Will it be established that FTX used their clients' funds as collateral to take out loans?
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resolved Dec 31
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NO

If either the NYT or WSJ says so in an article

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@ersatz

Does using the funds to actually pay debts count as using them as collateral? Or does using them "as collateral" only cover promising clients that they will use the customer funds to pay them back when the loan comes due, if they can't pay another way? Given the previous comment, I'm going to stick a massive bet on 'yes' if the former counts, but I might not place the bet if only the latter does.

predicted NO

@DavidMathers To use them as collateral is to take out a loan with the funds in question explicitly designated as collateral, either directly or as part of a larger pool that is itself designed as collateral, but if they were never intended to be used that way in the first place, then they were never collateral.

@ersatz Thanks

predicted YES

@ersatz https://twitter.com/KelseyTuoc/status/1592976714300542977

https://twitter.com/felixsalmon/status/1592987638457405443

It's hard to tell, but it sounds like on the backend Alameda were holding FTX client funds directly. That is, it was in an Alameda bank account and on their balance sheet, and so was probably used as collateral for the loans that Alameda took out.

bought Ṁ100 of YES

https://www.nytimes.com/2022/11/14/technology/ftx-sam-bankman-fried-crypto-bankruptcy.html

Meanwhile, at a meeting with Alameda employees on Wednesday, Ms. Ellison explained what had caused the collapse, according to a person familiar with the matter. Her voice shaking, she apologized, saying she had let the group down. Over recent months, she said, Alameda had taken out loans and used the money to make venture capital investments, among other expenditures.

Around the time the crypto market crashed this spring, Ms. Ellison explained, lenders moved to recall those loans, the person familiar with the meeting said. But the funds that Alameda had spent were no longer easily available, so the company used FTX customer funds to make the payments. Besides her and Mr. Bankman-Fried, she said, two other people knew about the arrangement: Mr. Singh and Mr. Wang.

The meeting was previously reported by The Wall Street Journal. Mr. Singh did not respond to a request for comment, and Mr. Wang could not be reached. According to a person familiar with FTX’s finances, the exchange lent as much as $10 billion to Alameda.

predicted YES

Isn't this straightforwardly their business model? Like isn't this what leveraged trading is? You use secured deposits to take out loans to invest in other assets.

predicted YES

@ersatz I think you should clarify that you are excluding customer funds which were intended for being used as collateral, if that's your intention. (Though this would make my and maybe others' prediction based on a different question.)

predicted NO

This market isn’t great, it’s asking about a specific outcome but could be misleading and I assume a lot of people thought that I was talking about both using the funds as collateral and directly landing the funds. Do you guys think the market should resolve as N/A?

predicted NO

@ersatz Lending*

predicted NO

@ersatz Your comments have further clarified the issue and no one has claimed that they were confused by this, so I'd say leave it open? Though I'm totally biased because I don't want my NO position to get cancelled 🙂

predicted NO

@BenjaminCosman I'm not going to cancel it without a strong consensus, don't worry.

bought Ṁ10 of YES

Not sure if you mean used as collateral. Or gave it out as loans (eg to alameda)

predicted NO

@GeorgeVii as collateral

sold Ṁ13 of YES

@ersatz hmm in that case. idk if they actually went through extra steps tbh.

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