Speaking on the “Odd Lots Podcast” with Matt Levine, the founder of FTX discussed yield farming in an episode dedicated to discussing cryptocurrencies. It is also the setting where Sam Bankman-Fried outlined his crypto “Ponzi scheme” that would eventually bankrupt his platform.
YouTube personality Coffeezilla broke down the podcast seven months ago and outlined how Bankman-Fried laid out his personal Ponzi scheme. Moreover, adding to the defense that SBF engineered the greatest theft in crypto’s history thus far.
Bankman-Fried and the Crypto Ponzi
Anyone in finance knows what a Ponzi scheme is, and just how dangerous it can be. For the most part, the contemporary market is smart enough to avoid them, but crypto’s youth makes it a lot easier for those things to be present.
In a podcast with Matt Levine, Sam Bankman-Fried discussed the process of Yield Farming. Thereafter, inadvertently outlined a crypto “Ponzi scheme” that foreshadowed his own criminal actions with his billion-dollar cryptocurrency exchange platform, FTX.
The episode saw Bankman-Fried explain Yield Farming by starting with a “box.” Adding that you dress up to look like a “life-changing, world-altering, protocol that’s gonna replace all the big banks in 38 days.” Noting that, in practice, the box does nothing.
Bankman-Fried proceeds to develop a scenario in which that protocol issues an “X Token.” That promises anything, “cool” from the box would be divided up among the shareholders that would vote on what to do with those proceeds.
The podcast sees Bankman-Fried assure listeners that the box does nothing, and thus, the token is meaningless. Furthermore, expressing that, despite its meaninglessness, it has a market cap of $20 million; for reasons that are unexplained.
When pressed, Bankman-Fried assures that the market cap is due to the effort of the box’s creation. Subsequently, with the Twitter sphere’s interaction with said box, the price would hit his imaginary $20 million.
Conclusively, Bankman-Fried then proceeded to illustrate a world in which that box, and that token, get more investment put into it. Eventually cascading to $200 million into the box from people on “crypto Twitter,” and “sophisticated investors.” Thereafter, getting this token in return.
I’m guessing you see where this is going…
To his credit, Matt Levine, through his laughter, calls out the Ponzi scheme nature of Bankman-Fried’s explanation. To which SBF counters that Levine calling it “worthless” doesn’t make him right.
What is all the more interesting is considering how the downfall of FTX happened. It was almost as if the entire collapse started with the deteriorating worth of a native token…
The reality is that this singular podcast doesn’t account for how Bankman-Fried misused customer funds through the Alameda Research trading firm. Yet, it does illustrate a man who never viewed crypto with any sort of responsibility for the funds he was entrusted from investors.
Subsequently, it displays a man who perceived the industry, not as a pursuit of financial freedom that Defi and digital assets can present, but in how to collect millions.