How FTX Went From $32 Billion To Bankrupt In 1 Week (#385)

Sam Parr

He predicts that Sam Bankman-Fried is going to get life in prison, and I thought that was an incredibly interesting prediction. You know, Bernie Madoff got 100 years. There's this other Ponzi scheme guy that I was reading about, based out of Texas, who also got like 150 years. So, it's not crazy that that could happen. You know, people who commit these Ponzi schemes involving hundreds of millions and billions of dollars often receive life sentences. Alright, we are live, Sean.

Shaan Puri

I'm in my my official crypto hoodie

Sam Parr

What is that? This is fine. Oh yeah, that's wonderful. Perfect hoodie for today. This is all I've been wanting to talk about. I purposely haven't texted you about this because this is all I wanna talk about. But like, maybe just give like a 3 to 5 minute background on what's going on. I think you're the guy that should be doing that, and then I wanna tell you some of the more interesting points that I think maybe haven't been covered or are less covered that I think are either hilarious or interesting.

Shaan Puri

Okay, great. And by the way, should we check if my... I have a $25,000 withdrawal that's... We will see. We'll see if FTX has any money left. I'm gonna check right now and see if it's come through. What do you think, yes or no? Did I get my $25,000 out?

Sam Parr

I think you I think you probably got it

Shaan Puri

I did it on November 9th. It's now November 14th. It said it would happen by today, and it is not in the bank account. There we go, just another disappointment. Okay, so why don't I have my deposit? Actually, it's not even a deposit. They advertise with us, and so they paid me inside FTX. I was just lazy and never withdrew it. Okay, so basically what has happened... Here's what happened for those who aren't following it that closely. FTX, which is a big crypto exchange, is a place you go to buy and sell different cryptocurrencies. It was, I think, the number 2 or 3 largest exchange in the world, used mostly internationally because it was kind of like, you know, people all around the world want to buy. I think 90+% of people buying crypto are international, and so FTX is huge.

Sam Parr

coinbase but bigger than coinbase

Shaan Puri

**Bigger than Coinbase, Binance is number one.** I think there's technically something number two, but really it's like Binance number one, FTX two, and sort of like Coinbase and the others, you know, come after that. Okay, so FTX, which was this blue-chip thing, was seen as this mega success story. You would see top investors in the world investing in this. Sequoia, which is a preeminent VC firm, along with like 50 others, were investing in this. He was on the cover of *Fortune* magazine, and it said, "The next JPMorgan," because he's this young guy who became one of the wealthiest men in crypto. They say FTX, at its peak, was worth about **$32 billion**, and this company is only like four years old, right? So it had this crazy explosive growth in valuation. Sam was said to be worth **$16 billion** himself. He's this genius trader and now entrepreneur. He's this crazy eccentric guy; the guy looks goofy as hell. He's a vegan who doesn't wear shoes and gives away all of his money for effective altruism or whatever. You know, he's got this sort of character that everybody wants to talk about.

Sam Parr

...of which I bought into very easily. You know, this like *crazy person* who sleeps on the floor of his desk and doesn't sleep on the beanbag, doesn't believe in normal stuff. And he's 29 or 30 [years old], worth north of $10 billion. He previously made over $1 billion by doing arbitrage with Korean cryptos. Just some crazy shit... I bought into it.

Shaan Puri

So that's the background. Most people are on this train of like, "Okay, I guess that's what it is." Then suddenly, last week, there was a series of events. We can go into however much detail we want, but these events basically caused a bank run on FTX. Users lost confidence that FTX was solvent, which means they said, "I gotta get my money off FTX." Just as I did, you hit the withdrawal button just in case there's any weird stuff going on. We've seen many things crash in 2022 in crypto: Luna, Voyager, Celsius. There was a handful of these things that crashed, so people said, "Better safe than sorry. Let's start withdrawing our money." That created a solvency and liquidity crisis for FTX. They didn't have the money to give, and everyone's like, "Where the hell's the money? Why don't you have the money? That's my deposit, that's my funds." You know, you go to the bank, you expect them to have your money. So FTX does not have their money. He comes out and says, "Everything is fine. All the assets are fine, guys. This is just a hoax from a competitor." There's a competitor trying to mess with us, blah blah blah. Binance is that competitor that he's talking about. So he's basically saying, "Oh, the big number one guy's coming after us, but we're fine, guys. Don't panic." People still panic, and in fact, he was lying. It turns out this guy was a giant fraud. You know, if you believe all the things that have been coming out—so allegedly, we'll say the word allegedly—this guy was lying, deceiving everybody, misusing customer funds, etcetera, etcetera. FTX goes under. It goes from a $20 to $30 billion company to a company that is now declaring bankruptcy. There are like $10 billion worth of customer funds that are gone, vaporized, unaccounted for. This guy's fleeing the country, and you know, all kinds of crazy stuff. So that sets the background. Now we can go into whatever parts you want to discuss.

Sam Parr

Alright, so there's been a lot of interesting things that have happened, and I want to name a few. You know, this story is a week old now, so a lot of the stuff has been covered on the facts. We can talk about the facts if we want, but I want to discuss some things that I think haven't been covered. First, the things happening on Twitter are amazing. This is all unraveling in real time on Twitter. One of the more interesting and funny ones is a Twitter handle called "Autism Capital." They are the most based citizen journalism in crypto. We are currently following the FTX saga, but please be patient; we have autism. That's their... that's their tagline.

Shaan Puri

task that's our source of truth

Sam Parr

by the way

Shaan Puri

that's that is who we are refuting on at times of trouble right now

Sam Parr

But listen, it's hilarious, and I think a lot of it's right. It's sort of like TMZ. TMZ is considered trash because they're fast-paced and they say a lot of stuff that eventually, every once in a while, they have to recant and say, "Oh no, you know, we got this wrong." But you know what? They fucking nail it. They called Prince being dead or about to die. They call all this other stuff, and that is exactly what's happening. There are all these interesting things that Autism Capital is tweeting. Like, SBF—that's this guy Sam, the founder—SBF did a master class, you know, the company MasterClass, on trading, and it was set to release in December. It's already been filmed. That's like an interesting thing they tweeted. Another interesting thing they tweeted is basically that SBF's right-hand woman was this woman named Caroline, who rumors say they were also sleeping together. She ran the hedge fund, so SBF owns all this weird collusion. She has a Tumblr that Autism Capital found, and it says she had a post called "World Optimization," where her kink is men who control most major world governments.

Shaan Puri

Like, that's just another... exactly. It's like people always say, "Oh, I want this," but what I want is like a man who controls societies, governments, things like that. It's like, what the hell are you talking about? Yeah, dude. So I've followed them. I mean, if you're in crypto, you follow these people. You know, Sam was considered one of the more blue-chip figures. Of course, there's always some people who are like, "This guy's full of shit," or "I don't trust this guy," or whatever. But they're like the small, small, small minority. The majority of people believed that FTX was this fast-growing company and that Sam was this really interesting, really smart founder. Then you knew the one part that was always shady. For example, when they advertised with us, they asked us to write a story on FTX. We were like, "Okay, great! We'll write the story about how you guys grew so fast, what tactics you used, why you grew so fast." We wrote the story, and then Ben and I were talking. We were like, "You know, the story's all perfectly rosy, and that makes sense. This is like a sponsor, a deep dive basically." But we thought, "You know, we should put in what are some of the concerns, even if nothing else, just to balance out the story so that it's not literally just a fluff piece." So we were like, "Well, what are some of the criticisms?" One was like, "Well, before he started FTX, he started this company called Alameda Research." Alameda Research is not a research company; it was a trading company. They just called it research so it sounded a little more serious. But basically...

Sam Parr

The rumors are like in Autissip Capital. I think also shared this. They're like, "Well, Sam said he wanted to call it Alameda Research because that just had an official sounding name." He also didn't want people to know that they were trading.

Shaan Puri

Yeah, in the entrepreneurial circles, it was like, "Oh, great little growth hack," right? You know, it's like when you said, when we wanted to get advertisers for The Hustle, I would first just write a fake ad for some other company. Then I'd go to their competitor and be like, "Hey, do you want this spot?" And, you know, there's a "fake it till you make it" that's acceptable, and then there's a "fake it till you're a fraud," which is where this guy went totally wrong. So, he had this trading company. The legend is basically that at the time, Bitcoin was trading at, let's say, $10 in America. But in other countries, where it was harder to access Bitcoin, there was a slight premium. People were willing to pay more for Bitcoin because it was so hard to access. The government was, you know, maybe not allowing exchanges to run there properly or whatever. So, in Japan and Korea, everybody saw this. Bitcoin would be $10,000 here, but it would be $11,000 or $12,000 there. The legend of the origin story for FTX is that Sam saw this. He was one of the people that exploited this arbitrage opportunity. He basically hustled, went to Korea, and set up this logistics chain where they could buy $1,000,000 of Bitcoin here, sell it for a slight premium there, wire the money back, and do it again the next day—just keep recycling the money. They made tons of money, and nobody really understood exactly how. There were some plot holes in this, but it was like, "I don't know, I guess these guys are just smarter than us." But it's like, wait, you made $1,000,000,000 doing this? Now that sounds a little unreasonable. So, you might have made what, $100 of $1,000,000? But where did you get the seed capital for this? Like, you weren't rich. So, how much initial money went into this? There was never any clarity there, so that was a little bit strange, but nobody really...

Sam Parr

the answer to that what's the answer to that

Shaan Puri

The well, now it appears the answer might have been that it just never even happened. That might have been a complete fabrication, or they might have done it on a much smaller scale. Nobody knows the answer because this guy is, you know, on the run or hiding right now. So, nobody knows the answer to that. But the bigger part, the third part that we wrote about, was like, well, Alameda Research. When FTX launched as an exchange, every exchange needs liquidity. When buyers and sellers come to the site, they need to be able to quickly get their orders filled. So, you usually have a market maker or a liquidity provider who basically sits there and says, "I'll be the one who buys and sells things, and I'll take a small fee for providing that liquidity to the exchange so it runs better." So, Alameda was the liquidity partner; he was the market maker for FTX. Everybody knew that and was like, "Okay, cool." But it's like, wait, Sam owns both. He owns the exchange and he owns the market maker. Isn't there some conflict of interest? So, you know, couldn't this hedge fund basically go buy things, but then FTX can list those coins? They'll know what they're going to list, right? So there's a little...

Sam Parr

bit of a yeah that's weird

Shaan Puri

It's a conflict of interest. It's a little bit of, you know, cousins kissing there. So we had written about that. We said, "You know, they have this kissing cousins thing that people don't really like, or nobody knows the true extent of this relationship between the two." They were like, "Hey, we need you to take that out." We were like, "Well, we don't really think we should take it out. We think we're going to keep it in." They were like, "Okay, cool. But just pause this whole story. The crypto market prices are going down. We don't want to be bragging about how well we're doing right now." So we were like, "Okay, you paid us. You don't want us to run the story? We'll never run the story." So we never ran it. But I remember at that time, just a small red flag. I was surprised that instead of clarifying the relationship, they were like, "Don't talk about that." That was a little bit of a red flag. But, you know, like most things, when you're reading 9 out of 10 things that are just saying how this is the wonder kid and this is the best company, and then you just have this one little red flag, you sort of brush it aside. At least that's what I did, which is a mistake.

Sam Parr

the by the way the the the person that you worked with there are they still there

Shaan Puri

nobody's there dude the company's done

Sam Parr

yeah but the person that you worked with what do they list on their linkedin now

Shaan Puri

I wasn't working directly with them. I don't know the guy's name. It's all... you know, Ben kind of was running the Milk Road, really. So I was just kind of like, I would do the writing and then he would talk to the guy or whatever. I don't know the guy's name, but anyway, that was just one small thing. What ended up happening, whether the sort of cause of this was essentially that FTX was illegally lying to customers and was illegally taking customer money, giving it to Alameda through either a loan or just straight up funneling the money there. Then Alameda was going and trading using the customer money, trying to turn a profit, and was actually just kind of bad at trading and was losing money. So then they didn't have the money to return when all the customers wanted their money out. When they, you know, "lent" them the money, the collateral that they put up to take the loan, right? Let's say users put in a more solid currency, like Bitcoin. Alameda borrows that Bitcoin to go trade and they put up in return as collateral FTT token, which is FTX's own internal token that doesn't have much real value. So when they lost all the Bitcoin, for just to make things simple here, when they lost all the Bitcoin, all FTX had was the worthless FTT token. Now there's a huge hole. They lent basically $10 billion out and then couldn't return it. So they went under. Basically, now every day there's more leaks about how crazy this situation was, how these guys were liars, how they were doing this intentionally, how they were doing drugs, how they were, you know, 15 people sleeping together in this mega mansion while he pretended to be this big philanthropist. Maybe he's an actor for the Chinese state; who knows? There are crazy theories all around, and you know, nobody knows the truth. This guy's coming out, and yesterday he tweets for the first time. Everyone's like, "Oh my god, here he comes!" He tweets out a thread, and you know, like you start a thread with 1... and they used to say the first.

Shaan Puri

Then you're gonna say "2" and then the second. He tweets out "1" and all he says is "what." Then he sees, and then he does nothing. After that, he tweets out "2" and then the letter.

Sam Parr

h what does that mean

Shaan Puri

And then just now, an hour ago, he tweeted out... and then 11 minutes ago...

Sam Parr

and maybe maybe spelling his like

Shaan Puri

what happened I don't know what he's trying to do I don't know what's going on I don't know

Sam Parr

maybe he's having a break or something like I mean

Shaan Puri

I don't know breakdown he might have been having did

Sam Parr

I knew a guy who was having a breakdown. He had to be institutionalized, and he was tweeting crazy stuff, you know? This is how it started. Maybe the guy's going through something like that. There's another interesting thing that happened with Chamath on the All-In Pod. This is another thing that I saw; I think also Autism Capital clipped this. On the All-In Pod, Chamath, who has a whole bunch of other questionable things happening, said something interesting. He was looking at investing in FTX and mentioned, "You know, it's kind of weird how you guys are self-dealing. I think you need a board, and I think you need rules around what you can and cannot do with this." He said the person working at FTX called him back and literally said, "Hey, go fuck yourself," and just hung up. That was the end of the call.

Shaan Puri

Yeah, by the way, I think there's a 70% chance that entire story is bullshit. I think Tabatha is generally full of shit, and you know... so I do not believe this story, for what it's worth.

Sam Parr

but dude have you seen the videos so the the woman name I is

Shaan Puri

I guess my... question would be: If you knew that something messed up was going on with this company—the most popular company in the world at that time in crypto—and if you knew that this was messed up, like that there was fraud going on or deception or any of this stuff, you would have said something, right? So maybe what he said is, "I don't know, I don't feel comfortable with this." But I feel like he's trying to take some victory lap of...

Sam Parr

Being like, "No, in the video, in the clip, I believe Chamath said... he put emphasis on this. He literally said, 'Go fuck yourself.'"

Shaan Puri

No, no, that part I believe. I believe that they would say that it's Chamath's part where he goes, "I called them, they pitched me. I said, 'This doesn't make much sense, but okay, I'll have my guys look into it.'" And my guys looked into it. We gave them a recommendation: "You need government, you need to do this, you need to do that." And like they said, "Go fuck yourself." I don't know, something about that picture being so white knight-y raised more red flags to me as well, but...

Sam Parr

A few other interesting things... Basically, another Twitter thing. These guys have been doing these marathon Twitter Spaces. One of the guys' name is Mario, and he hosted this Twitter Space where Elon popped in. Someone was like, "Hey Elon, what did you think when you first met this guy, SPF?" He goes, "Well, people were telling me when I was buying Twitter that he had lots of money, but my bullshit meter was redlining. Even all these major investment banks were like, 'Yeah, this guy is walking on water. He's the best. He's got money.' And I just didn't think that he had the money." I actually believe this story to be true. It was interesting because from the outside, you think, "Well, these billionaires all know each other. They know what's up." They know if someone does or doesn't have money. They know if someone is legit or not. Elon said, "I had no idea if he was legit, but he didn't seem legit to me. But everyone else said he was." I thought that was really interesting. I was like, "Oh, I thought this was like a club where you had to show financials to get inside," and it turns out that's not true. Also, the audacity of SPF to be buying stadiums, hiring Tom Brady, and all these other huge celebrities like Larry David. This guy took a scam to the next level. You know, so much hubris to be tweeting or DMing Elon and being like, "Hey, I'm down to put up $3,000,000,000 for buying Twitter." It's crazy.

Shaan Puri

so so did you see the text messages that leaked of that

Sam Parr

yeah and what did elon say he goes so

Shaan Puri

So, once they were talking to Barclays, basically the text message that leaked is on this awesome Twitter handle called **Internal Tech Emails**. You can go check it out there. It's Michael Grimes, who I think is like the head of...

Sam Parr

he's like a banker I think

Shaan Puri

yeah yeah I think he's like one of the top guys at morgan stanley so what's his what's his actual he's the managing director at morgan stanley so he texts elon he goes hey do you have 5 minutes for a meeting that I think you'll wanna take elon's like I'll call you in half an hour my gosh perfect he goes sam bankman fried is why I'm calling he links to a a link of sam bankman fried which is basically a link to a story that like sam bankman fried is he was an effective altruist meaning his goal was to make as much money as possible so that he could give it away that was the best way that he could help and cause like positive change for society was by maximizing how much money you can make and then giving it away which is like why there's all the memes of like you did it you took all our money and you gave it away you know like wow and so then elon just replies 2 question marks like what and he goes I'm backlogged with a mountain of critical work matters is this urgent he goes he wants 1 to 5,000,000,000 serious about partnering with you same security you own not urgent unless you wanted him to fly out tomorrow he goes he could do 5,000,000,000 if everything is vision lock he would do engineering for the social media blockchain integration founded he founded ftx he believes in your mission major democratic donor he was the number 2 dem largest democratic donor 40 50,000,000 something like that he goes so I thought it was worth an hour tomorrow he said he could shake hands on 5 5,000,000,000 if you like him and I think you will can you talk with you know whatever but it you know it could get us 5,000,000,000 in equity in an hour he's like trying to sell it like take this meeting elon replies blockchain twitter isn't possible as the bandwidth and latency requirements blah blah blah you know basically a blockchain twitter won't work so this doesn't make any sense and then it says elon disliked could do 5,000,000,000 if if if if vision lock would do engineering for social media blockchain integration and then the banker goes got it I'll forward the equity interest to this other guy instead but even if there's not the blockchain piece he's interested in investing in twitter and your mission but we can we can put him on the sideline for now and elon goes long as I don't have to have a laborious blockchain debate dude which is honestly one of the cooler things that elon has done or said in this entire thing which is like alright I'll meet the crypto bro just don't make me fucking I don't wanna get into an hour long talk about blockchain please and that I thought was hilarious

Sam Parr

you traded to

Shaan Puri

Then he goes, "Does Sam actually have $3,000,000,000 liquid?" And then the guy goes, "Yes, I think Sam has it." He actually said up to $10 billion at one point, but in writing, he said up to $5 billion. He's into you, and he said the blockchain's only if you're interested. He's not going to push it... blah blah blah. This other super-rich guy, Orlando, referred him. Then he's like, "We can push him to next week, but I believe you'll like him. Ultra genius and doer, builder, like your formula. Built FTX from scratch after MIT physics, second to Bloomberg, and donations to the Biden campaign." And so that was, you know, the... the Grimes.

Sam Parr

what's this guy's name mark grimes

Shaan Puri

dude he's on the grimes right now

Sam Parr

you're fired bro you are fired

Shaan Puri

Actually, we're calling him **Mark Grimes** instead of **Michael Grimes** for whatever reason. We did this in the Milk Road. We were like, you know, it's just hard to report bad news every day. But it's like, "Hey, bad news: FTX, the biggest exchange, is insolvent." The bad news wasn't even just a miscalculation in good faith; it was actually **fraud and deception**, we think. And that's what it looks like. Oh, bad news: the money that they would have otherwise had to pay out the remaining customer deposits? Oh, somebody just hacked it last night and took the last **$600 million**. There's actually **$0** in the bank accounts now, so there is nothing left for anybody because a guy literally just did this. And oh, by the way, there's a plane flying; his private jet is flying to Argentina tonight. We're tracking it here, and it's like, "Dude, this is horrible." We're like, "What are we gonna do?" We're no longer calling this guy **SBF**; nicknames are for winners. This guy is now **Samuel**; we're calling him by his government name. And like, no...

Sam Parr

mister bankman

Hubspot

No, not even. No, not even. He's Samuel. From now on, our software is the worst. Have you heard of HubSpot? See, most CRMs are a cobbled together mess, but HubSpot is easy to adopt and actually looks gorgeous.

Sam Parr

I think

Shaan Puri

I love our new crm our software is the best hubspot grow better

Sam Parr

I want to ask you about Milk Road's engagement, but first, you tweeted something, and I agree with it. Basically, you're talking about how I just lose trust in so many things. I'm losing trust in SBF or not. FTX owned, I think, 10% of Robinhood, which I have money in—not a huge sum.

Shaan Puri

But money, I think he personally, him and Alameda, owned the 9% or something of it.

Sam Parr

I'm gonna sell. I'm getting all my money out of Robinhood. Yeah, I did that thing. I don't trust anything. I don't trust any new startup that is in banking. By default, I don't believe you. Whereas before, I would be like, "Oh, this is kinda cool, I guess. You have Mastercard's logo on there, I guess you're okay."

Shaan Puri

not team innovation anymore

Sam Parr

Yeah, no, forget that. I'm going to E*TRADE. I'm getting my money off of Robinhood. To all the people who I said, "Oh, you just don't get the disruptors," I'm sorry. You are right. I was wrong. I'm sorry, Daddy. You are absolutely right. I do not... I think I trust Coinbase for some reason because the guy, Brian, seems a little bit legitimate. They are publicly traded, so they do report quarterly. But I guess you gotta...

Shaan Puri

Trust somebody, right? Like, you gotta trust something. So, for example, I was like, "Dude, I'm getting all my crypto off Robinhood at the minimum." Because I had, way back, bought crypto on Robinhood.

Sam Parr

and then I was

Shaan Puri

Like, wait, I can't just send it to another wallet? It's like, no, because Robinhood actually wasn't buying crypto. You're buying a crypto derivative. I was like, "What the fuck? Why did they say buy Bitcoin?" Like, this is not Bitcoin. This is a Bitcoin tracking derivative. It's not even... you don't even own the coins. Then it was like, okay, now you could, after years, I was like, you could transfer it off. So I was like, oh, okay, I'll get to that when I get to it. And I bought a bunch of ETH on there, and I was like...

Sam Parr

I was

Shaan Puri

Like me too, I'm getting it all out of there. I go to hit send to my Ethereum wallet, and it's like, "Oh, you've exceeded your $5,000 maximum." I was like, "$5,000 max every day? You can only do $5,000? First of all, why? Second of all, that's bullshit! This will take forever to get all my money off this thing." It's just like yet another strike against innovation. I'm the old guy on the lawn now, shaking my fist saying, "All you rascals, stop playing with my money!" It's not like it's crypto; it's not like Bitcoin did anything. It's the people building the companies around this that are literally committing fraud or taking so much reckless risk that their whole exchange goes insolvent overnight or gets hacked. That's insane! So I was like, "You know what? I'm gonna self-custody or take this portion, move it over here, do this over here." I have this kind of strategy. I was like, "I'm gonna move more into self-custody." Our buddy Greg was like, "What do you think, man? Should I do this?" I was like, "What do I trust more, myself or one of these exchanges?" He was like, "You know..." and I was like, "No. What would feel worse? If I just lose my crypto or if these guys lose my crypto?" He said, "Well, let me ask you a different question. How many AirPods do you own, and how many AirPods have you lost? If you can't keep your AirPods, do you really think for 10 years you're gonna not lose your crypto?" I was like, "Fair."

Shaan Puri

And so I'm like, you know, I keep cycling through options of how to hold this stuff so that, a) I don't lose it, but b) I'm not trusting anybody. Luckily, I wasn't really that affected by FTX, but a lot of people were, and that's extremely sad and disappointing. Those people are traumatized, right? It's like they got daddy issues now; they got trust issues. They're not coming back to the game and just being like, "Yep, I understand." Even if you intellectually understand that, okay, this guy was literally a criminal, or like, you know, somebody who was doing something that was wrong—misappropriating user funds—even if you acknowledge that this was one bad actor, it's like, dude, there are a lot of bad actors in crypto. How the hell am I supposed to know? It's not like you get to go sit and audit the books of these companies. They say one thing and do another. Like, 24 hours before I went and sold it, the CEO comes out and says, "All assets are fine. We do not lend out customer deposits." Then, 24 hours later, gone. And it turns out this guy was lying.

Sam Parr

Well, dude, an interesting thing about San Francisco and Silicon Valley, where we both kind of started our careers, is that it's all based on trust. There are a lot of times where you give people money; you just wire them money without contracts. You pump people up and make introductions even though you don't entirely know them. Look at...

Shaan Puri

A slide deck, and you say, "Okay, this is what they're saying the numbers are." You don't say, "Okay, I need your... you know, I need to go into your database and I need to check to see this." Oh, I need to check that this database number is also not fudged by, you know, bots or fake downloads or whatever. Oh, I also need to check that your pixel is not firing twice or you're not hiding costs over here with your shell companies. You don't know all that stuff, and it would take a tremendous amount of time to do that.

Sam Parr

This whole thing, or our little world, is based on this type of trust. You and I both kind of got started right when a great economy was kicking off. I basically didn't ever think people were lying, and that was incredibly naive. Now, I feel, even though I haven't really been burnt by this, that I don't really trust anyone anymore. I think that everyone might be lying just a little bit, and it has changed my perspective on that 100%. I used to see Robinhood as like, "Oh, you're the underdog. You're on my side." It's like, "Oh no, you definitely can lose my money. I don't believe you." What about Milk Road? For the new listeners, Sean started this thing called Milk Road. It's a daily email for crypto with hundreds of thousands of people. Is your engagement skyrocketing, or are people just telling you to "fuck off" because they hate the whole industry?

Shaan Puri

No, it's... I mean, this engagement is very high because during a crisis, a lot of people want to read. I think what we will see, though, is that over the coming months, that's not going to bode well for us. Right? Like, even if engagement is high right now during, you know, the play-by-play craziness of what's going on, we're getting record open rates and stuff like that. But what happens three months from now as people are just sort of disillusioned? The news is over, the crisis is over. It's like, you know, dude, nobody's talking about Ukraine right now. In my world, day-to-day, people aren't talking about Ukraine every day. I remember when that situation broke out; it was like my mom, my sister, everybody I knew was glued to their phones, watching these videos, getting Zelensky tattoos, and being like, "Oh my God, I can't believe this! My heart goes out, thoughts and prayers," blah, blah, blah. And then you're in day 98, and you're like, your thoughts and prayers go back to, like, you know, I wish this... whatever. You know, just whatever your daily life was. You sort of revert; you stop caring as much. In the same way, I think what's going to happen for us with The Milk Road is that engagement spikes during this time, but actually, it's not good for anybody in the industry when customer trust gets shaken this badly. That sets it back potentially years.

Sam Parr

Oh yeah, I mean, it's not a question of whether it's set back by years. It's, "Is this going to ruin it?" I mean, like, that's how big this is in my mind.

Shaan Puri

Yeah, and I think that one's probably not... If it was good, like if crypto is gonna fail, I don't think it's gonna fail because of this. We've actually seen before the number one exchange go down. As the industry grows, disasters cost a lot more money and they affect a lot more people. But we've actually seen this disaster before with Mt. Gox. There's a Netflix documentary I've talked about on the pod about a Canadian exchange that was literally doing this. You would go in, and it was the same thing. The guy was a boy genius; everybody loves him, the media loves him. He starts this exchange and becomes the biggest one in Canada. Turns out there was literally never anything in the deposits. You would click "buy Bitcoin," you would send them the money, but you would never actually buy Bitcoin. He would just show the number on your computer screen, like, "Yeah, you got 10," and he would just take the money and go do whatever he wanted with it. He was literally just a criminal; he was lying.

Sam Parr

and he faked his own death

Shaan Puri

Then he mysteriously died or faked his own death. And you know, Sam Bankman-Fried tweeting out one letter at a time here. Who knows what's going on with this guy too? So, like, we've literally seen this exact disaster before, but it's higher profile, it's louder, and it affects more people. Now, instead of losing $1,000,000, it's tens of billions, hundreds of millions. Now it's $1,000,000,000 that we're playing with that got lost here. I think it's definitely bad, but I don't think this is like the death blow to crypto. I think it's the same thing with startups. Startups don't usually die due to competition. You don't die because you got hunted; you die because you starved. I think if crypto dies, it's going to be for the same reason. It's not going to die because FTX blew up and then people just all gave up and decided, "I don't trust this thing ever again." I think everybody will decide that the use case of the utility wasn't strong enough to draw people in continually over time. Maybe the use case just wasn't big enough or strong enough; there wasn't product-market fit. So, I think startups, and in this case crypto, will die if they die of starvation, not of competition.

Sam Parr

You know who's one of the big winners here? It's Martin Shkreli. So basically, Martin Shkreli, the "Pharma Bro," went to jail for a couple of years for scamming his pharmaceutical company. He's a finance guy, but I think he's a very smart guy. He has a Substack now that is incredibly interesting, and he's been doing Twitter Spaces where he's been commenting on this. He's like, "Well, you know, jail's not that bad," and he's saying all this funny stuff. He wrote in his Substack this morning that he predicts Sam Bankman-Fried is going to get life in prison. I thought that was an incredibly interesting prediction. You know, Bernie Madoff got 100 years. There's this other Ponzi scheme guy that I was reading about based out of Texas who also got like 150 years. So it's not crazy that that could happen. People who commit these Ponzi schemes involving hundreds of millions and billions of dollars can get life in prison, which is kind of crazy that you can get life in prison for a nonviolent crime. But his prediction is that he's going to go to prison forever.

Shaan Puri

So, the Enron guy, Enron, got 24 years as his sentence. Let's see, Bernie Madoff...

Sam Parr

well he bernie died in prison you know he got sentenced when he was in the seventies but I think he got 100 of years

Shaan Puri

150 years was like the you know the the the headline number

Sam Parr

And then I think one of the other big Ponzi scheme guys, I believe his last name was Sanford—Mark Sanford, I believe—he, at age 60-something, got 150 years. So, you know, regardless of when you get that 150 years, it's a life sentence.

Shaan Puri

It doesn't believe... it doesn't appear that this is literally a Ponzi scheme. A Ponzi scheme works in a specific way. Like, I think Madoff basically had all the money in one checking account. Did you know this? He had like $1,000,000,000 in a Chase account. It was just like whenever somebody requested, he would pay them out of that and show these great returns or whatever. But in this case, basically...

Sam Parr

The effect's the same here. You know, like someone who defrauded people of $1,000,000,000. Exactly. And not only that, but the interest. You know Bernie Madoff? I don't know if you know this, but do you know that he was the head of the SEC for a minute? The Securities and Exchange Commission? Yeah, he was that, or it was either that or NASDAQ. I think he was the head of the SEC, and he was a big deal, you know? So that was bold on his part. But SPF did this in an even bolder way because he was mainstream. You know, he owned—or they had the naming rights to the Miami Heat, and they had commercials with Tom Brady. So to me, if I'm a judge, I'm like, "Dude, you're even rubbing it in all of our faces." This is more egregious than Bernie Madoff, who was a little bit more quiet about it. So you're just taunting me while you're stealing. Of course, I'm going to get you as hard as I possibly can.

Shaan Puri

Right, yeah, yeah, it's bad. I mean, it's very, very visible, very, very painful, all day. I mean, just the gall of people. I mean, this guy is a real motherfucker for what he did. That's like a crazy, crazy thing to do. You know, there's one version of it which is basically that he believed this would work. He wasn't trying to steal people's money. He was like, "You know what? Like Alameda..." Basically, what people think is that when Luna blew up, Alameda lost a bunch of money. In order to save Alameda from having to liquidate everywhere, he thought, "Okay, let me just loan you this money. You will make it back because you're good, and then I'll make it all good in the end. No harm, no foul." I know that I shouldn't do this, and he didn't tell anybody about it. That's one version of reality that could exist. There is some evidence against that, but it's hard to know. You know, we're talking about like Autism Capital as a source, right? Because it's hard to know if this evidence is just someone making a screenshot of whatever. It's hard to know at this point.

Shaan Puri

So, you know, basically there's one version of reality. That is, he got stuck in a spot where he was going to lose a bunch of money. His thing was going to go under, and it was going to be very public and bad. He tried to cover it up, and he kind of panicked. He made a terrible decision and did something that was wrong, illegal, and against the terms of service, at least for FTX. But he intended to make it all right. Then there's another version, which was...

Sam Parr

of now that does not seem like a very likely scenario

Shaan Puri

and what part makes you what what evidence makes you say that

Sam Parr

Like, people were saying that he was allegedly wiring himself $500,000,000, and that coincidentally, FTX has been hacked. Things like that. I don't feel as though that is going to be the outcome.

Shaan Puri

yeah so let's say whatever there's some probability that that that's what happened sure

Sam Parr

and then

Shaan Puri

There's another probability. The more egregious possibility is basically, he's like, "Screw everybody! We're gonna take the money, we're gonna funnel it over here. I'm gonna grease the... you know, he lives in the Bahamas. He's like, 'I'm gonna grease all the politicians here. I'm gonna grease the politicians in the United States, be the second biggest donor to Biden.'" And I'm gonna... you know, there's like this crazy stuff where the girl who was running Alameda, her dad worked with Gary Gensler, and he was the SEC chair. That's why SBF and Gensler kept meeting. We were about to pass this bill that was gonna be very bad for DeFi but very good for FTX. It was like all this game to basically lock in this money machine that he was gonna continue to use for his own benefit. Alameda was like abusing the information that they had, front-running the trades. Everything was evil. Then there's the slippery slope type of thing. If you watch the Theranos documentary, for example... I shouldn't say documentary, like, you know, the Theranos movie, whatever. They make it look like what actually happens is she wants to do something great. She's sort of delusional about her own abilities, thinks, "I'm an entrepreneur. I could prove everybody wrong." She thinks that the technology will work and that she's buying time to fake it till you make it to get it to work. And then at some...

Shaan Puri

She gets so trapped in the lie that she just goes all in on it. At that point, her entire image, ego, company, and fortune are based on this working. Eventually, she starts actually lying and committing crimes. That became the situation, but that wasn't the intention on day one. It wasn't like, "I'm going to do this scam. I'm going to scam everybody." I think that's the only question here. Regardless, the result is the same: a scam happened. Whether he intended to do the scam from day one or halfway through, he got into a spot, panicked, and then started to lie and commit these... I don't know if I should call them crimes, but you know, do what he did.

Sam Parr

to add to the story do you know who this kid's parents are

Shaan Puri

yeah they're like ethics teachers at stanford

Sam Parr

dude they teach of course

Shaan Puri

they are

Sam Parr

They’re both professors of law at Stanford Law School. I think they also taught at Yale. I mean, they’re supposed to be like... no.

Shaan Puri

but they they also literally teach ethics

Sam Parr

Yeah, in relation to law, from a legal perspective, I believe... and the dad, I think Joseph is his name, he is involved in FTX where he helped them raise some money. So if this guy is a full-on lying criminal, crazy man, he's screwing... I mean, screwing people out of money is bad. Also, screwing your family and your parents is the worst.

Shaan Puri

right

Sam Parr

So, like, this whole entire story, you know, it hurts a lot of people. But in terms of just the story arc and soap opera, it is just the best. It is the best.

Shaan Puri

are you not entertained because if nothing else is entertaining

Sam Parr

dude I don't even like crypto you know I'm I've I've been like the crypto what

Shaan Puri

What is your prediction, Sam? Let's put it on the record here. What is your prediction for crypto? Not FTX; I believe it's pretty clear what kind of situation that is. We don't know the details exactly of what happened, but we know the result for crypto. What do you think? Do you think this all just goes to 0? Do you think this sort of peters out for a long time? Do you think this rises again? What is your prediction?

Sam Parr

I think it's important to keep in mind that my perspective here is purely emotional. Basically, I learned about crypto just from talking to you. Everything that I've learned about crypto has been live on this podcast, so I would say I'm not incredibly educated. I think that it's going to **peter out** for the next 5 to 10 years. I believe that NFTs are going to go to **$0**. I think that all the altcoins, basically Ethereum and Bitcoin, are the only ones that will ever have a chance of being interesting. Virtually all of them will go out of business. I think that Coinbase will stay in business and might actually grow because people are like, "Okay, fine, you're the only place that I can trust." I think that Luna and all this other stuff is already dead, but all these other coins will 100% go to **$0** and never work again. I also think that this guy will get sentenced to 25 to 50 years in prison.

Shaan Puri

alright there's the prediction

Sam Parr

what do you think

Shaan Puri

I predict "bad news bears" for the next couple of years. That's my guess. I don't know the time scale there, but I'm just going to guess a couple of years of crypto winter. I mean, I think that's probably true for the entire economy right now, but I think it's particularly worse for crypto. However, I do think that in the end, crypto is real and is going to work. You know, I know that's kind of sort of maybe now unpopular. Maybe it was always unpopular; I'm not sure. I don't really pay too much attention to that. But yeah, I do think Bitcoin and Ethereum, along with replacements for some of the other use cases that were built, are going to rise. I think some of the things that are totally true are that this guy goes down, Coinbase does well, and that most of the current coins that are completely overvalued will go to zero. But I do think that Bitcoin and Ethereum are here to stay, and I think they won't be the only two forever. I believe there will be new ones that come and do well in the future. But I think it's...

Sam Parr

I also think it's another down cycle. Anyone who raised money and had the word "Web 3" in their deck, I think virtually 100% of them are going to fail and not work. Not necessarily because they are bad entrepreneurs or because their products are stupid, although I do think that is the case in the vast majority of them. I think they're just going to be laughed out of existence and just be like, "Dude, we're never working with you." This is like... consumers.

Shaan Puri

Not because they're ugly, which they are not. Not because they're dumb, certainly. But because they get laughed out of the room.

Sam Parr

By existence, is that because they're ugly? Is that because they're dumb? It's just because they're pathetic. I think that's going to happen—not all, but close to all.

Shaan Puri

Yeah, well, that's true. I think for most startups. Alright, I gotta go. I was supposed to be at my door; they keep knocking.

Sam Parr

alright that's

Shaan Puri

the pod