FTX/ DEFI: If it looks like a duck and quact like a duck. . .

levine:

Can you give me an intuitive understanding of agriculture? I mean, for me it is farm as if you are selling structured puts and collecting bonuses, but maybe there is a more differentiated understanding than that.

Sam Bankman-Fried:

give me something like a real toy model that in my opinion surprisingly has a lot of legitimacy for what agriculture could mean. Do you know where are you starting? You start with a company that builds a box, and in practice you will probably dress this box in such a way that you like a life -changing, you know, world -changing protocol that will replace all major banks in 38 days or whatever. Maybe for the time being, they actually ignore what it does, or pretend that it is literally not doing anything. It's just a box. So what this protocol is, it is called "Protocol X", it is a box and they take a token. You can take Ethereum, you can put it in the box and you take it out of the box. okay, you put it in the box and you get something like a promise that you have put it in the box, and then you can redeem this note again against the token.

What we have described so far is the stupidest ETF or ADR of the world or something. It doesn't do anything except that you can put things in if you want this. and then this protocol spends a token, we call it "x-token". And X-token promises that everything that happens due to this box can ultimately be used by the governance of the owners of the X-tokens. You can vote on what you do with revenue or other cool things that happen from this box. And of course we have not yet given a mandatory reason why there would ever be revenues from this box, but I don't know, you know, maybe there will be one, so start with it.

And then you say, okay, well, you have this box and you have explained X-token and the box protocol, or maybe voices through on-chain governance, or, you know, something that we will do is that you take half of all X tokens that have been shaped. Maybe two thirds will be, two thirds will offer X-token, and you will give them away free of charge to everyone who uses the box. So everyone who goes, takes some money, puts in the box, will drop 1 % of the X-token every day under everyone who has put money into the box. For the time being, this is what X-token does, it is being given away to the boxing people. and what happens now? Well, X-token has a certain market capitalization, right? It's probably not zero. Let us assume that it is a $ 20 million market ...

levine:

Wait, wait, wait, it should be zero from the start, but okay.

Sbf:

uh, safe. OK. Completely sensible comments.

levine:

I mean that is not quite true, but if you describe it in this completely cynical way, it sounds as if it should be zero, but go on.

Sbf:

describe it that way, for example, you could think that in about five minutes you could create such a box and such tokens with an internet connection, and that it should reflect, you already know that it should be worth around $ 180 or some market capitalization for something like that, you know, this effort that you have put into it. In the world in which we are in ourselves, everyone will say: "Ooh, box-token, if you do it. Maybe it's cool. If you buy a box token, it will appear on Twitter and have a market capitalization of $ 20 million. and of course you could keep the Float very low and whatever, you know, maybe not 20 million in it. Maybe that's one kind. Mark-to-Market rating or something, but I admit that it is not entirely clear that this thing should have a market capitalization, but I empirically claim that it would have a market capitalization.

levine:

I agree.

Weisenthal:

In theory, it shouldn't have a market capitalization, but in practice you always have that. Okay.

Sbf:

true. So, and obviously we somehow hide something from the magical effect, right? As if part of the magic lies in how you get this market capitalization to start with it, but you know whatever, we will continue for a second. so you know, X-token [are] being spent every day, all of these highly developed companies are like, Huh, that's interesting. If, for example, the total amount in the box is a hundred million dollars, this year it will bring in $ 16 million in X-token that will be issued for this. This is a return of 16 %. that is very good. We will put a little more in, right? and maybe that happens until $ 200 million in the box. So, you know, experienced dealers and/or people on crypto Twitter or other similar parties and put $ 200 million in the box and they start to get these X token for it.

And now everyone suddenly says, wow, people just choose to put $ 200 million in the box. This is a pretty cool box, isn't it? This is a valuable box, as all of the money shows from which people apparently decided that it should be in the box. And who are we to say that they are wrong? Do you know, that's me, I mean, boxes can be great. Look, I love boxes as much as everyone else. And what happens now? Suddenly people somehow calibrate, well, $ 20 million, was that? How this market capitalization for this box? And it was about 48 hours and it is already $ 200 million, including experienced players. They are how, come, that's too low. And they consider these conditions, TVL, total value included in the box, as a ratio of the market capitalization of the tokens of the box.

Sbf:

and they are like '10x', that's crazy. The standard is 1x. 'And then you know, the price of the X-token increases significantly. And now it is a token for the market capitalization of $ 130 million because, you know, the optimistic use of the box comes about. And now the Smart Money is suddenly like that, oh, wow, this thing is now bringing 60 % per year in X-token. Of course I take my 60% yield, right? So they go and pour another $ 300 million into the box and they get a psycho and then it goes into infinity. And then everyone earns money.

levine:

I think myself is a fairly cynical person. and that was so much cynic when I described agriculture. You just think, now, I'm in the Ponzi business and it's pretty good.

Weisenthal:

At no time did this require any economic argument, it is the same as if other people would put money in the box. And I will also, and then it is more valuable. So you will invest more money and did not seem to describe any kind of economic purpose at any time of the cycle?

Sbf:

On the one hand, I think that this is a pretty reasonable answer, but let me play around with it. Because that's a framework of it. And I think there is a kind of depressing amount of validity ...

levine:

Can you say something about sustainability? Because, you know, on the one hand you think, well, a trillion dollar of institutional money will flow in Bitcoin. And on the other hand, they are so that there are basically many ponzis that have really done.