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SPEAKER_02: first four weeks. All right, everybody. All heck is broken loose. It's Sam Bankman, Fried's FTX exchange. Molly, maybe you could tee up as best you can.

Jason Calacanis: Yep. What has happened? We're having an emergency podcast for those of you joining us live. We haven't been alive in a while. It's a double red flag situation. I mean, you know, we're going to dive into this, but I think we can safely say that this is a hinge event in the crypto economy. Sam Bankman, Fried's FTX exchange is being acquired by its primary competitor, Binance, after what appeared to be a run triggered by Binance on FTX, primarily related to FTT, if I'm doing this right, the currency that FTX created. And then now there's this buyout in process where you have two competitors, like they just basically fought to the death, like Godzilla and King Kong, and Godzilla in the form of CZ at Binance is emerging victorious. There are still, however, very large questions about Alameda Research, SPF's hedge fund and market maker related to FTT. It's all

Chamath Palihapitiya: an insane, hot mess. Guys, tell me what I got right and what I got wrong here and what's happening. Yeah, let's go to Sonny because I thought all of this stuff was supposed to be on the blockchain

SPEAKER_09: and completely transparent. Isn't that the value of crypto? Yes. Why is this so confusing what's going on?

SPEAKER_15: These exchanges are centralized. I like when he makes his new bastard face too. He's like. Yeah, these exchanges are centralized and they're showing that they're, you know, have some weakness. No, that's mostly correct. Let me just add a couple other interesting tidbits because they add the right color to it. So Binance was actually an investor

SPEAKER_17: in FTX. And that's how they ended up with their FTT token. So as the two started out in the early days, they were quite friendly. And then over the course of the years, and I think sometime maybe within the last 24 months, Binance wanted to sell its stake in FTX and FTX gave Binance FTT tokens, roughly about $2 billion worth of tokens for their stake that they had in there. And then what subsequently happened is FTX has grown and we've seen super high profile, right? They

SPEAKER_15: have stadium sponsorships. They have F1 sponsorships. They have Tom Brady, you know, all kinds of great stuff. Had, had, had, had, had, okay. Well, they still might, but you know, what, what's also happened is Sam and has spent a lot of time in Washington and talking about crypto regulation. In fact, we even spoke with that in the last podcast, Jake, how actually did an interview with SPF and he can touch on this. And what really hit the head in the last say seven days was an article came out that was questioning the assets, the balance sheet of Alameda and that the balance sheet of Alameda was holding a lot of FTT tokens. And that also pointed back to some liabilities associated with FTX. And ultimately that also tied back into some word, I guess, CZ, who's the founder of Binance was getting about what Sam was saying about him on, you know, on, uh, in Washington. And that led to him, you know,

SPEAKER_20: basically saying, Hey, I want to sell my tokens. And that started the run on, um, the business in the

SPEAKER_02: last, uh, 24, 48 hours here. Right. Vinny. Yeah. What is your take on this insane chess match and what just happened? Because it does seem like Sam overplayed his hand and maybe flew a little close to the sun, the sun in this, uh, metaphor being regulators. Is that what is the spark here? Is that

SPEAKER_25: Sam? Sam was talking smack about Binance to regulators. And then that made CZ go.

SPEAKER_28: Well, are you trying to get into the, are you trying to get into the reason why it unraveled or are you trying to get to the, like what, what, what, what, but let's fundamentally ask like, okay, Sam's a US citizen. He was living in Hong Kong and then he moved to Bahamas to run his operations. Okay. Why would you do that? Why would you be operating offshore like that? Because he ran two organizations, he ran Alameda and he ran FTX. And, and these two should have been barred from doing any business with each other. I mean, I'm from a corporate governance perspective, you know, I can, like you guys know, you can't have a, you can't have a situation where you're, you know, you have another, another company that's borrowing from a company, uh, that we have deposit of funds where you can just issue your own currency, like FTT, et cetera. So there was just no like corporate governance across these structures because they were based outside the US and there was no real regulation, regulatory oversight. And, and it basically created a mess. Um, if you look at the way that Alameda, I mean, Alameda is a trading organization, um, and FTX is a trading platform, but it's owned effectively by the same person. And so you, you, you know, even though there's this illusion of two separate entities, Alameda would invest in crypto projects and companies, uh, FTX would list the perps. And there's lots of reasons why this is a bad thing, but like they list the perps, the perpetual swaps basically, and it allows you to just hedge out your risk. So they would take maybe a 12 month SAFT or 24 months SAFT, they'd list the perp and then we'd just hedge out and make the margin. So they don't really care about the project. They take liquidity out of the market, that sort of thing. So this has been hanging on for years. This is not news is all over Twitter. People have been talking about this for months now. And the bottom line is you had double dealing here and it

Jason Calacanis: eventually unraveled. So let's, yeah, let's break down. Let's start with the relationship between FTX and Alameda that you're alluding to. So for people who don't know, um, and what this kind of looks like, even though these are separate businesses, sister companies, let's say Alameda's balance sheet included a large amount of FTX's FTT token. In fact, FTT is

SPEAKER_38: the largest asset on the Alameda balance sheet. All we have is like these, we have these rumors

SPEAKER_28: what's on there. And by the way, you know, the way balance sheets work is you have 8 billion on the one side, you have 8 billion liabilities on the other side or whatever. Like it's not as simple as like, I mean, I can, you can have a balance sheet with a trillion dollars

SPEAKER_39: of liabilities and trillion dollars of assets and it's a net zero balance sheet. So no matter how big the, but it's really like, well, what's it, what's the nav? And then also, okay, well,

SPEAKER_40: so I should clarify, this is based on this leaked balance sheet seen by Coindesk dated June 30th.

SPEAKER_39: And those numbers don't, those numbers don't look right. For example, like the Solana that they've quoted on the balance sheet, there wasn't, there isn't that much lock Solana in the market. So that number is just wrong because they would have to have more lock Solana than what is

Jason Calacanis: out there. So that number's wrong. So when you see as of June 30th, Alameda holds $3.66 billion of unlocked FTT and 2.16 billion of FTT collateral, if you're saying you think those

SPEAKER_45: numbers are wrong, you think what, that they have more? I'm not saying, I'm not saying I think they're

SPEAKER_48: wrong. But here's the point, which is that that document is what started to create questions,

SPEAKER_28: right? About this conflict of interest. The doc, the document basically started off, you know, a rumor more cycle where people started digging in. And when people started looking at the actual on-chain wallets and start tracing things, you know, there's a lot of good crypto sleuths out there and they find this stuff. And I think it created some sort of a catalyst where CZ was looking at this going, why am I holding a half a billion dollars with this FTT, which may not be worth this. And these guys are printing money. They probably don't have, you know, like, there's no guardrails, right? And he knows just as well as everyone that Alameda and FTT, FTX are, you know, two separate entities for legal reasons, but reality is just controlled by the same person on both sides, even though it has its own CEO. And, you know, if you look, it's very clear. I mean, it's always in hindsight, it's clear, but like, if you go, if you just look back six months, 12 months, the ascent of Sam, three years from zero to, you know, the next Warren Buffett, I mean, there's just not that much money to be made in crypto that fast. I mean, you can't just go and amass $15 billion worth of fortune with money in crypto that quickly during running an exchange for all the reasons. And, you know, so something had to be up. So it was printing money out of nowhere.

Jason Calacanis: So you had red flag one, this connection, and the fact that Alameda's balance sheet appeared to include a significant portion of a token that FTX and SBF made up. So that was issue one, right? Then issue two is SBF starts making a ton of noise. He is buying all of this stuff.

SPEAKER_55: Let me just correct something quickly. I want to correct something. So they didn't make up the token.

SPEAKER_28: So Binance has the BNB token. FTX has the FTT token. These tokens are used by traders to reduce fees. There's some utility. People hold it. It's an investable asset. That wasn't the issue. It actually works. There's a burndown. That's not the issue. The issue is it's just not as liquid as it should be for the purpose. They were trying to use it as collateral. So they would go and say, can we borrow dollars? We'll give you, we'll print $2 billion worth of FTT. It's on chain. Everyone knows it's there. But if you try and sell $2 billion worth of FTT in a day to get your loan back, you can't. It's not liquid enough. So basically it's a liquidity issue. But let's not go, get away from the fact that like this couldn't happen in the US legally. You couldn't do this

SPEAKER_33: in the US. So then SBF starts to make a bunch of noise. He is rescuing companies. He's also,

Jason Calacanis: it seems, courting regulation, maybe in a way that the community starts to dislike.

SPEAKER_61: Well, well, well, well, so hold on. So, so rescuing companies doesn't mean,

SPEAKER_39: so the BlockFi and, and BlockFi and FTX or Alameda, we'll just lump them together for now, had a relationship where there was some collateral posted to BlockFi. He had to save him. Otherwise the, otherwise what happens is, and he knew this, the regulators come in, the administrator of the company comes in and then they just dump it. And so they're going to be

SPEAKER_28: dumping all the collateral that they posted into the open market because they have to get funds back for the depositors, et cetera. So he had to save it. Yeah. And I suspect something similar with Voyager happened as well. However, so his goal is to prevent them from selling FTT.

SPEAKER_33: One hundred percent. And it seems that some of these actions started to court some controversy.

Jason Calacanis: He seemed to be maybe promoting some regulation that would make things less decentralized. CZ got the impression that SBF was smack talking him. Like there was, there were some precipitating events that caused CZ and Binance to all of a sudden liquid, liquidate all this FTT and effectively cause a run on FTX, right?

SPEAKER_68: If, uh, Sonny, if this had been in this color, yeah. Well, Vinny, if this had, uh, or Sonny rather,

SPEAKER_25: if this had been, uh, if these assets were all held in Bitcoin or Ethereum or something, and there had been buyers available, then CZ liquidating a bunch of Bitcoin he had, or this would not have been an issue. This is all based on the fact that Sam SBF, as he's called printed his own currency and then splashy cash. He used that token, uh, to do commerce in the world while having this conflict of interest. So there's three possibilities here of how to operate a business in crypto. One is to be in the United States and follow as closely as possible, uh, to the extent it's possible securities regulation. Then there's to be on chain and let the algorithms or, you know, the rule set operate in complete transparency as Bitcoin does as Ethereum does. And then there's a third choice to have some centralized Luna, I guess falls into this or did at some point. Um, what was the other one that collapsed recently? And an SBF, right? It seems like there's a group of people who tried to centralize what should have been, uh, essentially a Bitcoin or Ethereum like processes. Is that correct,

SPEAKER_76: Sonny? Yeah. I mean, kind of Vinnie's theme was, was correct here. So I'll just jump in,

SPEAKER_15: but let me run with it. I think it just comes down to when you print your own money, which is what, you know, FTT was, and you start using that as an analog for money. And then someone wants to turn it into fiat in the case of what, you know, say CZ was trying to do yesterday. And there's not enough liquidity there. The price of that thing will crash. And if on the flip side, someone has taken that

SPEAKER_17: same printed money and borrowed against it or levered with it, or, you know, done any of the

SPEAKER_15: financial things that you can do with these types of things, that's going to create a serious problem.

SPEAKER_77: And that's what we saw unfold very, very quickly.

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SPEAKER_15: purchase of a website or domain. Related to all this, the noise that got created yesterday, and this has nothing to do with FTT started to create a lot like a bank run. And you know,

SPEAKER_17: that's happened in traditional finance. I think the number that I saw and you guys can confirm was $6 billion was withdrawn from FTX in the last 24 hours. Now what that circles back to is nothing to do particularly with FTT. Although that's what probably started that run because people got afraid that it was, you know, because of what's happened recently. But now the secondary question that comes in is how much of that $6 billion was actually there or had they further lent out or levered or, you know, pledged in other places so they could go buy Voyager and these other assets. So this is the intermingling that's happened here that we don't fully understand.

SPEAKER_28: It'll take us months to understand what happened here. This is not a simple thing. I mean, I want to go back to basics, Jason. And when FTX started off, they allowed anyone onto the platform

SPEAKER_30: to trade things which US persons are not allowed to trade. So you could log into FTX with a VPN with no limits, no KYC, no AML, and they built their business that way. And so you had a ton of

SPEAKER_28: people coming in from America using FTX. It was a fast platform. You could get a hundred times the leverage or whatever it was. I didn't use it, but I have a ton of friends of American. And when everyone is trying to clamp down and not let the US citizens use these products, FTX opened it up. And he did it for about a year or two and he grew the exchange massively. And then they kind of cleaned it up. It's kind of Uber style, Jason, like, you know, they go, okay,

SPEAKER_39: well, we'll have this FTX US site and then we'll do these other things. But the company culture was regulators, you know, we'll just get around them and we'll keep doing this stuff. And that's the company culture. And then what happened recently was, I think with all this collapse, Sam was trying

SPEAKER_28: to go to Washington and figure out and, you know, donating a billion dollars to the Democrats, whatever. He was trying to like, you know, it's part of the cleanup act, right? You first, you make your money with a little bit of shade, and then you try and clean it up afterwards.

SPEAKER_30: But it failed because CZ saw right through him to some extent and said, well, this is going to affect

SPEAKER_88: me. And he, and that was it. And Vinny, if I can add something like, look, like this type of situation is not unheard of in traditional banking. You know, if we remember back to the great financial

SPEAKER_15: crisis, we had a very similar situations there where banks were not able to handle, you know, not a stress test, an actual test of the banking system. And they were about to go under,

SPEAKER_17: and then the government had to come in and save them. So this type of situation is not isolated to crypto. It's happened in traditional finance for a long time. Now, those banks have stress tests and rules that say that, you know, govern how much they have, you know, what kind of holdings they have to have around that. And that regulation doesn't exist in this space. The irony here a little bit, SPF was out there talking to these regulators. And clearly, you know, they didn't have a one for one situation because if they did the run on their assets yesterday, wouldn't have created a problem. They could have just given everybody their assets back and they would have had less inside their platform. And so I think that to me is like the real, if you really kind of zooming into everything, that's the real problem yesterday is that people get unnerved. They see FTT crashing. Then they say, I want to get my Bitcoin out. I want to get whatever asset I may have inside FTX. And they don't have

SPEAKER_15: all those assets. And that's what, you know, they, I think even said today, they've frozen that now.

SPEAKER_23: Just so I'm clear, FTX, the exchange, just so everybody who's listening, who maybe is a neophyte, uh, to this is similar to Coinbase or even Robinhood when they trade cryptocurrency.

SPEAKER_25: They had $6 billion pulled out, but that $6 billion pulled out is not this FTT token, uh, that they created, I guess, essentially like a stable coin, their in-house token, their in-house

SPEAKER_93: currency, not a stable coin. It wasn't a stable, not a stable, variable. Okay. So their in-house token

SPEAKER_94: that they use to move money around without fees, the $6 billion taken out were people who just saw the headline. Oh, FTX is having a problem. Well, sir, I'll just pull down my Bitcoin. I'll take my Ethereum out. I'll take my salon out, whatever they're holding. So what impact I wonder does that take? Because I don't know what their complete holding is at FTX. I don't know if that's public, but essentially they're losing all their customer base. Is that what's happening?

Jason Calacanis: And they don't have that. And they don't have the money to cover those withdrawals.

SPEAKER_15: Yeah. So let's just say, you know, they, we're going to theoretical example, right? This is not

SPEAKER_17: accurate, but just for illustrative purposes, let's just say they had taken in 10,000 Bitcoin and 10,000 Ethereum and 10,000 soul. And yesterday people show up and ask for, um, those 10,000 back, but they had in turn gone and lent that in other places to generate fees or to use that to get the capital to go buy Voyager. Like, you know, they're, you know, your bank does that as well. It takes your deposits and goes and lends it out to other people, does mortgagees and other things like that. And so we don't know what that ratio was, but whatever that it was, that 6 billion caused a real problem

SPEAKER_15: for them yesterday to that led to, you know, CZ coming in and go ahead, Vinny.

SPEAKER_28: I have a bit of speculation here and I'll, I'll throw it out there. Now the, the, the leaked document that you saw Molly was, it says there's a bunch of lock Solana. Now let's just assume it's, you know, I said 800 million or something, but let's just say it's 500 or 300 million or whatever it is. If you melt, if you like multiply that back up for what Solana's price was a year ago, so go five X on that, that's probably 1.5 to $2 billion in soul, which they bought at market prices in theory. Now I don't think they would have bought that much Solana at market prices. I think what they would have done is bought the, bought the SAFs, the lock SAFs, and they would Explain what that is, a SAF. Yeah, what's a lock SAF? So basically, basically it's like a, you know, with, with, with, with token projects, you can get, you can acquire the rights to tokens that they get distributed over time. So let's say it's 24 months worth of distributions. So you buy that, but Alameda is a trading company. They don't really want to take a position in anything. They, they just trade us. They, you know, they'll buy, buy for five, sell for seven. Like they don't care. So when you buy something with a 24 month unlock or even longer, whatever it is, you want to hedge out. So you wouldn't say, okay, I I'm guaranteed a hundred Sol over the next 24 months. Can I go in, you know, can I go borrow a hundred Sol from someone, pay a, pay a fee and then sell that into the market and get the cash right now. And there's a spread that you're making, you know, whatever the percentage is. Now, if the, if it's, it's purely like a, you know, a theory, if they did do that, because I think it's very likely that they hedged out the position. Okay. Sell spot by, by, you know, 24 months, whatever, they're effectively net short Sol right now. So the people that they gave the collateral to, so if I go to Sonny and borrow a hundred Sol from him, he's like, what's your collateral? Hey, Sonny, I'll give you three times the value in FTT. And you're like, okay, fine. I'll lend you the Sol. Now, if, if the ratio between the two drops too fast, I have to, you get a margin call that either top up or whatever. Once you get down to a liquidation threshold, Sonny, he's going to sell that FTT and buy Sol back from the market because he take, you know, he's borrowed Sol from one of his customers and he's making a margin on the interest. This could unravel in a weird way in the next 24 hours where the market suddenly realizes that these guys sold short a whole bunch of Solana and now the market has to go repurchase it. And you could see the price of Solana skyrocket because it went down from very high numbers, lower down. And my suspicion is that someone sold it heavily down. And I think it was possibly them last year. That's just a theory. I don't have anything to back it up, but we will see in the next 24 hours. To be clear, you do own a ton of

SPEAKER_109: Sol and you were involved in the project early on. Exactly. But it sounds like what you're saying is

Jason Calacanis: there are likely, if there, if there are some shenanigans, there are others. So there are

SPEAKER_39: likely a lot of knock on effects. Well, the thing is, it's a, so what's strange to me is how they would have so much lock sole on the balance sheet, or that statement that you saw. 863 million is what that

SPEAKER_61: leaked sheet said. And Caroline said in the tweet, the CEO of Olameda said that they've got hedged positions. That was one, that was probably one of their biggest positions. They can't hedge FTT because that's their position, right? So they would, their second biggest position looked like it was Solana and they may have hedged it. Now, I don't know for certain, it's a speculation, but it makes perfect sense to me that someone lent them soul and held FTT as collateral.

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SPEAKER_25: Didn't a bunch of venture capitalists pour hundreds of millions of dollars into FTX? And wouldn't they, as venture capitalists, have done some level of diligence and understood more fully Molly? She's laughing at me. I'm sorry, wait, I need my flag. And I don't want to pick out any ones that either I'm friendly with or whatever, but I specifically have stayed away from this whole mess because I was like, I don't understand, you know, what's going on here. But if a bunch of venture capitalists poured hundreds of millions of dollars, while this was all going on, would they not have understood these positions and done some sort of risk assessment, Molly? And then if the research team could pull up who's invested, and when I'd like to maybe hear from our panel here, some speculation as to what impact this will have on venture capitalists going forward, and them wanting to participate in crypto, because this to me seems like one of the biggest, somebody correct me if I'm wrong, I think the two biggest bets in crypto, venture, which is a subset of all crypto, were the NFT sites like OpenSea, if my memory serves me correctly, and specifically FTX. Am I right? Am I wrong Molly here?

SPEAKER_48: I think that's correct. And I think before we even get there, we should, we should sort of

Jason Calacanis: say that there's still a pretty outstanding there was a great Twitter thread today about what is still an outstanding question. So we know that CZ and Binance came in and said, and by the way, CZ, I thought was a little salty in his tweet in which he because SBF had tried to sort of say everything is fine, there's no liquid liquidity crisis. CZ comes in tweets, there is a significant liquidity crisis, we are coming in with this rescue. But there's still an outstanding question of Alameda research, which is not included in this deal between FTX and Binance, and which may still have this huge hole in its balance sheet related to FTT, meaning to come back to your point, J. Cal, that VCs might still lose a ton more money here, if Alameda research comes apart. Is that accurate? Yeah, what do you think, Sonny? Let's get Sonny in. Yeah, what do you think, Sonny?

SPEAKER_76: Either of those topics? Yeah, can I actually just frame one thing on top of it? And then I'll dive into those things real quick. I think one one thing that we really mix up the in the broader

SPEAKER_15: industry mix up, there's like sort of, and you know, I'm happy to iterate this with you guys, but I think there's three different things to look at. There's cryptocurrencies, there's blockchain technologies, and then there's like kind of web three related, you know, apps and infrastructure, and that all gets mixed into different things. I think when we looked at the biggest class of investment, you're right, it covered the exchanges that were trading NFTs, it covered our marketplaces, and then exchanges. The other thing that a lot of investment has gone into L1s, right? So basically, people trying to create the equivalent of like the next Ethereum or the next Solana, and because, and the rationale there is those things become quite liquid as soon as the utility starts running on them. And so those would be the, I would just add L1s as another area where we've seen a lot of investment go into. You know, we talked about Aptos and a bunch of different things in the previous podcasts, right? And so I think those are the three areas where

SPEAKER_17: probably the heaviest investment has been so far. But then you have to kind of step back up and say, well, what is cryptocurrency investing? What is blockchain technology investing? And what is like people

SPEAKER_15: investing in applications and services built around those technologies? Like, let's call that Web3 apps?

SPEAKER_68: Where does FTX fall for you and FTT fall for you? FTT is a startup that is a marketplace, you know,

SPEAKER_25: like Coinbase is, and then FTT is just a token. So what I see is the marketplace, FTT is the token.

SPEAKER_15: Yeah. So I'm, I'm not like, I'm not a big fan of what's kind of the, so let me frame it from, from my perspective. I believe FTX and it was primarily a cryptocurrency exchange. Now they've added more features over time. They allow people to, to trade. I think in the U S you can even sort

SPEAKER_17: of trade stocks on it now, but primarily in first place, it was a cryptocurrency exchange. So that was built around the speculation around cryptocurrencies. And Vinnie touched on this earlier and we've seen it and they'd, they would list assets that maybe shouldn't be listed, or we don't know what's

SPEAKER_15: happening behind them and allow people to trade those things. So that falls into the cryptocurrency speculation. And then what they've did along the way is they created their own currency in FTT. So that it all is amongst the same first bucket of like cryptocurrency speculation that it falls in.

SPEAKER_141: And then they have a sister company that is a market maker,

SPEAKER_142: a market maker to their exchange. Yeah.

Jason Calacanis: To their exchange. Exactly. So really fundamentally everything we've been saying since the first time we did this round table is you financialized before you made the financialization, the product and right. And it seems like it got a little out of hand, but so fundamentally before, like fundamentally

SPEAKER_47: when it comes to this entire ecosystem, and then let's talk more about VC, how big a deal is this?

SPEAKER_15: I think it's really huge. Right. And then Vinnie, Vinnie jump in right after, because you're about to say something. Why is it huge? Well, Sam was in front of all the regulators, right? With from the funny pictures of the shoes not tied properly to him speaking in front of folks, you know, Jake, how we sat in a session with him with a bunch of really, you know, high profile institutional LPs, right? At a private event, we wouldn't say the name of it. We will not, right. But, you know, these type of things like he was, he was, he was one everyone was pointing to as, you know, credibility, he was donating a lot of money to the political parties.

SPEAKER_14: And so this really shakes the stability of the ecosystem pretty heavily.

SPEAKER_25: So because he was so credible, because he was so out front, he was supposed to be the golden child in a way that would take crypto from this dark alley, put it in the light, and he would lead it

SPEAKER_02: to a clean regulatory environment, which when I did a favor for a friend and interviewed him at this event, which I won't say the name of, because I was asked not to, it was unpaid, by the way, Molly, I made $0.0 for this incredible interview, friends like these, we can't even run it, okay, I can't can't run it. I mean, it's just lost in time. I mean, there's this recording. Well, somebody can leave. I'm not asking them to, but well, it'll be interesting. Anyway, this just happened two or three weeks ago, Molly. And so at that

SPEAKER_25: interview, there was a lot of discussion, I kept going back to regulation, and he is he had set up, I think he was the number two donor in this cycle of elections on the Democratic side, it was either one or two. And it was very interesting that he was going to be the one to

SPEAKER_94: clean it up. And now the person who was meeting with all these people, Vinnie, is the person who blew it up. That takes huge credibility away from crypto. This makes anybody who was saying, Hey, let me get in here and work with this guy to clean it up. And it blew up in their laps. Am I am I correct? Vinnie? I mean, was that too cynical?

SPEAKER_159: The issue is, like, I thought it was really rich for a guy to be up there, you know,

SPEAKER_28: trying to talk to regulators when he flooded all the laws initially, when he set up his company, and he's based offshore, based in the Bahamas, throwing money around the politicians, I thought it was kind of weird. And, you know, and it's just disingenuous, you know. I mean, obviously, he was running a facade, and he knew it. And when the market started tanking, you know, he was kind of scrambling. And when Celsius blew up, and 3AC blew up, and you know, it's contagion, contagion spreads, it just takes a while sometimes. But Bitcoin's on a precipice right now. I mean, it's trying to hold the 18,000 level, did a bit of a spike down. It's climbing back up. This could be the bottom, because quite frankly, after this, there's just no one else that's big.

SPEAKER_163: You know, there's no one left. There's no one left, right? That has to be. Yeah.

SPEAKER_29: Yeah, so this is probably the bottom. And if the bottom doesn't, if the bottom holds,

SPEAKER_159: it's a double bottom from the earlier crash earlier this year, that's actually a good thing. And I think we're up from there. But if the bottom doesn't hold-

SPEAKER_165: Why is a double bottom a good thing? Why is it double bottom a good thing?

SPEAKER_159: I mean, just from a technical analysis perspective, double bottoms tend to show that there's lots of buy support below a certain level. And so if we hit, you know, we're already in the double bottom

SPEAKER_28: zone right now. If it breaks, then crypto has basically gone backwards. Look, we're going backwards anyway for a while. There's, you know, the developer needs to slow down. There's just, there's too many people trying to make money out of crypto and crypto doesn't make money by itself. So the industry is pretty big, big ecosystem. I mean, I still think it's, I think, I still think

SPEAKER_169: the play is Bitcoin, funny enough, right now. I think with all this drama that's happened globally

SPEAKER_28: in crypto, I put a tweet about it today. I think Bitcoin is probably the best risk adjusted bet right now in crypto. So owning Bitcoin is, you know, reasonably safe. It's going to be, you know, it's a global effectively, it's a reserve asset for the crypto industry. And, you know, I've had my

SPEAKER_39: criticism of Bitcoin, but I think it's, it's, it's got a lot less dependencies. And in fact, if you're looking at a hard currency to borrow money against, you should like lend money against

SPEAKER_159: Bitcoin, not FTT, for example. Right. And so that's the issue.

Jason Calacanis: Sonny, I saw you give a little head tilt there. Does your neck hurt or do you disagree with this

SPEAKER_76: Bitcoin assessment? No, no, no, sorry. Never. I don't ever disagree with the Bitcoin assessment.

SPEAKER_17: I think like it, it to me is just a different class of asset. Now it's not related to any of these other things that we're seeing. And so when we kind of start merging them, it's, it's, it's unrelated for me, I think it's uncorrelated to all this stuff. Exactly, exactly. It's actually,

SPEAKER_169: it's reasonably uncorrelated crypto as well right now. But he's like, yeah, that's the point.

SPEAKER_173: That's the good, that's a good thing. Yeah. Okay. So I think, I think, I think these are,

SPEAKER_39: this is probably like, let's just keep, keep this in mind. Like Bitcoin right now is 10% below, below the peak five years ago, before you adjust for all the inflation that's happened in the US dollar and just the time and how the network's been built out. It's actually pretty cheap at these

SPEAKER_28: levels. If you assume that, you know, like, I mean, five, like five years ago, Bitcoin hit 20,000 bucks. It's at 18K right now. I just think that, you know, as a form of, a form of Bitcoin maxi,

SPEAKER_159: I'm like, and then I got reformed. I'm kind of heading back. I wouldn't say I'll ever be a maxi again,

SPEAKER_174: but Bitcoin is, Bitcoin is probably going to be the, the, the saving grace for crypto because it's just, you know, it's just why they help. Well, Molly, here's that one year chart.

SPEAKER_94: We were just referring to with the double bottom. If you remember a year ago, this is an exactly one year chart. So this shows November of last year. Remember we hit that 70 K ish moment and people are like, wow, it's going to a million dollars a coin. It comes crashing down to the 40. And then comes crashing down again to 30. And that was arguably a double bottom there. And then the triple down to 1918, which is where we live today. So this is either two or two and a half bottoms as Vinny is talking about. But your point Vinny, if I may summarize it is you saw support at 40 K people wanted to own it there. You saw some support at 30 and you saw and you see a very long

David Friedberg: support at 18 to 20. And even if it goes down to 12 to 15, you're suspecting there's going to be

SPEAKER_159: support there as well. Yeah, I think I think I think Bitcoin is Bitcoin dominance should go over 50%. The crypto industry shouldn't be operating with a Bitcoin dominance of less than 50%. Dominance basically is the measure of the relative value of crypto cryptos market caps, I think the top 150 to Bitcoin. And that should always be in my opinion, about 50. It was below 50. There's a lot of speculation

SPEAKER_28: going on, especially in a tight monetary environment. 50% should be the minimum. So Bitcoin, you know, either alt is going to collapse further and, you know, and Bitcoin's dominance goes up or Bitcoin's undervalued. I think it's the latter. I think the alts have been having it. Nobody's selling, nobody wants to sell stuff at these levels anyway. So I just think Bitcoin needs to go up in value. And I think Bitcoin, you know, if you look at what's happening in the rest of the world with fiat

SPEAKER_159: and you have imprinting and debt and everything else, Bitcoin is probably the right player right now.

SPEAKER_184: So is Bitcoin, this might sound kind of dumb, but is it decoupling in some ways? I mean,

SPEAKER_187: is it decoupling like, or do you feel like it's so safe because it has so much institutional backing

SPEAKER_188: at this point? No, it's safe because no one can mess with it. You know, someone like Sam

SPEAKER_28: Bankman-Fried, like, you know, if he had to go borrow against Bitcoin, we wouldn't be having this issue right now because the people who, you know, they would liquidate the Bitcoin into liquid markets and everything would be fine. It wouldn't be liquidity issues. The moment you start, the further and

SPEAKER_39: further away you move from Bitcoin, the more, you know, volatile, I mean, it's just highly leveraged place.

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SPEAKER_15: like I feel like, you know, in this industry, we just relive the moments of the past. Like this is the difference between trading like a, you know, an S&P 500 stock or like a, you know, OTC, a stock, right? Pink sheets. Pink sheets. Exactly. Right. Where, you know, you can see those stocks have

SPEAKER_17: tremendous volatility when they don't have a lot of liquidity. And I think this is what really just happened with FTT. And then what's tied behind it is people were allowing them to use FTT as like something that's quite liquid. Even someone as sophisticated as CZ, you got to remember, he took 2 billion in FTT as part of his return on his investment in FTX. So there's a lot of sophisticated players here that are all kind of intermingled into the same story. He didn't say,

SPEAKER_02: hey, if you, you know, if you're a shell game, some might argue, yeah, some might argue a bit of

SPEAKER_25: a shell game, but they did. One thing I'm unclear of Molly, did CZ actually sell his FTT and get

SPEAKER_08: fiat and cash or Bitcoin? Was he able to get out some amount of it? Did he find a buyer?

SPEAKER_199: Yeah. Yeah. Well, he's FTT yesterday. He dumped it. He dumped it, but dumped it for what?

SPEAKER_202: That's what, that's what, that's what called it to break. That's what caused the run.

SPEAKER_201: Yeah. So he got cash. Somebody. He got cash. Is the bag holder. Yeah. Somebody was on the other

SPEAKER_94: side of that trade, bought it, and it's down 75% now. Okay. Let's wrap with the impact.

SPEAKER_17: And then the CEO just as well, the CEO of Alameda, the CEO of Alameda offered $22 for it and a tweet as well. What is it at now? Five, I think.

SPEAKER_210: Whoa, three, three, three, three. I wonder if they're the ones who bought it. So wait,

SPEAKER_25: if they bought all that, they would then have been depleting their cash reserves, clearing his position. And all of a sudden they're giving their enemy all of their ammunition.

SPEAKER_61: Jason, let me explain to you what happened yesterday. So basically the margin call number

SPEAKER_28: was I think 21. Okay. So at 21, you get a margin call from whoever you've borrowed money from, and you have to put up more collateral. So they couldn't let it go below 22. So 21 was like the threshold, but they, so then it dropped down and it hit 21. What then happens is now they had a margin call. So they're going to get liquidated if it drops any further. And the number I think was 14. So the moment it hit 14 today, then the liquidations happened. And so anyone who was holding FTT were just dumping it and selling it because they had to, because they remember when you borrow money from someone, typically they give, let's say for example, it was Solana, right? So you go borrow Solana, give FTT. When it hits a certain number, you're at risk as the effectively the middleman,

SPEAKER_39: the transaction because you, you took Solana from one of your clients and you lent it to, to, you know, to Alameda. And now the price of the collateral isn't worth it. So you got to sell that collateral and buy back what you, what you lent to replace it. Otherwise, you know, you're, you're on the hook. And so that, that's why, I mean, as this thing hits, so I think it's gone down so fast that some of the collateral holders couldn't get rid of the FTT fast enough, and now they're all underwater. So we're going to find out very soon whether or not, well, first of all, find out who these lenders are. Cause it's not guys, this is not 50 million, a hundred million. This is billions. There's someone out there. There's billions of dollars of loans on the books right now that are going to get pennies on the dollar back. And it was collateralized by FTT. And now that's my presumption based upon the leaks that I've seen so far. I don't know. I haven't seen anything audited. I don't know, but on the presumption that there's three to $5 billion out there, it's, they sitting with, and it's going down to zero very

SPEAKER_28: soon. They're sitting with no collateral and Alameda owes them money. We don't know what Alameda's balance sheet looks like, whether the NAV exceeds, you know, whether assets exceed the liabilities or not, we don't know. We're going to figure out where these liabilities sit. We just

Jason Calacanis: don't know where they are right now. All right. Well, we do know that some of the jet fuel, let's do the VC part of this, and then we'll let you get to your dinner there in Lisbon. Okay. Let's just look at FTX. January, 2020 FTX raises $40 million at a $1.2 billion valuation. Investors include Pantera Capital, Evangelion, never heard of them, BitScale Capital, BR Capital. They 15x valuation in 20 months. By July 2021, FTX raises $1 billion at $18 billion. Investors include Altimeter, Toma Bravo, Tom Brady, Tomasek, Sequoia, Multicoin SoftBank, Tiger, and Coinbase VC. Then three months later, more jet fuel. They raise at a 40% higher valuation, $420 million at a $25 billion valuation in October of 2021, with Tiger, Sequoia, Paradigm, Temasek, Lightspeed, BlackRock, Bond, Iconic. You can see that as we go on, these names are getting more and more recognizable. And then finally, in January 2022, they raise at yet another 30% higher valuation, $500 million raise at a $32 billion valuation. Investors are Insight, Lightspeed, Paradigm, Tiger, and SoftBank. I mean, that's how you blow up a bubble, right? That's all going to zero, right?

SPEAKER_101: I personally passed on those rounds. I was offered positions and I didn't take it.

SPEAKER_11: So now it's going to go to zero now, right? This thing gets liquidated,

SPEAKER_28: CZ owns it, people get some equity in finance? No, those guys go. I personally think it's all going to go to zero. The equity is always going to lose out. Yeah. Because CZ stepped in to protect deposit of funds. Because this is the thing, effectively leverage was used. So using the FTT tokens, it's not hard collateral, it's leverage. It's like, Jay, can I borrow a thousand bucks from you? I'll give you an IOU. That's leverage. Because you don't have a collateral for it. It's just an IOU. And FTT was just IOUs from FTX. And so if you wipe out all the leverage,

SPEAKER_39: they've got nothing. I mean, at the very least, they've just lost a $7 billion asset in one day. Wow. And that was on their balance sheet. So the balance sheet is basically tilted. They basically have liabilities now on no assets because that whole thing's been marked down to zero.

SPEAKER_29: Why did you pass? Well, I mean, I just never believed in... I'm not a big fan. I never was. I never

SPEAKER_25: have been. Sonny, as we wrap here, a year from now, when we look back at this moment in time, will this be framed as the the end of crypto, the beginning of crypto 2.0? What when we were here a year from now, we have some clarity and distance and maybe they do the postmortem and they figure out

SPEAKER_94: what the hell happened here? What is this going to look like? Is somebody going to jail? Say I'm going to be, you know, like our friend Do Kwan at Luna on the run. What is this? What will this

SPEAKER_76: look like in 12 months? We never wish that on people, but I think, you know, we'll just come back to something which is like a fundamental. I think there's a lot of goodness that can come out

SPEAKER_15: of regulation. Here's another reason that we've seen now in terms of limits and rules that the government provides to protect, you know, the depositors and the users of these platforms. So I think we're going to see more of that here. I think what we'll also see is a push back towards sort of decentralized technology, right? You know, at the end of the day, the reason we don't know what's happened here is that these exchanges are centralized and we don't have a full view as what blockchain promises us to say how much is levered and how much of the deposits are there and what's been lent out against it. And so when you go into decentralized, like the DeFi world, you can see that. And so I think we'll see a push towards that. And there's been a lot of folks that have been saying that's been a key problem in the ecosystem is that we are really been celebrating centralized exchanges. And that, you know, those kind of, sorry, go ahead, Jacob.

SPEAKER_94: Well, I was going to say, so we trust decentralized technologies, trust in regulation, do not trust centralization and individuals. Vinny, the final word for you, what will this look like

SPEAKER_41: in a year? I just posted it in the chat. So five years ago, unfortunately, my article vision is

SPEAKER_28: a little too far ahead. Sometimes I posted a tweet saying exactly what Sonny just said.

Jason Calacanis: I'm almost certain for those who are not watching us live, I'm almost certain we will see a top 25 crypto exchange fail or be shut down in the coming months. This will be the catalyst for the emergence of decentralized exchanges. And this is a key theme I'm expecting in 2018.

SPEAKER_241: Yes, I need to say out of your time, Vinny. Four years too soon. Four years too soon.

SPEAKER_28: Yeah. So, but the principles exactly as Sonny said, like that, we have to move to decentralized exchanges and, and by the way, like, you know, I might as well plug this while I'm at it. Like, this is what Civic's been building, right? We decentralized on chain KYC. We worked with like, you know, we have the Solarize Dex where it's a decentralized exchange with KYC built into it on chain. Like the stuff is out there. Nobody wants to use it. They still want to use centralized exchanges, but they don't realize when using centralized exchange, you have no visibility, no transparency. And this happens. And we keep making the same mistakes over and over

SPEAKER_159: as a community. And it's just going to stop guys. We've just got to move to transparency.

Jason Calacanis: Yeah. We should say one last thing before we let you go. FTX investors tell Dan Primack the company has not yet sent them any information on the deal and says, all he knows is what he's seeing on Twitter.

SPEAKER_246: So, wow. So those VCs who put in billions of dollars are getting communication. Wow.

SPEAKER_39: There's nothing to send. There's a due diligence. It's a non-binding LOI. It's a, it's an expression

SPEAKER_28: of interest to acquire, to try and stabilize the markets, which it hasn't really done. Let's just be frank. It hasn't stabilized anything. Things are just getting, getting worse.

SPEAKER_253: FTX went from seven to three while we were talking.

SPEAKER_61: Yeah. See, see, he can walk away tomorrow. Yeah. Yeah. Yeah. Holy crap. He can walk away at any point in time. So, so let's be frank. There's like, there's nothing to tell investors. And if you're an investor watching this, all you're looking at, all you should do right now is say, okay, it's a write off and move on. You don't spend any more time thinking about it. Don't stress about it. If you have FTX shares, what will be, will be. That's it. That's it.

SPEAKER_94: LOIs, or as we call them in the business, letters of insignificance. Gentlemen, thank you for doing this emergency pod and educating everybody here. I mean, thank you. Literally, when I went to V, when an early stage sharp says I got three LOIs. I said, great letters, nothing. Let's let me know when somebody puts a deposit down. This is going to be crazy. And it's just so great to have you two gentlemen come at a moment's notice to explain this all to us. And actually makes me I got to say,

SPEAKER_02: Molly, while the centralized stuff collapses, it makes me more attracted to the power of the decentralized options that these gentlemen are working on, and the power of regulation and centralized ones. I do wonder if this means, hey, Coinbase, you know, as a public company, and here, you know, in the US market, becomes more valuable. Because hey, you know, if you're operating here and

SPEAKER_25: not the Bahamas, hmm, you know, you got a lot more at risk that the management team and the board over

SPEAKER_02: there are insignificant risk, they can't go on the lam. If in fact, that's what Doquan has done. Molly,

Jason Calacanis: any final thoughts while we're up? Coinbase is back up. So maybe it's a sign. I just checked my tiny little portfolio and the app is working again. So maybe it's a sign. No, I'm with you. I think the future is, I talk about this with energy markets all the time, the future is decentralized.

SPEAKER_262: There's too much risk in centralization. We'll see everybody next time. Bye bye.