CrytoGrifting: Back in the foundational days of probability and statistics, Enlightenment-Era mathematicians spent much brainpower grappling with the existence in a fair game of strategies that seemed overwhelmingly likely to win. The answer, of course, is that in the small proportion of the time you lose you lose really big, and the smaller the chance of loss the bigger the magnitude of the loss when you do. But for people who cannot keep the entire ex ante distribution of outcomes in their mind, selling unhedged far-out-of-the-money puts is, as Stanford’s Robert Hall wisely once said to me, “the highest-probability way of appearing to be an immense financial genius”. This is why ijt is important to look not at actual or counterfactual gambling-for-resurrection results, but at procedures, protocols, and risk-management practices.
Bankers are paid the big bucks for being able to keep a weather eye on the probability of a run and to have guarded against it—which is why Jamie Dimon is now King of Wall Street. Exchange runners are paid the big bucks for making sure that they are never vulnerable to a run. But competently running an exchange was not the business Sam Bankman-Fried was ever in. The big questions I have about how it shook out are for those who funded Sam Bankman-Fried’s defense and those who contributed to funding that defense. He would have been much better off with a free public defender, who would at least have told him: Given Caroline Ellison’s testimony, and given John Ray’s attitude toward your management practices, you have no chance at trial—plead guilty to whatever deal you can get. Bankman-Fried’s lawyers and funders really do need to look into the mirror:
Zeke Faux & Max Chafkin: FTX’s Original Sin Is a Warning to All of Crypto: ‘Evidence from the criminal trial of Sam Bankman-Fried suggests fraud was built into FTX from the very beginning….. The total balance for an “insurance fund” listed on FTX’s website to reassure customers was actually made up using a random number generator…. Just months after the exchange opened, FTX created a backdoor for Alameda… overr[iding] FTX’s internal controls, making it possible for Alameda to borrow almost unlimited sums from FTX customers…. To deposit money at FTX, customers had to send it to Alameda. They were led to believe the funds would be passed along and held on their behalf. Instead, Alameda in many cases just spent the money. Bankman-Fried acknowledged most of this at the trial but said none of it was malicious…. FTX wasn’t a good company run by a bad guy. It was a business that was crooked almost from Day 1… <bloomberg.com/news/features/2024-03-27/…>
