How stablecoins and the unstable con, Sam Bankman-Fried, built a corrupt castle of soil and however it each washed out.
The communicative of Bitcoin has surely had its just stock of nefarious characters, transgression activity, atrocious haircuts and worse wardrobes, and yet our anti-hero du jour has seemed to outdo them all. Sam Bankman-Fried, amended known by the 3 missive acronym SBF, burst onto the country astatine the highest of the 2017 bubble, founding Alameda Research that September, conscionable 4 years aft graduating from an internship into a full-time presumption astatine 1 of the world’s largest marketplace makers, Jane Street Capital.
SBF is the lad of Stanford Law prof and laminitis of left-wing ace PAC Mind The Gap, Barbara Fried, and Stanford prof Joseph Bankman, an adept connected taxation structure laws and authorities regulation. At the commencement of 2018, SBF had struck integer golden portion taking vantage of the arbitrage accidental presenting itself betwixt a higher request for bitcoin successful the Asian market, colloquially known arsenic the “kimchi premium”. By the extremity of the year, and aft amassing a sizeable luck from this high-volume bitcoin/dollar spread, helium officially moved to Hong Kong, formally founding the derivatives speech FTX successful the pursuing spring.
The Bitcoin web that SBF rode from rags to riches and backmost again was partially launched successful nonstop effect to the fiat wealth experimentation rearing its disfigured caput successful the subprime mortgage, existent property and eurodollar crises that culminated into what is present known arsenic the Great Financial Crisis of 2007 to 2009.
“??EThe Times 03/Jan/2009 Chancellor connected brink of 2nd bailout for banks%”
- Satoshi Nakamoto, January 3, 2009
This present infamous inscription successful the genesis artifact made wide the inappropriate fractional reserve banking and predatory indebtedness fiascos of our regulated banking manufacture was to beryllium enactment to remainder erstwhile and for each by this emergent monetary protocol; a wholly transparent and decentralized ledger would de-incentivize fraud and forestall obfuscation of illicit activity. A caller rival to the dollar arose from the ashes of the meltdown, and with it, a caller modular for fiscal fairness, implicit with predictable issuance, controlled erstwhile and for each by the radical for the people. Yet successful immoderate strategy made with bully intentions, criminals similar SBF and his bought-and-paid-for governmental and media allies negociate to find a mode to wounded guiltless radical for the vantage of an chartless few. Like astir intriguing stories of fraudulent fiscal crimes, this 1 starts successful the Bahamas, and ends with a tidal question of plus liquidations and breached homes.
“If you deliberation the Bahamas has ruined your planetary taxation system, you person a beauteous unspeakable planetary taxation system.”
- Steven Dean, Summer 2020 
Launching The Stablecoin, CBDC Race To The Bottom
The Bahamas seems innocuous enough, and yet determination is simply a agelong past of U.S. taxation avoidance, implicit with rum-running bootleggers during the prohibition era. Continuing this tradition, the Caribbean banking centers, including the Bahamas and the Cayman Islands, arsenic of August 2022, were the fourth-largest overseas holders of treasury securities, down lone Japan, China and the U.K. Shortly aft the clip of its founding, FTX was afloat taking vantage of the escaped wealth epoch that began with the 2008 clang and was sustained by low-to-zero involvement rates brought upon by the Trump administration.
These complaint cuts were started by the Trump-nominated and Biden-renominated Jerome Powell and were further exacerbated by some of their administrations’ COVID responses. An unprecedented pumping of each things dollar denominated occurred, with existent estate, banal indexes, bitcoin and a full clump of unregistered securities known arsenic altcoins reaching caller highs crossed the board. In June 2019, 1 period aft the founding of FTX, Facebook’s Mark Zuckerberg announced Libra, a integer currency based connected a handbasket of planetary currencies; a caller instrumentality connected stablecoins. This launched the stablecoin and CBDC contention successful earnest, and coincidentally enough, the Central Bank of the Bahamas became the archetypal specified instauration to denote its ain CBDC, the soil dollar, successful October 2020. The soil dollar itself was pegged to the Bahamian dollar, which is itself pegged to the United States dollar, and frankincense with its government-sanctioned launch, the commencement of the archetypal cardinal bank-issued stablecoin dollar came to beryllium connected the sandy beaches of SBF’s caller home.
"What is the reserve currency of the crypto system going to be? Right present it's unambiguously the USD. And interestingly it's USD whether oregon not you're looking astatine the American crypto economy."
- Sam Bankman-Fried, November 5, 2021
While the U.S. authorities feigned fearfulness of systemic hazard astatine the time, the Chinese authorities understood the Libra task to beryllium a backdoor dollarization of the G7 currencies rumored to beryllium included successful its basket. A Metaverse-held instrumentality connected the 1985 Plaza Accord, this program of coordinated cardinal banking would dispersed USD web users crossed the internet’s biggest network, sped up by the precocious velocity disposable successful centralized integer payments and globalized by the borderless quality of the Facebook idiosyncratic base.
The integer yuan was trialed successful April 2021 with large haste successful absorption to this development, and by the Winter Olympics 2022, had launched for overseas attendees successful Beijing. Not to beryllium outdone by these new-look, same-shit fiat cryptocurrencies, Bitcoin made its ain fiscal past erstwhile President Nayib Bukele of El Salvador took to the signifier astatine Bitcoin 2021 to denote the ineligible tender aspirations of his tiny but dollarized nation. On March 9, 2022 President Joe Biden signed Executive Order #14067–”Ensuring Responsible Development of Digital Assets”, which included aspirations for mitigation of fiscal risks successful integer plus markets, arsenic good arsenic a clause stating that wrong 210 days, the lawyer general, successful consultation with the caput of the treasury and the president of the Federal Reserve, indispensable supply a ceremonial connection for a government-issued CBDC.
By this point, the Bitcoin fiscal strategy had been utterly and decently dollar-ified, with billions of dollars successful liquidity of dollar-denominated trading pairs making up the lion’s stock of marketplace activity. The aforesaid tin beryllium said for the Ethereum network, which has seen its compliance-driven perversion by non-native assets taking the instrumentality from its token Ether, arsenic stablecoin and different dollar derivatives present uphold the bulk of economical value of the system. Both stablecoin giants Circle, issuer of USDC, and Tether came retired successful enactment of the merge, further ossifying their involvement successful the now-nearly-70%-OFAC-compliant blockchain.  As of this article’s writing, implicit 15.5 cardinal ether are presently staked without progressive withdrawals successful the Ethereum 2.0 beacon chain, worthy astir $18 cardinal dollars. Fortunately for Bitcoin, the statement value of its strategy is not manipulated by idiosyncratic stake, and frankincense the Bitcoin marketplace has been seemingly unaffected – negatively anyhow – by this decade-long development. At slightest until scammer Do Kwon and his ponzi-scheme Luna wreaked havoc connected investors astatine the commencement of May of 2022.
“[Crypto is] evidently serious…you privation to bash close by it successful the regulatory space.”
- President Bill Clinton, April 27, 2022 (Allegedly) 
Only a fewer weeks aft SBF hosted a keynote with erstwhile U.K. Prime Minister Tony Blair and President Bill Clinton astatine the FTX-organized Crypto Bahamas conference, 1 of the largest-ever over-the-counter bitcoin purchases was announced by the LUNA team.
Terraform Labs and the non-profit Luna Foundation Guard, 2 entities headed by Do Kwon, had begun a run to purchase bitcoin arsenic a reserve plus successful the lawsuit that their algorithmic stablecoin, UST, deviated from its $1 peg. Shortly earlier their collapse, the program had ballooned to the lofty extremity of stacking implicit $10 cardinal successful the hardest known integer commodity known to man. This acquisition was financed with Three Arrows Capital, oregon 3AC, and was facilitated by cryptocurrency broker Genesis.
"Terra's singular maturation has continuously reshaped crypto markets implicit the past 2 years”, said Joshua Lim, caput of derivatives astatine Genesis. “Genesis is excited to beryllium a liquidity spouse to the Terra ecosystem, connecting it to a broader assemblage of organization marketplace participants."
With the bitcoin reserves of Luna Foundation Guard totalling 80,394 BTC, valued astatine implicit $3.1 cardinal connected May 5, 2022, this acquisition placed LFG among the top-10 bitcoin holders successful the world.  But lone for a moment, for portion it mightiness consciousness similar a beingness ago, what happened adjacent should look awfully familiar; the peg was attacked, the recently-purchased bitcoin luck was liquidated, Binance, led by CEO Changpeng Zhao (CZ), aptly halted each trading connected LUNA and UST pairs – with notable exceptions to their ain stablecoin BUSD – and Kwon seemingly fled to extracurricular of U.S. jurisdiction to Asia. 
Thus begins our archetypal of galore repeatable points of inquiry; wherever precisely did this bitcoin go? According to an audit released successful November 2022, implicit 33,000 bitcoin were transferred to Binance connected May 10, 2022, and sold on with different assets portion failing to support the peg.  The aforesaid time the astir $1 cardinal dollars worthy of bitcoin deed Binance’s bid books, bitcoin’s USD terms broke beneath $30,000, falling from $40,000 conscionable a week before.
On May 13, SBF purchased a 7.6% involvement successful Robinhood, the trading level that came nether scrutiny for halting trading during the GameStop fiasco successful aboriginal 2021. Bloomberg had reported that astir 40% of Robinhood’s gross came straight from selling customers orders to firms specified arsenic Two Sigma Securities, and Citadel Securities.  Citadel had been fined $700,000 successful July 2020 for beforehand moving trades placed by customers orders, and successful September of that aforesaid year, Robinhood itself was questioned by the U.S. Securities and Exchange Commission (SEC) for improperly informing clients of selling banal trades to known high-frequency trading firms.
Previously successful December 2020, Robinhood had agreed to wage $65 cardinal to settee charges of repeated misstatements for nonaccomplishment to disclose their receipts of payments from said trading firms.  When newly-nominated Treasury Secretary Janet Yellen briefed newly-elected President Joe Biden connected this struggle of involvement successful February 2021, she herself had to get an morals waiver owed to having received astatine slightest $700,000 successful talker fees from Citadel LLC the twelvemonth prior.  SBF had disclosed this acquisition via a filed Schedule 13-D signifier with the SEC, costing $648.3 cardinal dollars and giving him 2.8% voting powerfulness successful their dual-class stock structure, nether the entity Emergent Fidelity Technologies; a sanction said to beryllium randomly generated. 
“On July 13, Coinbase Exchange volition beryllium unifying USD and USDC bid books. As portion of the unification process, USDC bid books volition beryllium merged nether USD bid books to make a better, much seamless trading acquisition with deeper liquidity for USD and USDC.”
- Coinbase Exchange Twitter, June 29, 2022 
Circle, the entity down the progressively utilized USDC stablecoin, had antecedently expanded their planetary offerings with a subsidiary cognition based successful Bermuda with an announcement made connected July 22, 2019.  This entity, filed nether the Digital Assets Business Act of 2018 (“DABA”) meant that Circle was the archetypal large stablecoin issuer to person a Class F (“Full”) DABA licence that covered their cognition of custody, outgo services, exchange, trading and much fiscal services wrong the integer plus realm. Circle’s different banking partners, Signet, Signature Bank and Silvergate Capital had made USD loans to Celsius, Voyager, Block Fi, Three Arrows Capital and Alameda Research. By the clip this nonfiction was written, each had filed for bankruptcy. Two of their different concern affiliates, Galaxy Digital and Genesis, person besides reported monolithic losses successful the FTX collapse, with rumors of further contagion effects coming. Coinbase, a publicly-traded speech nether the ticker $COIN, announced successful its Q2 2022 shareholder missive that astir 1 3rd of full gross was derived from involvement connected USD-denominated holdings, including a ample USDC position:
“Interest income was $33 million, up 211% compared to Q1. The summation was chiefly driven by our USDC activity, arsenic good arsenic higher involvement rates arsenic we make involvement connected fiat lawsuit custodial funds… astatine the extremity of Q2, we had $6.2 cardinal successful full $USD resources. In addition, we had $428 cardinal of crypto assets.” 
When the missive was released successful precocious August 2022, involvement connected USDC holdings for 12 months was up to 4.7%, portion one-month yields were an adjacent 4%. By November 16, 2022, USDC yields were down to 0% crossed each clip frames.
“1) Binance converts USDC --> BUSD, and we spot the alteration successful supplies. Thus begins the Second Great Stablecoin War.”
- @SBF, October 23, 2022 
On September 4, 2022, Binance announced that it would beryllium auto-converting each USDC, USDP and TUSD, 3 large dollar stablecoins, into its self-issued BUSD, effectual successful conscionable 25 days.  This led to continued concerns astir Binance’s solvency with the preceding fewer months, particularly July 2022, seeing the largest known outflows of bitcoin successful the exchange’s history, eclipsing adjacent March 2020’s achromatic swan bottom.
On October 11, 216 days aft Biden’s enforcement bid with the aforementioned 210-day clause, BNY Mellon, the world’s largest custodian slope with implicit $43 trillion connected the books, and coincidentally, the custodian of Circle’s reserves backing USDC, announced the motorboat of its integer plus custody program.  Involved with much than 20% of the world’s investable assets, the slope founded by the archetypal caput of the treasury, Alexander Hamilton, was besides listed arsenic a spouse successful the FedNow pilot. 
Despite these organization developments, a continued carnivore marketplace weighed heavy connected the now-plummeting bitcoin price. Paradoxically, much and much Bitcoin hash complaint poured onto the network. These concurrent movements saw Bitcoin’s hash terms plummet to an all-time low, spurring a monolithic liquidation of bitcoin liabilities disconnected mining operators books. On October 26, Core Scientific, past the largest Bitcoin mining cognition successful the world, filed for bankruptcy with millions of dollars successful indebtedness liabilities, thousands of ASICs, and yet successful their filings, held lone 24 bitcoin full erstwhile the circus came to town.  Where precisely did each this bitcoin go? On that aforesaid day, hardly 2 weeks earlier the FTX collapse, Binance saw its largest azygous time outflow, with 71,579 coins, totalling implicit $1.1 cardinal successful dollar terms.  This pushed nett outflows to astir 95,000 coins from the world’s largest speech since conscionable that July. Again, wherever precisely did each this bitcoin go? The precise adjacent day, October 27, 2022, SBF appeared connected The Big Whale and announced aboriginal plans for FTX to motorboat its precise ain stablecoin. 
More Sand Than Dollars
“CIA and Mossad and pedo elite are moving immoderate benignant of enactment trafficking entrapment blackmail ringing retired of Puerto Rico and caribbean islands. They are going to framework maine with a laptop planted by my ex gf who was a spy. They volition torture maine to death.”
- Nikolai Muchgian, October 28, 2022 
On October 24, 2022, the MakerDAO approved a assemblage connection to custody astir $1.6 cardinal USDC with Coinbase Prime.  Four days later, Nikolai Muchigan, the co-founder of MakerDAO and inventor of Rai, a DAI-fork stablecoin, tweeted that his beingness was successful information owed to a Caribbean land blackmail ring, supposedly backed by Israeli and U.S. quality agents. Three days later, connected Halloween, the 29-year-old coder Muchigan was recovered dead, having drowned successful the oversea disconnected Condado Beach successful Puerto Rico. 
Two days later, connected November 2, 2022, CoinDesk newsman Ian Allison released findings that implicit a 3rd of each assets – astir $5.8 cardinal of $14.6 cardinal – connected the equilibrium expanse of SBF’s Alameda Research was intrinsically, and soon to beryllium fatally, linked to FTX’s speech token FTT. A “bank” tally commenced, and aft 3 days of astir $6 cardinal successful withdrawals, FTX was near with virtually 1 azygous bitcoin. Where precisely did each this bitcoin go? The adjacent time successful an interrogation with Fortune, Coinbase laminitis and CEO Brian Armstrong made enactment that USDC volition go the de facto cardinal slope integer currency successful the U.S. 
“The policymakers successful the U.S. volition acceptable the model that request to beryllium followed truthful that the backstage marketplace volition really make the solutions, and USD coin has been connected a truly accelerated rise… the regulatory situation is 1 of the biggest unlocks we’re going to person successful presumption of increasing this manufacture and possibly adjacent getting the prices to spell backmost up successful the close direction”
- Brian Armstrong, November 3, 2022
On November 6, CZ announced Binance would liquidate a remaining information of FTT it had acquired from exiting FTX’s equity, having received astir $2.1 cardinal successful BUSD and FTT. Minutes aft his announcement, Caroline Ellison, SBF’s spouse and the CEO of Alameda Research, offered to acquisition the tokens astatine $22 each, successful an over-the-counter fashion.  By November 8, CZ and SBF had a telephone telephone and seemingly came to a tentative woody for acquisition, reserving the close to backmost retired of the woody astatine immoderate time, portion interestingly besides leaving some U.S.-based proprietary exchanges, Binance.us and FTX.us, extracurricular the scope of the deal.
“Things person travel afloat circle, and FTX.com’s first, and last, investors are the same: we person travel to an statement connected a strategical transaction with Binance for FTX.com (pending DD etc)”, SBF tweeted. 
Later that evening, FTX officially suspended each plus withdrawals. As portion of the conditions of the acquisition, SBF was forced to unfastened the FTX books and amusement the bottommost of his pockets; seeing much soil than dollars, CZ backed retired of the deal. A fewer important statements were made successful the 48 hours oregon truthful that led up to this abrupt cataclysm, including from the awfully-quiet U.S. Securities and Exchange Commission itself.
“Liquidating our FTT is conscionable post-exit hazard management, learning from LUNA. We gave enactment before, but we won't unreal to marque emotion aft divorce. We are not against anyone. But we won't enactment radical who lobby against different manufacture players down their backs. Onwards.”
- CZ, November 6, 2022 
On November 7, 2022, the SEC officially deemed LBRY, oregon Library Coin, an unregistered information offering, mounting a devastating precedent passim the extended cryptocurrency market.  In the United States District Court for the District of New Hampshire, the memorandum and bid read, “The Securities and Exchange Commission (SEC) contends that LBRY, Inc. offered and sold unregistered securities successful usurpation of Section 5 of the Securities Act of 1933”, the enactment colloquially known arsenic The Howey Test.
Due to LBRY reserving a pre-mine of astir 400 cardinal LBC tokens, and the cognition that the institution to day had spent astir fractional of its pre-mined LBC, the SEC determined communal endeavor implicit with a deficiency of disclosure and due filing of its present alleged information offering done required channels successful the Gary Gensler-chaired SEC. The implications of this filing sent shockwaves crossed the pre-mined token industry, including exchanges listing these tokens arsenic good arsenic the entities down their issuance. Conveniently, the adjacent time was November 8, the United States’ midterm elections, with the equilibrium of the legislature and the location — and possibly the regulatory way of the integer plus manufacture — erstwhile again astatine stake.
Searching for FTX connected FEC.gov brings up 456 idiosyncratic run contributions from SBF, CEO Ryan Salame, and others.  Salame’s contributions full implicit $14 cardinal towards GOP candidates, portion SBF’s “effective altruism” contributed implicit $20 cardinal successful donations to DNC politicians. Having been the 2nd starring donor to the Biden campaign, by the clip the last tallies from predetermination nighttime rolled in, SBF’s bankroll had yet caught up with his morals, and helium recovered himself astir wholly bankrupt.
By November 9, the time aft the elections, SBF had reportedly mislaid 94% of his nett worth, down to $1 cardinal from much than $15 billion, leaving him with the largest single-day nonaccomplishment by a idiosyncratic according to the Bloomberg Billionaire Index.  Early successful the greeting of November 10, SBF took to Twitter to explicate what happened, penning “I'm sorry. That's the biggest thing. I fucked up, and should person done better”, earlier making a circumstantial enactment that “THIS IS ALL ABOUT FTX INTERNATIONAL, THE NON-US EXCHANGE. FTX US USERS ARE FINE!” 
“The medication [...] has consistently maintained that without due oversight, cryptocurrencies hazard harming mundane Americans…The astir caller quality further underscores these concerns and highlights wherefore prudent regularisation of cryptocurrencies is so needed.”
- White House Press Secretary Karine Jean-Pierre, November 10, 2022 
On the eleventh time of the eleventh month, FTX and Alameda Research officially filed for Chapter 11 bankruptcy protection, and SBF stepped down arsenic CEO. In addition, 130 affiliated companies connected oregon associated with FTX besides commenced voluntary proceedings nether Chapter 11.  The tide had gone out, and astir everyone progressive got caught swimming naked, arsenic a near-endless tidal question of dollar-denominated liquidations made speedy enactment of SBF’s Caribbean empire.
While the archetypal trickles of a dollar CBDC whitethorn person started successful the Bahamas, the monsoon of coming regularisation and contagion of the Second Great Stablecoin War is acold from over. The dollar, having fallen 10% disconnected 35-year DXY highs since September, looks for caller ways to innovate and further dollarize markets crossed the globe.
On November 15, conscionable 4 days aft the SBF tsunami crashed to shore, BNY Mellon, arsenic good arsenic a twelve oregon truthful different banking institutions, announced the commencement of a twelve-week integer dollar aviator programme with the Federal Reserve Bank of New York.  On the precise aforesaid day, BlockFi announced plans for bankruptcy filings, lone 5 months aft taking a $250 cardinal indebtedness from FTX, and Circle announced users would present beryllium capable to settee payments by accepting Apple Pay. [37,38] With a important 43% discount present showing connected the highly-regulated Grayscale Bitcoin Trust, further assemblage requests for impervious of reserves are increasing astir Genesis and Grayscale, some owned by the Digital Currency Group, and adjacent their custodian, Coinbase Custody. [39,40] As of this writing, these requests person truthful acold been denied for information reasons.
While appearing to beryllium riding the question of the booming integer plus revolution, gathering personage endorsements and governmental allies alike, it turns retired SBF was drowning successful indebtedness and superior misallocation amongst the loud, mainstream praise. Later that month, connected November 30, SBF was acceptable to look successful idiosyncratic astatine a New York Times event, sponsored by Accenture, alongside Secretary Yellen, Meta CEO Mark Zuckerberg, Ukraine President Volodymyr Zelensky, BlackRock CEO Larry Fink, TikTok CEO Shou Chew, erstwhile Vice President Michael Pence, Amazon CEO Andy Jassy, Netflix co-founder and CEO Reed Hastings, New York City Mayor Eric Adams, and others; tickets for the lawsuit were listed astatine $2,499 per attendee. The interrogation betwixt SBF and Andrew Ross Sorkin was streamed arsenic advertised, albeit with some parties shooting remotely.
Bitcoin tends to beryllium a ballast of truth, bringing each sorts of ballooning fraud rushing to the surface. FTX and Alameda Research volition instrumentality their spot amongst the seemingly too-big-to-sink players that ended up doing conscionable that. They volition surely not beryllium the last. However the pursuing weeks, months, and years play out, it is wide that SBF was but a tiny food successful an ocean-sized, dollarized pond. And arsenic helium rapidly recovered out, determination is ever a bigger fish.
“At immoderate constituent I mightiness person much to accidental astir a peculiar sparring partner, truthful to speak. But you know, solid houses. So for now, each I’ll accidental is: good played; you won.” 
– Sam Bankman-Fried, November 10, 2022