FTX CEO Sam Bankman-Fried Says Likening Crypto Yield Farming To Ponzi Scheme a 'Reasonable Response' (ft.com) 43
Sam Bankman-Fried, chief executive and founder of Bahama-based crypto-exchange FTX and one of the most influential people in crypto, offered his insights into yield farming, projects that deliver tokens to buyers for staking. An excerpt from the podcast: Bloomberg's Levine: Can you give me an intuitive understanding of farming? I mean, like to me, farming is like you sell some structured puts and collect premium, but perhaps there's a more sophisticated understanding than that.
Sam Bankman-Fried: Let me give you sort of like a really toy model of it, which I actually think has a surprising amount of legitimacy for what farming could mean. You know, where do you start? You start with a company that builds a box and in practice this box, they probably dress it up to look like a life-changing, you know, world-altering protocol that's gonna replace all the big banks in 38 days or whatever. Maybe for now actually ignore what it does or pretend it does literally nothing. It's just a box. So what this protocol is, it's called 'Protocol X,' it's a box, and you take a token. You can take ethereum, you can put it in the box and you take it out of the box. Alright so, you put it into the box and you get like, you know, an IOU for having put it in the box and then you can redeem that IOU back out for the token.
So far what we've described is the world's dumbest ETF or ADR or something like that. It doesn't do anything but let you put things in it if you so choose. And then this protocol issues a token, we'll call it whatever, 'X token.' And X token promises that anything cool that happens because of this box is going to ultimately be usable by, you know, governance vote of holders of the X tokens. They can vote on what to do with any proceeds or other cool things that happen from this box. And of course, so far, we haven't exactly given a compelling reason for why there ever would be any proceeds from this box, but I don't know, you know, maybe there will be, so that's sort of where you start.
And then you say, alright, well, you've got this box and you've got X token and the box protocol declares, or maybe votes by on-chain governance, or, you know, something like that, that what they're gonna do is they are going to take half of all the X tokens that were re-minted. Maybe two thirds will, two thirds will offer X tokens, and they're going to give them away for free to whoever uses the box. So anyone who goes, takes some money, puts in the box, each day they're gonna airdrop, you know, 1% of the X token pro rata amongst everyone who's put money in the box. That's for now, what X token does, it gets given away to the box people. And now what happens? Well, X token has some market cap, right? It's probably not zero. Let say it's, you know, a $20 million market.
Levine: Wait, wait, wait, from like first principles, it should be zero, but okay.
SBF: Uh, sure. Okay. Completely reasonable comments. [...] Describe it this way, you might think, for instance, that in like five minutes with an internet connection, you could create such a box and such a token, and that it should reflect like, you know, it should be worth like $180 or something market cap for like that, you know, that effort that you put into it. In the world that we're in, if you do this, everyone's gonna be like, 'Ooh, box token. Maybe it's cool. If you buy in box token,' you know, that's gonna appear on Twitter and it'll have a $20 million market cap. And of course, one thing that you could do is you could like make the float very low and whatever, you know, maybe there haven't been $20 million dollars that have flowed into it yet. Maybe that's sort of like, is it, you know, mark to market fully diluted valuation or something, but I acknowledge that it's not totally clear that this thing should have market cap, but empirically I claim it would have market cap.
Sam Bankman-Fried: Let me give you sort of like a really toy model of it, which I actually think has a surprising amount of legitimacy for what farming could mean. You know, where do you start? You start with a company that builds a box and in practice this box, they probably dress it up to look like a life-changing, you know, world-altering protocol that's gonna replace all the big banks in 38 days or whatever. Maybe for now actually ignore what it does or pretend it does literally nothing. It's just a box. So what this protocol is, it's called 'Protocol X,' it's a box, and you take a token. You can take ethereum, you can put it in the box and you take it out of the box. Alright so, you put it into the box and you get like, you know, an IOU for having put it in the box and then you can redeem that IOU back out for the token.
So far what we've described is the world's dumbest ETF or ADR or something like that. It doesn't do anything but let you put things in it if you so choose. And then this protocol issues a token, we'll call it whatever, 'X token.' And X token promises that anything cool that happens because of this box is going to ultimately be usable by, you know, governance vote of holders of the X tokens. They can vote on what to do with any proceeds or other cool things that happen from this box. And of course, so far, we haven't exactly given a compelling reason for why there ever would be any proceeds from this box, but I don't know, you know, maybe there will be, so that's sort of where you start.
And then you say, alright, well, you've got this box and you've got X token and the box protocol declares, or maybe votes by on-chain governance, or, you know, something like that, that what they're gonna do is they are going to take half of all the X tokens that were re-minted. Maybe two thirds will, two thirds will offer X tokens, and they're going to give them away for free to whoever uses the box. So anyone who goes, takes some money, puts in the box, each day they're gonna airdrop, you know, 1% of the X token pro rata amongst everyone who's put money in the box. That's for now, what X token does, it gets given away to the box people. And now what happens? Well, X token has some market cap, right? It's probably not zero. Let say it's, you know, a $20 million market.
Levine: Wait, wait, wait, from like first principles, it should be zero, but okay.
SBF: Uh, sure. Okay. Completely reasonable comments. [...] Describe it this way, you might think, for instance, that in like five minutes with an internet connection, you could create such a box and such a token, and that it should reflect like, you know, it should be worth like $180 or something market cap for like that, you know, that effort that you put into it. In the world that we're in, if you do this, everyone's gonna be like, 'Ooh, box token. Maybe it's cool. If you buy in box token,' you know, that's gonna appear on Twitter and it'll have a $20 million market cap. And of course, one thing that you could do is you could like make the float very low and whatever, you know, maybe there haven't been $20 million dollars that have flowed into it yet. Maybe that's sort of like, is it, you know, mark to market fully diluted valuation or something, but I acknowledge that it's not totally clear that this thing should have market cap, but empirically I claim it would have market cap.
Doesn't actually use the word Ponzi scheme (Score:2)
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Also, we could argue all day about whether certain coins are indeed functioning as a ponzi scheme, but what the article is talking about ain't a ponzi at all. The issuance of coins has nothing to do with a constant supply of new money coming in to pay old investors.
Re:Doesn't actually use the word Ponzi scheme (Score:5, Informative)
but what the article is talking about ain't a ponzi at all. The issuance of coins has nothing to do with a constant supply of new money coming in to pay old investors.
Wiat ... What? ... LOL
Issuing coins is EXACTLY for the purpose of creating new money to pay old investors. This is the EXACT definition of a ponzi scheme.
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The money is coming from the system, not new "investors". More akin to when the federal reserve creates money...
Comment removed (Score:4, Informative)
Re: Doesn't actually use the word Ponzi scheme (Score:2)
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Amway Wishes (Score:2)
Re:Amway Wishes (Score:4, Funny)
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Except unlike cards that might be usable in a game or perhaps cool to look at if you're a big enough fan, these cards are blank. And you don't get to hold them, you just get a virtual reciept that says we all agree to imagine that the blank card exists somewhere.
And if people in general decide they'd rather imagine a slightly different sized card exists somewhere and further imaging that it's theirs, you can't even use your card to light the fireplace.
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A virtually-scarce virtual product.
regulatory hammer is going to stop crypto (Score:4, Insightful)
regulatory hammer is going to stop crypto.
With banking laws
With trading laws
With taxing laws (if you have crypto now to need to file it as bank and as an trader account.)
Re: regulatory hammer is going to stop crypto (Score:2)
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Wrong, my miner pays me in crypto on the record, taxed through the IRS, sent to an account with my government issued ID on file, which I pay income taxes on.
Which part of this is illegal?
Re: regulatory hammer is going to stop crypto (Score:4, Insightful)
Wrong, my miner pays me in crypto on the record, taxed through the IRS, sent to an account with my government issued ID on file, which I pay income taxes on.
Which part of this is illegal?
The bit, sometime later, where the person who's holding your crypto for you knows that they are about to bunk off with your money but doesn't tell you about that.
Old rule. "If you're playing a poker game and you look around the table and and can't tell who the sucker is, it's you."
Re: regulatory hammer is going to stop crypto (Score:1)
You seem to have (probably deliberately) misread the GP and missed his point. They said, "crypto seems only to existd to speculate and to pay illegal things..." If you read that quote carefully, you'll realized that they said that there seems to be only TWO purposes for crypto: 1) vehicle for speculation and 2) illegal things. You tried to discount the GP's point by pointing out that your use of crypto isn't an illegal one. That doesn't follow for two reasons. One is that your purpose is essentially specula
Inane Ramblings (Score:5, Insightful)
Anyone who reads this interview and invests.... (Score:4, Insightful)
.... absolutely deserves to lose all of their money. What he just said is one of the most insanely idiotic things I have ever heard. At no point in his rambling, incoherent response was there anything close to what could be considered a rational thought. Everyone reading that interview is now dumber.
Does anyone (Score:2)
actually understand what in the hell any of that meant?
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I thought I did, but now I am beginning to doubt myself.
It was as best I can tell pure jibberish.
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And hahaha apparently I just misspelled gibberish. Very apropos if you ask me.
How are people reading this? (Score:3)
Both articles linked in the TFA are pay-walled. Is everyone just going on what's in the summary?
Hacker's dream come true! (Score:3)
A better and succinct description (Score:2)
Re: A better and succinct description (Score:1)
WTH Did I Just Read? (Score:1)
> Um, Ah,Let me give you sort of like a ,You know, where do you start? Maybe for now actually....
First of all, this Sam Bankman-Fried character seemingly cannot express a coherent thought. The number of filler words this guy uses is to be blunt, incredibly annoying.
Second, While apparently kicking crypto to the floor he neglects to realize crypto is literally just a digital reincarnation of the monetary system which exists in the world today.
The fact that he apparently cannot comprehend that the coin i
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So from reading other comments here apparently you needed to know what the thing is the guy was explaining in order to understand his explanation. Ugh, now I feel like a fool who has listened to a fool being a fool and I have been fooled into thinking he said something else? Whatever.
couldn't understand a thing (Score:3)
I clicked the link to make mire sense of this but it's paywalled
Money is worth what you think it is worth (Score:1)
It sounds like a solution in search of a problem (Score:2)
Wait... wut? (Score:3)
That's one of the worst and least-coherent explanations of yield farming I've ever seen.
Same as fiat and a bank (Score:1)
What on earth did I just read? (Score:2)
It just does not make sense! :-D
"you know" (Score:1)