Why Ex FTX CEO Sam Bankman-Fried Described Yield Farming As "Build A Box". Matt Levine Interview

Table Of Content

• Content

• Conclusion

• FAQ

• You May Also Like

• External Links

It's no secret that the crypto community is divided between purists who see certain currencies (particularly Bitcoin) as immutable, static bits of code that may operate as repositories of value, and innovators who are always testing out new methods to profit from decentralized currency.

In Defi, "yield farming" seems to be where some users are generating double- or even triple-digit returns just by lending or borrowing different coins. The legitimacy of this funding has been called into doubt for quite some time, with many critics on the internet comparing it to rearranging deck chairs on the Titanic.

The latest edition of the Odd Lots podcast brought back Bloomberg Opinion writer Matt Levine and FTX CEO and crypto millionaire Sam Bankman-Fried to discuss the current state of the cryptocurrency market and how individuals are earning money in it. Matt probed Sam for specifics on the yield farming process.

Take a look below to see what was discussed:

Matt Levine: (21:17)

To what extent would you be able to help me develop an innate feel for farming? As far as I'm concerned, farming is just selling structured puts for a premium, but maybe there's a deeper meaning to it.

Sam Bankman-Fried: (21:28)

Let me offer you a pretty simplified model, which, in my opinion, accurately depicts the potential of farming. Okay, so where do you even begin? You begin with a business that manufactures a box, which is likely presented as a game-changing, perhaps world-altering protocol that will replace all the major banks in the next 38 days or so. Ignore its effects for the time being, or at least behave as if they don't exist. That thing is simply a box, after all. This protocol is a box with a token inside of it; its name is "Protocol X." Ethereum is portable; it may be stored in and retrieved from a virtual container. Alright, so you deposit it in the slot, get a sort of IOU as payment, and then retrieve your token.

What we've outlined so far is the most inept exchange-traded fund (ETF), American depositary receipt (ADR), or whatever you want to call it. You can put items in it, but it doesn't do anything else. A token, let's call it an "X token" for simplicity's sake, is then issued via this protocol. And the X token guarantees that any wonderful things that happen due to this box will eventually be utilized by, you know, the governance vote of holders of the X tokens. They have the option to cast a vote on how the box's cool benefits should be distributed. Of course, we haven't really provided a convincing rationale thus far for why there would ever be any revenues from this box, but I dunno, you know, maybe there will be, so that's kind of where you start.

Then you say, "Okay, well, you've got this box and you've got X token, and the box protocol proclaims" (or even "votes" through on-chain governance) that they will steal fifty percent of all newly produced X tokens. It's possible that two-thirds of the people who utilize the box will provide X tokens for free. Every day, 1% of the X token will be distributed as an airdrop, or given out pro rata among the people who have deposited money into the box. That's all for the time being; X tokens are distributed to the box community. Okay, so what happens next? So, X token must have some value in the market, right? There is probably not going to be a value of 0. Let's assume a market size of $20,000,000...

Matt: (23:56)

First principles say it ought to be zero, but that's acceptable.

SBF: (23:59)

Okay, yeah. Okay. Your points are quite valid.

Matt: (24:04)

Obviously, this is not the case, yet in light of your sarcastic phrasing, it seems as if the answer must be null.

SBF: (24:10)

If I were to describe it to you, you could assume that anybody with access to the internet and five minutes could make such a box and a token and that it would be worth about $180 in market value because of the amount of time and effort required to make it. If you did this in the society we live in now, everyone would say, "Ooh, box token." Possible coolness. A "buy-in box token" tweet will go live with a $20 million valuation. Another option is to make the float very small; maybe just a few million dollars have been invested so far out of a total target of $20 million. Even if it isn't obvious that this item should have a market cap, empirically, I assert that it would have one. Perhaps that's like asking whether it's a mark-to-market valuation that's completely diluted or something.

Matt: (24:57)

In that case, I understand.

Joe: (24:59)

Although theoretically it should have no market capitalization, in fact such things almost invariably do. Okay.

SBF: (25:03)

and you're absolutely correct. So, clearly, right now we're suppressing part of the magical effect. Some of the magic is in figuring out how to build up your market capitalization in the first place, but let's set that aside for the time being. You can bet that every one of those high-tech corporations is thinking, "Huh, that's interesting," when they hear that X tokens are being distributed every day. If there are 100 million dollars in the box, for example, it will produce 16 million tokens this year. a return of 16%. To be honest, that's quite nice. Surely we can afford to add a little bit extra, right? Perhaps this will continue until there is a total of $200,000,000 in the safe. People on Crypto Twitter and other knowledgeable investors pool $200 million to buy X coins.

Everybody's like, "Wow, people simply decided to put $200 million in the box," now that it really happened. Can we agree that this tin is quite sweet? All this cash that presumably belongs in the box is a testament to the fact that people think it's a valued possession. Who are we to say they're incorrect if they believe that? And this is, you know, why boxes can be fantastic. Boxes are great and all, but let's be honest here. So, what's going to happen next? People's expectations have been somewhat readjusted, leading to the question: $20 million? Do you like the value that has been placed on this container? It's just been 48 hours, but it's already over $200 million, with participation from some really intelligent players. That's too low, they say. Total Value Locked in a Box (TVL) ratios are analyzed in relation to the market capitalization of the token used to purchase the box.

SBF: (26:43)

They said it was 10 times as crazy. Conventionally, 1X is assumed. After that happens, the value of X tokens skyrockets in price. The token's market value has risen to $130 million because of the optimism with which users have been purchasing and putting it to use. And now, of course, the shrewd investors are all of a sudden like, "Oh, wow, this thing is suddenly earning like 60% a year in X tokens." A return of sixty percent is a sure thing, right? Another $300 million is added to the box, and after that, you receive a psychic, and it continues on forever. Then everyone benefits economically.

Matt: (27:13)

If I were to describe myself, I'd say that I'm a cynic. Moreover, it was a far more jaded account of farming than I would have given. You mention casually that you're involved in the lucrative Ponzi scheme company.

Joe Weisenthal: (27:27)

To put it simply, no economic justification was necessary; people just dropped money in a box. Therefore, I will follow suit, which will increase its value. They plan to invest more money despite the fact that the cycle has not yet identified an economic goal.

SBF: (27:42)

That's a fair enough answer, I suppose, but give me a moment to toy with the idea. That's because that's one way to look at it. And I believe there is a rather disheartening degree of truth to that...

Matt: (27:53)

Do you have any thoughts on how long that might last? And so, on the one hand, you would think, "Well, a trillion dollars of institutional money is going to flow into Bitcoin." Yet you counter by saying that many Ponzi schemes have been successful.

SBF: (28:06)

Right. Allow me, okay, cool.I'm going to keep my pessimistic outlook and wonder what the worst possible outcome may be. In that case, fine. You have these boxes, and you know they're stupid, but what's the point? Obviously, this package is not worth anything. As a result, you're not allowed to retain this high-tech headgear. On the other hand, if the general consensus currently holds that the value of this box token is somewhere around a billion dollars, then that is what it is being priced at and roughly represents its market cap. Each and every one of us will price themselves competitively. And you know that there are ways to pay for this, right? With X tokens, you may borrow US dollars via a borrowing mechanism. You may even simply put some in there and take the dollars out if you believe it's worth less than two-thirds of that. Don't ever hand out the cash again. At some point, you're going to be liquidated. Also, it has certain similarities to actual marketable goods. And at some point, if the world never decides that we are incorrect about this in, like, a coordinated manner, right? In a way, you represent the man who calls to say, "No, this stuff is truly useless." However, in what way are you correct?

Tracy Alloway: (29:15)

I simply have one question about this: are you suggesting that the worth needs to come from widespread consensus that it is of some value? And, while this may seem like a basic statement about crypto, there have been numerous discussions about how crypto generates value, as well as use cases for the underlying technology—blockchain—during the history of crypto.Once widespread adoption of blockchain occurs, the economic value of these assets may be fully realized. That is where the value will be created. Are you essentially arguing that the value of these items rests more on others agreeing that they have value?

SBF: (29:53)

Therefore, I would argue that any source is possible. One reason for a market capitalization is cash flow, but even Warren Buffett would tell you to f*ck off if you rely on that alone. In other words, if the price is right, I'll purchase it and hold on to it until it starts producing income. which is fantastic. Alternately, something may gain market capitalization in the same manner as, say, the Doge coin or the SHIB coin—because people laugh at it and then buy it. It has no cash flow if you're thinking that's a bad idea. My plan is to engage in a short sale. All of your cash vanishes. And, you know, they've both been ways for assets to gain market capitalization in recent years.It's not only cryptocurrencies that have seen this dynamic, right? So maybe this is a clue to some intriguing perspectives on it? The idea that maybe people would pay anything for it even if it doesn't appear conventionally valued is not a crypto-exclusive notion; for example, AMC, Hertz, GameStop, or meme stocks in general have a very similar trend. Despite this, it is now essentially similar.

Conclusion

This entire discussion has taught me a few things, one of which is that DeFi could be more analogous to Bitcoin than a lot of people first assumed. Like Bitcoin, DeFi derives its value from the widespread consensus that the "thing" (in this instance, the box or yield-farming protocol) is worth something rather than getting its value from the fact that it is fundamentally helpful.

FAQ

Why has FTX collapsed?

Bankruptcy papers were filed by FTX on November 11 after a precipitous drop in client activity earlier in the month. CEO Sam Bankman-Fried has been candid about the company's inability to keep up with client demand and its lack of available resources.

What is the story of FTX?

The Free Trade Exchange (FTX) is a cryptocurrency trading platform located in the Bahamas. Founded in 2019, by 2021, the exchange had over a million customers and ranked third in terms of daily trading volume among cryptocurrency exchanges. Financial Trading Corporation (FTX) filed for bankruptcy in a US court on in the Bahamas. Founded in 2019, by 2021, the exchange had over a million customers and ranked third in terms of daily trading volume among cryptocurrency exchanges. Financial Trading Corporation (FTX) filed for bankruptcy in a US court on November 11, 2022, due to a severe cash flow problem.

How much is Sam Bankman-Fried worth?

The wealthiest person in history, Bankman-Fried amassed a staggering $26 billion at his financial peak. His fortune was valued at $10.5 billion in October 2022.

That's all for today, see ya tomorrow! If you want more, be sure to follow our Twitter (@croxroadnews)

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.

You May Also Like

• FTX Scandal: $663 Million Funds Drained As The Crash Was Happening

• The Rise And Fall Of A Giant: FTX Collaspe In Glassnode Data

• Move Your Crypto Off Exchanges. Cold Storage: What It Is & How It Works

• What Happened to FTX Crypto Exchange?

• LUNA Meltdown: Theories And "Told-You-So" From Crypto Community

External Links

• Sam Bankman-Fried Can't Stay Off of Twitter

• FTX’s Sam Bankman-Fried lost billions and the company filed for bankruptcy—it could signal the ‘demise’ of crypto, expert says

• The fall of the FTX ‘King of Crypto’ Sam Bankman-Fried

• Who is Sam Bankman-Fried, the FTX ex-CEO who lost billions in crypto?

• Who is Sam Bankman-Fried, the former FTX CEO & 'cryptogenius' who lost $14.5 billion in a day

Links From Our Sponsors

• Swan: Bitcoin Savings App 

• crypto.com ➡️ Get $25 By Opening An Account

• Bitcoin Code

• Open An Account In Binance

• Open An Account In Bybit

If You Like Our Content And Want To Help Us To Make It Better, You Can Buy Us One (Or More!) Coffee CLICKING HERE