Edouard Harris

42Joined Nov 2022


Isn't this trivially exploitable? If a market like this existed, then surely my first move as a corrupt billionaire would be to place rolling bets on my own innocence. Seems like I should be able to manipulate the estimate by risking only a small fraction of my charitable allocation  in most realistic cases. Especially since the lower the market probability looks, the less likely anyone is to actually investigate me carefully.

doesn't (2) just mean that whatever value SBF retains after (1) is converted from equity in (the relevant part of) FTX to cash?

Right now it's very unclear either way, but given the leverage Binance likely has in this transaction I would expect for the FTX portion of SBF's wealth to be effectively zeroed, and/or for any residual value to come in the form of a currency that is cheaper to Binance than cash (e.g., BUSD or Binance's own equity). This is speculative of course, but it's not inconsistent with the sorts of terms SBF himself extracted from distressed crypto exchanges over the summer, e.g., Voyager and BlockFi. The reality is simply that SBF is in a desperate position, that he is rightly attempting to put his customers first, and that he is aware that Binance knows this and will use its leverage to maximum advantage for itself.

It's also worth noting that FTX.us — a separate exchange from FTX with a (presumably) separate balance sheet — does not offer trading in FTT, the distressed token whose fall in price seems to have kicked off the current liquidity crunch. So depending on the extent to which the two entities are indeed separate, FTX.us may well survive in something like its current form. As noted above, FTX.us comprised about 13% of SBF's wealth prior to today.

Finally, Alameda's value may be significantly impaired going forward as well. One of their key advantages has always been their relationship to FTX, which had allowed them access to real-time crypto transaction data and a preferential position as market-makers on the exchange. It's unclear how much of their alpha came from these proprietary advantages, or whether there is a chance of some kind of side deal between them and Binance. But the base case right now is a substantially lower return on assets for their trading business, along with a corresponding impairment in enterprise value.

EDIT: Actually, it looks like Alameda held about $5.8B of FTT out of $14.6B in total assets as of a few days ago. Depending on how leveraged the firm is, they may face insolvency risk unless Binance intervenes to support the token. (FTT is down 75% since, implying a mark-to-market loss of just over $4.3B for Alameda.)