A lot of people in the coming months and years will tell you they saw all this coming. I can tell you that most of us did not see this coming. In fact, most of us thought that FTX was one of the most solid players in the industry. This narrative is easy to get lost amid all the shocking revelations.
Why did many of us see FTX as so solid?
First off, they were fast and ahead of the curve in innovation. They had a vision for what a trading platform could be that felt more cohesive than the competitors. One friend's privacy coin took years to get integrated into Binance, while FTX's crack team figured out how to work with the coin within days or weeks.
They created a lot of cool and useful new products, like ETHBULL, ETHBEAR, and similar. These were tokens that continually rebalanced leveraged positions in ETH, but were tradeable off platform as ERC-20 tokens. They had tokenized stocks.
(Or at least, they claimed to do. all the above. Perhaps it was a loose relationship with reality that allowed them to move so quickly.)
And the platform worked great. It was fast, sleek, and intuitive to use. I enjoyed using it more than Binance, which felt janky and overcomplicated, or Coinbase, which felt overly simple.
The rapid rise to prominence felt earned, and a signifier of future success.
Also, they seemed shrewd in the way they turned crypto into a gambling platform. It was evil-capitalist, and also very cleverly done. They seemed to have a vision of crypto as a platform for gambling with leveraged trades. They offered up to 101x margin, letting you make up to 100x of what you would otherwise make if you were right, and lose everything if you were wrong. People loved to play with leverage on FTX, especially in bull markets.
They had dark patterns (UX that causes you to do things that aren't good for you) all over the leverage portion of their site. When you made money with leverage, a sound played and a badge popped up that you could share showing the percentage in big green numbers. When you lost, your trade quietly faded away so you could do another.
They also had the craziest dark pattern I have ever seen in my life. It came when you withdrew from their platform.
When you withdrew, they had two options: MAX and MAX WITHOUT BORROW. If you want to move all of your Bitcoin to another platform, you'd likely click MAX without thinking much of it.
MAX actually used your entire account as collateral to borrow bitcoin at "market price", and then moved that loan immediately off platform. If the value of your collateral went down too fast and you didn't transfer back to the platform, it would liquidate your collateral to pay back the loan. (If you even noticed that had happened.) One click to leverage your entire account.
MAX WITHOUT BORROW just took out the maximum amount that you had and withdrew it.
This is a wild and evil dark pattern, but it read to me as the work of someone who was very on top of things and good at building systems — a team that had an incentive to keep the machine clean and shiny so they could keep raking off a cut.
It did not read to me as a team of people who would be slipshod with their practices.
I am processing what I learn and updating my mental model of the world from it. One thing I've learned is not to confuse competence with good judgment. Another is to expect the good judgment of newbies to become clouded by success.
What do you think?