How to cash out of FTX (but only if you're filthy rich) - Decrypt

How to cash out of FTX (but only if you’re filthy rich) – Decrypt

In the wake of the complete collapse of crypto exchange FTX, along with its founder Sam Bankman-Fried’s multi-billion dollar fortune, it appears that further financial chicanery is in the offing.

Withdrawals and internal balance transfers in non-US iterations of the exchange have been frozen since the exchange’s collapse earlier this week, leaving billions of dollars in customer funds stranded and irretrievable.

However, on Thursday, FTX announced that it had resumed limited withdrawals for customers based in the Bahamas as a result of favorable laws in the country. Pictures then began circulating online by an enigmatic account appearing daily business of over 300 million dollars, share to countless trades of around $70,000, significantly more than the account typically trades. Observers wondered if it was part of a clever, if highly illegal, attempt by users outside the Bahamas to recoup millions in otherwise frozen funds.

There are a number of theories. The first is that the account, based outside the US, uses a variation of a technique known as “wash trading” to remove its assets to safe territory. Wash trading, simply put, is when an account trades against itself to create the illusion of a lively market. In this case, one account – let’s call it Account A – trades with a counterparty, Account B, which is based in the Bahamas.

Eli Williams designs algorithmic market makers and was among the first to notice the odd series of trades. In an interview with Decrypthe speculated that account B acts as a “market maker” for account A, acting as a buyer for A’s huge trades in a market that is otherwise almost entirely illiquid.

Wash trading, without interference from authentic market interests, essentially allows buyers and sellers to choose their own prices. William’s guess—and let’s be clear, it’s just a guess, though supported by almost everyone in the incestuous online gossip mill where I’m forever ensconced—is that Account A is deliberately selling to Account B at a huge loss, making that B to get a big profit on every trade. This effectively transfers A’s funds to B, who can then calmly withdraw them in whatever sun-drenched Bahama he lives in.

“If they are successful,” Williams explained, “it results in a small percentage of the amount traded being effectively transferred from A to B on each trade, reducing A’s balance until it goes to zero.”

He explained it again in idiot’s terms: “You sell me an apple for $1, I sell it back to you for $2, you sell it back to me for $1, I sell it back to you for $2 again,” he said. “I now have $2 of yours that I didn’t have before.”

And voila! Your millions are homeless.

Of course, no one could succeed in this. As mentioned, the two parties must be sure that no other traders could unknowingly become involved in their system – that is, participate as buyers or sellers. It must be an “almost empty order book,” Williams said. Otherwise, “someone else can trade with you and get in the way of your laundry trade.”

Likewise, the amounts traded must be huge, to ensure that the revenue from each manufactured “loss” is large enough to be worth it. “My intuition is that it doesn’t make sense to risk it, legally, unless the amounts are very large,” Williams says. “If you have $18 million in a stock market, you can afford to hire high-octane legal counsel if it comes to that.” (By “it,” I assume he means some kind of prosecution—this is market manipulation we’re talking about.)

More importantly, both parties must also have known each other beforehand. “It can only be done between two parties who have previously agreed on terms and know the market and timing of trades,” says Williams. They may have reached out to each other on Twitter, A may have bribed B over (or indeed under) the counter, or – more likely – it’s “all done by one party who has a set of API keys for both A’s and B’s ’s accounts.”

Which brings us to the question: WHO can this autoarbitrage be?

It is hard to say. The culprit must be very wealthy and possibly based in the Bahamas. A few has suspected a popular trader known as Algod, who was seen to have made a number of suspicious trades, but Algod has strictly denied any interference.

Nor is Williams the only theory about what exactly the mysterious stories are about. Jordan Fish, host of the crypto-themed UpOnlyTV podcast, speculated that the Bahamas account actually bought up the NFTs induced by account A. “The Bahamas account creates an NFT, [and] the stuck user buys NFT with their full balance,” he tweeted.

“This appears to be the first recorded case of NFT tools in existence,” Fish added.


The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment or other advice.

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