Ben Hunt at Epsilon Theory has a more ‘master plan’-ish theory of what SBF was up to. As the Alameda-FTX empire became increasingly levered, the goal shifted into amassing as many crypto assets as possible. The whole SBF loves Regulators bit was an effort to get regulatory approval to clear his own trades. The piece does a great job mapping out how all the various entities could work together to bypass regulations, help hide losses, and become a classic Madoff-like ponzi scheme where new money came in to hide earlier losses. This seems like the clear second part of the story.

And that’s kind of where I am at the moment. I’m actually trying to give SBF some criminal mastermind, master plan credit. I cannot believe the whole FTX fiasco was simply mismanaged risk that got hit by a crypto winter and a CZ tweet. It was not just a bank run. SBF’s original sin was the FTX and Alameda relationship, and when you bring this insanely corrupt exchange-brokerage-market-maker-fund structure all together, the only crime should’ve been making too much money (Note 3). This feels less like a ponzi scheme and more like outright theft where their cash VC funding turned into a personal bank account, and it’s not more complicated than that. Even if your directional hedge fund is making a lot of really bad trades and even if your exchange is really bad at evaluating your customer risk and even if your brokerage is really bad at allowing for margin and even if your market-maker is really bad at making prices, when you have control over all of them in markets that you control…how do you lose all that money? It still doesn’t add up, at all.

Note 2: As more comes out about how absurdly lacking any risk controls were in the SBF empire, it reminded me just how important the risk controls at trading desks were. Our head of risk, every day, ordered the same Chicken and Broccoli lunch special from the same Chinese restaurant because “he knew what he was getting and it was good value.” I think that’s exactly who you want managing your risk.

FTX and How to Lose Money