Interesting article, but you don't mention at all how soon their loans need to be paid back, which is the key detail to understand. An entity isn't insolvent just because its liabilities exceed its liquid assets, otherwise by that definition any individual with a mortgage would be considered insolvent.
Well in both cases the collateral is illiquid. You may be right about FTT being overvalued, but I'm not completely convinved by your argument based on on-chain metrics. FTT is an exchange token so it's not really a surprise that most of its trading will be done through FTX. Comparing to a token like LINK is an apples to oranges comparison, it would be more useful to compare to other exchange tokens such as BNB.
The key metrics to understand here would be A) the repayment terms of the loans, B) the available liquidity of the collateral and C) the operational income available to service the debt. I'm much more worried about a liability due in the next year to one due in 30 years!
B) available liquidity of the collateral is the issue. These tokens are owned disproportionately by SBF and there is little volume in any of them. Also many are locked and therefore digitally illiquid. Commercial loans always have various metrics, that if violated, will trigger acceleration. Debt service coverage ratio is an example. The question is whether these lenders choose to accelerate or not. As long as they remain anonymous, they don’t have to do anything, but if their investors get wind of the status of the collateral on this deal, they may be compelled to act.
Not sure that the original comment (rynado) is even "technically" correct; liquidity is generally evaluated using current assets with respect to current liabilities (current ratio). While I didn't see the balance sheet the author referred to, I am going to assume with a high level of confidence that the current ratio was less than 1 (probably closer to 0) and therefore the entity is at minimum a "going concern", if not illiquid; and as we know now, both illiquid and insolvent.
Today, November 16, I just found out about this Substack . It is great being able to read after the fact all the comments that are posted here refuting the main article. Truly an education.
Can anyone here explain how Tether managed to exit over $30B of commercial paper in such a short period of time? Was it all above board, or does anyone suspect that SBF and CZ moved some assets around just long enough to satisfy the accountants performing the attestation?
Since cryptocurrency is a giant Ponzi/Nakamoto scheme and a steaming pile of horse shit, yes. It’s all BS of the highest order and this generation’s scam. SBF actually stands for Scam Bank-Fraud.
Great article. Thank you. I personally support a complete boycott of anything to do with FTX. I am happy with the deep, balanced and time tested experience I receive at BnkToTheFuture.com👍🙏
You are aware that over a dozen of the largest banks in the world have been insolvent for over a decade, right? The trick of not being simultaneously insolvent and illiquid has been a perpetual chore for the Fed, the IMF, the World Bank and the BIS. We're talking about Deutsche bank and the five or more major banks in the US etc.
Really great piece
Interesting article, but you don't mention at all how soon their loans need to be paid back, which is the key detail to understand. An entity isn't insolvent just because its liabilities exceed its liquid assets, otherwise by that definition any individual with a mortgage would be considered insolvent.
No, as the other reply states, a mortgage is a secured loan. You own the property with a lien against it.
What SBF is doing here is getting a mortgage, except the “house” is a cardboard facade with no realizable value.
Well in both cases the collateral is illiquid. You may be right about FTT being overvalued, but I'm not completely convinved by your argument based on on-chain metrics. FTT is an exchange token so it's not really a surprise that most of its trading will be done through FTX. Comparing to a token like LINK is an apples to oranges comparison, it would be more useful to compare to other exchange tokens such as BNB.
The key metrics to understand here would be A) the repayment terms of the loans, B) the available liquidity of the collateral and C) the operational income available to service the debt. I'm much more worried about a liability due in the next year to one due in 30 years!
You need to re-educate yourself on the difference between liquidity and solvency.
seasoned beautifully.
you are the one that needs to be re-educated, he is correct.
lmao this aged so well
B) available liquidity of the collateral is the issue. These tokens are owned disproportionately by SBF and there is little volume in any of them. Also many are locked and therefore digitally illiquid. Commercial loans always have various metrics, that if violated, will trigger acceleration. Debt service coverage ratio is an example. The question is whether these lenders choose to accelerate or not. As long as they remain anonymous, they don’t have to do anything, but if their investors get wind of the status of the collateral on this deal, they may be compelled to act.
Mortgage is secured by asset.
You're technically right, but the illiquid assets are worthless so total assets are basically equal to liquid assets.
Not sure that the original comment (rynado) is even "technically" correct; liquidity is generally evaluated using current assets with respect to current liabilities (current ratio). While I didn't see the balance sheet the author referred to, I am going to assume with a high level of confidence that the current ratio was less than 1 (probably closer to 0) and therefore the entity is at minimum a "going concern", if not illiquid; and as we know now, both illiquid and insolvent.
Today, November 16, I just found out about this Substack . It is great being able to read after the fact all the comments that are posted here refuting the main article. Truly an education.
Thanks for taking some of the pain out of this mess. Great reporting.
Outstanding, new reader 👏
Subscribed...
Can anyone here explain how Tether managed to exit over $30B of commercial paper in such a short period of time? Was it all above board, or does anyone suspect that SBF and CZ moved some assets around just long enough to satisfy the accountants performing the attestation?
Insane. The loop of FTT tokens being traded (probably to show fake volume) is ridiculous.
Great article.
Since cryptocurrency is a giant Ponzi/Nakamoto scheme and a steaming pile of horse shit, yes. It’s all BS of the highest order and this generation’s scam. SBF actually stands for Scam Bank-Fraud.
Great article. Thank you. I personally support a complete boycott of anything to do with FTX. I am happy with the deep, balanced and time tested experience I receive at BnkToTheFuture.com👍🙏
The same scheme that destroyed Celsius network
Excellent article. The next obvious question, can we analyze Binance's balance sheet?
You are aware that over a dozen of the largest banks in the world have been insolvent for over a decade, right? The trick of not being simultaneously insolvent and illiquid has been a perpetual chore for the Fed, the IMF, the World Bank and the BIS. We're talking about Deutsche bank and the five or more major banks in the US etc.
Boy o boy
Another Ponzi Scheme as SBF will be going to jail
Great piece!
Wonderful!
Enjoyed every piece of it