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I think I'm not alone in worrying that we might have overlooked red flags about FTX because of the fact that its founders considered themselves EAs.

Suppose all of us who failed to predict the FTX collapse were right to think, beforehand, that FTX was very likely an honest, non-fraudulent business. (Maybe because base rates for fraud were low or because investors thought so too.) Should we have even still been concerned about its business practices?

For instance, should FTX's impact on its customers have looked net-negative? Should its business have seemed objectionable from a "common-sense ethics" perspective? If so, the lack of discussion at the time would suggest that many of us were either blind to unwelcome news or afraid to speak out against an important funder.

Here are some considerations that might have suggested FTX's business practices were bad:

  1. "If customers are moving most of their savings out of stocks and bonds and into cryptocurrency, that probably makes them worse-off. FTX's mass-marketing might be encouraging people to do this, especially people who aren't financially savvy."
  2. "When customers make trades on the platform, they're probably trading against smart money and losing out. In fact, they're probably losing out more than usual because that smart money is Alameda and Alameda has a systemic advantage. Considering the amount FTX spends on marketing, customers must be losing a lot of money between exchange fees and market losses to Alameda."[1]

On the other hand, many people enjoy retail trading; some are probably aware of the costs and still find it worthwhile.

My tentative personal view is that a year ago, FTX's business looked neutral or mildly bad for customers, but not much worse than, e.g., Robinhood; that the reputational risk to EA looked small; and that, though specialists could've given these issues more attention, it was okay for the wider EA community to focus on other things.

What should someone with no inside information or ingroup bias have thought a year ago about FTX's business practices?

  1. ^

    In hindsight it looks like all this might be false, but I assume we couldn't have known that at the time.




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Thanks for posting this. I appreciate the question very much, but I don't think it's the right approach to postulate the existence of a single correct community point of view on FTX's business practices, and try to figure out what that single view would be and whether the community had the good fortune to hold it in the absence of discussion. Even if EAs had the so-called correct view, epistemic "luck" is not epistemic health. A culture of robust debate and inquiry is what matters in the long run.

In my opinion, the important things to ask are: (1) did FTX's business practices deserve debate within the EA community a year ago, (2) to what extent did the EA community debate them, and (3) did the range and health of debate in the EA community meet the standards the community wants to uphold?

It's easy to make arguments that FTX was publicly engaged in morally wrong behavior a year ago, and some people have done so in this thread, given that (among other potential points of criticism) FTX's strategy for growth involved trying to persuade as many sports fans as possible to gamble on speculative investments. Condemnation of this behavior is also easy to find in the media and among non-EAs. I don't intend to express a personal view here about the morality of FTX's business, but if there is a commonly held view outside EA that something is morally wrong, and the EA community wants to profit from that thing, I think debate is merited about whether the EA community should profit from it.

Was there that debate? Correct me if I'm wrong, but I'm not aware that there was any degree of debate within the EA public sphere (forum discussions, conference talks, meetup talks, EA org blog posts, etc) about the morality of FTX's business or whether EAs should take FTX money. There was of course an extremely strong disincentive to debate, because -- doing good aside -- many EAs had a lot to gain personally from FTX money.

I think that the lack of debate here reflects a weakness in the EA public sphere, which EAs should try to address. To be clear, I don't intend to positively claim here that EAs or EA organizations should not have taken FTX money, but rather that a debate about it was merited by the degree of public criticism attached to FTX before its collapse.

(In other words, to respond somewhat more directly to your question, it could be reasonable to believe both that FTX's business practices as publicly known a year ago were morally acceptable, and that it is deeply troubling that EA did not debate them.)

And (4) -- Would people have felt comfortable questioning the morality of FTX's known business, EA's reliance on FTX-derived funds, and certain leaders' endorsements of SBF without fear of ostracism or adverse effects on their career? From a standpoint of practical psychology, I think the answer is probably not, and we need to have the discussion about which geese we are willing to accept golden eggs from before we are offered the eggs. Once they start laying many eggs, the psychological incentives to not ask questions -- and to ignore those who ask questions -- is just too strong.

Thanks! FWIW, I completely agree with your framing. In my head the question was about debate ("did FTX look sketchy enough that we should've seen big debates about it on the forum") and I should've made that explicit. Sounds like the majority answer so far is yes, it did look that bad. My impression is also the same as yours that those debates did not happen.

It concerned me that FTX's Chief Regulatory Officer, Daniel Friedberg, was known for being involved in a previous poker scandal. There's audio of him advising his clients to make up a story about how they were victims of the scam they pulled on others so that they could minimize the fines. 

[Daniel] Friedberg advises Hamilton to not only claim he was also a victim of the cheating – “otherwise it [the concocted cover-up tale] is not going to fly” – but also to put out a story that “a former consultant to the company, uh, took advantage of a server flaw by hacking into the client.”

The people at the meeting – Hamilton, Friedberg, Ultimate Bet founder and CEO Greg Pierson, and Friedberg’s fellow UB attorney Sanford Millar – also discussed how much it was going to cost them to repay players and regulatory fines. 

“If we could get it down to five, I’d be happy,” says Friedberg, advising his fellow cover-up members that it was a realistic figure “depending how creative we get.”

Poorly. Call me paternalistic, but stuff like forex, angel investing, penny stocks, and super-leveraged anything is not suitable for the vast majority of small retail investors. Maybe, maybe it is OK for most as a small percentage of their assets. Maybe a somewhat higher percentage is OK for others who have spent dozens of hours learning the market and the risks. But you shouldn't be actively encouraging them into crypto.

FTX's marketing seemed clearly designed to draw in these sorts of investors without any warning that this was appropriate only for their fun money at most.

I have mixed feelings about taking $$$ from businesses I find morally shady -- I think it's a question the community should discuss in advance rather than when the next big megadonor comes along.

I think it depends at least in part on one's view of the long run value of crypto assets. I'm skeptical that they are worth  what they are currently valued at, in aggregate (and am more skeptical that they were worth the prices they were trading at a year ago). So I think it would have been unethical for me personally to be paying for Super Bowl ads encouraging people to get into crypto. But if Tom Brady or whoever genuinely believed that it was in people's best interest to buy some crypto, I'm not really inclined to judge them for encouraging investment.

But I think there's a difference between investment and trading. It's harder to justify encouraging people to day trade, given that day traders lose money in aggregate (mostly via exchange fees). I'd be curious if someone could make a case for encouraging short-term trading.

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