Moon of Alabama
Think of a grocery that offers a $10 discount ticket to regular customers. The ticket gives them 15% off of their next $100 grocery buy. The total discount ticket sale is limited to 50 tickets. The people who did not get a ticket see good value in them and soon start to trade them at $12.50.
But the FTX grocery did not only print the 50 discount discount tickets it had planned to sell but a total of 50,000 discount tickets. It then claimed that the 49,950 tickets times the market price of $12.50 per ticket were $624,375 in capital assets supporting the business. The grocer then goes to a bank to get a real money loan of maybe $500,000 while offering those self printed assets as collateral. The money he gets is then used to finance his grand lifestyle.
FTX was worse than that:
Even more egregious were the Solana ecosystem tokens which FTX helped launch. The leaked balance sheet showed that FTX had large holdings of Serum, Maps and Oxy.
It showed Serum tokens marked as a $2.2 billion asset. Available market cap at the time was less than $500 million.
We don’t know for sure, but it seems likely that loans were taken out backed by FTT and other minor tokens.
Essentially, it seems that SBF invented his own currency from this air and then took out US dollar loans against it from anyone that would offer.
That last sentence essentially describes the whole crypto Ponzi scheme including bitcoin. It is build on the assumption that worthless things can be converted in something of value. Well, as P.T. Barnum may have said: “There’s a sucker born every minute.” Bitcoin and other tokens become ‘assets’ because eventually some sucker will pay real money for them.