November 30, 2022 • 46 mins
It’s back to FTX this week sadly, as the exchange’s collapse continues to dominate the crypto headlines.
Today, you’ll hear about the company’s recent bankruptcy filing, which revealed just how terribly it and its sister company Alameda Research were being run behind the scenes, by people who were unfit to be running anything bigger than a lemonade stand.
The filing makes for some pretty extraordinary reading and reveals just how much work needs to be done to try and clear up the mess that Sam Bankman-Fried and his idiotic colleagues left in their wake. This clearing up will take a long time and that means it will take an even longer time for anyone to get their money back - assuming enough money can be found, that is. Have a listen to get the lowdown.
Another consequence of the FTX fiasco is that other crypto exchanges are rushing to provide proof of reserves or PoR. This is designed to reassure their users that they do indeed have enough crypto on hand to honour any and all withdrawals, should they be required to. After FTX, people want to know they’re using an exchange which is solvent and can prove itself to be so, hence why the second part of today’s episode is also well worth your time. This is a look at what proof of reserves actually means and to what extent the top exchanges out there are providing it. There’s also the question to consider of whether the time for decentralised exchanges may be nigh.
We hope you enjoy the show.
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Editor: Semir Mutapcic
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Hello everyone, and welcome to the latest episode from the
midweek edition of the coin Bureau podcast. Every week, I
pick out two of my favorite videos from coin Bureau's
YouTube channel to present to you in podcast form. The
audio you're about to hear is from those videos I've
chosen this week, and I hope you enjoy listening. First up,
back to ft X, the big story of the moment
(00:21):
and likely to remain so for some time yet. The
company is now in the throes of bankruptcy proceedings, and
the recent chapter eleven filing that kicked these off makes
interesting reading. To put it mildly, the filing was submitted
by one John J. Ray the Third, the man now
serving as f t X is CEO and charged with
(00:41):
clearing up the mess left behind by his predecessor, and
what a mess it is. The filing reveals just how haphazardly, unprofessionally,
and dan Wright negligently f t X and Alameda Research
were run by Sam bankman Fried and his inner circle
of friends and acolytes. The filing almost reads like an
(01:02):
outline for how not to run a company and has
left many in the crypto industry and beyond aghast. In
the first part of today's episode, you'll hear our breakdown
of it. Keep those stress balls at the ready. One
of the talking points in the wake of the f
t X scandal is around proof of reserves. This is
the idea that crypto exchanges should become more transparent about
(01:24):
the assets they hold and crucially, their liabilities as well.
So many people trusted f t X to hold their
assets and saw that trust abused. That cannot be allowed
to happen again. So have a listen to our breakdown
of what proof of reserves means and what some of
the biggest exchanges out there are doing to reassure their
(01:45):
users that they do in fact have the necessary funds
to hand to honor withdrawals. We also ask the question
of whether the future lies not with centralized exchanges but
decentralized ones instead. Could recent events be the start of
a shift in how people buy crypto Thanks for listening
to today's episode, and there'll be more coming your way
(02:05):
very soon. And if you want even more content from
coin Bureau, be sure to subscribe to our YouTube channel
and visit us on social media too. It's been two
(02:35):
weeks since f t X and Alameda Research collapsed. And
yet we are still only just starting to understand what
happened and what the effects on all of cryptocurrency could be.
One of the biggest bombshells so far has been ft
x is bankruptcy filing from last Thursday. What it reveals
about the crypto exchange is downright disturbing and foreshadows further
(03:00):
grave issues for crypto. Today, I'm going to give you
a summary of f t x is bankruptcy filing, tell
you what it says in simple terms, and explain exactly
how it could affect the crypto market. Okay, let's get
straight into it. F t x is bankruptcy filing begins
with a declaration from the exchangees new CEO, John J.
(03:21):
Ray the third Now there is a name for context,
Sam Bankman. Fried stepped down as CEO of f t
X when f t X and its sister company, Alameda
Research declared bankruptcy on the eleventh of November. You should
also know that John is famous for being the CEO
in charge of overseeing the bankruptcy of American energy company Enron.
(03:43):
John has also worked on other high profile bankruptcies such
as Nortel. His involvement in the ft X bankruptcy therefore
underscores how serious the situation is now. John starts by
saying that he was appointed CEO of f t X
in the quote early morning hours of the eleventh of November,
(04:04):
and his first order of business was to file for bankruptcy.
His second order of business was to work with blockchain analytics, firms, regulators,
and law enforcement to identify f t x's assets. John
then bluntly states, quote, never in my career have I
seen such a complete failure of corporate controls and such
(04:27):
a complete absence of trustworthy financial information as occurred here.
This statement made the headlines in both the crypto and
mainstream media's. John goes on to explain that the Chapter
eleven bankruptcy filing by f t X has five objectives.
Implementation of controls I set up new procedures in the company,
(04:49):
asset protection and recovery, transparency and investigation of Sam Bankman Freed,
efficiency and coordination with regulators, law enforcement, et cetera. And
the maximalization of value i e. Compensating those affected as
best as possible. John reveals that the information in this
(05:10):
bankruptcy filing is based on his knowledge of what was
going on at f t X. Obviously, the information is
likely to be incomplete, hence why John notes that f
t X will submit additional information in the coming weeks
as it's unearthed. In other words, this still might just
be the tip of the iceberg. Now, the first part
(05:33):
of the bankruptcy filing details how f t X was structured.
John identifies for groups of businesses which he refers to
as silos. The first is called the w R S silo,
and it includes all of f t X, S U
S companies and subsidiaries. Now, for the sake of simplicity,
(05:53):
I'll refer to the w R S silo as the
f t X U S silo. The second silo is
the Alameda silo, which includes all the companies related to
Alameda Research, which was one of the biggest traders and
market makers in crypto. Alameda was actually the largest recipient
of all the U S DT ever issued by Tever.
(06:14):
More about that in the description I digress. A footnote
for the Alameda silos balance sheet notes that Alameda Research
loaned one billion dollars to Sam Bankman freed over five
D forty million dollars to engineering director Nishad Singh. And
over fifty million dollars to f t X co CEO
(06:35):
Ryan Salame. The third silo is the ventures silo, which
includes all the companies related to ft x's investment activities.
Now John refers to the fourth silo as the dot
com silo. This is a little confusing since the dot
com silo includes all of f t x is overseas
companies and subsidiaries. So let's just call this the ft
(06:59):
X BBAL silo. Now, John explains that these four silos
make up the f t X Group. Not Surprisingly, Sam
Bankman Freed was the controller of all four silos. John
notes f t X and Alameda Research co founder Gary
Wang as a minority shareholder in f t X group,
along with Nishad Singh, who was apparently also a co founder.
(07:21):
What's crazy is that no other investors besides Sam, Gary,
and Nishad held more than two percent of any of
the silos. What's even crazier is that f t X
had raised two billion dollars before going bust. This means
that those investors got basically nothing in return, which raises
lots of questions in my book. Anyways, what you're looking
(07:45):
at here is a breakdown of the four silos, along
with the ownership stakes that Sam, Gary Nishad and other
investors had in them. If you're just listening in, Sam
held fifty of the f t x U S silo,
of the Alameda silo, sixty seven percent of the Venture silo,
and seventy five percent of the f t x Global silo.
(08:05):
Third party investors only held two percent of the f
t x U S silo and twenty five percent of
the f t x Global silo. The rest was owned
by the trio. John also provides a corporate structure chart
for these silos and their sub surgeries. Now, there's honestly
too much information to go over here, and it's also
(08:26):
kind of pointless to summarize since John cautions that it's
preliminary I incomplete. The link to the full bankruptcy filing
will be in the description if you want to take
a closer look. The company organization chart is on the
very last page. Anyways, John goes on to give a
detailed breakdown of each of the four silos, starting with
(08:48):
the f t x U S one. He begins by
explaining that the f t x US Exchange itself had
over one million users and was registered with the Department
of the Treasury as a money services business. Not only that,
but one of the subsidiaries of f t x US
was registered with the SEC. Some of you may have
(09:10):
heard that there are peculiar connections between f t x
Alameda Research and the SEC via SAM and Alameda CEO
Caroline Ellison I reckon this SEC registration is another peculiarity
to add to that pile. After talking about all the
other subsidiaries that were owned and operated by the f
(09:31):
t x U s silo, John reveals that these subsidiaries
hold around one point four billion dollars in assets. However,
he cautions that the numbers are likely incorrect due to
Sam's involvement in the balance sheet report. It was also unordered. Interestingly,
the f t x US silo appears to have just
under four hundred thousand dollars of liabilities, that is debt.
(09:55):
John notes that this can't possibly be accurate given that
f t x US presume be held billions of dollars
in user assets, which would count as liabilities but are
not noted in the balance sheet report. Next, John gives
a detailed breakdown of the Alameda silo, as with the
f t x U S silo. John cast doubt on
(10:16):
the idea that Alameda Research had thirteen point five billion
dollars in assets and just five billion dollars of liabilities.
This is again because the balance sheet report was provided
by SAM and unordited. Like the others. For the Ventures silo,
the balance sheet has been divided into two for the
two major subsidiaries of the silo. Together, these two subsidiaries
(10:39):
had two billion dollars in assets and an almost equal
amount in liabilities, though John says it is once again
unknown whether their balance sheets are correct. And last, but
not least, we have the ft X Global Silo, and
John admits that his team couldn't figure out how many
users the ft X Exchange actually had. All they know
(11:01):
for now is that SAM claimed f t X head
quote millions of users who had over fifteen billion dollars
of crypto on the exchange at the end of one
the most likely cooked books claimed that f t X
had over two point to five billion dollars of assets
versus less than five hundred thousand dollars of liabilities. As
(11:24):
with f t x U S, it's essentially guaranteed that
f t X is liabilities were exponentially larger due to
the billions of dollars of customer assets that were on
the exchange. The second part of the bankruptcy filing explains
the events that happened shortly before the filing itself took place.
John explains that the freeze on ft x's assets by
(11:47):
Bahamas regulators shortly before the bankruptcy filing only applied to
one of the subsidiaries of the f t X Global
silo explains a lot. As for Sam, he was consulting
with numerous lawyers, including his own father, about his resignation
as CEO and the commencement of ft x is bankruptcy.
(12:07):
At around four thirty a m. On the eleventh of November,
Sam conceded defeat and handed over control of all of
f t X to John, who immediately filed for Chapter
eleven bankruptcy. This ties into the third part of the
bankruptcy filing, which explains what John has done since that point.
The first thing he did was established a governance structure
(12:30):
for f t X and each of its four silos,
something you'll recall as being the first of the five
Chapter eleven bankruptcy objectives. John explains that he and the
newly appointed directors of the four silos will work together
to meet all five objectives of the Chapter eleven bankruptcy.
He acknowledges that this will be easier said than done,
(12:51):
as all four silos are interrelated and could therefore have
overlapping claims on the same assets. John then die its
deeper into f t x is financials, and many of
his findings made the headlines. The first finding was that
f t x did not keep track of its cash balances,
bank accounts or the people who oversaw those bank accounts.
(13:15):
They also didn't consider the quality of banks they were using.
John explains that his team will do their best to
find f t x IS cash and transfer it all
to financial institutions in the United States. Naturally, each silo
will have its own account. Now, I couldn't help but
notice that these cash transfers will only occur if they
(13:37):
can be done quote without adverse consequences. I wonder what
that means conspiracies aside. So far, John and his team
have managed to dig up over two dozen ft X
bank accounts around the world that collectively hold over five
hundred million dollars in cash. The relevant banks have been
instructed to freeze all these accounts and not to process
(13:59):
withdraws for SAM or other signatories. Now, if you thought
f t x's bank account situation was sketchy, consider the
company's financial reporting. While the f t X u S
silo was being properly audited, the f t X Global
Silo was being audited by a questionable auditing firm that
(14:20):
claimed to be the first to open offices in the
Central Land. To add insult to injury, John couldn't find
any audited financial statements for the Alameda silo or the
Venture silo. He admits that it's going to take some
time to accumulate accurate financial information about the four silos.
(14:41):
Something tells me that those balance sheets will have a
lot of black holes. Did I mention that f t
X is Empire didn't even have an accounting department Anyhow,
It turns out that f t x is human resources
department wasn't any better than its financial department. John said
his team hasn't even been able to put together a
(15:03):
list of f t X employees because none of the
four silos had detailed records of that information. They didn't
even have board meetings for what it's worth. John says
he's been working closely with a core team of f
t X employees to figure out exactly what's going on.
Many of you probably heard the news that almost everyone
(15:25):
except Sam's in the circle was in the dark, and
many f t X employees also had their money on
the exchange. As expected, f t xs disbursements, that is,
payouts were about as disorganized, with employees having to submit
paycheck requests in a company chat room. As reported, some
(15:45):
of f t x's capital was used to acquire properties
in the Bahamas. The records of these transactions are of
course a complete mess. Regarding the custody of cryptocurrency, f
t X didn't keep any detailed record there either. If
I understand correctly, only Sam Bankman Freed and co founder
Gary Wang had access to the private keys for all
(16:09):
the crypto wallets of the f t X empire. These
private keys were transferred around using unsecured emails. By now,
most of you will know that Sam and Gary use
secret software to mask their misuse of customer funds, and
that Alameter Research was exempt from auto liquidation on f
(16:30):
t X. In plain English, this means that Alameda could
enter extremely risky trades and not lose money if the
trade went against them. The game was rigged in their
favor and they still lost. John also confirms that the
f t X Global silo and Alameda silo were both
governed by Sam and Gary. This is something that I
(16:53):
was wondering about in our video about the ft X
Alameter situation. It's insane to think that much of the
info has come out since that video. It will be
in the description if you missed it now. The bad
news is that John and his team have only been
able to locate around seven hundred and forty million dollars
of cryptocurrency held by f t X. This balance doesn't
(17:18):
include the almost four hundred million dollars of crypto that
was stolen from f t X, nor the three hundred
million dollars of ft T that was recently printed. What's
odd is that John seems to imply that Sam, Gary
and the other higher ups at f t X haven't
been able to identify other crypto wallets that may belong
(17:38):
to the exchange. This is odd because they damn well
should know, given that they were the only ones with
access to the private keys. I suppose it doesn't matter
because blockchain analytics companies are already hard at work tracking
down every transaction that went in or out of ft X. Ironically, enough,
(17:59):
chain Allie, this the largest blockchain analytics company, recently confirmed
that it had exposure to f t X. John reiterates
the fact that most f t X employees had no
idea what Sam and co. Were up to. They had
no idea that the assets of f t X and
Alameda were being traded back and forth, nor that the
(18:21):
cryptocurrencies of f t X users were being commingled with
the company's cryptocurrencies. Speaking of which, John confirms that f
t X had billions of dollars in other investments outside
of cryptocurrency. This is something that Caroline had mentioned on
Twitter during the chaos, but many people were skeptical. The
(18:42):
list of skeptics seems to include John, as his team
has yet to identify these other assets. This is all
because of f t X is unbelievably bad record keeping,
which extended to internal communication. Quote Sam Bankman. Freed often
communicated by using applications that were set to auto delete
(19:04):
after a short period of time, and encouraged employees to
do the same. The conspiracy theorists aren't going to have
a field day with that one. Now. Despite all these hurdles,
John assures the court that his team is collecting as
much information as possible about f t X as operations.
They're working with former and current regulators and law enforcement
(19:28):
around the world to that end. John and his team
are also working to sort out all the different subsidiaries
f t X had around the world, including selling them
if they have any value. You can bet that competing
crypto companies are going to be keeping an eye out
for those fire sales. Now, what court my eye was
(19:48):
the section about access to data. That's because John notes
that his team cannot access certain data because quote the
debtors have been advised that attempts to access this property
of the estate may create a risk of its loss
to unauthorized persons. John hints that this data is related
to the largest clients of f t X, as he
(20:10):
claims his team cannot make a list of the top
fifty largest creditors without it. I reckon this list will
eventually be produced, but it certainly begs the question of
what information will be admitted in closing. John takes a
dig at Sam, saying that he quote continues to make
erratic and misleading public statements on Twitter, and that these
(20:32):
statements should effectively be ignored. I reckon they're hard to
ignore when Sam should already be behind bars and not
tweeting or playing video games. So this brings me to
the big question, and that's what effect f t X
is bankruptcy filing is likely to have on the crypto market.
In short, it's going to be really bad. And that's
(20:55):
simply because f t X was believed to be one
of the most trustworthy crypto companies in existence. I mean,
take a second to consider that Sam was on a
first name basis with politicians, was actively pushing for crypto regulations,
and was allegedly in bed with the SEC and others.
The ft X exchange received billions of dollars of investment
(21:18):
from big names, including asset managers like black Rock. Heck,
even a Canadian pension fund invested in it. This gives
the impression to politicians, regulators, and even crypto holders that
no matter how clean a crypto company appears to be,
chances are it's doing something shady behind the scenes. The
(21:40):
supposedly high quality of other crypto exchanges is now being
called into question. And it's not good. You can bet
your bottom bitcoin that we're going to see lots of
investigation into not just f t X, but every other
crypto exchange out there. This is almost guaranteed because ft
(22:00):
X and Alameda were massive players in the crypto industry.
This means they probably have lots of information about every
crypto company. As I mentioned earlier, Alameda Research was the
largest recipient of all the USDT ever issued by Terror.
This means there is a high likelihood that Alameda has
(22:21):
more information about Tether than any other crypto company besides
Tether itself, and it's likely this information will be revealed
very soon. On that note, the information that f t
X and Alameda have about counterparties maybe why Sam isn't
in prison. If it's true that f t X and
(22:42):
Alameda were working with the U. S Government in some capacity,
then you can bet that Sam has lots of information
on Uncle Sam to information that powerful people don't want
made public. Now, this is just my speculation, but to
my mind, it's the only explanation as to Sam continues
to be living life as usual despite doing tens of
(23:04):
billions and dollars in damage to ft X is users.
And the wider crypto industry. It's probably a similar situation
for the other insiders at ft X and LAMED. In
any case, it's clear that we're nowhere close to getting
the full facts about what happened behind the scenes. Until
we do, there will be no shortage of conspiracy theories,
some of which could well turn out to be true.
(23:26):
There will also be no shortage of scrutiny directed at
the crypto industry, and to be honest, much of it
will be justly deserved. Hold on tight. The collapse of
f t X and Lameter Research has left crypto holders
wondering what other exchanges might be doing with their customers
(23:49):
coins and tokens behind the scenes. The call for transparency
by the crypto community has been answered by most major
cryptocurrency exchanges, which have published proofs of their crypto reserves
over the last two weeks. Today, I'm going to explain
what proof of reserves means, scrutinize the crypto reserves of
some of these exchanges, and examine whether decentralized exchanges will
(24:14):
take over as a result. F t x is shenanigans
have inevitably led to questions over the reliability and trustworthiness
of other exchanges, and rightly so. F t X secretly
sent billions of dollars of its users cryptocurrency to prop
up its sister trading firm, Alameda Research. This is why
(24:34):
f t X couldn't process all the crypto withdraw requests
coming from its users, and ultimately why the exchange had
to file for bankruptcy. Oddly enough, it was Binance CEO
Chang Peng Zhao or c Z who proposed a solution
to the crypto community's collapse in trust. I say oddly
because CZ's tweet that Binance would be dumping its ft
(24:57):
T is one of the catalysts that lead to t
X and alamedas collapse. On the eighth of November, CZ
tweeted quote, all crypto exchanges should do mircletrey proof of reserves.
Banks run on fractional reserves. Crypto exchanges should not. Finance
will start to do proof of reserve soon full transparency. So,
(25:21):
for those unfamiliar, proof of reserves or p o R
essentially involves taking a cryptographic snapshot of the coins and
tokens held by a cryptocurrency exchange. Now, it's important to
note that p o R is supposed to be done
with the help of an independent third party or protocol.
In this case, it looks like most cryptocurrency exchanges have
(25:43):
been working with blockchain analytics platform Nansen for their po rs.
I'll leave a link to Nansen's exchange holding page in
the description if you're interested. Now, another thing that's important
to note is that p o R is also supposed
to include the liabilities of a cryptocurrency exchange. In this context,
(26:04):
liabilities means the coins and tokens and exchange is holding
on behalf of its users. Obviously, these coins and tokens
don't technically count as an exchanges assets. If you watched
our recent video about f t x is bankruptcy filing,
you'll know that both f t x u S and
(26:24):
f t x International didn't count their users crypto as
liabilities on their balance sheets. This basically made it look
like both had enough crypto on hand to meet withdrawal
demand when they really didn't. Now, the only exchanges that
have included liabilities in their proof of reserves so far
(26:45):
have been Kraken, which actually began doing po R back
in February, gate dot Io, which uses the same accounting
firm as Kraken, Armanino, and okay x, which apparently reported
its own liabilities without an accounting firm. Funnily enough, coin
Base has not provided p o R for assets or liabilities.
(27:06):
Coin Bay c o O Emily Choi explained to coin
Desk that this is because coin base is regularly audited
as a publicly traded company, so its balance sheet is
already fully available. I'll leave a link to it in
the description if you're interested, and before I go on,
I will caution that even if an exchange has done
(27:27):
thorough p o R for both its assets and liabilities,
there is no guarantee that your crypto is safe on
that exchange. This is simply because you can never know
for sure that the individual or institution that crunched the
numbers is being honest. The only way to guarantee the
safety of your cryptocurrency is to keep your coins and
(27:50):
tokens in your own personal, non custody or wallet. It's
also the only way to guarantee your financial freedom, because
having millions in the bank means nothing if you don't
have the ability to spend that money when and how
you want. Seriously, guys, I can't stress this enough. Be
(28:10):
sure to check out my recent video about how to
keep your crypto safe. It too will be in the description. Now,
the first p o R I want to analyze comes
from Binance, which was, of course, after Kraken, the first
exchange to provide p o R. If I had my
tinfile hat on, i'd tell you that Binance lad the
charge for p o R to further squeeze its competitors.
(28:32):
Then again, other exchanges probably wanted to do p o
R to increase user confidence. In any case, the top
assets on binances balance sheet are as follows THT in
the b U s D stable coin, in the U
s D T stable coin, in BTC, just under ten
(28:52):
percent in b NB, eight percent in each, and the
remaining sixteen or so percent in other cryptocurrencies. Grand total
sixty seven billion dollars. Now, this would be amazing were
it not for the fact that Binance has yet to
publish proof of liabilities, specifically of user deposits. With an
estimated thirty million users, it's very likely that binances liabilities
(29:15):
are very large and likely on par with its assets,
as with other exchanges that have revealed their liabilities. That said,
in a Twitter spaces discussion, ces explained that Binance has
no liabilities. This doesn't make much sense given that the
exchange obviously holds the coins and tokens of many of
(29:35):
its users. This is admittedly concerning, but Binance should be
publishing its liabilities soon. More about that later in the interim.
We're likely to see no shortage of hit pieces such
as this one from Bloomberg, which took issue with the
fact that around fort of Binances reserves are held in
its own branded assets, namely b U s D and
(29:58):
b NB. Easy called the article fake news, and rightfully
so to some extent. That's because even though b U
s D is branded as Binances stable coin, it's actually
issued by Pasos, a heavily regulated stable coin issuer based
in the United States. Pasos actually seems to be the
most regulated stable coin issuer of them all, which theoretically
(30:21):
makes b U s D the safest stable coin finances.
Holdings of U s DT are more concerning, though. Tether
has already been under extreme scrutiny from US regulators for years.
Given that Alameda Research was the largest recipient of all
the U s DT ever issued, I suspect that this
scrutiny will soon return and possibly with even more intensity.
(30:46):
Don't even get me started about all the pending stable
coin regulations either. It's a similar story with b NB two.
If you watched our video about b NB you'll know
that it was created by Binance way back in twenty
seven team when it was known as binance Coin. B
n B became independent of Finance earlier this year and
rebranded as Build and Build, but b nbs ecosystem is
(31:10):
still dependent on Binance. If you want more of an
overview of Binance as an exchange, then you can check
out our review over here. Anyways, the second p o
R I want to analyze comes from crypto dot Com,
which was the second exchange to release its p o
R after Binance. If I recall correctly, Crypto dot Com
(31:32):
was planning on releasing its p o R closer to
the end of the month, but rush to release an
initial po R after questions arose about the exchange of solvency.
These questions arose because of the announcement by Crypto dot
Com that it was pausing deposit and withdrawals of USDT
and USDC on the Salana blockchain. What strange is that
(31:54):
this is exactly what Binance, okay x and other exchanges
did shortly afterwards, yet there were no cerns there in
any case. The top assets on Crypto dot COM's balance
sheet are as follows in BTC, in U s D,
cent in ship, even in EA, just under four percent
(32:14):
in U s DT, and around eighteen percent in other
cryptocurrencies grand total three billion dollars. Note, Crypto dot Com
claimed in its por release that it has more crypto elsewhere.
Like Binance, Crypto dot Com has yet to publish proof
of its liabilities. These liabilities are likely to be even
(32:36):
larger than Binances, given the Crypto dot Com claims to
have over fifty million users. This certainly begs the question
of why there's such a large difference between the assets
held by Binance and by Crypto dot Com. The answer
seems to be on chain. Shortly after Crypto dot Com
released its p O R, it was found that the
(32:57):
exchange transferred three twenty thousand e worth over four hundred
million dollars to gate dot Io in late October, which
was returned a few days later. Crypto dot Com CEO
Chris Marcellek claimed the transfer was just a mistake. It's
safe to say that the crypto community wasn't convinced because
(33:17):
Chris had to hold an emergency a m A to
clear up the confusion. Now I have yet to watch
that a m A, but it seems it was enough
to calm Crypto dot COM's holders since the exchanges chronos
coin pumped shortly afterwards. When it comes to Crypto dot
COM's actual assets, its balance sheet is definitely a mixed bag.
(33:38):
Having BTC as its largest holding is a bit risky
giving all the crypto market volatility. Having almost all your
stable coin holdings in circles USDC is likewise unwise. In
my opinion, I suppose it reveals which entities Crypto dot
Com is close to. More about the company taking over
cryptocurrency using the link in the description digress. Now, not surprisingly,
(34:03):
the news that Crypto dot Com holds a fifth of
its asset reserves in shiba e news ship token made
the crypto headlines. That's because ship is a meme coin
whose value is fundamentally reliant on retail speculation, which has
been quickly sucked out of the crypto market as it crashes.
Chris explained in the aforementioned a m A that quote
(34:24):
it so happens that last year does and ship were
too extremely hot meme coins and people bought a lot
and they're holding it. They didn't sell it. We have
no control over what you guys buy. You buy it,
we will store it, we will keep it safe. Now,
this actually makes a lot of sense, but it won't
(34:45):
be confirmed until crypto dot com publishes its liabilities. If
I understand correctly, this will be done in the next
few weeks, as the blog post announcing crypto dot COM's
assets p o R notes that it will confirm a
quote full to one reserve of all customer assets. Anyhow,
the third po R I want to analyze comes from
(35:07):
okay x, which you'll recall included liabilities, albeit self reported ones.
Okay x release its proof of reserves just a few
days ago, but what's annoying is that the proof of
reserves on its website doesn't tell us all that much.
That's because it only gives us info about okay x
is BTC eight and usd T holdings. Okay x claims
(35:31):
to hold around one hundred eight thousand BTC against one
hundred five thousand BTC of user holdings for it's one million,
fifty thousand against one million twenty five thousand, and for
USDT it's three billion sixty million against three billion, sixteen million.
The main takeaway is that okay x appears to have
(35:53):
more crypto on hand than the crypto that's been deposited
by its users. Now, this is excellent, but again it
doesn't include the other dozens of cryptocurrencies the exchange offers.
It's also not clear which accounting firm was involved, if any. Unfortunately,
Nansen doesn't have any additional data either. According to Nanson,
(36:16):
the top assets on okay x's balance sheet are as
follows almost fifty in USDT, pent in BTC, in five
pent in u s DC, and just a fraction of
a percentage point for all the other cryptocurrencies the exchange offers.
Okay x's blog post announcing its proof of reserves notes
(36:38):
that it will publish asset and liability information about the
other cryptocurrencies it holds soon to be exact. The exchange
said that the self audit feature will become available for
all these other cryptocurrencies. This is a small but significant
detail because self auditing means that okay x users can
(36:58):
cryptographically verify that the exchange holds the coins and tokens
it claims to. If I'm not mistaken, Kraken, Bitmex and
gate dot io are the only other crypto exchanges that
currently offer this feature. To my understanding, Finance, crypto dot
Com and others will be providing this same level of
(37:19):
transparency over the coming weeks. The only reason they don't
offer the self audit feature already is because most of
the info that's been released so far is the walllett addresses,
not the cryptographic proofs of reserve. Oh and in case
you're wondering, the grand total of okay x is crypto
holdings is around six billion dollars with around twenty million users.
(37:42):
It sounds like okay x is well capitalized, but as
with all the other exchanges so far, the devil is
truly in the detail. Although holding most of your reserves
in stable coins is safe, it's a lot less safe
when almost all these stable coin reserves are in one
specifically Tether's U s d T. As I mentioned earlier,
(38:03):
Tether is facing its fair share of regulatory scrutiny from
the United States and other countries. That is a bit
risky in my opinion. Even so, okay x is incomplete
reserves paint a fairly promising picture. The remaining fifty is
in BTC, E and USDC, and all three are pristine
(38:24):
collateral by crypto standards. Let's just hope that okay x
doesn't reveal that it's holding a massive chunk of its
reserves in some meme coin later down the line. Now,
if you want to do a bit more due diligence
on okay x, then we also have a review of
that as well, and I will leave that in the
description for you folks. Anyhoo. The fourth and final po
(38:47):
R I want to analyze comes from cow cooin, which
released all its wallet addresses earlier this month and is
working on a cryptographic po R with a third party auditor.
The blog posts announcing cou cooin's wallet notes the cryptographic
po R will be published in early December. In any case,
the top assets on cou Cooin's balance sheet are as
(39:08):
follows in U s DT just under eighteen percent in KCS,
eleven percent in BTC, around eight percent in EATH, around
seven percent in U s DC, and in everything else.
Grand total two point five billion dollars of assets to
back whatever liabilities are coming from cow cooin's twenty million users.
(39:31):
Like okay x and crypto dot Com, coucoin has almost
all of its stable coin eggs in one basket, in
this case USDT. This seems to be the standard for
most crypto exchanges that aren't based in the United States,
and it underscores how much damage would be done to
the crypto ecosystem if tether is ever taken down. Similarly
(39:52):
to binance, cow cooin holds a substantial chunk of its
reserves in its own KCS token. In contrast to finances BMB,
cow Cooin's kcs has limited exchange support and very low liquidity. However,
the k c s chain also doesn't have nearly the
same amount of activity and adoption as BMB. This means
(40:14):
that the k CS tokens price action is entirely dependent
on cow cooin. If the exchange ever were to experience
any issues, kcs is price would plummet. In a worst
case scenario, this could wipe out almost twenty of cou
cooin's crypto reserves. Now, the remainder of coucoin's reserves are
interesting yet expected, barely a fifth in btc anda and
(40:37):
almost a quarter in mid to small caval coins. This
makes sense because cou cooin is one of the most
popular exchanges to go to for mid to small cabal coins,
and the ones at list tend to be pretty good
as well. Now I should also note that coucoin's blog
post about its wallet addresses also states that it has
more reserves than it has reported so far. The fact
(41:00):
that coucoin will be providing cryptographic po are also suggests
that the exchange will be providing the liability side of
its crypto balance sheet too. This is all well and good,
but I'll reiterate that the only way to know for
sure that your cryptocurrency is safe is to keep it
in your own personal wallet. Only keep what you're actively
(41:22):
trading on exchanges. Otherwise, keep everything in a hot or
cold wallet, and don't say I didn't warn you. That
being said, if you want an overview of coucoin more broadly,
I have a video for you on that as well.
Top right, poor Furborn. So this brings me to the
(41:45):
big question, and that's whether decentralized exchanges are destined to
take over due to the transparency issues of centralized exchanges.
In short, yes, but it's going to take quite some
time for the decks experience to eat the sex experience.
For starters, there's the trading experience. Using a dex is
(42:06):
not nearly as easy as using a sex For crypto neuves,
dex is also don't provide nearly the same degree of
flexibility to crypto experts. The good news is that progress
is being made on both fronts. By while it's like
phantom and order book DEXes like GMx. Then there's the
ability to swap between native cryptocurrencies. Sexes effectively let you
(42:30):
trade whatever cryptocurrency you want, whereas most DEXes only allow
you to trade between tokens on a single blockchain. This
is not ideal, as some trades require multiple DEXes and
cross chain bridges. The good news is that there are
crypto projects like thought chain, which make it possible to
swap cryptocurrencies natively between blockchains. These technologies are still very
(42:54):
much in their infancy, but I could see an order
book based cross chain decks being built by the end
of the next bull market. And finally, there's the on
and off ramps. The biggest advantages that sexes have over
DEXes is arguably their ability to let users cash out
into filthy feared. Being able to easily get your money
(43:15):
in and out of crypto is of paramount importance, and
it's something that DEXes haven't yet managed to do due
to all the regulations involved. The good news is that
it should become easier to get your money in and
out of crypto once it becomes more widely held. Peer
to peer crypto marketplaces were and continue to be something
(43:35):
associated with privacy obsessed cipher punks, but they could become
very common as crypto adoption increases in some I am
confident that DEXes will displace sexes in the coming years.
I reckon this will be accelerated by crypto regulations, which
will only be enforceable against centralized elements of the crypto industry.
(43:56):
The truth is that all centralized elements must be removed
for this to be called crypto. Take a second to
consider that it's the centralized entities which have historically caused
and continue to cause all the issues in the crypto industry.
It's part of the growing pains, and it is in
fact something that the crypto industry should eventually grow out of,
(44:18):
otherwise we'll end up with more of the same. After all,
what f t X and Alameda we're doing is no
different from what banks do today. The only differences the
banks get bailed out by the central banks when they
lose all their clients money speculating on risky assets with leverage.
The crypto companies who do this just go under, as
(44:39):
they should. Stronger crypto companies rise to replace them, however,
until their flaws are found and they collapse too. And
with each iteration, the crypto industry moves closer to its
core values because that's all that's left when the greed
and gains are gone. It will take time, but one
day we will no longer have to trust. We will
(45:03):
simply verify. And that's it for my video today, folks.
But I'm keen to get your feedback, though. Do you
trust these proof of reserves? Let me know down below
if you wanted to use any of the exchanges above,
I've managed to get special trading feed discounts of up
to on some of them, so if you want to
take advantage of that, they're linked to in the description below. Now,
(45:25):
of course, we also get a commission when you do this,
because it's how we keep the lights on here and
we both benefit or You're more than welcome to sign
up directly without our deal, and the links to do
so are down below as well. Just remember, whatever you do,
don't leave a large amount of funds on the exchange.
(45:46):
It is not worth the risk. Thank you so much
for listening to the coin Bureau podcast. If you'd like
to learn more about cryptocurrency, you can visit our YouTube
channel at YouTube dot com forward slash coin Burero. You
can also go to coin bureau dot com for loads
more information about all things crypto. You can follow me
on Twitter at at coin bureau or one word, and
(46:09):
I'm also active on TikTok and Instagram too.
Hello everyone, and welcome to the latest episode from the
midweek edition of the coin Bureau podcast. Every week, I
pick out two of my favorite videos from coin Bureau's
YouTube channel to present to you in podcast form. The
audio you're about to hear is from those videos I've
chosen this week, and I hope you enjoy listening. First up,
back to ft X, the big story of the moment
(00:21):
and likely to remain so for some time yet. The
company is now in the throes of bankruptcy proceedings, and
the recent chapter eleven filing that kicked these off makes
interesting reading. To put it mildly, the filing was submitted
by one John J. Ray the Third, the man now
serving as f t X is CEO and charged with
(00:41):
clearing up the mess left behind by his predecessor, and
what a mess it is. The filing reveals just how haphazardly, unprofessionally,
and dan Wright negligently f t X and Alameda Research
were run by Sam bankman Fried and his inner circle
of friends and acolytes. The filing almost reads like an
(01:02):
outline for how not to run a company and has
left many in the crypto industry and beyond aghast. In
the first part of today's episode, you'll hear our breakdown
of it. Keep those stress balls at the ready. One
of the talking points in the wake of the f
t X scandal is around proof of reserves. This is
the idea that crypto exchanges should become more transparent about
(01:24):
the assets they hold and crucially, their liabilities as well.
So many people trusted f t X to hold their
assets and saw that trust abused. That cannot be allowed
to happen again. So have a listen to our breakdown
of what proof of reserves means and what some of
the biggest exchanges out there are doing to reassure their
(01:45):
users that they do in fact have the necessary funds
to hand to honor withdrawals. We also ask the question
of whether the future lies not with centralized exchanges but
decentralized ones instead. Could recent events be the start of
a shift in how people buy crypto Thanks for listening
to today's episode, and there'll be more coming your way
(02:05):
very soon. And if you want even more content from
coin Bureau, be sure to subscribe to our YouTube channel
and visit us on social media too. It's been two
(02:35):
weeks since f t X and Alameda Research collapsed. And
yet we are still only just starting to understand what
happened and what the effects on all of cryptocurrency could be.
One of the biggest bombshells so far has been ft
x is bankruptcy filing from last Thursday. What it reveals
about the crypto exchange is downright disturbing and foreshadows further
(03:00):
grave issues for crypto. Today, I'm going to give you
a summary of f t x is bankruptcy filing, tell
you what it says in simple terms, and explain exactly
how it could affect the crypto market. Okay, let's get
straight into it. F t x is bankruptcy filing begins
with a declaration from the exchangees new CEO, John J.
(03:21):
Ray the third Now there is a name for context,
Sam Bankman. Fried stepped down as CEO of f t
X when f t X and its sister company, Alameda
Research declared bankruptcy on the eleventh of November. You should
also know that John is famous for being the CEO
in charge of overseeing the bankruptcy of American energy company Enron.
(03:43):
John has also worked on other high profile bankruptcies such
as Nortel. His involvement in the ft X bankruptcy therefore
underscores how serious the situation is now. John starts by
saying that he was appointed CEO of f t X
in the quote early morning hours of the eleventh of November,
(04:04):
and his first order of business was to file for bankruptcy.
His second order of business was to work with blockchain analytics, firms, regulators,
and law enforcement to identify f t x's assets. John
then bluntly states, quote, never in my career have I
seen such a complete failure of corporate controls and such
(04:27):
a complete absence of trustworthy financial information as occurred here.
This statement made the headlines in both the crypto and
mainstream media's. John goes on to explain that the Chapter
eleven bankruptcy filing by f t X has five objectives.
Implementation of controls I set up new procedures in the company,
(04:49):
asset protection and recovery, transparency and investigation of Sam Bankman Freed,
efficiency and coordination with regulators, law enforcement, et cetera. And
the maximalization of value i e. Compensating those affected as
best as possible. John reveals that the information in this
(05:10):
bankruptcy filing is based on his knowledge of what was
going on at f t X. Obviously, the information is
likely to be incomplete, hence why John notes that f
t X will submit additional information in the coming weeks
as it's unearthed. In other words, this still might just
be the tip of the iceberg. Now, the first part
(05:33):
of the bankruptcy filing details how f t X was structured.
John identifies for groups of businesses which he refers to
as silos. The first is called the w R S silo,
and it includes all of f t X, S U
S companies and subsidiaries. Now, for the sake of simplicity,
(05:53):
I'll refer to the w R S silo as the
f t X U S silo. The second silo is
the Alameda silo, which includes all the companies related to
Alameda Research, which was one of the biggest traders and
market makers in crypto. Alameda was actually the largest recipient
of all the U S DT ever issued by Tever.
(06:14):
More about that in the description I digress. A footnote
for the Alameda silos balance sheet notes that Alameda Research
loaned one billion dollars to Sam Bankman freed over five
D forty million dollars to engineering director Nishad Singh. And
over fifty million dollars to f t X co CEO
(06:35):
Ryan Salame. The third silo is the ventures silo, which
includes all the companies related to ft x's investment activities.
Now John refers to the fourth silo as the dot
com silo. This is a little confusing since the dot
com silo includes all of f t x is overseas
companies and subsidiaries. So let's just call this the ft
(06:59):
X BBAL silo. Now, John explains that these four silos
make up the f t X Group. Not Surprisingly, Sam
Bankman Freed was the controller of all four silos. John
notes f t X and Alameda Research co founder Gary
Wang as a minority shareholder in f t X group,
along with Nishad Singh, who was apparently also a co founder.
(07:21):
What's crazy is that no other investors besides Sam, Gary,
and Nishad held more than two percent of any of
the silos. What's even crazier is that f t X
had raised two billion dollars before going bust. This means
that those investors got basically nothing in return, which raises
lots of questions in my book. Anyways, what you're looking
(07:45):
at here is a breakdown of the four silos, along
with the ownership stakes that Sam, Gary Nishad and other
investors had in them. If you're just listening in, Sam
held fifty of the f t x U S silo,
of the Alameda silo, sixty seven percent of the Venture silo,
and seventy five percent of the f t x Global silo.
(08:05):
Third party investors only held two percent of the f
t x U S silo and twenty five percent of
the f t x Global silo. The rest was owned
by the trio. John also provides a corporate structure chart
for these silos and their sub surgeries. Now, there's honestly
too much information to go over here, and it's also
(08:26):
kind of pointless to summarize since John cautions that it's
preliminary I incomplete. The link to the full bankruptcy filing
will be in the description if you want to take
a closer look. The company organization chart is on the
very last page. Anyways, John goes on to give a
detailed breakdown of each of the four silos, starting with
(08:48):
the f t x U S one. He begins by
explaining that the f t x US Exchange itself had
over one million users and was registered with the Department
of the Treasury as a money services business. Not only that,
but one of the subsidiaries of f t x US
was registered with the SEC. Some of you may have
(09:10):
heard that there are peculiar connections between f t x
Alameda Research and the SEC via SAM and Alameda CEO
Caroline Ellison I reckon this SEC registration is another peculiarity
to add to that pile. After talking about all the
other subsidiaries that were owned and operated by the f
(09:31):
t x U s silo, John reveals that these subsidiaries
hold around one point four billion dollars in assets. However,
he cautions that the numbers are likely incorrect due to
Sam's involvement in the balance sheet report. It was also unordered. Interestingly,
the f t x US silo appears to have just
under four hundred thousand dollars of liabilities, that is debt.
(09:55):
John notes that this can't possibly be accurate given that
f t x US presume be held billions of dollars
in user assets, which would count as liabilities but are
not noted in the balance sheet report. Next, John gives
a detailed breakdown of the Alameda silo, as with the
f t x U S silo. John cast doubt on
(10:16):
the idea that Alameda Research had thirteen point five billion
dollars in assets and just five billion dollars of liabilities.
This is again because the balance sheet report was provided
by SAM and unordited. Like the others. For the Ventures silo,
the balance sheet has been divided into two for the
two major subsidiaries of the silo. Together, these two subsidiaries
(10:39):
had two billion dollars in assets and an almost equal
amount in liabilities, though John says it is once again
unknown whether their balance sheets are correct. And last, but
not least, we have the ft X Global Silo, and
John admits that his team couldn't figure out how many
users the ft X Exchange actually had. All they know
(11:01):
for now is that SAM claimed f t X head
quote millions of users who had over fifteen billion dollars
of crypto on the exchange at the end of one
the most likely cooked books claimed that f t X
had over two point to five billion dollars of assets
versus less than five hundred thousand dollars of liabilities. As
(11:24):
with f t x U S, it's essentially guaranteed that
f t X is liabilities were exponentially larger due to
the billions of dollars of customer assets that were on
the exchange. The second part of the bankruptcy filing explains
the events that happened shortly before the filing itself took place.
John explains that the freeze on ft x's assets by
(11:47):
Bahamas regulators shortly before the bankruptcy filing only applied to
one of the subsidiaries of the f t X Global
silo explains a lot. As for Sam, he was consulting
with numerous lawyers, including his own father, about his resignation
as CEO and the commencement of ft x is bankruptcy.
(12:07):
At around four thirty a m. On the eleventh of November,
Sam conceded defeat and handed over control of all of
f t X to John, who immediately filed for Chapter
eleven bankruptcy. This ties into the third part of the
bankruptcy filing, which explains what John has done since that point.
The first thing he did was established a governance structure
(12:30):
for f t X and each of its four silos,
something you'll recall as being the first of the five
Chapter eleven bankruptcy objectives. John explains that he and the
newly appointed directors of the four silos will work together
to meet all five objectives of the Chapter eleven bankruptcy.
He acknowledges that this will be easier said than done,
(12:51):
as all four silos are interrelated and could therefore have
overlapping claims on the same assets. John then die its
deeper into f t x is financials, and many of
his findings made the headlines. The first finding was that
f t x did not keep track of its cash balances,
bank accounts or the people who oversaw those bank accounts.
(13:15):
They also didn't consider the quality of banks they were using.
John explains that his team will do their best to
find f t x IS cash and transfer it all
to financial institutions in the United States. Naturally, each silo
will have its own account. Now, I couldn't help but
notice that these cash transfers will only occur if they
(13:37):
can be done quote without adverse consequences. I wonder what
that means conspiracies aside. So far, John and his team
have managed to dig up over two dozen ft X
bank accounts around the world that collectively hold over five
hundred million dollars in cash. The relevant banks have been
instructed to freeze all these accounts and not to process
(13:59):
withdraws for SAM or other signatories. Now, if you thought
f t x's bank account situation was sketchy, consider the
company's financial reporting. While the f t X u S
silo was being properly audited, the f t X Global
Silo was being audited by a questionable auditing firm that
(14:20):
claimed to be the first to open offices in the
Central Land. To add insult to injury, John couldn't find
any audited financial statements for the Alameda silo or the
Venture silo. He admits that it's going to take some
time to accumulate accurate financial information about the four silos.
(14:41):
Something tells me that those balance sheets will have a
lot of black holes. Did I mention that f t
X is Empire didn't even have an accounting department Anyhow,
It turns out that f t x is human resources
department wasn't any better than its financial department. John said
his team hasn't even been able to put together a
(15:03):
list of f t X employees because none of the
four silos had detailed records of that information. They didn't
even have board meetings for what it's worth. John says
he's been working closely with a core team of f
t X employees to figure out exactly what's going on.
Many of you probably heard the news that almost everyone
(15:25):
except Sam's in the circle was in the dark, and
many f t X employees also had their money on
the exchange. As expected, f t xs disbursements, that is,
payouts were about as disorganized, with employees having to submit
paycheck requests in a company chat room. As reported, some
(15:45):
of f t x's capital was used to acquire properties
in the Bahamas. The records of these transactions are of
course a complete mess. Regarding the custody of cryptocurrency, f
t X didn't keep any detailed record there either. If
I understand correctly, only Sam Bankman Freed and co founder
Gary Wang had access to the private keys for all
(16:09):
the crypto wallets of the f t X empire. These
private keys were transferred around using unsecured emails. By now,
most of you will know that Sam and Gary use
secret software to mask their misuse of customer funds, and
that Alameter Research was exempt from auto liquidation on f
(16:30):
t X. In plain English, this means that Alameda could
enter extremely risky trades and not lose money if the
trade went against them. The game was rigged in their
favor and they still lost. John also confirms that the
f t X Global silo and Alameda silo were both
governed by Sam and Gary. This is something that I
(16:53):
was wondering about in our video about the ft X
Alameter situation. It's insane to think that much of the
info has come out since that video. It will be
in the description if you missed it now. The bad
news is that John and his team have only been
able to locate around seven hundred and forty million dollars
of cryptocurrency held by f t X. This balance doesn't
(17:18):
include the almost four hundred million dollars of crypto that
was stolen from f t X, nor the three hundred
million dollars of ft T that was recently printed. What's
odd is that John seems to imply that Sam, Gary
and the other higher ups at f t X haven't
been able to identify other crypto wallets that may belong
(17:38):
to the exchange. This is odd because they damn well
should know, given that they were the only ones with
access to the private keys. I suppose it doesn't matter
because blockchain analytics companies are already hard at work tracking
down every transaction that went in or out of ft X. Ironically, enough,
(17:59):
chain Allie, this the largest blockchain analytics company, recently confirmed
that it had exposure to f t X. John reiterates
the fact that most f t X employees had no
idea what Sam and co. Were up to. They had
no idea that the assets of f t X and
Alameda were being traded back and forth, nor that the
(18:21):
cryptocurrencies of f t X users were being commingled with
the company's cryptocurrencies. Speaking of which, John confirms that f
t X had billions of dollars in other investments outside
of cryptocurrency. This is something that Caroline had mentioned on
Twitter during the chaos, but many people were skeptical. The
(18:42):
list of skeptics seems to include John, as his team
has yet to identify these other assets. This is all
because of f t X is unbelievably bad record keeping,
which extended to internal communication. Quote Sam Bankman. Freed often
communicated by using applications that were set to auto delete
(19:04):
after a short period of time, and encouraged employees to
do the same. The conspiracy theorists aren't going to have
a field day with that one. Now. Despite all these hurdles,
John assures the court that his team is collecting as
much information as possible about f t X as operations.
They're working with former and current regulators and law enforcement
(19:28):
around the world to that end. John and his team
are also working to sort out all the different subsidiaries
f t X had around the world, including selling them
if they have any value. You can bet that competing
crypto companies are going to be keeping an eye out
for those fire sales. Now, what court my eye was
(19:48):
the section about access to data. That's because John notes
that his team cannot access certain data because quote the
debtors have been advised that attempts to access this property
of the estate may create a risk of its loss
to unauthorized persons. John hints that this data is related
to the largest clients of f t X, as he
(20:10):
claims his team cannot make a list of the top
fifty largest creditors without it. I reckon this list will
eventually be produced, but it certainly begs the question of
what information will be admitted in closing. John takes a
dig at Sam, saying that he quote continues to make
erratic and misleading public statements on Twitter, and that these
(20:32):
statements should effectively be ignored. I reckon they're hard to
ignore when Sam should already be behind bars and not
tweeting or playing video games. So this brings me to
the big question, and that's what effect f t X
is bankruptcy filing is likely to have on the crypto market.
In short, it's going to be really bad. And that's
(20:55):
simply because f t X was believed to be one
of the most trustworthy crypto companies in existence. I mean,
take a second to consider that Sam was on a
first name basis with politicians, was actively pushing for crypto regulations,
and was allegedly in bed with the SEC and others.
The ft X exchange received billions of dollars of investment
(21:18):
from big names, including asset managers like black Rock. Heck,
even a Canadian pension fund invested in it. This gives
the impression to politicians, regulators, and even crypto holders that
no matter how clean a crypto company appears to be,
chances are it's doing something shady behind the scenes. The
(21:40):
supposedly high quality of other crypto exchanges is now being
called into question. And it's not good. You can bet
your bottom bitcoin that we're going to see lots of
investigation into not just f t X, but every other
crypto exchange out there. This is almost guaranteed because ft
(22:00):
X and Alameda were massive players in the crypto industry.
This means they probably have lots of information about every
crypto company. As I mentioned earlier, Alameda Research was the
largest recipient of all the USDT ever issued by Terror.
This means there is a high likelihood that Alameda has
(22:21):
more information about Tether than any other crypto company besides
Tether itself, and it's likely this information will be revealed
very soon. On that note, the information that f t
X and Alameda have about counterparties maybe why Sam isn't
in prison. If it's true that f t X and
(22:42):
Alameda were working with the U. S Government in some capacity,
then you can bet that Sam has lots of information
on Uncle Sam to information that powerful people don't want
made public. Now, this is just my speculation, but to
my mind, it's the only explanation as to Sam continues
to be living life as usual despite doing tens of
(23:04):
billions and dollars in damage to ft X is users.
And the wider crypto industry. It's probably a similar situation
for the other insiders at ft X and LAMED. In
any case, it's clear that we're nowhere close to getting
the full facts about what happened behind the scenes. Until
we do, there will be no shortage of conspiracy theories,
some of which could well turn out to be true.
(23:26):
There will also be no shortage of scrutiny directed at
the crypto industry, and to be honest, much of it
will be justly deserved. Hold on tight. The collapse of
f t X and Lameter Research has left crypto holders
wondering what other exchanges might be doing with their customers
(23:49):
coins and tokens behind the scenes. The call for transparency
by the crypto community has been answered by most major
cryptocurrency exchanges, which have published proofs of their crypto reserves
over the last two weeks. Today, I'm going to explain
what proof of reserves means, scrutinize the crypto reserves of
some of these exchanges, and examine whether decentralized exchanges will
(24:14):
take over as a result. F t x is shenanigans
have inevitably led to questions over the reliability and trustworthiness
of other exchanges, and rightly so. F t X secretly
sent billions of dollars of its users cryptocurrency to prop
up its sister trading firm, Alameda Research. This is why
(24:34):
f t X couldn't process all the crypto withdraw requests
coming from its users, and ultimately why the exchange had
to file for bankruptcy. Oddly enough, it was Binance CEO
Chang Peng Zhao or c Z who proposed a solution
to the crypto community's collapse in trust. I say oddly
because CZ's tweet that Binance would be dumping its ft
(24:57):
T is one of the catalysts that lead to t
X and alamedas collapse. On the eighth of November, CZ
tweeted quote, all crypto exchanges should do mircletrey proof of reserves.
Banks run on fractional reserves. Crypto exchanges should not. Finance
will start to do proof of reserve soon full transparency. So,
(25:21):
for those unfamiliar, proof of reserves or p o R
essentially involves taking a cryptographic snapshot of the coins and
tokens held by a cryptocurrency exchange. Now, it's important to
note that p o R is supposed to be done
with the help of an independent third party or protocol.
In this case, it looks like most cryptocurrency exchanges have
(25:43):
been working with blockchain analytics platform Nansen for their po rs.
I'll leave a link to Nansen's exchange holding page in
the description if you're interested. Now, another thing that's important
to note is that p o R is also supposed
to include the liabilities of a cryptocurrency exchange. In this context,
(26:04):
liabilities means the coins and tokens and exchange is holding
on behalf of its users. Obviously, these coins and tokens
don't technically count as an exchanges assets. If you watched
our recent video about f t x is bankruptcy filing,
you'll know that both f t x u S and
(26:24):
f t x International didn't count their users crypto as
liabilities on their balance sheets. This basically made it look
like both had enough crypto on hand to meet withdrawal
demand when they really didn't. Now, the only exchanges that
have included liabilities in their proof of reserves so far
(26:45):
have been Kraken, which actually began doing po R back
in February, gate dot Io, which uses the same accounting
firm as Kraken, Armanino, and okay x, which apparently reported
its own liabilities without an accounting firm. Funnily enough, coin
Base has not provided p o R for assets or liabilities.
(27:06):
Coin Bay c o O Emily Choi explained to coin
Desk that this is because coin base is regularly audited
as a publicly traded company, so its balance sheet is
already fully available. I'll leave a link to it in
the description if you're interested, and before I go on,
I will caution that even if an exchange has done
(27:27):
thorough p o R for both its assets and liabilities,
there is no guarantee that your crypto is safe on
that exchange. This is simply because you can never know
for sure that the individual or institution that crunched the
numbers is being honest. The only way to guarantee the
safety of your cryptocurrency is to keep your coins and
(27:50):
tokens in your own personal, non custody or wallet. It's
also the only way to guarantee your financial freedom, because
having millions in the bank means nothing if you don't
have the ability to spend that money when and how
you want. Seriously, guys, I can't stress this enough. Be
(28:10):
sure to check out my recent video about how to
keep your crypto safe. It too will be in the description. Now,
the first p o R I want to analyze comes
from Binance, which was, of course, after Kraken, the first
exchange to provide p o R. If I had my
tinfile hat on, i'd tell you that Binance lad the
charge for p o R to further squeeze its competitors.
(28:32):
Then again, other exchanges probably wanted to do p o
R to increase user confidence. In any case, the top
assets on binances balance sheet are as follows THT in
the b U s D stable coin, in the U
s D T stable coin, in BTC, just under ten
(28:52):
percent in b NB, eight percent in each, and the
remaining sixteen or so percent in other cryptocurrencies. Grand total
sixty seven billion dollars. Now, this would be amazing were
it not for the fact that Binance has yet to
publish proof of liabilities, specifically of user deposits. With an
estimated thirty million users, it's very likely that binances liabilities
(29:15):
are very large and likely on par with its assets,
as with other exchanges that have revealed their liabilities. That said,
in a Twitter spaces discussion, ces explained that Binance has
no liabilities. This doesn't make much sense given that the
exchange obviously holds the coins and tokens of many of
(29:35):
its users. This is admittedly concerning, but Binance should be
publishing its liabilities soon. More about that later in the interim.
We're likely to see no shortage of hit pieces such
as this one from Bloomberg, which took issue with the
fact that around fort of Binances reserves are held in
its own branded assets, namely b U s D and
(29:58):
b NB. Easy called the article fake news, and rightfully
so to some extent. That's because even though b U
s D is branded as Binances stable coin, it's actually
issued by Pasos, a heavily regulated stable coin issuer based
in the United States. Pasos actually seems to be the
most regulated stable coin issuer of them all, which theoretically
(30:21):
makes b U s D the safest stable coin finances.
Holdings of U s DT are more concerning, though. Tether
has already been under extreme scrutiny from US regulators for years.
Given that Alameda Research was the largest recipient of all
the U s DT ever issued, I suspect that this
scrutiny will soon return and possibly with even more intensity.
(30:46):
Don't even get me started about all the pending stable
coin regulations either. It's a similar story with b NB two.
If you watched our video about b NB you'll know
that it was created by Binance way back in twenty
seven team when it was known as binance Coin. B
n B became independent of Finance earlier this year and
rebranded as Build and Build, but b nbs ecosystem is
(31:10):
still dependent on Binance. If you want more of an
overview of Binance as an exchange, then you can check
out our review over here. Anyways, the second p o
R I want to analyze comes from crypto dot Com,
which was the second exchange to release its p o
R after Binance. If I recall correctly, Crypto dot Com
(31:32):
was planning on releasing its p o R closer to
the end of the month, but rush to release an
initial po R after questions arose about the exchange of solvency.
These questions arose because of the announcement by Crypto dot
Com that it was pausing deposit and withdrawals of USDT
and USDC on the Salana blockchain. What strange is that
(31:54):
this is exactly what Binance, okay x and other exchanges
did shortly afterwards, yet there were no cerns there in
any case. The top assets on Crypto dot COM's balance
sheet are as follows in BTC, in U s D,
cent in ship, even in EA, just under four percent
(32:14):
in U s DT, and around eighteen percent in other
cryptocurrencies grand total three billion dollars. Note, Crypto dot Com
claimed in its por release that it has more crypto elsewhere.
Like Binance, Crypto dot Com has yet to publish proof
of its liabilities. These liabilities are likely to be even
(32:36):
larger than Binances, given the Crypto dot Com claims to
have over fifty million users. This certainly begs the question
of why there's such a large difference between the assets
held by Binance and by Crypto dot Com. The answer
seems to be on chain. Shortly after Crypto dot Com
released its p O R, it was found that the
(32:57):
exchange transferred three twenty thousand e worth over four hundred
million dollars to gate dot Io in late October, which
was returned a few days later. Crypto dot Com CEO
Chris Marcellek claimed the transfer was just a mistake. It's
safe to say that the crypto community wasn't convinced because
(33:17):
Chris had to hold an emergency a m A to
clear up the confusion. Now I have yet to watch
that a m A, but it seems it was enough
to calm Crypto dot COM's holders since the exchanges chronos
coin pumped shortly afterwards. When it comes to Crypto dot
COM's actual assets, its balance sheet is definitely a mixed bag.
(33:38):
Having BTC as its largest holding is a bit risky
giving all the crypto market volatility. Having almost all your
stable coin holdings in circles USDC is likewise unwise. In
my opinion, I suppose it reveals which entities Crypto dot
Com is close to. More about the company taking over
cryptocurrency using the link in the description digress. Now, not surprisingly,
(34:03):
the news that Crypto dot Com holds a fifth of
its asset reserves in shiba e news ship token made
the crypto headlines. That's because ship is a meme coin
whose value is fundamentally reliant on retail speculation, which has
been quickly sucked out of the crypto market as it crashes.
Chris explained in the aforementioned a m A that quote
(34:24):
it so happens that last year does and ship were
too extremely hot meme coins and people bought a lot
and they're holding it. They didn't sell it. We have
no control over what you guys buy. You buy it,
we will store it, we will keep it safe. Now,
this actually makes a lot of sense, but it won't
(34:45):
be confirmed until crypto dot com publishes its liabilities. If
I understand correctly, this will be done in the next
few weeks, as the blog post announcing crypto dot COM's
assets p o R notes that it will confirm a
quote full to one reserve of all customer assets. Anyhow,
the third po R I want to analyze comes from
(35:07):
okay x, which you'll recall included liabilities, albeit self reported ones.
Okay x release its proof of reserves just a few
days ago, but what's annoying is that the proof of
reserves on its website doesn't tell us all that much.
That's because it only gives us info about okay x
is BTC eight and usd T holdings. Okay x claims
(35:31):
to hold around one hundred eight thousand BTC against one
hundred five thousand BTC of user holdings for it's one million,
fifty thousand against one million twenty five thousand, and for
USDT it's three billion sixty million against three billion, sixteen million.
The main takeaway is that okay x appears to have
(35:53):
more crypto on hand than the crypto that's been deposited
by its users. Now, this is excellent, but again it
doesn't include the other dozens of cryptocurrencies the exchange offers.
It's also not clear which accounting firm was involved, if any. Unfortunately,
Nansen doesn't have any additional data either. According to Nanson,
(36:16):
the top assets on okay x's balance sheet are as
follows almost fifty in USDT, pent in BTC, in five
pent in u s DC, and just a fraction of
a percentage point for all the other cryptocurrencies the exchange offers.
Okay x's blog post announcing its proof of reserves notes
(36:38):
that it will publish asset and liability information about the
other cryptocurrencies it holds soon to be exact. The exchange
said that the self audit feature will become available for
all these other cryptocurrencies. This is a small but significant
detail because self auditing means that okay x users can
(36:58):
cryptographically verify that the exchange holds the coins and tokens
it claims to. If I'm not mistaken, Kraken, Bitmex and
gate dot io are the only other crypto exchanges that
currently offer this feature. To my understanding, Finance, crypto dot
Com and others will be providing this same level of
(37:19):
transparency over the coming weeks. The only reason they don't
offer the self audit feature already is because most of
the info that's been released so far is the walllett addresses,
not the cryptographic proofs of reserve. Oh and in case
you're wondering, the grand total of okay x is crypto
holdings is around six billion dollars with around twenty million users.
(37:42):
It sounds like okay x is well capitalized, but as
with all the other exchanges so far, the devil is
truly in the detail. Although holding most of your reserves
in stable coins is safe, it's a lot less safe
when almost all these stable coin reserves are in one
specifically Tether's U s d T. As I mentioned earlier,
(38:03):
Tether is facing its fair share of regulatory scrutiny from
the United States and other countries. That is a bit
risky in my opinion. Even so, okay x is incomplete
reserves paint a fairly promising picture. The remaining fifty is
in BTC, E and USDC, and all three are pristine
(38:24):
collateral by crypto standards. Let's just hope that okay x
doesn't reveal that it's holding a massive chunk of its
reserves in some meme coin later down the line. Now,
if you want to do a bit more due diligence
on okay x, then we also have a review of
that as well, and I will leave that in the
description for you folks. Anyhoo. The fourth and final po
(38:47):
R I want to analyze comes from cow cooin, which
released all its wallet addresses earlier this month and is
working on a cryptographic po R with a third party auditor.
The blog posts announcing cou cooin's wallet notes the cryptographic
po R will be published in early December. In any case,
the top assets on cou Cooin's balance sheet are as
(39:08):
follows in U s DT just under eighteen percent in KCS,
eleven percent in BTC, around eight percent in EATH, around
seven percent in U s DC, and in everything else.
Grand total two point five billion dollars of assets to
back whatever liabilities are coming from cow cooin's twenty million users.
(39:31):
Like okay x and crypto dot Com, coucoin has almost
all of its stable coin eggs in one basket, in
this case USDT. This seems to be the standard for
most crypto exchanges that aren't based in the United States,
and it underscores how much damage would be done to
the crypto ecosystem if tether is ever taken down. Similarly
(39:52):
to binance, cow cooin holds a substantial chunk of its
reserves in its own KCS token. In contrast to finances BMB,
cow Cooin's kcs has limited exchange support and very low liquidity. However,
the k c s chain also doesn't have nearly the
same amount of activity and adoption as BMB. This means
(40:14):
that the k CS tokens price action is entirely dependent
on cow cooin. If the exchange ever were to experience
any issues, kcs is price would plummet. In a worst
case scenario, this could wipe out almost twenty of cou
cooin's crypto reserves. Now, the remainder of coucoin's reserves are
interesting yet expected, barely a fifth in btc anda and
(40:37):
almost a quarter in mid to small caval coins. This
makes sense because cou cooin is one of the most
popular exchanges to go to for mid to small cabal coins,
and the ones at list tend to be pretty good
as well. Now I should also note that coucoin's blog
post about its wallet addresses also states that it has
more reserves than it has reported so far. The fact
(41:00):
that coucoin will be providing cryptographic po are also suggests
that the exchange will be providing the liability side of
its crypto balance sheet too. This is all well and good,
but I'll reiterate that the only way to know for
sure that your cryptocurrency is safe is to keep it
in your own personal wallet. Only keep what you're actively
(41:22):
trading on exchanges. Otherwise, keep everything in a hot or
cold wallet, and don't say I didn't warn you. That
being said, if you want an overview of coucoin more broadly,
I have a video for you on that as well.
Top right, poor Furborn. So this brings me to the
(41:45):
big question, and that's whether decentralized exchanges are destined to
take over due to the transparency issues of centralized exchanges.
In short, yes, but it's going to take quite some
time for the decks experience to eat the sex experience.
For starters, there's the trading experience. Using a dex is
(42:06):
not nearly as easy as using a sex For crypto neuves,
dex is also don't provide nearly the same degree of
flexibility to crypto experts. The good news is that progress
is being made on both fronts. By while it's like
phantom and order book DEXes like GMx. Then there's the
ability to swap between native cryptocurrencies. Sexes effectively let you
(42:30):
trade whatever cryptocurrency you want, whereas most DEXes only allow
you to trade between tokens on a single blockchain. This
is not ideal, as some trades require multiple DEXes and
cross chain bridges. The good news is that there are
crypto projects like thought chain, which make it possible to
swap cryptocurrencies natively between blockchains. These technologies are still very
(42:54):
much in their infancy, but I could see an order
book based cross chain decks being built by the end
of the next bull market. And finally, there's the on
and off ramps. The biggest advantages that sexes have over
DEXes is arguably their ability to let users cash out
into filthy feared. Being able to easily get your money
(43:15):
in and out of crypto is of paramount importance, and
it's something that DEXes haven't yet managed to do due
to all the regulations involved. The good news is that
it should become easier to get your money in and
out of crypto once it becomes more widely held. Peer
to peer crypto marketplaces were and continue to be something
(43:35):
associated with privacy obsessed cipher punks, but they could become
very common as crypto adoption increases in some I am
confident that DEXes will displace sexes in the coming years.
I reckon this will be accelerated by crypto regulations, which
will only be enforceable against centralized elements of the crypto industry.
(43:56):
The truth is that all centralized elements must be removed
for this to be called crypto. Take a second to
consider that it's the centralized entities which have historically caused
and continue to cause all the issues in the crypto industry.
It's part of the growing pains, and it is in
fact something that the crypto industry should eventually grow out of,
(44:18):
otherwise we'll end up with more of the same. After all,
what f t X and Alameda we're doing is no
different from what banks do today. The only differences the
banks get bailed out by the central banks when they
lose all their clients money speculating on risky assets with leverage.
The crypto companies who do this just go under, as
(44:39):
they should. Stronger crypto companies rise to replace them, however,
until their flaws are found and they collapse too. And
with each iteration, the crypto industry moves closer to its
core values because that's all that's left when the greed
and gains are gone. It will take time, but one
day we will no longer have to trust. We will
(45:03):
simply verify. And that's it for my video today, folks.
But I'm keen to get your feedback, though. Do you
trust these proof of reserves? Let me know down below
if you wanted to use any of the exchanges above,
I've managed to get special trading feed discounts of up
to on some of them, so if you want to
take advantage of that, they're linked to in the description below. Now,
(45:25):
of course, we also get a commission when you do this,
because it's how we keep the lights on here and
we both benefit or You're more than welcome to sign
up directly without our deal, and the links to do
so are down below as well. Just remember, whatever you do,
don't leave a large amount of funds on the exchange.
(45:46):
It is not worth the risk. Thank you so much
for listening to the coin Bureau podcast. If you'd like
to learn more about cryptocurrency, you can visit our YouTube
channel at YouTube dot com forward slash coin Burero. You
can also go to coin bureau dot com for loads
more information about all things crypto. You can follow me
on Twitter at at coin bureau or one word, and
(46:09):
I'm also active on TikTok and Instagram too.
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