👁 The Bankman-Fried Defenders Can't Stop
News Jan 30. Plus: Farcaster Frames, God's Crypto, and Fake Porn.
Late Friday, two Ivy League Professors - Stanford’s Jon Donohue and Yale’s Ian Ayres – published an incredibly stupid but also incredibly revealing defense of Sam Bankman-Fried titled “FTX Was Never Really Bankrupt.”
The pair trot out the wizened and hilariously vapid “run on the bank” argument, describing $8 billion in embezzled customer funds as “the temporary shortfall in cash and liquid assets needed to cover FTX customers’ remaining redemption requests.” Clearly, this is not a real argument, it’s a personal favor to SBF’s parents, who the authors describe as “friends.”
These prominent figures’ willingness to grossly debase themselves by putting such dross under their real names once again forces us to think of the FTX fraud as an elite conspiracy. Donohue and Ayres are doing their (pathetic, ineffectual) part to circle the wagons around not just their friends and institutions, but their entire class. Scroll down to read more.
But first, It’s time for your fintech, fraud, and crypto news for January 30, 2024.
In today’s edition:
Evergrande is Finally Dead - Right?
What are Farcaster Frames?
A Crypto Scam from God
Fake Taylor Swift Porn Goes Viral
Chris Dixon’s New Book
More Ivy League Professors Defend Sam Bankman-Fried
Soundtrack: 8Ball and MJG - “Buck Bounce” (NSFW)
Experimenting with a new feature - a soundtrack to your newsreading. DJ Quik uses a George Clinton sample here, as is his wont, but swerves it from G-Funk into Southern bounce. An all-time great.
Evergrande is Finally Dead. Maybe.
Chinese real estate megalodon Evergrande has been ordered to liquidate by a Hong Kong court. Their situation is frankly insane, with roughly $240 billion in assets versus around $330 billion in liabilities. That’s right motherfucker, that is a $90 billion hole, which is pretty much what you get when a huge company is a weird politicized public-private hybrid … thing.
But it’s unclear if even this order will blow the zombie company’s brains out, because the mainland apparently has a complicated relationship with Hong Kong courts! The liquidation process, if anything like that actually ever happens, is expected to be drawn-out and politicized. Because, just to reiterate, there is no such thing as rule of law in China.
Anyway this is relevant because you may remember Tether seems to have as recently as 2020 or 2021 held huge amounts of Chinese commercial paper, and RE paper specifically. The understanding is that they got out of those assets. Somehow.
What are Farcaster Frames?
Farcaster is a ‘sufficiently decentralized’ on-chain social network running on Optimism Mainnet. Frames are a new use of the OpenGraph data standard to embed not just media, but much more complicated experiences, within social posts. Someone built a Doom port. You can stream Tenet. You can mint NFTs, in a little window.
Frames have instantly become the buzziest topic in blockchain tech innovation since dropping just four days ago. They instantly make Farcaster itself, and OPNet in turn, much more worth paying attention to.
“What we have in Frames is a new Web 3 primitive that Web 2 could never really power: an easy way to run app X while a user is still inside app Y, with little coordination between X and Y,” writes early Facebook staffer Antonio Garcia Martinez.
A Crypto Scam from God
The Colorado Securities Commission has filed civil fraud charges against Eligio (Eli) and Kaitlyn Regalado, a pastor-and-wife duo. Eligio Regalado claimed that God told him to create a cryptocurrency called INDXcoin and an exchange called Kingdom Wealth. These were, of course, total frauds.
“Regalado targeted Christian communities in Denver and claimed that God told him directly that investors would become wealthy if they put money into INDXcoin,” according to the announcement.
Honestly, may God bless such old-school shittery, it’s so quaint it’s almost funny. Except, of course, that there were real victims here - $3.2 million from 300 victims, according to the CSC.
Matt Levine made the very funny point that the pastor got his scheme audited by a crypto security firm, and when the auditors reported that the INDXcoin code had an infinite money bug, Regolado still used “we got audited!” as a selling point. Extremely based.
Tangentially, the scam became evidence for FT columnist Jemima Kelly’s argument that “crypto” is still not “legitimate,” despite the SEC’s approval of a Bitcoin ETF. It’s not surprising that the FT would greenlight a column incorrectly citing a pastor’s roll-your-own scam as somehow a knock on Bitcoin, but it is nonetheless disappointing.
Fake Taylor Swift Porn Goes Viral
Members of a Telegram group reportedly used Microsoft Designer to create what are allegedly pretty heinous fake sexually explicit images of Taylor Swift. The original reporting came from 404 Media, a startup who deserve your support.
According to the Verge, one example was viewed 45 million times and was live for an incredible 17 hours on Elon Musk’s X.com. It seem seems the opposite of coincidental that Elon Musk is now promising a new 100 person trust and safety operation in Austin. (Leave aside for a moment that a) that might actually be enough people now that Twitter has shrunk so drastically? But also b) literally why would you put these people in Austin.)
Some interesting context from an Old Person is that these sorts of images were actually very common back in the 2000s, and were part of the conversation about “revenge porn” that played out at the time. But those were manually photoshopped images, not AI, meaning they were ultimately pretty easy to spot, flag, and scrub. Jailbreaking Midjourney, hypothetically, would make such imagery infinite, and therefore hard or impossible to control.
A difference of degree can indeed, sometimes, be a difference in kind.
Chris Dixon’s New Book
Andreessen Horowitz partner Chris Dixon has a new book out today called “Read, Write, Own.” Crypto types will rightly infer from the title that Dixon is setting out a literally “Web 3”-centric history of the internet, arguing that blockchain-based ownership is the next evolution of the digital world. I’ll be diving into this and reviewing it soon for Unchained.
Why Can’t Ivy League Professors Stop Debasing Themselves for Sam Bankman-Fried?
Finally, we return to that timeless question: What. The. Fuck.
You really don’t need to read any further than that. Two Ivy League professors have spent a thousand words repeating the same deceptive framing that Sam Bankman-Fried himself floated in the weeks before his arrest: That the shortfall of customer assets at FTX was just an innocent, temporary asset-liability mismatch. A proverbial “run on the bank” – the exact misleading metaphor that I was already debunking back in November of 2022.
This is all stupendously embarrassing. SBF’s criminal trial unambiguously established that FTX’s terms of service left title to the vast majority of user assets in the hands of users. FTX had no right to use those assets as bank-like leverage for outside speculation. So Ayre and Donohue’s argument is not actually a substantive rebuttal of Sam’s criminal conviction.
Or, to quote Judge Lewis Kaplan: “If I rob the Federal Reserve, and then win the lottery and put it all back, I still robbed the Federal Reserve.”
This is why Kaplan specifically barred SBF’s defense team - already hamstrung by their client’s diarrhea of the mouth - from even mentioning Anthropic, the main FTX investment that actually performed. Anthropic’s value may well play a role in making FTX depositors more whole, but that changes nothing about the underlying crime.
And frankly, Ayres and Donohue on some level absolutely know that. This isn’t just a piece I disagree with - it’s profoundly intellectually dishonest and should never have been published.
More subtly, Ayres and Donohue are echoing the debased consequentialist ethics of Barbara Fried and the Effective Altruists. The entire rationale for SBF’s misuse of customer funds, after all, seems to have been his belief that it was the quickest way to scale FTX, after which he would (of course) be able to pay it all back. Everyone would be whole and happy in the end, even if he bent one little tiny bit of the legally binding user agreement.
So Ayres and Donohue are basically just repeating SBF’s own pathetically flimsy rationale for his patently criminal behavior. This emptiness reveals the essay for what it really is: a ritual assertion of their class’s immunity from criminal justice. And nothing else.
They also write that “whatever else might be said about Bankman-Fried, he was a brilliant businessman.” Which, just, my God. This again seems to be the sincerely deluded belief of figures like Michael Lewis, but is patently absurd if you paid the slightest attention to SBF’s utter strategic ineptitude, total inattention to operations, and proud ignorance of the identities of important partners. Is it even possible to be a “brilliant businessman” when you don’t know who Anna Wintour is?
There are other nuances to the stupidity here, including Ayres and Donohue questioning John Ray III’s valuation of “less liquid tokens” among FTX assets. Ray has set many FTX assets to effective zero, but Ayres and Donohue refer to them (hilariously referencing Michael Lewis) as a “dragon’s hoard.” In fact, this largely amounts to a pile of truly valueless garbage like SRM tokens.
In the absence of any new argument at all, or even one that withstands even the slightest scrutiny, it becomes clear that what Ayres and Donohue are doing here is a favor for their friends. They acknowledge this relationship in the text itself, which raises the real question - why did Project Syndicate agree to publish this piece? It’s an opinion column, but even those are subject to a basic level of intellectual rigor and ethical review.
Those processes seem to have entirely failed here.
Imagine for a moment that your colleague (in any business of any kind) approaches you and requests that you explicitly put non-truths in writing to support their convicted criminal son. In any reputable business (you can deduce that I'm about to incriminate academia) you would not obviously destroy your standing and reputation. As an example, I would not tell you that polyethylene is a good material for making heat shields on spacecraft; everyone knows that polyethylene melts over 110 degrees. It would not make a difference if I said "it makes a great heat shield as long as it is never exposed to elevated temperatures".
However, imagine in return for those comments I was offered enough money to retire and never again have to worry about my professional reputation. Or, even better, imagine I was offered a large sum of money and my reputation in my field meant nothing at all. That my colleagues will nod knowingly that I'm only saying it to advance or protect the politics of our common friends.
I can't say whether the professors in question were offered quid-pro-quo, but in their shoes, I'd demand it and say whatever it required knowing full well there was zero professional penalty.