to 2014 - gone.
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Things got worse from there.
Banks are special in that what they are really selling is confidence - the confidence that if you give these people your money you will get it back.
This is why rumors about solvency are so damaging to banks, and now $SI had a lot of rumors.
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They were able to stave off disaster by taking out special government #FHLB loans meant originally to help poor people buy houses but that didn't last for reasons TBD.
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This is oversimplified a bit but hopefully it's illuminating for some people.
If they had just bought 3 month treasuries they would be fine. But $SI is not run by smart people.
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There are a whole lot of other issues with $SI facilitating the #FTXscam and being a hot bed for money laundering, but that's not ultimately what rekt them. What rekt them was the most powerful inexhaustible resource in the universe:
The problem for the broader crypto economy, however, is that there were really only two banks of any size that were willing to deal with crypto companies: $SI and $SBNY.
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Between them they were a huge part of the crypto economy, which is denominated mostly in $USD.
Both $SI and $SBNY had built special not yet "bank-permissible" payment networks for their crypto clients. $SI's was called SEN, AKA "#TheWheelOfDoom", $SBNY's was #SigNET.
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As of the end of 2022 $SI's SEN was moving roughly $750 billion / year and $SBNY's #SigNET was moving ~$1 trillion¹ / year on these unapproved, probably illegal payment networks.
$1.75 trillion is roughly 15% of the global VISA payment network.
¹ with a "t"
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Suffice it to say these unapproved payment networks became hot beds for money laundering on a scale the human race has not seen. And I mean, ever. They dwarfed even #Wirecard. You can read more if you want 👇 cryptadamus.substack.com/p/signature-ba…
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Does it seem reasonable that 2 small / medium American banks are doing 15% of the txn volume Visa does in all countries in all currencies?
What if I told you they are doing 0.7% of all bank transfers?
In the world. Across every bank in ever country.
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Because I can assure you it does not seem reasonable to banking regulators in the EU and United States, especially when a measurable volume of those transfers seem to end up in Iran and North Korea. reuters.com/business/finan…
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And especially when $SI's anti-money laundering screening was so piss poor that they let #SBF
1. Use an #AlamedaResearch bank account for #FTX (this is a major no-no in banking)
2. Steal $9 billion from his customers.
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And $SBNY's anti-money laundering was so piss poor that they ended up allowing #Binance to bank with them under a shell company #KeyVisionDevelopment that was so shady the goddamn Seychelles kicked it off the island.
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Either way, with the collapse of $SI, $750 billion per year in USD transfers between crypto exchanges just totally evaporated. So now it's all on #SignatureBank / $SBNY.
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$SBNY is not only bigger than $SI it's the only game left in town at this point for $USD/crypto
Which is why, if yr into crypto, you should be v concerned about what's happening at $SBNY.
For instance the founder of the bank just stepped down:
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BTW if anyone was thinking that $SI and $SBNY moving 0.7% of the world's total money transfers was evidence of "adoption" let me just point out that that $1.75 trillion was only moved between crypto exchanges.
No one bought a pizza. No actual economic activity took place.
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There are many alarming things about $SBNY's business but chief among them is probably the fact that an absolutely incredible amount of the money in the bank is uninsured.
So if the bank goes... the money goes down w/the ship.
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Anon, it is not for me to explain to you what happens to crypto if anything happens to $SBNY.
Because if there's even the faintest whiff of any kind of issue at the bank that now both holds and moves almost all of the fiat value in crypto...
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p.s. today @WSJ published a story that should interest anyone who has an interest in $SBNY's continued health... Something about #Tether, Hamas¹, a shady "aviation fuel company" that doubles as a crypto trader, #Kraken...and $SBNY
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p.p.s. if you got this far, understand the treasuries were an example for ELI5. $SI held treasuries and other debt, the details of some of which are shown below.
the mechanics of "how u got rekt" tho - that works roughly the same way for all.
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maybe nothing but interesting the total value of Tether's repo assets for 2023-Q4 is only 2% less than the collateralized assets listed on #CantorFitzgerald's 2023 filing
2/ maybe more likely to be nothing but Tether's infamous "Secured Loans" number is only 3% less than the "Securities purchased under agreements to resell" on the #CantorFitzgerald balance sheet
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Just read #Chainalysis "2024 Crypto Crime Mid-Year Report". Obvs they have a habit of minimizing crypto crime stats but reading closely I realized this is kinda nuts. So nuts I that we need new rhyme akin to "pump & dump" vein. I give you:
"Minimize & Legitimize"
Ω👇Ω
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The report has two parts. I focused on the 2nd half because it makes a big deal about CSAM. Surprisingly to me it seemed like Chainalysis was for once maybe not downplaying something really bad...
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Below is the tweet I dashed off as did a quick scan. CSAM is bad. If CSAM number go up = really bad. Looked like Chainalysis was admitting bad number go up!
Which, speaking as someone who's checked their work on terrorism financing, was surprising.
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It’s that time again. Gather round, children, for a thread about the closing arguments in the trial of Sam Bankman-Fried. #FTXTrial #FTXScam
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The govt’s case revolves around a few things but fundamentally it’s about risks that were not disclosed to customers/investors.
According to the govt not only were these risks not disclosed SBF took steps to conceal them. Which is, you know, a crime
Text from my 📌 twt 👇
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It’s conceded by everyone including SBF himself that there were undisclosed risks so the question becomes one of intent. The govt’s argument is that the many steps taken to conceal the risks reveal ill intent. SBF's argument is basically "being irresponsible is not illegal"
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Thoughts from SBF’s 2nd day of cross examination:
Today went very, very badly for Mr. Bankman-Fried but it was still kind of a shame the jury didn’t get to witness the absolute train wreck of his first attempt especially this part:
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Things got off to a rough start when SBF tried to say that the million and one times he claimed that Alameda was just like any other FTX customer in every way he secretly was communicating that “every way” meant “one way”: Alameda didn’t front run FTX's customers.
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Cue AUSA bringing up approximately a bazillion tweets, emails, slack messages, etc. where SBF said Alameda was just like any other customer followed by the question “does it say ‘in terms of frontrunning customers’ here?”
1. I never imagined it would be so grimly satisfying to watch a man hang himself before my eyes. The only disappointing part was that today wasn’t in front of the jury.
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SBF’s “my view from the perspective of the data I had available to me at the time” and “I’ll try to answer the question I think yr asking”¹ schtick did not play well with the judge.
¹ he actually said this, after which the prosecutor said “you didn’t answer my question".
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His testimony today was about whether he would be able to use the “but my lawyer said it was OK” defense in front of the jury. Let me summarize how it went:
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Things I Learned From Caroline Ellison's Testimony That CoinDesk Has Declined to Mention, a Thread:
1. The billion dollars that SBF had to bribe Chinese officials to give back was held on Huobi and OKX.
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That bribe was for $150 million.
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Multiple people at FTX/Alameda had family ties to the Chinese government. One of those people thought the bribe was a bad idea and quit shortly thereafter. The other one was the guy who suggested the bribe.