Part 1: Binance Buying FTX | CZ vs SBF

On Part 1 of this two-part series, Ryan and David recap everything that happened leading up to today, what’s unfolded thus far, what happens next, and what it means for the crypto space writ large. In Part 2, Ryan and David are joined by Brian Armstrong, Erik Voorhees, & Ryan Selkis. Part 2 is out now! Check your feed. ------ Earnifi | Check For Your Unclaimed Airdrops, POAPs, & NFTs https://bankless.cc/earnifi ------ SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/?utm_source=banklessshowsyt ️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/ ------ BANKLESS SPONSOR TOOLS: ️ ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum ACROSS | BRIDGE TO LAYER 2 https://bankless.cc/Across BRAVE | THE BROWSER NATIVE WALLET https://bankless.cc/Brave NEXO | CRYPTO FINANCIAL HUB https://bankless.cc/Nexo LEDGER | NANO HARDWARE WALLETS https://bankless.cc/Ledger ️FUEL | THE MODULAR EXECUTION LAYER https://bankless.cc/Fuelpod ----- Timestamps: 0:00 Intro 6:40 Key Players 11:33 SBF 12:45 Binance 14:30 Asset Clarifications 16:25 The Timeline https://www.coindesk.com/business/2022/11/02/divisions-in-sam-bankman-frieds-crypto-empire-blur-on-his-trading-titan-alamedas-balance-sheet/ https://twitter.com/DylanLeClair_/status/1587890966580658177 https://analytics.abracadabra.money/cauldrons https://twitter.com/carolinecapital/status/1589264375042707458 https://twitter.com/cz_binance/status/1589283421704290306 https://twitter.com/cz_binance/status/1589328518609240064 https://twitter.com/carolinecapital/status/1589287457975304193 https://twitter.com/coinmamba/status/1589294435317125120 https://twitter.com/DylanLeClair_/status/1589768406735392768 https://twitter.com/cz_binance/status/1589374530413215744 https://twitter.com/cz_binance/status/1589329217874931712 https://twitter.com/cz_binance/status/1589374530413215744 https://twitter.com/theData_Nerd/status/1589412348476825600 https://twitter.com/SBF_FTX/status/1589598284322328579 https://twitter.com/PRHillmann/status/1589653449792421889 https://newsletter.banklesshq.com/p/battle-of-the-billionaires https://imgur.com/uWeYrLv https://twitter.com/TheBlock__/status/1589979338979434497 https://twitter.com/Dogetoshi/status/1589980754964271104 https://twitter.com/Dogetoshi/status/1589983115430473730 https://twitter.com/tier10k/status/1589983701730922496 https://twitter.com/Dogetoshi/status/1589986908272472064 https://twitter.com/sbf_ftx/status/1590012124864348160 https://twitter.com/yuno0Zy/status/1590013905686106113 https://www.semafor.com/article/11/08/2022/before-deal-with-rival-ftx-scoured-wall-street-silicon-valley-billionaires-for-1-billion-lifeline https://twitter.com/VentureCoinist/status/1590033055246618624 https://twitter.com/VentureCoinist/status/1590044831665258496 https://www.tradingview.com/chart/pabiN1CM/ https://twitter.com/zhusu/status/1590022114882768897 https://twitter.com/stablekwon/status/1590017837758033926 https://twitter.com/santisiri/status/1590031964408786944 https://twitter.com/AlamedaTrabucco/status/1590032437501124609 https://twitter.com/ThetaMentality/status/1590016374608654336 https://twitter.com/_jamiis/status/1590032682272010241 https://twitter.com/DylanLeClair_/status/1590013774735740930 https://twitter.com/CanteringClark/status/1590016032139513857 https://twitter.com/WClementeIII/status/1590018245758963712 https://twitter.com/0xngmi/status/1590026606814572544 https://twitter.com/cz_binance/status/1590055819416330240 https://twitter.com/DylanLeClair_/status/1590027464054837248 ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://www.bankless.com/disclosures

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:06Ryan Sean Adams?

  Bankless Nation, wow, we've got an emergency episode for you. David, you and I had scheduled a different episode today for State of the Nation, but we got to pivot because something massive is happening in crypto. Last time I felt like this, it was during the Do Kwon days and the collapse of Luna and Terra. This is another one of those pivotal days. Something shocking, something surprising happened in crypto. Some questions, I think people want to know, is FTX and Alameda going bankrupt? Is CZ causing a bank run? Is that what just happened? And is Binance about to acquire FTX? David, what are we going to talk about in today's emergency bankless update episode?

• 0:47David Hoffman?

  This feels like it's the final season of game of centralized exchanges. There can't be that many left for really big contagion events to-

• 0:59Ryan Sean Adams?

  Because they're all dying.

• 1:00David Hoffman?

  Yeah, they're all, there's, there's, there's few, we're at the very end. And so this is a story of contagion. I don't think it goes further beyond FTX and Alameda, but we'll see. But the relationship between Alameda and FTX seems to have actually played out in a negative fashion. CZ, we'll, we'll figure out how much of a chess move CZ was actually playing, or if he was just taking the opportunity as it was given to him. But a feud, a very short feud between SBF and CZ that started on Monday has resulted in the letter of intent being signed by Binance to acquire FTX.

• 1:42David Hoffman?

  As a result of perhaps, we do not know, but a under the table relationship between Alameda Research and customer deposits in FTX that caused weakness in FTX. And it was CZ that lit the match. So we're going to cover all these details, recap the last 48 hours in crypto, which some people are saying are crazier than the Luna debacle, even though the Luna debacle was pretty damn crazy. Some people are saying it's the craziest thing to happen all of this bear market.

• 2:10Ryan Sean Adams?

  That's a big question, right? It's like with FTX, what happens when the thing, the entity that is bailing out other entities? I mean, they helped bail out BlockFi, they helped with some of the Voyager debt. Now they need to bail out? Is that what's going on? I mean, that is pretty massive. And just when I think, David, I can no longer be surprised in crypto. Wouldn't every people tell, you know, tell me about things? I'm always like, eh, you can't surprise me. I've been in crypto for like five years. And it always goes back to like, uh, no, I just got surprised again today. Like, I did not see this one coming.

• 2:39David Hoffman?

  Yeah, it's crazy that Ether, Bitcoin, Ether went down to like $800. Bitcoin went down to $15,000 or something. And that's not what triggered the destruction of Alameda. It's weird that we went down so low earlier and they made it through. But today of all days, this week of all week was the week when the bubble finally popped for Alameda Research and FTX. There's a lot of things that are still being speculated on. We're still waiting for facts to come out. It is alleged, the TLDR, that it is alleged that customer deposits in FTX were sent to Alameda Research. Alameda traded those customer deposits in an attempt to make money. They didn't, they didn't make money.

• 3:22David Hoffman?

  And as a result, FTX became insolvent and stopped processing customer withdrawals. We don't know if that is true. We do know that FTX stopped processing customer withdrawals. We do not know if they actually did send money to Alameda Research. But there's, all of the facts and all of the actions seem to line up with this speculation. And so we're going to go through that story as to why people are alleging that

• 3:45David Hoffman?

  less than good activity was up, was going on at FTX that caused ultimately a run on the bank at FTX.

• 3:53Ryan Sean Adams?

  Guys, David and I are going to take you through all of the facts. We're going to take you through the timeline. We're going to show you some takes and get into the details to see if we can put a analysis on this as well. But before we do, we want to thank the sponsors that made this episode possible.

• 4:08David Hoffman?

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• 4:51David Hoffman?

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• 5:35David Hoffman?

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• 6:18David Hoffman?

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• 6:41Ryan Sean Adams?

  Finance acquiring FTX, that is the question that seems to be the case. We've got a bank run, possibly. We've got bailouts from CZ. We've got Binance coming to the rescue. There's a three Bs there. And of course, this is bankless that you're watching. We're going to cover everything that we know from a timeline perspective. There's going to be two parts to what we're doing today. So the first part is David and I are going to go through a timeline and the takes to break this story down for you and how it unfolded. And the takes, hopefully, we learn something from this episode as we've learned from every single episode, event in crypto that has happened over the past couple of years. So we want to walk away with some lessons. And then the second part of this is we're probably going to ask some people

• 7:22Ryan Sean Adams?

  in that we know in kind of the community to join us, maybe for a conversation at the end. I have no idea who those people are going to be. It just all depends.

• 7:30David Hoffman?

  We're doing it live.

• 7:31Ryan Sean Adams?

  Doing it live. David's got tweets out to like Erik Voorhees and people like this. So we'll open up the conversation a bit later. But first things first, David, we got to talk about this incredible story, something that a lot of people didn't think could happen, including myself. I mentioned in the intro, I was surprised by this. It looks like FTX is on the brink, insolvent, needs a bailout. FTX, the second largest, maybe the largest by some measures, exchange in the US and certainly one of the top three. Binance, Coinbase and FTX. These are the world's largest crypto exchanges right now. And FTX about to go bust. That's what it's looking like.

• 8:14Ryan Sean Adams?

  David, why don't we unpack this story by talking about some of the stakeholders, some of the entities and people involved?

• 8:22David Hoffman?

  The players in the game of Thrones.

• 8:25Ryan Sean Adams?

  Yeah, it'd be helpful.

• 8:26David Hoffman?

  Who's on the landscape, yeah.

• 8:27Ryan Sean Adams?

  So you mentioned one, Alameda, Alameda Research. Who is Alameda Research when we get to them and they're part of the story? What are these guys about?

• 8:36David Hoffman?

  So Alameda Research was SBF's first endeavor. I believe he started-

• 8:41Ryan Sean Adams?

  SBF, Sam Bankman-Fried, right?

• 8:42David Hoffman?

  Sam Bankman-Fried, yes, exactly. And so it was a trading firm. It is a trading firm and has been trading since 2017. Has done very well for itself. SBF, Sam Bankman-Fried, led Alameda until he started SBF, oh, excuse me, FTX. And so this is where SBF really got his big claim to fame by starting Alameda Research. I don't know why they call it research, but it's a trading firm. They just trade. They do-

• 9:11Ryan Sean Adams?

  Hedge funds?

• 9:11David Hoffman?

  Yep, exactly.

• 9:12Ryan Sean Adams?

  If he deals-

• 9:13David Hoffman?

  Made a ton of money during the 2021 bull market and seemed to be one of the few trading firms, hedge funds, that were able to survive up until this point. It survived Three Ours Capital. It survived the Luna debacle, but I guess perhaps its time has come. Anyways, they've been around for a while.

• 9:34Ryan Sean Adams?

  So that's Alameda. And then, so how are they linked to this other entity that is also owned by, controlled by primarily Sam Bankman-Fried? That is SBF. The entity FTX, that's the exchange. Are Alameda and FTX, they're separate entities, are they not? But how does FTX enter this story?

• 9:54David Hoffman?

  Yeah, it's really just association through Sam Bankman-Fried. So in November of 2017, SBF founded Alameda Research. He later founded FTX. He founded FTX in, when was that? I think 2018. And so started with Alameda, then created FTX. As FTX became the bigger organization, he distanced himself from Alameda and mainly focused on FTX. However, there's always been this loose unofficial association between Alameda Research and FTX. And so- Alameda Research would market make on the FTX exchange. And so there was a significant overlap between the assets.

• 10:37David Hoffman?

  Just overall, the social connections between Alameda and FTX. One of the reasons why FTX became such a dominant place to trade is because they got early liquidity. And a lot of that early liquidity came because of the relationship to Alameda Research. The form, I don't think the relationship was really codified or formalized. It's just, there's this guy, SBF, he's at the head of both of them. He can kind of steer both ships at once. We don't really know how much symbiosis synergy between these two things he really leveraged. But we do know that there was overlap, there was association. Basically, all of Alameda's assets, they would hold in FTX and they would trade on FTX. And they would just prop up the support of FTX as a marketplace.

• 11:20Ryan Sean Adams?

  So there may have been some co-mingling between these two entities, but one is clearly an exchange. The other is a hedge fund, all sort of led, directed, founded, co-founded by this figure, SBF, Sam Bankman-Fried. Maybe a bit of background on Sam Bankman-Fried. So is he like the world's youngest multi-billionaire?

• 11:38David Hoffman?

  Yeah, well, maybe not anymore, but he once was.

• 11:41Ryan Sean Adams?

  Okay, but like prior to this, like by reputation, effective altruism was the thing. He planned to give away 99% of his of his wealth. That is, give that away to altruism, not not watch it drop to zero, different things. But very successful kind of figure in the crypto space, kind of rising star. And it was an incredible story how FTX kind of, I mean, he started an exchange in 2018. A lot of people thought that was-

• 12:08David Hoffman?

  2019, April 2019, yeah.

• 12:10Ryan Sean Adams?

  That's even later. So while Gemini and Coinbase and Kraken and Binance were already established. He had the audacity, started an exchange in 2019 and rocketed that exchange to growth. So quite an impressive figure. You guys may have seen him on a recent Bankless livestream where we're talking about crypto regulation with Erik Voorhees. He had kind of a different take from Erik Voorhees. But he's been involved in the regulatory, the DC regulatory scene. So that is on one side, we've got Alameda Hedge Fund. We've got FTX exchange and we've got SBF at the center. In our other corner, we have-

• 12:45David Hoffman?

  The other corner.

• 12:46Ryan Sean Adams?

  We have Binance, all right, the kingdom of Binance. Who is Binance? And talk a little bit about Binance's leader CZ.

• 12:53David Hoffman?

  You know, in the same way FTX just rocketed in 2020 and 2021, Binance had that same story in 2017. Binance was my first exchange back in the ICO days of Ethereum. It was an exchange, I believe it started out of China, but quickly became more supranational. I don't really think it's domiciled anywhere in particular. I think it does have a base in Singapore, but it's really all across the world. It's the most decentralized centralized company of all time. Started by CZ, who I believe used to work at OKCoin or another different, another, another exchange. And then CZ decided to make Binance and just Binance just saw a gangbuster success in 2017

• 13:34David Hoffman?

  by being the place to launch ICOs, get ICO liquidity. The user experience was great. I remember using it all the time in 2017 to 2018. And it has just turned into a gargantuan empire in the East. It has, it is the dominant crypto exchange by legitimate volume. I think Binance is somewhere between like 75 to 80% of all.

• 13:56Ryan Sean Adams?

  Particularly outside the US. I mean, it just dominates, right?

• 13:59David Hoffman?

  Yeah. And it got there because for the longest time you did not need to do KYC on Binance. And so it was kind of pushing the, into the gray area legally. But just has, by and large, by far, the most massive gargantuan beast of a centralized exchange that's in the room, even compared to Coinbase, even compared to FTX. And it's been around for a while. And so like, not only, of course, we all know Binance Smart Chain is one of its projects. There's many other affiliate products out of the Binance ecosystem. They have some of the most adoption in the developing world, in Africa, in South America. Highly, just massive. And so these are the two players. You got CZ and Binance. You got SBF and FTX. Yeah.

• 14:46Ryan Sean Adams?

  Last thing, we'll say in introducing kind of names and definitions, there are also two assets coming from each of these kingdoms. So we've got the SBF Kingdom with an asset called FTT behind it. And then we've got from the Binance Kingdom, CZ's corner, BNB, a different asset. How are these assets similar and what's their link to their respective exchanges and empires?

• 15:09David Hoffman?

  You might call these things pseudo-equity. They have no legal connection to these exchanges. They are not claims on equity or ownership. They unlock services inside of the exchange. So if you own FTT in your FTX account, you get reduction in fees when you trade. You can open up stronger services. Same thing with BNB. It's the token, it's the access token that makes perks happen on the exchange. BNB is also special in that. It is also the staking coin for Binance Smart Chain, for BNB Chain. So it's got that extra ecosystem. But it seems to be a lot of exchanges, other than Coinbase, seem to launch these pseudo-equity

• 15:52David Hoffman?

  tokens that just enhance your powers on the exchanges. And they come to be associated with the value of the exchange itself. And so when we see these token prices go up and down, it's kind of the public opinion on like, how much is this exchange worth? These are very relevant, especially FTT. The FTT token of FTX is a very significant player in this story. It's one of the big pieces of ammo that these exchanges, that these billionaires have to throw at each other to engage in billionaire economic war games.

• 16:22Ryan Sean Adams?

  They're really tethered to the fates of their respective empires. So we'll get into some pricing conversations. Okay, definitions aside, and we've gotten that out of the way. Hopefully you know the players. We've got these two opposing crypto banker empires. Now let's talk about the timeline, David. Timeline of events. Take us back, if you will, to November 2. I think our timeline events probably goes from November 2 to November 8, which is today when we're recording. I'm sure there's more coming.

• 16:50David Hoffman?

  There's gonna be more by the time we're done here.

• 16:52Ryan Sean Adams?

  This is an unfinished episode. There's plenty more to talk about, but I think we've seen Some major milestones and events that take place during the course of this last week or so. But take us back to the start, November 2nd. SBF talking a lot about regulation. This actually ties into a little bit of the Bankless story. We played a minor role in this as well, but what are we looking at? What tweet are we looking at here?

• 17:16David Hoffman?

  Yeah, so this is this is pre-November 2nd. The bulk of this story started on November 2nd. But the context for this starts with Sam Bankman-Fried, his DCCPA bill, and also the Bankless episode of SBF versus Erik Voorhees at public debate. Really, it's Sam Bankman-Fried going to DC and lobbying for things that seem to really benefit FTX in particular. And so that was kind of the concern and the claim that not CZ, but all of the industry was concerned that Sam was doing. He was going to DC to lobby for a regulation that would primarily benefit FTX to the loss of any other competitor. So that is the context, that is the background. And we all know that the Bankless episode with SBF and Erik Voorhees

• 18:01David Hoffman?

  that really accelerated this conversation into the mainstream. This is the background. So while this story starts, this specific story of what we're talking about today starts with November 2nd, a CoinDesk report. The context of what SBF is doing in DC is extremely important to keep in mind as we go through this story. So let's fast forward to more recent times, November 2nd. That was last week. A report comes out of CoinDesk that states that leaks the Alameda balance sheet. And so this leaked document discloses a lot of what's on Alameda's balance sheet. And this perks the attention of a lot of people in the crypto industry. There was some conversations, some back and forth. Some people were saying this report's not that big of a deal.

• 18:44David Hoffman?

  Some people were saying this report's massive. Basically, a quote from the document says, "CoinDesk claims to have reviewed a private financial document, which shows that on June 30th, Alameda had $14.6 billion in assets. $3.6 billion was unlocked FTT, and $2.6 billion of that was FTT collateral against $8 billion in liabilities." That's not too much information. So if you take $14.6 billion in assets and subtract $8 billion of liabilities, you'll get something like $7.4 billion in assets that they have. So positive $7.4 billion.

• 19:23David Hoffman?

  3.6 billion of that is FTT tokens, 2.6 in additional to that is FTT collateral.

• 19:30Ryan Sean Adams?

  So that's 6.2 billion right there.

• 19:33David Hoffman?

  Yes.

• 19:34Ryan Sean Adams?

  In FTT, the value of their own tokens.

• 19:36David Hoffman?

  Exactly. The concern is that, so not their own tokens. Alameda Research, this is Alameda Research.

• 19:41Ryan Sean Adams?

  Sure, not their own tokens.

• 19:43David Hoffman?

  Not their own tokens. Alameda Research had a bunch of its total balance sheet was this FTT token.

• 19:51Ryan Sean Adams?

  Well, that's already a tie there. That's already massive amounts of co-mingling between the organizations, is it not?

• 19:56David Hoffman?

  Yes, a huge tie, massive tie. But like, anyone can own FTT. I can own FTT. You can own FTT. You'll own a little bit less in value today. But the concern is that FTT is not that liquid. Owning billions of dollars of FTT tokens should not feel good and secure because you will not be able to liquidate a billion dollars of FTT tokens. There's not enough liquidity there to support that. We're watching this happen. I'm looking at the FTT chart. We'll get there later. There's a lot, let me tell you, Ryan, billions of dollars have left the FTT ecosystem.

• 20:29Ryan Sean Adams?

  But even if you just add that up, we've got 14.6 billion in assets, 8 billion in liabilities. But if you subtract like the 6.2 from the 14.6, right? We're already at like just over 8 billion, which kind of matches the amount of liabilities. It doesn't seem like there's much room there in the balance sheet for anything. That does not indicate like a, that's not a strong statement of solvency.

• 20:54David Hoffman?

  Yes.

• 20:54Ryan Sean Adams?

  But I guess, I guess this is not FTX, we should remember. This is just Alameda.

• 20:58David Hoffman?

  Alameda Research.

• 20:59Ryan Sean Adams?

  So that thing could go to zero and presumably shouldn't affect FTX at all?

• 21:04David Hoffman?

  Presumably, presumably, yes. And this is what the Twitter conversation, again, this was on November 2nd. So this was six days ago. This was last week. And so up to this point, this was just mere Twitter conversation. I was kind of expecting it to die off. I kind of expected it to turn into a nothing burger, but.

• 21:22Ryan Sean Adams?

  Why?

• 21:23David Hoffman?

  Just because, I mean.

• 21:24Ryan Sean Adams?

  They survived so far.

• 21:26David Hoffman?

  Alameda Research, they're a hedge fund. They don't have customer deposits that they have to honor. They're just a hedge fund. Hedge funds can blow up, that's fine, so long as there's no contagion. But as we learned, we'll get into that. We did know, of course, SBF did have close ties to the trading firm. But overall, this report started to get people piqued as to whether or not FTX would be caught up in any sort of Alameda related contagion. So if the big question was, could Alameda go under and FTX be okay? And the problem was, no one knew the answer to that question. Dylan Leclerc did a deeper dive on the balance sheet.

• 22:09David Hoffman?

  And the balance sheet gets even unhealthier the more we unpacked it. So he said, "Other significant assets on the balance sheet include 3.37 billion of crypto held and a large amount of Solana's blockchain native token." 220, 292 million dollars.

• 22:26Ryan Sean Adams?

  Over a billion in Solana.

• 22:28David Hoffman?

  In Solana, right. Again, like not liquid, decently liquid, still not super liquid. And again, a lot of that is locked. So actually, technically, some of that is very, very illiquid, as in Alameda would not be able to access that. So Alameda is already feeling the squeeze. And it's also worth noting that DeFi apps like Abracadabra had $100 million in FTT collateral as well. So that's what Ryan is showing on the screen here. The point is, is that FTT was in a very precarious position, as in Alameda was using it as collateral to backstop a lot of their loans. And so.

• 23:04Ryan Sean Adams?

  Why?

• 23:04David Hoffman?

  Yeah, yeah, well, that's because they had those assets on hand. That's what they had. And so of the $8 billion that Alameda had as liabilities, 7.4 billion of that were loans, presumably US-dollar-denominated loans.

• 23:20Ryan Sean Adams?

  Oof. Wait, run that by me again?

• 23:23David Hoffman?

  So this is reading in the CoinDesk report. So there are more FTX tokens among its $8 billion of liabilities, $292 million of locked liabilities. The liabilities are denominated by $7.4 billion of loans. If it's US-dollar loans, that's bad. If it's crypto asset loans, that's a little bit better because those things move price in tandem. But if they're dollar loans, they have dollar loans, but FTT collateral. And FTT collateral goes down, that's bad. And this is why, this is why we brought up Abercadaabra also having $100 million in FTT collateral. A lot of people are using FTT as collateral to backstop loans. That is precarious, especially for Alameda Research, who has billions of dollars of FTT as collateral.

• 24:06David Hoffman?

  Again, 2.6 billion in FTT collateral.

• 24:10Ryan Sean Adams?

  Oof. Okay, so, so Alameda is not looking good. I mean, some people dismissed that as FUD last week. Others were saying, hey, this could also have an effect, ripple effects on FTX, given how close these entities are together. But, but people were dismissing that as FUD. That was, that was last week. So that report came out November 2nd. Now we can fast forward to November 6th. That was, I guess, Sunday, when things started heating up a little bit more over the weekend. What is this tweet that we have displayed?

• 24:39David Hoffman?

  So this is the Alameda CEO who tweets out, "A few notes on the balance sheet. If you are a hedge fund manager and you have to tweet out about the state of your balance sheet, we're already not off to a great start. A few notes on the balance sheet info that has been circulating recently. The specific balance sheet is for a subset of our corporate entities. We have over $10 billion of assets that aren't reflected there. The balance sheet breaks out a few of our biggest long positions. We obviously have hedges that aren't listed. Given the tightening in crypto credit spaces here, we've returned most of our loans by now." Basically saying, "We're totally solvent. We have more assets that are off the books that aren't listed there, but like, we're good."

• 25:17Ryan Sean Adams?

  It was fun. Don't worry about it.

• 25:18David Hoffman?

  It's fun. We're good.

• 25:19Ryan Sean Adams?

  Pointed at this article, whatever.

• 25:21David Hoffman?

  A lot of people, this, this allegedly reminded a lot of people of Do Kwon, saying,

• 25:29David Hoffman?

  what, what did he say? "Steady lads deploying more capital." It was, and also Alex Mashinsky did the same thing. He's like, "Celsius is totally solvent. We're totally good. Like, everything is FUD."

• 25:40Ryan Sean Adams?

  But you have, I'm not saying you have to. I mean, you could be honest with people, but like, if you are in the midst of insolvency or some sort of bank run, right? You have to project confidence. You have to project strength, which is why this is always the strategy employed by, by those who are trying to fend off some kind of a bank run. But, but when did CZ enter the story here? Because I feel like it was the same day.

• 26:05David Hoffman?

  Yeah, so that is, yeah, that's where we're going next. So this Alameda CEO tweeted this out at 9:30 a.m. on November 6th on Sunday that, "Hey, everything is FUD, we're good, don't worry about our balance sheet." An hour and 13 minutes later, at 10:47, 12 minutes later, CZ says he's going to liquidate $2.1 billion of FTT. Now, first, how did CZ and Binance get their hands on $2.1 billion of FTT? I'm so glad you asked. Binance is actually an early investor in FTX. So Binance invested in FTX, so they own FTX equity, and as a result of that, also got a bunch of FTT tokens.

• 26:47David Hoffman?

  And so since FTT has, the price of FTT has actually done pretty damn good, pretty damn well, they had $2.1 billion of FTT. CZ says, "Due to recent revelations that have come to light," he's talking about the Alameda report and CoinDesk, "we have decided to liquidate any remaining FTT on our books." And so he says, "We will do so in a way that will minimize market impact. Due to market conditions and limited liquidity, we expect this to take a couple months to complete." FTT at the time was trading $25, $27, $28. Binance has always encouraged collaboration between industry players. Regarding any speculation as to whether this is a move against a competitor, it is not. Our industry is in its nascenty, and every time a project publicly fails,

• 27:31David Hoffman?

  it hurts every user and platform, saying, "Hey, we're liquidating FTT. It's not a play against FTX. We just have a bunch of FTT on the balance sheet, and the precarious nature of FTT makes us want to remove that from our balance sheet." He finished saying, "We typically hold tokens for the long term. We have held on to this token for this long. We'll stay transparent in our actions." So one part of CZ is saying, "Hey, I'm just being responsible, and I'm liquidating this thing that's precarious." Other people who are assuming that CZ is more of a shark than he's letting on is like, he is publicly stating he is dumping $2.1 billion of FTT on an asset that he knows does not have

• 28:15David Hoffman?

  Of $2.1 worth of liquidity.

• 28:18Ryan Sean Adams?

  David, isn't that obviously what it is? I mean, coming from CZ, who is someone who is generally kind of diplomatic and knows exactly what he's doing. Definitely a strategic thinking thinker. The timing of this, the communication style, right? And, and by the way, we'll read some subsequent tweets as well. So you can kind of decide, but publicly saying you're going to dump $2.1 billion. And then saying things like, we typically hold tokens for the long run. We've held this token for a long time. We're just trying to stay transparent, this sort of thing. I feel like CZ knew exactly what he was doing here. And this was like a mob boss mafia style Game of Thrones power move to like check a competitor.

• 29:03Ryan Sean Adams?

  Now, he was obviously phrasing it, saying, this is just normal course of business. But the timing of it, right?

• 29:09David Hoffman?

  Timing of it.

• 29:09Ryan Sean Adams?

  He didn't have to tweet, he didn't have to be public about this. He didn't have to time it as such. This looks to me like it was all very strategic. But I guess maybe some people still doubt that.

• 29:20David Hoffman?

  I think that is a perfectly fair take. Especially the, the raw number that is in the first line of the first tweet, 2.1 billion. Like if you're gonna, if you're gonna liquidate 2.1 billion of something like you don't disclose that if you're trying to optimize for the price. If you're, if you're trying to optimize for being front run by other people, you disclose that you are going to market sell $2.1 billion. If you want to cause a panic, you tweet that you are going to sell $2.1 billion. And so I think it's, it's a fair assumption to say that CZ was using this, this tweet as, as leverage.

• 29:53Ryan Sean Adams?

  Here's the back and forth to somebody asked him in this thread. By the way, I think this thread will be kind of legendary in terms of the, the annals of Chris, of crypto history, where it's just kind of precipitated the downfall of kind of an enemy or a competitor. Someone asked him, if you don't mind me asking, if the tokens weren't locked, why'd you wait until this long to sell? Issue with FTX or liquidity providing during the bear? CZ goes, not locked. We usually just hold. It removes any doubt that we would attack a competitor. Not financially sensitive, sensible. We want the industry to go together, but there is a limit to hold, comma, lol. Yeah, so he's kind of saying, look, this is normal course of business, but we're not going

• 30:35Ryan Sean Adams?

  to hold on tokens forever. So he's kind of playing that game back and forth. What's this tweet?

• 30:39David Hoffman?

  I think that the end of that line, there is a limit to hold LOL is important because he's what he's implying is that Sam SBF has crossed a line with Alameda is using FTT as collateral, and we'll also get into some other things as well. He's implying that there is a limit to what Binance and CZ will go up to before they are feel like they must be compelled to sell FTT. So that's what he meant by that.

• 31:08Ryan Sean Adams?

  So he is saying, he's implying, he is hinting that maybe SBF FTX crossed a line somewhere.

• 31:15David Hoffman?

  Yes, correct. Yeah. So back to the CEO of Alameda. She goes, if you're looking to minimize the impact of the market price on your FTT sales, Alameda will happily buy it from you all today at $22. And you'll notice Anthony Cisano's tweet below that saying,

• 31:31Ryan Sean Adams?

  That's a reply to CZ.

• 31:32David Hoffman?

  That's a reply to CZ. Well, that's a new tweet to CZ. She's just saying, hey, I mentioned it to CZ. Anthony Cisano going, Do Kwan, is that you? This is actually what I meant earlier. This was actually the tweet that people were referencing, saying, you need to project sign like an air of strength, because if FTT price goes down seemingly below $22, that's really bad news of for Alameda, because they have so much of their capital locked up in FTT.

• 31:59Ryan Sean Adams?

  So reminds me of something is the take here. Feels a little bit Do Kwan-ish. What is this from Dylan Leclerc?

• 32:05David Hoffman?

  Dylan Leclerc again with a great, great graphic. He tweets out, deploying more capital, steady lads. Again, the famous, the famous Do Kwan meme.

• 32:14Ryan Sean Adams?

  Which was just months, months previous. I mean, was it like six months ago this happened?

• 32:19David Hoffman?

  So the top line is the volume of FTT, and you can see that volume just taking a nude all time highs. Well, I guess since like October. So the volume's going up, big volume going up. And then on the bottom, you see price going down. So selling pressure is significant. We are at that $22 threshold. That $22 number seems to be important because that's what Alameda CEO said that they'll buy it all at. So this $22 number becomes like kind of a meme line. And so you can see it's starting to like ram into that $22 level. It's being defended. Alameda Research is buying FTT in bulk with their remaining funds on FTX.

• 33:02David Hoffman?

  But if you look at the price of FTT now, you know that that didn't last.

• 33:05Ryan Sean Adams?

  That 22 did not last, but this is Alameda trying to hold the line here at $22.

• 33:10David Hoffman?

  Exactly.

• 33:11Ryan Sean Adams?

  Wow. So now it's just a kind of a game, a bank run game, I guess, back and forth. What is the CZ tweet that we're looking at?

• 33:18David Hoffman?

  Yeah, back to CZ being very publicly dog whistling about his intentions. He says, "Liquidating our FTT is just post-exit risk management, learning from Luna."

• 33:29Ryan Sean Adams?

  Wow.

• 33:30David Hoffman?

  Yes. So we are liquidating our FTT because they made money on FTX. They made an investment. That investment became liquid. And now they are doing risk management in liquidating some of their successful investments. Learning from Luna.

• 33:47Ryan Sean Adams?

  That is such a triggering word for people in crypto.

• 33:50David Hoffman?

  Yeah. "We gave support before," CZ continues, "but we won't pretend to make love after divorce. We are not against anyone, but we won't support people who lobby against other industry players behind their backs onwards." So this is what I was saying earlier when CZ is claiming that SPF crossed the line. "We won't support people who lobby against other industry players behind our backs onwards." And this is why we started the show with the context of SPF going to DC to lobby for regulation that seemingly really supports FTX and kind of throws everyone else under the bus.

• 34:24Ryan Sean Adams?

  CZ is calling on the whole industry with this. Everyone who's against Sam's legislative views as well should pile into this. That's what he's saying. And this is quite the escalation. So this is hours later from that 10:30 AM tweet where he was saying, "Hey, normal course of business. We don't hold tokens forever. We're just selling some tokens." Now this looks like a clear escalation. Learning from a Luna?

• 34:47David Hoffman?

  Learning from Luna. Biggest dog whistle of all time. Because what does that do? That just puts Luna into the minds of everyone.

• 34:56Ryan Sean Adams?

  Yes.

• 34:57David Hoffman?

  And for me, Ryan, I don't have any money in FTX, so I don't really feel too scared. But if, imagine, Ryan, if you are somebody who uses FTX that you have-

• 35:06Ryan Sean Adams?

  Oh, I'm getting out.

• 35:06David Hoffman?

  You are, right.

• 35:07Ryan Sean Adams?

  On the back of Celsius, on the back of Voyager.

• 35:10David Hoffman?

  Because CZ is learned from Luna and doesn't, and so people get fearful. Especially when we know that runs on the banks happen. That's what Luna was, basically, a big run on the bank. So he just invoked fear into the minds of anyone who has money inside of FTX.

• 35:25Ryan Sean Adams?

  Yeah. I mean, lest you had any doubt from the 10 o'clock or 10:30 tweet from that morning. This is fully knives out. This is like, you know, we're coming for you, stab in the back. Like, this is blood right here.

• 35:39David Hoffman?

  Right. So if you are a centralized exchange operator, the biggest insult that you could have invoked upon you is being compared to Terra Luna.

• 35:47Ryan Sean Adams?

  A Quandt scheme.

• 35:48David Hoffman?

  Oh, yeah, a Quandt scheme. Nice. And so they actually start, Binance CZ starts to move FTT tokens on-chain to Binance, their own exchange, to liquidate. And so, in hindsight, this is crazy. So this is a bot, a bot Twitter account that says, 23 million FTT tokens, which are $584,000, oh, excuse me, $584 million, transferred to Binance. CZ then retweets it and says, yes, this is part of it. And again, he started off saying, "We're just being fully transparent. We're being super transparent. This is us being transparent. We're so, so transparent." Like, "Yeah, I bet you are, CZ. You're trying to nuke the price of FTT."

• 36:34Ryan Sean Adams?

  What are we looking at here, Dave?

• 36:35David Hoffman?

  So this is not, this is not the current price of FTT. This is a screenshot of an older price of FTT. This was at the moment that the transfer to Binance was made. This is, I think, maybe got 12 more hours of data from the last time we looked at the FTT chart. And it's just ramming into that $22 number over and over and over again. Again, we're saving the current FTT chart for later in the show, so stay tuned. But FTT just not looking good. Here's a tweet from the data nerd. It says, actually, if you scroll up, Ryan. Yeah. Alameda Research is sending stablecoins to FTX in size. Just 15 minutes ago, they received 56 million USCC

• 37:17David Hoffman?

  and then deposited that into FTX. Within the last 24 hours, they have sent a total of $257 million. Alameda Research to FTX. And then if you scroll down to that next tweet. Meanwhile, the stablecoin outflow from FTX is the largest among all exchanges in the last seven days, down $300 million to a balance of $261 million excluding FTX US. If we exclude the inflow from Alameda, I'm sure the number would get much uglier. And then, Ryan, this is where a very important nuance comes in. Alameda Research is not sending stablecoins to their FTX account. They are not like you and me when you send money to Coinbase or Gemini. They're not sending stablecoins into their own accounts.

• 38:01David Hoffman?

  They are sending it to Alameda, or Alameda is sending it to FTX because FTX is needing to facilitate user withdrawals.

• 38:10Ryan Sean Adams?

  What?

• 38:10David Hoffman?

  And they're sending it to the hot wallet, to the FTX hot wallet, so that there's enough money to facilitate user withdrawals.

• 38:18Ryan Sean Adams?

  But I thought these entities were separate, not co-mingled, independent.

• 38:22David Hoffman?

  But Alameda Research sent money on-chain to FTX, to the wallet that FTX was using to facilitate user withdrawals.

• 38:31Ryan Sean Adams?

  This is crazy. So what's happening is, that's what Alameda is doing, is it's trying to kind of, I guess, bolster reserves into FTX. Meanwhile...

• 38:40David Hoffman?

  Seemingly, you would think that FTX has deposits in Alameda. As in, they sent Alameda money once, and now they are recalling that money so that they can facilitate user withdrawals. And Alameda is sending them the last of their stablecoins because it's FTX's money.

• 38:57Ryan Sean Adams?

  And by the way,

• 38:58David Hoffman?

  Allegedly, allegedly, this, we're just seeing this on chain. We need more. This is the thing that the entire industry is speculating on.

• 39:04Ryan Sean Adams?

  Well, what's crazy about this, what's crazy about this is you can see all of this on chain, right? I mean, we're watching a bank run unfold in an immutable ledger on on chain publicly with the conversation among these crypto bankers happening over Twitter. It's just crazy. Like, I mean, this doesn't happen in traditional finance. And meanwhile, that that dog whistle, that bank run that you're talking about, that's what this looks like. FTX getting its account drained by customers. We're like, I don't want, I don't want to keep my money there. I'm going to exit. I saw what happened to Celsius. I, you know, I know what happened with Luna and Voyager and all of these examples, and I'm getting out of there before something breaks. And I can't get my money back. So that all happened on Sunday, November 6th. Well, take us to Monday, November 7th.

• 39:48Ryan Sean Adams?

  So I guess the start of the business week here, SBF comes out with his own tweet that morning. I remember I woke up and I read this, but this is SBF's response. David, what does he say?

• 40:01David Hoffman?

  He starts off the tweet thread saying, "A competitor is trying to go after us with false rumors. FTX is fine. Assets are fine. Details to follow." And so he makes a thread of details and he says, "FTX has enough to cover all clients' holdings. We don't invest client assets, even in treasuries. We have been processing all withdrawals and will continue to process all withdrawals. Some details on withdrawal speeds." And then there's some update about how, why withdrawal speeds are slower. And then it continues and says, "It's heavily regulated. Even when that slows us down, we have GAAP audits." I'm assuming that's some standard with

• 40:36Ryan Sean Adams?

  That's GAAP accounting, yeah.

• 40:38David Hoffman?

  "With over a billion dollars of excess cash, we have a long history of safeguarding clients' assets, and that remains true today." And then concludes, "I love it, CZ Binance, if we could work together for the ecosystem." Interesting, interesting tie-off tweet. I love it, CZ, if we could work together for the ecosystem.

• 40:55Ryan Sean Adams?

  Please help me. Is that what that was?

• 40:56David Hoffman?

  Help, help, please stop.

• 41:00David Hoffman?

  And, and so, and then I saw this tweet and then where, where I saw this tweet, Ryan, was interesting. This is Patrick Hillman, who I'm actually not familiar who he, who he is, but he tweets out, "Let's be clear." Binance did not, one, define FBS's stance on DCCPA. As in, did not, what Binance did not do is help SBF and FTX create the DCCPA.

• 41:25Ryan Sean Adams?

  What's the DCCPA?

• 41:27David Hoffman?

  That is the regulation, the law that we are still waiting to get the details of that is in Capitol Hill being drafted that we are worried, goes after DeFi and really just instantiates FTX in ways that is like-

• 41:40Ryan Sean Adams?

  Centralized exchanges, maybe more generally, right?

• 41:42David Hoffman?

  Perhaps, perhaps, yes. And so, so this Patrick Kilman guy is saying, hey, Binance didn't do that. Also, Binance didn't debate Erik Voorhees on the merit of FTX's stance on the DCCPA. Binance did not get into shitpost Twitter fights with KOLs, nor did they manage to leak Alameda's balance sheet or write the CoinDesk story about Alameda's balance sheet, or fail to address the concerns around FTT. So, Binance is just not taking part on all of these things. You know where I found this tweet, Ryan?

• 42:10Ryan Sean Adams?

  Where?

• 42:12David Hoffman?

  CZ retweeted it.

• 42:13Ryan Sean Adams?

  CZ retweeted this?

• 42:14David Hoffman?

  CZ retweeted this, yeah.

• 42:16Ryan Sean Adams?

  So, this, this person is making the claim that, don't blame Binance, because people at this-

• 42:19David Hoffman?

  Don't blame Binance, yeah.

• 42:20Ryan Sean Adams?

  People at this point were coming to Sam's defense, I think, SBF's defense, after especially, you know, Sam said, "Look, assets are fine, FTX is fine, and I'd rather CZ be collaborative and work together for the ecosystem." So, people piled on and said, you know, CZ, you're knocking a competitor when they're down, you're spreading FUD, you're trying to cause a bank run, this is bad for our industry. And this person is, I guess, coming to Binance's defense and saying, "Hey, you gotta, you gotta like make SBF and FTX, hold them accountable for some of their actions and the reason why Binance sold."

• 42:53David Hoffman?

  He's basically saying, SBF and FTX dug their own grave and all CZ did was like, "All right, get in."

• 43:02Ryan Sean Adams?

  Well, I don't know. And so, so that's where the take was like, I guess, yesterday. And Bankless put together an article about this, and this was like a battle of the billionaires. I saw a lot of crypto publications talking about kind of like knives out in crypto drama between CZ and SBF, right? This kind of like scene of like- Is that Donald Trump, by the way? WWF wrestlers writing? Vince McMahon and Donald Trump punching each other. That's kind of where things fell on Monday. So people didn't think that there was, I think, very few people thought there was the possibility that this could actually take FTX down as early as yesterday. But the story has continued to unfold, which I guess brings us to November 7.

• 43:47David Hoffman?

  Yes, okay. So this was the FTT price last night. So last night, FTT broke down before $22 after pounding up against the $22 threshold for almost 24 hours, breaks down and immediately drops to $16, hits a low of $15, and starts to find a new floor between $15 and $17. This, Ryan, might be the moment that Alameda Research officially became insolvent.

• 44:16Ryan Sean Adams?

  Because 22 didn't hold. Very publicly, they said, "We'll buy all FTT."

• 44:21David Hoffman?

  Right. And they needed FTT to be above a certain number. Is that number 22? Well, it was the number that was being defended across markets by a significant capitalized player, and then it fell. And then it fell down. So this might be the moment, yesterday, about 24 hours ago, this might be the moment that Alameda officially went from running on fumes to being completely insolvent.

• 44:46Ryan Sean Adams?

  No more ammo. We couldn't fight this.

• 44:49David Hoffman?

  We can only assume. I'm sure the truth will eventually come to fruition, but if we are just inferring based off all of these dots, this would be the conclusion, that this was the moment that Alameda went to zero.

• 45:02Ryan Sean Adams?

  I mean, judging by how fast this timeline has moved, it won't take long, I think, for us to find this out. But then what happened to FTX, the exchange?

• 45:11David Hoffman?

  Yeah, so that was this morning. That was last night. This morning, The Block, a researcher and news journalist at The Block, tweeted out that it seems to be that FTX stopped processing withdrawals three hours ago, according to on-chain data, as in no outbound FTX withdrawal has been seen in three hours, and that when That was at 8:53 a.m. So, starting around, and this is Eastern time, so starting around like 6 a.m. ish, FTX stopped processing users' withdrawals. There seemed to be some confusion, and so the same Doug Toshi, Stephen, they says as the block started writing and publishing the story, the withdrawals started ramping up again.

• 45:51David Hoffman?

  Turns out that was actually a mistake. They just mixed inbounds for outbounds. So inbound money were still coming in, but outbound still not being processed. So, yes, just kidding, withdrawals had not been processed. So, FTX officially, Ryan, and I don't think anyone has seen a withdrawal since about 6 a.m. this morning from FTX Eastern time.

• 46:11Ryan Sean Adams?

  Well, that's when things get really scary because we're beyond a hedge fund blowing up. Because at the end of the day, that's investor money. It's highly risky. Who cares? Now, we're talking about FTX customer deposits.

• 46:23David Hoffman?

  Not being there.

• 46:24Ryan Sean Adams?

  Not being there, not being able to withdraw. Like, I don't know if the money's there. And like, this just happened to us in crypto. It's Celsius. It's like, I mean, people still have money there. They're never going to get it back out. This is all fresh in our minds, and that's what started to happen this morning. What is, what is this tweet?

• 46:44David Hoffman?

  Yeah, this is just the summary tweet, which I thought was pretty funny. Number one, FTX appears to have stopped processing customer withdrawals on chain data shows. Then FTX started processing withdrawals again after we published. And then the third one, the block never mind withdrawals not being processed.

• 47:00Ryan Sean Adams?

  Oh, my God. Wow.

• 47:02David Hoffman?

  Pretty funny. So this is the TLDR, says the block team saw FTX stop processing withdrawals on Ethereum, went to confirm on Solana and Tron, published the story, saw withdrawals being processed, panicked. People smarter than me confirmed it was only movements to approve tokens. No panic and get clout. Anyways, whatever.

• 47:22Ryan Sean Adams?

  You gotta collect your clout.

• 47:23David Hoffman?

  Gotta collect your clout. And then-

• 47:24Ryan Sean Adams?

  Now, this is SBF finally weighing in on things.

• 47:27David Hoffman?

  Silent all morning, silenced it for a while, and then finally, and this is the drum roll moment, finally speaks. And when was this tweet? This was tweet was at-

• 47:38Ryan Sean Adams?

  November 8.

• 47:39David Hoffman?

  Yes, 11:03 a.m. So about five hours of FTX basically running out of money to process customer withdrawals, and he goes-

• 47:47Ryan Sean Adams?

  At that, at that point, the gig is like, it's, it's over, right?

• 47:50David Hoffman?

  Once you know that an exchange, which, an exchange, Ryan, as you know- Should always have customer deposits. They never should lose customer deposits if they are just being normal. Customers come and deposit money, they trade with that money with other customers. And so there's no one, it's impossible to lose money. So if you see an exchange not facilitating withdrawals, it's because it means that they went and did something with that money and now they don't have that money anymore.

• 48:18Ryan Sean Adams?

  It's like a bank. I mean, if you go to the bank and you're like, hey, can I have my money? And they say, no, we don't have your money. It's not here. You can't withdraw. Come back tomorrow. Right? Like you can't, um, then that rumor spreads and you get more and more people trying to withdraw their money and that escalates. So he had to say something at that point. That was kind of the pressure that SBF was, was on at 11:00 AM this morning. So what does he say?

• 48:45David Hoffman?

  Well, it's also how we know that FTX was up to some shenanigans. What are those shenanigans? I don't know, but why was Alameda transferring FTX money directly to their hot wallet? That is a data point that is now people are speculating on. Uh, so SBF says, hey y'all, I have a few amounts to make. Yeah, I bet you do.

• 49:02Ryan Sean Adams?

  Super friendly sounding. Hey y'all, hey, what's up?

• 49:06David Hoffman?

  Things have come full circle and FTX's first and last investors are the same, uh, which is the punchline. We have come to an agreement on a strategic transaction with Binance for FTX.com, pending due diligence, et cetera. So that's, that's my drop. What does that mean? That means the FTX's first and last investors are the same. He kind of says it without saying it. FTX just bought Binance is what he's saying.

• 49:33Ryan Sean Adams?

  Reversed that.

• 49:34David Hoffman?

  The last.

• 49:34Ryan Sean Adams?

  Binance just bought FTX.

• 49:35David Hoffman?

  Excuse me. Yes. Yeah. Are the same. Uh, so Binance seeded FTX with capital. Uh, now they are buying FTX. Uh, so Sam continues and says, um, Our team is working on clearing out the withdrawal backlog as is. This will clear out liquidity crunches. All assets will be covered one to one. This is one of the main reasons why we've asked Binance to come in. It may take a bit to settle. We apologize for that. But the important thing is that customers are protected. A huge thank you to CZ, Binance and all of our supporters. This has been a user centric development that benefits the entire industry. CZ has done and will continue to do an incredible job of building out global crypto ecosystem, creating a freer economic world. I know there has been rumors in media of conflict between our two exchanges.

• 50:20David Hoffman?

  However, Binance has shown time and again that they are committed to a more decentralized global economy while working to improve industry regulations, industry relations with regulators. We on their best of hands. Brian, this doesn't sound like SBF. This sounds like a PR person.

• 50:34Ryan Sean Adams?

  Oh, this sounds like someone who's just bent the knee for sure. I mean, this is somebody who was desperate, needed some cash for those withdrawals and just needed to make a deal with CZ. I mean, yeah, this is a different SBF coming out. Like, that's crazy how quickly this happened. And you have to wonder, so did CZ know that this was a possibility, an inevitability? When he tweeted, when he started tweeting about this on Sunday?

• 51:02David Hoffman?

  Did he create the opportunity that he then took intentionally and knowingly? I don't think we'll ever know that, ain't right.

• 51:09Ryan Sean Adams?

  Well, I mean, I know one thing is like, do not cross CZ.

• 51:14David Hoffman?

  GG, GG CZ.

• 51:17Ryan Sean Adams?

  Wow, crazy. And this is, this is Sam Bankman Fried, who was, I would say, one of the top three crypto. Like there's SBF, there's Brian Armstrong and there's CZ. I mean, these are kind of the three. And SBF seemed like it was a legitimate competitor to Binance. And now this is SBF fully capitulating. And we have to mention that this does not mean that Binance has acquired SBF yet. This is just a letter of intent. And I think what is happening is Binance is providing the funds, liquidity, so that, you know, people, customers of FTX.

• 51:56Ryan Sean Adams?

  can withdraw their funds, which is of course very important. That's the main thing we want to protect is customers. But who knows if this is actually like, there could be more drama ahead for us if this deal doesn't close. If CZ asks for unreasonable terms, like all sorts of things could be happening. I think CZ has since tweeted out that they are now doing due diligence to investigate FTX. And it's basically like

• 52:21David Hoffman?

  He's giving himself the option.

• 52:23Ryan Sean Adams?

  He's giving himself the option and he's like, my rules now, you know, I'm the captain. Sit right here. We'll look at it and you know, maybe we'll make a deal afterwards. But like Sam is no longer in the captain's seat with respect to negotiation. He'll take whatever deal CZ gives him at this point.

• 52:40David Hoffman?

  Yeah. In the thumb war of crypto exchanges, CZ definitely pinned Sam down. So CZ had his own version of the same tweet that came out five minutes later and said, what did he say? This afternoon, FTX asked for our help. And yeah, so if you want to go to that sync tweet, Ryan, and zoom up. There is a significant liquidity crunch to protect users. We are signing a non-binding letter of intent. Again, CZ picks his words to put in the first tweets very carefully. We are signing a non-binding letter of intent intending to fully acquire FTX to help cover that liquidity crunch. We will be conducting a full DD in the coming days.

• 53:22David Hoffman?

  Basically, they are going to audit FTX and see how big the hole is. How big the hole that Alameda Research created in the FTX balance sheet? If it was indeed Alameda Research, which it probably is. And then we have this meme of CZ walking in with a sink into Alameda Research. This is a playoff of Elon Musk walking into Twitter after he bought Twitter. Cause he threw the kitchen sink at it and now we have CZ doing the same thing for Alameda Research. But again, it's actually not Alameda Research, it's FTX. But again, where are the lines?

• 53:55Ryan Sean Adams?

  Where are the lines? Maybe all the same. Seems like they both fell together. What's this take?

• 54:00David Hoffman?

  Yeah, so this got leaked, a quick and dirty article, saying that FTX scoured Wall Street sourcing emergency fundings for a billion-dollar lifeline. And so before FTX went to CZ and Binance, they were going back to TradFi to ask for a billion dollars in emergency funding so that they could prop up the exchange. And so that was before. And that's actually, further down in this article, they say they were looking for a $1 billion lifeline, but they had a balance sheet hole of $5 to $6 million, Ryan.

• 54:33Ryan Sean Adams?

  Oh my god. Yeah, so they were hurting. This was kind of a desperation move. And CZ pulling this into his camp for the win.

• 54:42David Hoffman?

  CZ's like, hey, you know who's got $5 to $6 billion? I've got $5 to $6 billion.

• 54:47Ryan Sean Adams?

  Wow, the Binance empire, just totally checked a competitor. These are the crypto banker wars. And I've certainly never seen a chapter like this. What's also ironic to me is, of course, FTX and SBF, they were the bailout kings.

• 55:00David Hoffman?

  Yeah, they were bailing out left and right. So this is one of the big claims, is that FTX spent all of its ammo acquiring the bloody carcasses of the Luna and A3 Arrows capital crash. And then they ran out of ammo to save themselves.

• 55:15Ryan Sean Adams?

  I wonder, were they acquiring these things to cover something else up? I wonder if there was some sort of intent to acquire these things. I wonder if it was for other reasons that we'll see in the weeks to come. We have some more takes, and I think we want to give some analysis on this.

• 55:31David Hoffman?

  Crypto Twitter is on fire today, Ryan. I know you've been busy, but I've been enjoying it.

• 55:36Ryan Sean Adams?

  Yeah. So we're going to get to all of those, and the memes, and the takes, and the analysis of what we do in the aftermath of this. We'll also take a closer look at some of the markets from a pricing perspective. We'll get to all of that and more. But before we do, we want to thank the sponsors that made this episode possible.

• 55:54David Hoffman?

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• 56:36David Hoffman?

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• 57:19David Hoffman?

  With Fuel, you can have the benefits of smart contract languages like Solidity while adopting the improvements made by the Rust tooling ecosystem, letting the Fuel development environment go beyond the limitations of the EVM. If you want to learn more, there's a link in the show notes to see how you can get involved with a Fuel network. The Layer 2 era is upon us. Ethereum's Layer 2 ecosystem is growing every day, and we need Layer 2 bridges to be fast and efficient in order to live a Layer 2 life. Across is the fastest, cheapest, and most secure cross-chain bridge. With Across, you don't have to worry about high fees or long wait times. Assets are bridged and available for use almost instantaneously. Across's bridges are powered by Uma's optimistic oracle to securely transfer tokens between Layer 2s and Ethereum. Across is critical ecosystem infrastructure, and Across V2 has just launched.

• 58:02David Hoffman?

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• 58:24Ryan Sean Adams?

  Okay, it's gonna take a while to digest all of that, David, but let's get some crypto Twitter takes and also look at some charts, the after effects of today's events. So this is a chart from Luke Martin comparing two coins, BNB and FTT. Of course, these are the the main assets in play from both of the kingdoms, the Binance Kingdom and the FTX Sam Bankman-Fried Kingdom. What are we looking at here?

• 58:50David Hoffman?

  Yeah, so these two tokens, and Luke Martin says this, typically trade in lockstep with each other. Like, they're highly correlated, same kind of sector, same kind of asset, except for November, except for all of November, FTT starts to go down. And it's interesting that this happened so early. I guess this really became very obvious November 2nd, when that report about Alameda Research came out. But you could see the decoupling before that. You can see the decoupling starting around October 30th, maybe 29th. But BNB-

• 59:21Ryan Sean Adams?

  So people knew something was gonna happen?

• 59:23David Hoffman?

  Yeah.

• 59:24Ryan Sean Adams?

  Do you think, like insiders knew?

• 59:25David Hoffman?

  Markets always know. Markets know first. And so BNB performs great, starting all throughout November. FTT has performed absolutely terribly, starting in November. And so you can, you can, here is the winners, Ryan. You can see it in the market. BNB is up big, FTT is down big. This is one empire winning the war against another, and it's being reflected in the market.

• 59:49Ryan Sean Adams?

  Can we just look at FTT real quick? Like, what's the FTT price?

• 59:51David Hoffman?

  Oh, wait, wait, no, don't do coin.

• 59:52Ryan Sean Adams?

  Are you saving that?

• 59:53David Hoffman?

  You already have it pulled up. Go click the Trading View tab, the black one.

• 59:56Ryan Sean Adams?

  Oh, this one?

• 59:57David Hoffman?

  Yeah. Okay, so here's where we are. Remember that $22 line, Ryan?

• 1:00:01Ryan Sean Adams?

  Uh, where's that? Up here?

• 1:00:03David Hoffman?

  Yeah, so that's that big red candle, that's when Alameda Research ran out of money.

• 1:00:06Ryan Sean Adams?

  This is, and that, that is Tuesday, the 8th. That is this morning? Is that this morning?

• 1:00:12David Hoffman?

  That was last night.

• 1:00:13Ryan Sean Adams?

  Last night? Late last night?

• 1:00:15David Hoffman?

  Yep.

• 1:00:16Ryan Sean Adams?

  Wow.

• 1:00:17David Hoffman?

  And so $22, down to where we are now at $5.40. And so that puts FTT down at, let's see, negative 77% in 24 hours, down 77%.

• 1:00:30Ryan Sean Adams?

  That's 80%. Now, this thing isn't gonna go to zero, like Luna. It's not an algo stablecoin.

• 1:00:36David Hoffman?

  It is not a recursive algorithmic stablecoin that hyperinflates, but I mean, it's giving it a run for its money, for what it's worth.

• 1:00:44Ryan Sean Adams?

  80% in one day. Even by crypto standards, that means he got wrecked.

• 1:00:49David Hoffman?

  I mean, it's 80% in one day. It's 80, it's seven, it's, yeah, it's like 85% over seven days, like, pretty bad.

• 1:00:58Ryan Sean Adams?

  This is a similar chart, but with the timestamp of when CZ tweeted this out, liquidating our FTT. And this is, I believe, FTT, FTT chart.

• 1:01:11David Hoffman?

  Remember, remember when he said that it's going to take months to fully liquidate this position? And we're going to do it in a way that disturbs the market as little as possible? Is that, is that what this looks like in this chart, Ryan?

• 1:01:22Ryan Sean Adams?

  Absolutely.

• 1:01:22David Hoffman?

  I wonder if CZ actually sold any FTT. I think there's a chance, he probably, he probably did. There's also a chance that this is just the run on the bank that you're seeing.

• 1:01:34Ryan Sean Adams?

  I mean, why wouldn't he sell? I mean, why would you want to hold FTT for an 80% drop? He probably sold as fast as he could too. But probably not over months, or I don't know, maybe.

• 1:01:43David Hoffman?

  Doesn't matter now. Who, doesn't matter if whoever has FTT, it's like, oh, we actually only have 20% left.

• 1:01:48Ryan Sean Adams?

  CZ is playing the 4D chess game right now. This is what this is happening. And our old friend, old friend came back. GM, he says, is this his first tweet in like?

• 1:01:58David Hoffman?

  Months.

• 1:02:00Ryan Sean Adams?

  What? So he's been following? Like, what does this mean, GM?

• 1:02:03David Hoffman?

  I think, I think he's just saying, hey, I'm here for this.

• 1:02:07Ryan Sean Adams?

  Is he saying it wasn't just me?

• 1:02:08David Hoffman?

  I don't know. I don't know.

• 1:02:11Ryan Sean Adams?

  Can I have my money back, please? Like dude is replying to Suzu here.

• 1:02:15David Hoffman?

  Here's Do Kwan, our other friend, who was also on Up Only earlier today. This is a painting. I think this is, again, a reference to Game of Thrones of somebody bending the knee to probably House Targaryen.

• 1:02:27Ryan Sean Adams?

  Yeah, one of the Targaryens here.

• 1:02:28David Hoffman?

  Yeah, so this is bending the knee in no short order. Yeah. Oh, he's retweeting SBF as he does it. Yeah.

• 1:02:37Ryan Sean Adams?

  Okay, so our old friends are coming back, huh?

• 1:02:39David Hoffman?

  It's this anti-seri, just doing the kiss the ring. Like, yeah. Sam Trubuco, so here's Sam Trubuco of Alameda Research. He's one of the, like, SBF's, I think, like, right-hand mans at Alameda. He goes, "Much love to everyone. I'm sure the past few days have been dark for many. I hope the road ahead is brighter." What does this mean? Brian, he's just waving the white flag. He's like, "It's over. I'm done here. I got nothing left." This is him capitulating.

• 1:03:06Ryan Sean Adams?

  It's all similar from some of the, the big Luna Terra bulls in the aftermath of this. This is what capitulation looks like on Twitter. This is that tweet again.

• 1:03:16David Hoffman?

  Oh, yeah. Okay, I guess we included it twice. I thought this was from Jameis at Pleaser Dow, where we have SeFi main characters who are warring with each other, and then DeFi main characters who are like, "If you're in DeFi, if you were in DeFi during Terra Luna, as long as it wasn't Terra Luna, if you were on Ethereum DeFi, or even Solana DeFi..."

• 1:03:33Ryan Sean Adams?

  Like, like, actual DeFi?

• 1:03:35David Hoffman?

  Actual DeFi, yeah, real DeFi. You've been fine. If you were during DeFi, during the three hours capital liquidation, you were fine. If you were in DeFi during just now, you were fine. And in fact, if you were lending out Ether, you're getting some, some strong yields right now. So I thought this was a great meme.

• 1:03:51Ryan Sean Adams?

  Do you know, does it, do you find this ironic that we had this whole conversation with, with SBF and Voorhees a couple of weeks ago about how to protect retail from DeFi? And talking about, like, having user interfaces for DeFi have to register with different states, or, you know, the feds, for example. And what's interesting about everything that we've seen in 2022 is the problem is coming from SeFi primarily.

• 1:04:20David Hoffman?

  Yes.

• 1:04:21Ryan Sean Adams?

  I mean, they're, they're like, quote-unquote, DeFi, Quanzy-type schemes that are going on, algorithmic stablecoins that are not even, you know, collateralized. We don't even know the assets are. It's not, it's not on-chain. It's not real DeFi. But then it was like Celsius and Voyager, and even BlockFi had quite a time of it. SeFi is the thing that we need to be protected from, it feels like, as, as retail. I don't understand how regulating a front-end user interface is going to help solve this problem. And I think it's somewhat ironic that one of the individuals pushing for that now, like, days later, finds his own crypto exchange on the brink of insolvency.

• 1:05:05Ryan Sean Adams?

  DeFi has been doing pretty well in comparison to that and you know, I hope regulators pay attention.

• 1:05:11David Hoffman?

  Here's another meme out of Dylan Sinclair. This is the find out, fuck around and find out chart and it's CZ that's pointing to like, this is what happens when you fuck around, you find out.

• 1:05:24David Hoffman?

  Level seven find out.

• 1:05:25Ryan Sean Adams?

  The equilibrium.

• 1:05:26David Hoffman?

  Yeah, and this is a cantering Clark saying the game of chess that CZ just played was possibly one of the greatest of all time. I don't think I've seen, like, there was like conspiracies and allegations that somebody, some entity, triggered the collapse of Luna. I don't really think anything has come of that. We know that CZ just triggered the collapse of FTX. Maybe they put themselves into precarious position to begin with, but it was CZ was the one that that lit the fuse and then capitalized on that.

• 1:05:55Ryan Sean Adams?

  And now, now SPF has to work with him.

• 1:05:58David Hoffman?

  Yeah.

• 1:05:59Ryan Sean Adams?

  SPF has to kiss the ring after that.

• 1:06:01David Hoffman?

  Big time.

• 1:06:02Ryan Sean Adams?

  SPF has to call him boss and do what he says. And like, that has to be a humbling position to be in right now, but CZ is the one making the rules for sure.

• 1:06:12David Hoffman?

  Big time, big time. Uh, next, here's another tweet from Will Clemente saying, next cycle CZ will be the richest man in the world. I think he's already breached top five richest men at the top of the market. Yeah, like, see, this, see, we already knew that CZ was the chief of an empire. That empire just got twice as big. Because they just, they already had like 75 to 80% of total crypto exchange volume. They just acquired number three, maybe it was number two. FTX passed Coinbase in volume at times. So now the number one just gobbled number two. And they also gobbled up everything that that FTX acquired over the last six months.

• 1:06:52David Hoffman?

  All of BlockFi's assets, like everything, like all the, the bleeding hedge funds that that BlockFi or that FTX acquired. Now CZ just acquired it.

• 1:07:01Ryan Sean Adams?

  It's just massive consolidation.

• 1:07:03David Hoffman?

  Huge consolidation. And so, see, we already knew that CZ was like this massive just mogul of a massive empire. And that empire just became so much bigger. This guy goes from being insanely powerful, it's to top five most powerful men in the world.

• 1:07:19Ryan Sean Adams?

  By the way, he owns a $500 million stake in Twitter. Like, fun fact, he was in on that deal too. Are you worried about this? Should we be worried about this? So, so in general, like, I prefer like, you know, a duopoly or an olig...

• 1:07:36Ryan Sean Adams?

  What's that word? Oligopoly versus just like a monopoly, right?

• 1:07:41David Hoffman?

  Right.

• 1:07:41Ryan Sean Adams?

  And so, this is, I mean, at least there was-

• 1:07:43David Hoffman?

  A duopoly instead of a monopoly?

• 1:07:44Ryan Sean Adams?

  Yeah. I mean, that would be better. It would be better to... A triopoly, it would be better to have more crypto bankers. Now CZ is just kind of consolidated, knocked a key competitor out of the ring. And it's just, I guess it's kind of like Coinbase? And Binance? I mean, by the way, Brian Armstrong's looking pretty good in the back of all of this. Just playing it straight-

• 1:08:05David Hoffman?

  Doing nothing. Just, just doing nothing. Whoever does nothing is, has won. You have done... Well, CZ did something and definitely won.

• 1:08:13Ryan Sean Adams?

  CZ won big, but, you know, the Coinbase kingdom still stands as well. But anyway, I guess the point of like consolidation, crypto bankers getting powerful, like, this worries me. I think some people, some people in crypto and DeFi are like, taking a short-term view and thinking that, you know, SBF was an enemy of, of maybe DeFi. Maybe he was, maybe some people, you know, think he was. But like, CZ is also a crypto banker, right? Are we worried that he has now consolidated more power and doesn't have a competitor to, to check him? Should we be worried about this? Or do we just say, you know, CZ, crypto values? Hopefully, he doesn't do anything nefarious in our industry. What's your take on this?

• 1:08:57David Hoffman?

  Yeah, I think we should always be wary of people in power. Always. Why wouldn't you be? I don't, I don't think that there's anything specific about CZ that I'm specifically worried about, although the sharkness and the level of execution is extremely intimidating. I, I trust Zee Zee more than I trust SBF, definitely. He and Binance has done fantastic things to promote the crypto industry. Binance Smart Chain is a real bankless technology for a lot of people out in the world, even though it's not completely bankless on the bankless spectrum. It's more bankless than most things and it's more self-sovereign and user-sovereign than

• 1:09:42David Hoffman?

  most things. And Binance has done a great job of onboarding many, many people into crypto. He has 100% made a net positive impact upon the crypto industry. I am worried that one person has so much goddamn power and reach, but I'm not worried to be, I'm not too, I don't know, man. It's hard, it's hard.

• 1:10:07Ryan Sean Adams?

  I would like to see some more competition, to be honest. I would like to see a little bit of disruption, but I mean, who's close? Who's close right now? Just Coinbase.

• 1:10:16David Hoffman?

  Just Coinbase. But like it's, Binance is like the offshore unregulated one and Coinbase is the onshore regulated one. Like if that's, that's the binary star system that is the end result of all of this, and I guess that's just the way that it is.

• 1:10:30Ryan Sean Adams?

  I do think that, you know, when you think of kind of the crypto tribes left standing, who are they? What are the crypto tribes left standing? It's kind of like the Bitcoiner tribe, for sure. There's still sort of the Ethereum type, type tribe out there, DeFi tribe.

• 1:10:46David Hoffman?

  I would say the largely like unscathed tribe, at least that's what it feels like.

• 1:10:50Ryan Sean Adams?

  Yes, but it feels very much like this other tribe of like FTX and I might throw Solana in there. I mean, SBF was a big Solana supporter.

• 1:11:00David Hoffman?

  We have to look at this.

• 1:11:01Ryan Sean Adams?

  For example.

• 1:11:02David Hoffman?

  Yeah, that's very, that's actually relevant.

• 1:11:03Ryan Sean Adams?

  We'll get to that, but like it feels like that tribe has maybe taken a big hit here.

• 1:11:05David Hoffman?

  DY in the YouTube chat is like, Hoffman's kissing the ring.

• 1:11:08Ryan Sean Adams?

  Are you kissing the ring, David?

• 1:11:12David Hoffman?

  I don't want to go up against CZ, Jesus.

• 1:11:15Ryan Sean Adams?

  Well, I mean, but like-

• 1:11:16David Hoffman?

  It's gonna liquidate me.

• 1:11:17Ryan Sean Adams?

  Here's the thing, we can't trust crypto. Here's the thing, we can't have power consolidated in kind of the centralized app layer, right? Binance Smart Chain is ultimately, it's, you know, kind of CD controls the validator set. It's sort of like fintech with an API. It's not, it's not pure, true DeFi, right? I mean, there's a lot of negative things to say about it, but I guess we'll have to see what CZ does with his power. I mean, there is a way you can- Use that power to the good of crypto and to support decentralized values. And like, I hope he chooses to do that, but to be determined. I think we should all be skeptical as well and hold them accountable. Here's a take just based on that. What's that tweet?

• 1:12:00David Hoffman?

  CZ owns the biggest sex, see centralized exchange, the second biggest chain by TVL, the third biggest asset by market cap BNB, the third biggest stablecoin BUSD. Everything CZ touches just becomes like the biggest, the biggest one.

• 1:12:18David Hoffman?

  This is funny now. CZ says, "All crypto exchanges should do Merkel proof, proof of reserves. Banks run on fractional reserves. Crypto exchanges do not. Binance will start to do proof of reserves soon. Full transparency." If CZ, great, great treat. We love proof of reserves. I'm sure this is not how Nick Carter thought proof of reserves was going to get rolled out, but if this is how it happens, fine. This is an interesting tweet that this is happening. This got tweeted out like an hour or so ago. This is CZ's most recent tweet. "Banks run on fractional reserves. Crypto exchanges should not." He is calling out the fact that, and this is my interpretation, that he just sniped the hell out of FTX. It's like, oh, FTX, you're running fractional reserves?

• 1:13:02David Hoffman?

  I'm going to trigger a run on the bank, put you in a corner and then buy you. And then if the next step that happens is that Binance implements proof of reserves, next, it's the most Chad move of all time because not only did he snipe an underwater bank, he then just proves that his bank is unsnipeable because you can't trigger a run on the bank on a bank that has proven to have full reserves.

• 1:13:26Ryan Sean Adams?

  Look, I do think proof of reserves would be a big step forward for centralized exchange. Here's the thing though, is like, you can't, you can't prove all of your reserves unless they're, unless they're on chain, right? So, I mean, at some level, one response to this would be like, that's great. Binance is doing this. This is what DeFi is doing though, from like the base layer on up.

• 1:13:48David Hoffman?

  If you're going to be put on your DeFi maximalist hat, yeah, DeFi is proof of reserves.

• 1:13:51Ryan Sean Adams?

  Well, that's what I am, is a DeFi maximalist. And so DeFi is already doing that. So I'm glad Binance is taking a step towards that. But I will say, these are the types of actions that would make more centralized exchange providers a bit more decentralized. And this would be, I think, a win for all consumers, right? Here's the thing with FTX is like, we had no idea whether the thing's insolvent or not. Compare that to AVE, like loans on AVE, for example. Entire stack, traceable on chain. No one has to worry. Like, we can look it all up. We could see every asset, what's backing it, right-click, view source, you get to see it. And we don't have that visibility with FTX. So we'll see what CZ does on that. But yeah, no question, he's made a huge move today.

• 1:14:36David Hoffman?

  So this is, so these are some questions that I have, and I had some tweets like paired up with this. There's to conclude, what the, some of the most important questions that I think we are have left to answer as a result of this event. Did Alameda blow up? We don't know that, but people probably

• 1:14:53Ryan Sean Adams?

  Seems very likely that it blew up under 22, right?

• 1:14:57David Hoffman?

  Yes, exactly. How big is the regulatory impact going to be on this? Is a, is an interesting question to unpack. DeFi is strong, we've already talked about that. This is the question of, is SBF in legal trouble? So FTX allegedly took customer deposits, sent it to Alameda Research to go make money with customer deposits. Alameda lost money, and then therefore FTX also lost people money. If people who invested in FTX, or customers who might not get their money back, if they cannot be made whole, that might trigger legal concerns. And Dylan Leclerc says, call it what it is, it's fraud.

• 1:15:41Ryan Sean Adams?

  Fraud. What SBF was doing is fraud, is the claim that this is making. Well, guys, I'm gonna, I'm gonna end it as we always do. Risks and disclaimers on days like this, these risks and disclaimers should be a little bit more. Crypto is risky. All of it is. DeFi is risky, but so are centralized exchanges, maybe especially centralized exchanges. You could lose what you put in, but we are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot.