By now you’ve likely heard about the stunning collapse of Sam Bankman-Fried’s crypto exchange, FTX, and its associated high-risk trading company, Alameda Research. I won’t attempt to fully summarize how FTX went from being worth some $32 billion to declaring bankruptcy, practically overnight. But at its core, the story is this: S.B.F., as he’s known, and the byzantine web of companies that comprised his crypto empire, hid things from investors. He reportedly lent billions of dollars linked to depositor funds from FTX to Alameda; took outsize risks with other people’s money; experienced a liquidity crunch and then a modern-day bank run when a rival crypto king, Binance’s Changpeng “CZ” Zhao, tipped the first domino by dumping his FTX tokens.
In the end, it appears S.B.F. has lost everything. His reputation, of course, is toast. His personal wealth has all but evaporated. FTX investors, employees, customers, portfolio companies, grantees—all will now have to fight for pennies on the dollar in bankruptcy court, if there’s anything left to fight over. Since declaring bankruptcy, hundreds of millions of dollars worth of funds have mysteriously disappeared from the exchange in what looks to be a hack but could be something worse.
There are two things that strike me about this collapse. The first, of course, is the familiarity of this particular scandal. Whether FTX’s troubles were more like those of Long-Term Capital Management or Bear Stearns or Madoff or Archegos Capital, we’ve been here before. But weren’t these precisely the types of hidden risks—conflicts of interest, duping investors, absconding with funds—that the brave new world of “DeFi” (decentralized finance) was supposed to rise above? Crypto, after all, was born out of the financial crisis. The Bitcoin whitepaper, released in 2008, heavily emphasized transparency and trust, which the established world of finance had failed to offer—remember synthetic CDOs?—and Bitcoin was pitched as a corrective. There could be no secret deals, no hidden risks, because it should be technically impossible to hide risk in a fully transparent, “trustless” public ledger.
Of course, the crypto industry is bigger than Bitcoin, or the blockchain, and what Bankman-Fried built, in retrospect, looks much more like the pre-Sarbanes-Oxley, pre-Dodd-Frank finance of old. This was the same old shenanigans with new labels. S.B.F. ran both companies, FTX and Alameda Research, from the Bahamas, with the leaders of both firms literally living in the same penthouse and dating each other. The balance sheet wasn’t public, the concentration of risk wasn’t public, and unlike the rules established for traditional finance since 2008, today’s DeFi companies have no obligations in terms of the assets or collateral they have to keep on hand. “I fucked up,” S.B.F. wrote on Thursday, just a few hours before he declared bankruptcy. “A poor internal labeling of bank-related accounts meant that I was substantially off on my sense of users’ margin. I thought it was way lower.” Oops?
Which brings me to the second striking aspect of the S.B.F. drama: the sheer velocity of his rise and fall. Usually it takes many years, even decades, for a person to go from unknown upstart to fast-rising star, dominant player, political influence-peddler and philanthropist, and then to scandal-plagued rogue and untouchable pariah. Think about the long history of an institution like Lehman Brothers or a character like Harvey Weinstein. It literally took decades to build them up and weeks, months, or even years for them to fall. But with Bankman-Fried, everything happened at lighting speed.
Check out this timeline: S.B.F. was born in 1992. He graduated from M.I.T. in 2014, just eight years ago. He founded Alameda Research, his crypto trading firm, in 2017, and launched FTX in April 2019. By October of last year, he was being hailed as a wunderkind worth $22 billion. That same year, FTX bought the naming rights to the arena where the Miami Heat play. Major League Baseball umpires wear FTX patches on their uniforms. The company inked deals with Tom Brady and Steph Curry and put up billboards of Bankman-Fried and supermodel Gisele Bündchen touting their mission to “help create positive change.”
Of course, once you become a billionaire in a narrow domain, our society encourages you to throw that money around in totally unrelated fields of philanthropy and politics, so S.B.F. became a player. He funded Democratic candidates. He spoke about his views on “effective altruism.” People came to him for money and insight and advice on all sorts of things unrelated to buying and selling crypto. He spoke at conferences and was profiled by the media. Within the world of crypto, he talked up the need for regulation even as his own companies were entangled in the most basic and obviously improper behavior. Just this year, as the crypto industry experienced its first of several mini collapses, there was S.B.F., bailing out companies like Voyager and BlockFi, a white knight propping up their houses of cards. Now he too is worth nothing, and as my Puck partner Teddy Schleifer has written, that decline may impact the Democratic party, pandemic preparedness efforts, and more.
I don’t really care about S.B.F.’s net worth. I was never impressed with him to begin with. But I am concerned on behalf of regular people who were bamboozled by the larger brand halo surrounding S.B.F., the aura of legitimacy that he cultivated and accrued, into thinking that businesses like his are good places to put their own real-world, hard-earned fiat money. I’m frustrated that people like Sam, generally men with a technical skill set in one particular area, are afforded so much latitude to preach about how the “real world” works. Meanwhile those directly living that real world beg to be taken seriously or empowered to solve their own problems.
I’ve been fascinated by crypto and the larger, vaguer web3 world this past year. I remain excited by the promise of more financial inclusion, new ways of self-governing, and transparently handling budgets. But I also remain skeptical, primarily about the premise that the key to unlocking our future lay in financializing everything. At the end of the day, the core of S.B.F.’s empire was buying and selling nonsense but taking real people’s money to do it. I hope as the fog of quick money-making and hyperbolic promises clears, we can see just how much real land there is for us to build on, or realize we’ve all been taken completely out to sea.
Twitter After Elon
While we’re on the subject of overconfident white men operating well beyond their domain of expertise with a callous disregard for the people affected by their decisions, let’s move on to Uncle Elon.
There are so many changes one could make to Twitter to make it a better business. One of my favorite YouTubers, Marques Brownlee, recently shared a number of ways for Twitter to better cater to and grow an economy around creators, such as building better monetization tools like ads, tips, and subscriptions, while also making the Twitter Blue product actually compelling. As a creator and community-minded person myself, I can envision many tools I’d happily pay for, including advanced audience insights, portability of my subscribers and followers, and segmented marketing and messaging capabilities that would be worth a lot.
There are also many changes one could make to Twitter to improve its safety and trust levels and stabilize its culture into something more people want to spend more time with—including advertisers. The idea of social networking over the past 15 years has operated on a simplistic and sometimes dangerous premise that anyone should be able to address everyone with anything. Handing a global P.A. system over to everyone with a smartphone has obvious risks. And so many smart folks inside and outside of Twitter have good ideas to move beyond this. I’ve written previously about Majal.org, which operates a social network that unlocks user privileges over time, based on positive contributions, which has the effect of limiting trolling and building something like an actual community. The organization New Public has literally researched what makes for a high-quality digital public space, and all that research is available for someone who says they are interested in building a digital town hall to use and implement.
But I’m pretty confident that none of that is going to happen at Twitter. While Elon Musk’s takeover theoretically represented an opportunity to reset the company for the better in terms of financials and culture—Twitter’s product development pipeline, while thoughtful, arguably operated too slowly—Elon has reminded us all in the past two weeks that moving fast can break things, too, especially when you’re ramming needlessly through obvious barricades that are in place for good reasons.
Casey Newton at Platformer is essential reading for the latest and opposite-of-greatest happenings inside Twitter. Among them: Elon fired roughly half of Twitter’s 7,500 employees with no notice, possibly violating labor laws, then tried to re-hire some because he fired too many people; he revoked work-from-home policies, putting employees with childcare and eldercare duties in untenable positions and possibly violating their employment contracts; he celebrated the “return of comedy” to Twitter then suspended parody accounts; he blamed activists for the fact that advertisers paused their campaigns, then gave advertisers even more reason to pause their spending with his own idiotic behavior. And none of that is a surprise, really. Musk runs Twitter the same way he uses it: without thinking. “I’m tweeting more or less stream of consciousness,” he said during a TED event earlier this year.
Even as a skeptic who is tired of Elon’s antics, I was willing to give him some benefit of the doubt regarding his intentions to overhaul Twitter’s “blue check” verification system. Surely, I thought, he wouldn’t charge people for the badge without using a service like ID.me to actually verify identities via government documents like drivers licenses or passports. Only a truly irresponsible and careless person would call something “Verified” without actually verifying anything. And yet, Elon did that very irresponsible and obviously careless thing. The allegedly genius product guy launched a “Verified” badge that literally only verifies the fact that your credit card works. The upside is there was lots of great parody and humor in the predictable chaos created by this. My personal favorites are the people who impersonated brands to say things no brand would say out loud, like these tweets from “Chiquita” joking about overthrowing the Brazilian government, or “Eli Lilly” announcing that insulin is now free. But there’s a real-world consequence to this. The stock prices for Eli Lilly and Lockheed Martin dropped, temporarily erasing billions, after “verified” posters tweeted made-up statements. Such antics reminded me of the good old days of The Yes Men. It’s great digital performance art. The downside is that it will only accelerate the exodus of advertisers and people interested in a non-toxic environment from the platform.
Meanwhile, the executives at Twitter in charge of legal, compliance, safety, and engineering have all left, meaning the basic technical and legal operating functions of the service are increasingly at risk. Has he brought in a bright and capable new crew of fresh leadership? No. Musk has surrounded himself with a crew of sycophants who see the world the way he does. Dude is just winging it with people’s jobs, with companies’ valuations, and with a vector for known information warfare. It’s embarrassing and it’s thankfully destroying the myth of Musk. As I’ve written before, just because he’s run successful mobility companies (Tesla and SpaceX) doesn’t mean he can run a social media company. At this rate, by year’s end Musk risks turning Twitter into a depopulated and disinformation-rich environment like Gab, Parler, or Truth Social.
It’s a sad way for a product to die, but maybe his destructive stewardship is what we all need to finally evolve past the simplistic idea of social media that has held us captive for the past decade. As a digital content creator myself, I have diminishing interest in remaining on a platform where this sort of sabotage masquerades as business leadership. I’ve been on Twitter since 2006 and mostly loved it. I’ve given and received lots of value from my time there. I’ve met people and made friends. If Musk burns Twitter to the ground, let’s grow something better out of these ashes.
If you are considering leaving Twitter or bracing for the likely scenario that the service literally falls apart in the near future, here’s some other ways to stay digitally connected to me: Join my free text line by texting “Puck” to +1-202-894-8844 or visit my Linktree to find me in a digital space you already visit. And if you’re reading Puck for free, become a paid subscriber for more from me and my amazing colleagues.
Finally, on The Midterms
Listen, I don’t have the time (nor do you, given the length of the above) to go deep on the elections that we participated in last week. I’ll just say that as an Angeleno, I’m glad to see the likely ouster of the L.A. County Sheriff Alex Villanueva who oversaw a department with literal gangs operating inside of it. I’m cautiously optimistic that Karen Bass will become the first woman, and first Black woman, elected as mayor of Los Angeles. And I was momentarily shocked at how many celebrities and wealthy liberals jumped on the real estate developer Rick Caruso’s bandwagon. But then I remembered that Caruso looks like the type of leader a city needs when it’s in trouble. He’s rich, white, and a man, kind of like Bruce Wayne’s dad. But Caruso’s main experience is in top-down organizational management, and that’s now how the L.A. mayorship works.
On the national front, as a liberal myself, I breathed a sigh of relief at the results. As an American who believes in our ability and need to collectively and peacefully govern ourselves, I’m grateful that we might have reached the limits of our flirtations with fascism and that even right-wing media is calling Trump a big loser. It’s too early to declare long term victory, however. According to a BBC analysis, at least 125 Republicans who expressed a willingness to overturn elections themselves got elected to House, Senate, and governor seats, so we must remain vigilant.
My greatest relief is based on the fact that we survived the election media coverage. Part of the reason I felt so pessimistic going into Tuesday is that every media outlet told me to be pessimistic. They set the expectations that inflation and crime would drive Democrats out of Washington in massive numbers. They were wrong, in part, because they seem to be more interested in election prediction than election coverage. I saw lots of meta-pseudo-analysis explaining why Democrats would get wiped out because of inflation. I saw very little coverage of what any Republican proposed to do about it. I saw lots of predictions that “no one cares about abortion because the SCOTUS decision happened months ago, which is ancient history.” I saw very little coverage of groups organizing in states to defend reproductive rights, and exit polling shows it was decisive in many states.
I’ll close with a little story that captures my frustration and relief at the coverage in one moment. My wife and I were watching the results Tuesday night, and there was a guy with his map—it’s always a guy—and he was highlighting and circling and pinching to zoom (which used to be impressive until everybody got a smartphone). He interrupted the panel of analysts to say something like, “I’ve got some big news. Our decision desk can say that the Republicans will get 219 house seats with a margin of error of plus or minus 13 seats. So we can say with confidence… we don’t know.”
Great. For a brief moment, election coverage stopped being about predicting election outcomes and instead actually reflected what voters decided.
