for integrity's sake, too, I hope we avoid throwing Sam or anyone else under the bus before the facts are clearly demonstrated. I think you can distance without blaming, and in early stages, that might be the most appropriate action.

Yes, I agree. I don't mean to throw Sam under the bus here. I'm sure his intentions were from a good place. I do mean that this is probably going to become the first time many people hear about EA and that should be handled in some way. If EA becomes synonymous with Crypto fraud then we could see less support from existing people and it is first thing people see when they're looking into EA (GWWC, EA Funds, etc). 

Sequoia pulled that link, here's an archived version. 

I don't think that EA's reputation will be tainted that much by this incident.

First, startups are inherently risky; the purpose of a startup is to try out an unproven business model in the hope of making money or providing value for customers. FTX exposed investors to what many observers, including me, consider an unacceptable level of risk, but so did Theranos (which was an outright scam).

Second, risk neutrality as a consequence of utilitarianism is not well understood outside the EA community. It might become more prominent in the discourse soon, but right now journalists are mostly not talking about it.

Yeah, that's why I think ben.smith's comment in the same thread here is important. Handling the fallout well requires nuance and some additional degree of self-reflection on the part of EA leaders. (I say "some additional degree" because it's not like people were completely unaware of these risks – see here.) And I think it would be wrong (and too easy) to see Sam as some kind of cartoon villain. It strongly looks as though some actions were far away from "defensible" but I don't for a second doubt that his motivation to do good was sincere, and he got impressively far with it and you can understand how he might have felt increasingly more empowered to act in naive-consequentialist ways after seeing all that success. 

(Edit: To be clear, "understand" isn't the same as condone; with enough effort you can maybe also "understand" why the Taliban flew a plane into a building, etc.) 

From what I have read, Bankman-Fried is claiming that he had an erroneous impression[*] of how much aggregate leverage FTX was offering to its customers. I think many people do not understand that an exchange like FTX does not necessarily make loans to its customers in the same way as a bank does - by depositing the full amount in their account. Rather, it extends a line of credit, which is subject to margin calls and/or collateral requirements, designed to protect FTX and ultimately its other customers. This was a normal practice offered to numerous customers and documented in their public documentation, it was not some special privilege accorded only to Alameda - though the terms may have been more generous for Alameda. Though note that Alameda had billions in assets so, proportionately to its size, it may not have been that generous after all.

The problem here seems to have been that, according to media reports, the line(s) of credit offered to Alameda were collateralised by FTT - FTX's own exchange token - and shares in Robin Hood - neither of which are particularly high-quality assets compared to, say, US treasuries, especially FTT. But this is an assessment in hindsight, from the perspective of 12 Nov 2022 when FTT is essentially almost worthless - that was not the case earlier in the year!

Note that again, use of non-government bonds as collateral is hardly something unique to FTX - Tether, to take another example within the same industry, has held non-government bonds on its balance sheet to substitute for cash.

This is probably why Bankman-Fried said recently that FTX actually had sufficient assets to cover customer withdrawals, they were just very illiquid, so he needed to find someone to give him a liquidity injection (of some billion dollars!)

When Binance initiated the "controlled demolition" of FTT by selling off their FTT stash and loudly announcing they had done so, this of course brought down the whole precarious house of cards.

This fits with the idea that Bankman-Fried is a "hardcore utilitarian" (his own self-description) of the type who values high expected utility over risk-adjusted returns, rather than a deliberate fraudster. He presumably realised that a big holder of FTT could cause its price to crash by selling it, but he probably thought this was unlikely to happen because it would not be in that holder's self-interest to do so. But I suspect that Binance's CEO CZ got so angry about (what he perceived to be) SBF's attacks on him, his business and even his children, that he was prepared to torpedo the whole thing, despite it hurting him financially as well in the short term, because in the long term it would take out a highly-competent competitor, which was valuable.

Furthermore, perhaps SBF calculated that it would be possible, or even easy to restart the whole shebang if the merry-go-round ever stopped, because FTT was sort of a representation of the money-printing machine that was FTX, so an injection of liquidity into FTX to restart it should have resurrected the value of FTT, enabling the loan to be repaid in the long term. But it turned out that was not the case, because of this little thing called "reputation", which formed a key part of FTX's intangible equity, and which was lost during this whole debacle. No-one wanted to go near the now-radioactive company that was FTX, not even CZ or Elon Musk. Elon didn't trust SBF, and CZ may have had obvious personal reasons (see previous paragraph) to pretend to buy FTX and then thrown up his hands in mock horror and say that it was not something he wanted to be involved in, "pour encourager les autres". I think it is a testament to Bankman-Fried's lack of ego that he went cap in hand to his adversary to see if he would buy FTX out. But it was perhaps not a wise move because I think CZ kind of poisoned the well.

[*] I'm not going to go into how I suspect this erroneous impression came about, because it's a technical detail that's not really relevant to the above points, and my theory looks on its face to be so implausible that I don't think you would believe it - and anyway, SBF has promised to publish a full account of the affair so hopefully we'll know soon anyway.