The biggest Dildo in Crypto: Part 2

Been a while since I’ve run a crypto article, but given it is my favorite nefarious figure getting pole axed and the opportunity to recycle my favorite past art, I thought I would trot out a quick article. Basically this one should be considered as one of a series starting here:

here:

and here:

Anyhow, I was originally asked to comment on FTX’s spectacular collapse, to which I replied with this screenshot:

Ironically this is pretty much exactly what happened.

Remember this diagram that I drew way back at Christmas?

Well it is basically just another example of the liquidity crunch continuing to move up the hedge fund chain, and once again will overwhelmingly result in retail punters getting a kick to the nuts.

The fundamental driver is the liquidity crunch that arose within the Dildo’s financial empire following Alameda and FTX rising to become the saviours of Crypto back in May or so of this year.

Remember this story? “Alameda Bails Out Voyager Digital on News of 3AC Exposure” with Alameda bailing out Voyager, who was one of the main casualties of 3AC? You could not assemble a bigger daisy chain of dildos and fall guys.

Although by August the headline had changed to “Sam Bankman-Fried’s crypto firms had deep ties to Voyager Digital and its bankruptcy wipeout“

So SBF went balls deep into Voyager and the whole 3AC, and while initially acclaimed as the saviour of crypto what he was doing was becoming stuck to beasts already trapped within the bottomless tar pit that stretched back to Luna’s implosion and the daisy chain of disasters that followed.

I don’t know why he chose to involve Alameda in with those doomed creatures – pure hubris maybe? Perhaps he thought the same rough shod rules that existing in crypto, where if something implodes everyone just walks away, somehow applied in the real financial world involving hedge funds, etc. It is very easy to take on unknown liabilities in these sort of fluid liquidity situations.

Whatever the reason Alameda is one of the main liquidity providers in Crypto, it couldn’t be allowed to fail or be ceased – it would mean cutting off access to SBF’s rivers of gold. The ability to respond in advance to liquidity movements in the market.

So FTX rode to the rescue, using FTT.

So what was FTT? From what I can tell FTT was FTX’s exchange token – much like Binance token runs as the base token on Binance exchange, and the importance that these base tokens have in terms of the liquidity pyramid that other tokens that are built on top of it:

This is Binance coin’s various token liquidity pyramid, I imagine FTT was used for much the same.

One of the problems if Alameda blew up then their collapse would have ensured the liquidiation of all the FTT tokens that would have vested in September of this year. Vest – who could they possible vest too?

Had Alameda collapsed and the FTT’s vested to Alameda then it would have been a disaster. The whole point of crypto is controlling liquidity to ensure prices can be controlled – uncontrolled liquidity dumped all at once would ruin them all – like Luna had done.

Which is what has been suggested by some suspicious FTT token transfers back in September, according to various internet sleuths there was 173m FTT’s sent from the original FTT ICO to Alameda (where they would have become creditor funds had it gone under) and these were released on the vesting date. “Alameda” then immediately sent them back to FTX.

So here is the likely driver behind SBF getting in this position – FTX loaned Alameda the funds it needed to avoid the immediate effects of its liquidity crisis that arose following Luna’s crash back in May/June. SBF did this via his left hand with Alameda by using the FTT that were going to vest to Alameda as collateral for the loan from SBF’s right hand, FTX – hence the round trip in FTT on vesting date.

Better FTX loan Alameda the funds and collect the FTT, rather than allow Alameda to collapse and the FTT then vest to the creditors, who would have potentially dumped it in an uncontrolled fashion onto the market. This would have lead to a liquidity cascade back to FTX, because the FTT it was now holding as as a large part of FTX’s balance sheet. Meaning that independent of any loans to Alameda, its capital base would have been rendered worthless. By round tripping the loans, he simply drew the inevitable out a little longer – most likely by using FTX’s own customers funds, that it has effectively loaned to Alameda, in the hope that markets recover and he can turn it around.

Trouble is there is a high likelihood that there were a lot of eyes on this transaction of FTT back in September, those eye obviously include CZ. I’ll mock that Soyboy SBF, but while I will call CZ a crook and someone who I wouldn’t trust as far as I could throw him, I wouldn’t call him a fool or an idiot (SBF isn’t either, but imho he was out of his league against CZ).

Anyhow, the past couple weeks a fair bit of supply of FTT has been bleeding out into the market, which along with unconfirmed rumours has been depressing the price. Over the weekend all it took was CZ to make a couple lazer like remarks to create a selling cascade in the thin weekend liquidity which basically brought SBF’s empire to its knees. This moment has really been inevitable since the moment SBF, in his hubris, involved himself in the Luna tar pit.

…there is a four dimensional chess play to this though. Maybe SBF knows crypto as a ponzi scheme is finished, regulators are going to crush it and economics are going to ensure most coins return to their intrinsic value, which in most cases is nothing. Given his problems he has in passing his exchange business over to Binance…. it could leave CZ either the crypto winner, or simply the biggest bag holder of all. Perhaps this is all about using the last of the available exit liquidity?

If that is the case, then I will return to this screenshot…

Postscript: Even further amazing was CZ catching everyone by surprise and pulling out of the take over of FTX that he’d agreed on only the day before. Perhaps he saw the 4D chess move – either way he is ruthless. It was a masterful coup de grâce to an already mortally wounded opponent.