SBF's Personal Notes: 'Fiat@'
In a document titled ‘Fiat@, Sam Bankman-Fried explains the origins of the now-infamous fiat@ account, the bug in code discovered in June 2022, and points to some pieces in the FTX Terms of Service which he hopes will help him.
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Fiat@
What actually happens when someone sends a wire transfer to FTX? The answer, as I learned in late 2022, is essentially the following.
Let’s say that Bob wants to wire $100 from his bank account and trade on FTX.
a) Bob wires $100 to some bank account or paymentment processor
b) on FTX’s platform, we transfer $100 from ‘fiat@ftx.com’ to Bob’s account.
The latter is just a database transfer, not a wire transfer or blockchain transfer, because it’s one FTX account to another.
In theory, the net result of that is:
Bob’s bank: -$100
Bob’s FTX account: +$100
FTX’s bank/processor/etc.: +$100
fiat@ FTX account: -$100
Which should work!
And, if Bob wanted to withdraw from FTX, the opposite would happen–we’d transfer $100 from Bob’s account to fiat@, and then wire him the money.
Over time, as customers wired in money, fiat@ got more and more negative. Who really owns that (liability)? Well, really, it depends on who owns payment processor, or what happens to that money. If a customer wires to a bank account in FTX’s name, then the negative fiat@ account just offsets the money in the bank account–and so fiat@ should be netted out with those bank accounts. If a customer sends to some third party payment processor, then that processor probably has the money, and that offsets the fiat@account.
fiat@ was a ‘stub account’ – not a fully functioning account on FTX. It didn’t trade, no one ever logged into it, etc. All it did was act as an accounting feature for wire transfers. This meant that, among other things, admins (e.g. me) couldn’t actually see the fiat@ account on any of the portals we had. It didn’t show up in the way normal accounts did, because it was just a stub account.
And fiat@’s balance, then, would be [total customer wire withdrawals] - [total customer wire deposits] over time.
But back in 2019, FTX didn’t have its own bank accounts. So some users with pre-existing OTC relationships with Alameda wired money to them in order to trade on FTX.
That means that some of the transfers were sent to Alameda’s bank account; and then on FTX we’d transfer back from fiat@ to the customer.
Which means that, really:
a) we should have split out fiat@ by which payment processor/bank/etc. the customer sent to
b) each of those–including Alameda–should either have kept the money segregated, or they should have had it deducted from their full trading account on FTX, requiring collateral and a borrow.
Over the second half of 2022, developers did in fact split out fiat@ by payment processor. I’m not entirely sure how each of those were handled.
As one check on the size of the Alameda portion of fiat@ – according to the balance sheets Alameda sent as of November 8th, it had a balance of roughly -$8.8b; mostly in USD, but also some other fiat currencies that had accumulated over time. There were offsetting positive balance for some of these, though–including AUD–in other accounts.
Because admins couldn’t actually see the fiat@ account, if you looked, naively, at Alameda’s main FTX account, you wouldn’t see any of the fiat@ activity in it. In fact you wouldn’t see it no matter how hard you looked. By the end, this resulted in a ~$8b difference between Alameda’s true position on FTX, and what you would see on the admin portal.
How did the terms of service treat this? From 8.3.3:
“E-MONEY IS NOT LEGAL TENDER. FTX TRADING IS NOT A DEPOSITORY INSTITUTION AND YOUR E-MONEY IS NOT A DEPOSIT OR INVESTMENT ACCOUNT. YOUR E-MONEY ACCOUNT IS NOT INSURED BY ANY PUBLIC OR PRIVATE DEPOSIT INSURANCE AGENCY.”
(Note that the often-cited 8.2.6 only refers to crypto, not to fiat)
And, in many places, it clarifies that we are likely to be using third party payment providers; for instance in 30.3:
“YOU ACKNOWLEDGE AND AGREE THAT FTX TRADING AND ITS AFFILIATES MAY RELY ON ONE OR MORE THIRD PARTY INTERMEDIARIES FOR THE PURPOSES OF PROVIDING THE SERVICES… FTX TRADING SHALL NOT BE LIABLE FOR THE ACTS OR OMISSIONS OF ANY THIRD PARTY INTERMEDIARY, OR ANY LOSSES ARISING FROM THE FAULT OF ANY THIRD PARTY INTERMEDIARY.”
And, even after processing ~$5b or so of withdrawals in the last few days, I think that FTX likely has enough funds to pay back all non-fiat balances.
All of which is likely cold comfort to customers. This crash was obviously never what any of us wanted, and I’m deeply sorry–and committed, as best I can, to making all customers whole, nonetheless.
Note: I am not employed by anyone. I do not have a boss, an editor, a team etc. but I am in New York City to cover Sam Bankman-Fried’s criminal trial.
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