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A back-story for the fall of Sam Bankman-Fried


I remember doing an interview in September of last year with a lawyer who did a lot of work for the cryptocurrency industry. 

It was clear already that there was "trouble in River City." In July 2022, two important crypto businesses filed for chapter 11 protection: Voyager Digital and Celsius Network. Voyager Digital was a crypto broker. Unfortunately, it extended a large unwise loan to Three Arrows Capital, a crypto fund. Three Arrows defaulted, and Voyager never recovered. 

So: why did Celsius Network collapse? You ask. Well ... Celsius Network was a crypto lending company that let users deposit their digital assets into a "Celsius wallet" preliminary to pledging them as security for their borrowing.

The cause of its sudden failure is a rabbit hole I don't want to go down with you. But two quick points are observable from the surface: this failure was part of the more general cooling-off of crypto activity, in the manner that "hula-hoop lending" would surely have suffered as that fad died. Second, one of its executives may have been crooked, may have stolen tens of millions of US dollars worth of cryptocurrency from those wallets.

At any rate, in September I was talking to a prominent lawyer about the resulting bankruptcy proceedings. He said that they had plunged the whole industry into a chaos whence it could recover only by drastic measures. I pressed a little: "what does that mean?" He said that somebody has to "start writing checks to backstop" continued orderly activity. Specifically, he suggested that the renowned crypto billionaire Sam Bankman-Fried could take over all the productive assets of the industry, buying them at firesale prices through bankruptcy trustees. 

THAT is the backstory. When things started to go south for cryptos, SBF was seen by many, intelligent and well-versed people, in almost messianic terms as the only one who could save them. 

Instead, he turns out to have been part of the problem. Fancy that.  


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