The Exchanges

Q where people that are, you know, inherently tied to EA rise very high or sometimes run them. I mean, Sam Baikman Freed, who we've talked about on this show was tied to EA. We also have, you know, folks extremely high with an open AI and anthropic, um, tied to EA. How has it been so effective at churning out leaders in the tech world who believe in this stuff?

A Well, I think, I think it goes in both directions to some extent. I think some people were, to some extent, shaped by EA. You know, Sam Bankman-Fried encountered it very early in his life, and at least to his telling, made decisions about his life based on the philosophy, whereas there are other people who have sort of adopted it after much of their careers. So, you know, Elon Musk, for example, has somewhat embraced effective altruism, but it doesn't seem like it was really a defining feature More as it was something he learned about and said, oh yeah, that sounds about right. Um, and I think the same is true of Marc Andreessen and effective accelerationism for that matter. You know, he was not thinking about effective accelerationism, which was not even a thing back in, you know, when he was developing web browsers. This is something he is now adopting sort of post hoc. Um, and I, you know, I argued this in an essay that I wrote, but I think You know, effective altruism and to an extent effective acceleration, or sorry, the other way around, effective accelerationism and to an extent effective altruism are really just sort of a rebranding of a lot of the same philosophies that have existed in Silicon Valley for a long time where people really want to feel good about themselves. Like they're, you know, pursuing a higher cause, not just the pursuit of massive wealth. And these …

AI assessment note: “these philosophies are very convenient because they allow people to define themselves as these hero figures”

Q of the key questions is whether Sam was aware of this. And I think Caroline Ellison's testimony of that she kept on preparing balance sheets and rearranging things and naming them in interesting ways to make sure that You know, Sam understood what was going on, but the general public might not if they came across the documents was very interesting. So can you talk a little bit about that?

A Yeah, so there was a lot of sort of creative accounting going on that was trying to, uh, really mask all of this debt that Alameda had. Um, and so Caroline Ellison testified to preparing balance sheets for the company, um, and then at Sam Bankman Free's request, preparing what he referred to as alternative balance sheets. Uh, and those were basically Copies of the balance sheet where she would move around or rename entries so that it looked like, you know, the, the loans to FTX executives were just a part of some other spending. Uh, she sort of removed some of the liabilities from some of the balance sheets. You know, it was all stuff, I think, I think in accounting, you know, there's some degree of flexibility where, you know, some of it's up to interpretation, just exactly how you present things, but this was like, Well beyond anything that would be accepted by any competent auditor. Um, and so they, she basically testified that she prepared those balance sheets at his request and then sent some of those alternative balance sheets to, uh, lenders and investors so that they thought that Alameda was in a much better financial position than they were. And, you know, there was testimony later on in the week from one of those lenders who basically said that Had he had access to one of the more truthful balance sheets, there's no way that his firm would have lent to, to Alameda.

AI assessment note: “Caroline Ellison testified to preparing balance sheets for the company, um, and then at Sam Bankman Free's request”

Q skeptical after this. I, I hope so. So, where, where do you think crypto goes after this? I mean, obviously, we've seen a great evaporation of wealth, both in the falling of, ah, so many coins, like going from basically three trillion to a one trillion dollar industry, ah, within a couple months, and then these billions of dollars that were lost in FTX. What is the future for crypto?

A Well, I think it's going to be challenging, uh, reputationally to come back from this, but I do think that they will certainly try. Um, you know, the, I think people in sort of the general public see FTX and Sam Bankman Freed as almost synonymous with crypto where, you know, because he was so prominent, the advertising was so prominent because he was talking to Congress, you know, he was very visible. Um, for a lot of people, that was all they really knew about crypto. And so seeing this failure to them is like seeing crypto fail. And I think that'll be really challenging for the crypto industry to move past. Um, they've certainly been trying to sort of say like, oh, well, Sam Bankman Freed wasn't crypto. He was just one fraud. You know, real crypto is, is all better than this. Um, but I think that's a challenging distinction for a lot of people to make in sort of the more lay public. Um, Um, but I also know that, you know, if there's one thing about crypto, it's that it's very good at rebranding itself. You know, we've seen crypto go through these boom and bust cycles where it gets really big and then something goes bad and it all crashes down again. And then, you know, two years later, it's like nobody remembers what just happened. I mean, you could look back at the collapse of like Mt. Gox, for example, which was devastating to crypto. It was, you know, the, one of the bigge…

AI assessment note: “I think it's going to be challenging, uh, reputationally to come back from this”

Q it does seem like there's some move from institutional investors, like, I believe it's called Grayscale. They're putting together a, uh, coin debt, uh, sorry, uh, uh, an ETF of Bitcoin, and the SEC sued to stop it, and now And they lost, and they're not gonna appeal, and everyone's like, oh, these banks are bringing legitimacy to Bitcoin, and Bitcoin's gonna skyrocket again. What do you make of that?

A I think beyond anything else, it is enormously ironic. Um, because if you actually look back at the history of Bitcoin and like the white paper that was released when Bitcoin was first created, it's all talking about how banks are so, uh, you know, uh, twisted that the financial system is broken. I mean, Bitcoin was created in the wake of the global financial crisis. And so there was this enormous lack of trust in the banking system and in traditional finance. And Bitcoin was created pretty much to do away with that whole system. And so now we're seeing Grayscale and BlackRock and all of these, you know, huge financial institutions, Fidelity, JP Morgan's, you know, they're, they're starting to talk about crypto. They're looking at these ETFs. And I think it's just hilarious that that's sort of where we've come from this, you know, now the same system that was supposed to subvert the financial system is being adopted Buy them because they feel like they can make a profit off of it.

AI assessment note: “I think beyond anything else, it is enormously ironic.”

Q to trade these crypto tokens, Uh, but also went to banks like Celsius and thought that they were gonna get like a 20% return on their money, and I'm just paraphrasing here, you know, citing broadly, I'm sure I'm off by a percentage point or two. Um, this was obviously something that was too good to be true. How did so many people get caught up and believe in it?

A Well, I think there was, uh, just sort of mass hysteria to some extent in the sort of 20, 20, 21 time period where, you know, everywhere you looked, people were talking about crypto. It was in the news. It was on social media. It was on advertisements. And some people, at least on paper, were making a lot of money. And so I think a lot of people decided they didn't want to get left out. Uh, that was a lot of the marketing as well was, you know, don't be left behind. Come put your money in this crypto thing. And, um, people really fell for it. You know, it was, I think there's nothing like a good old get, get rich quick scheme where, you know, people always fall for those and the veneer of the technological sophistication was there. You know, there were really high profile people talking about this stuff. And then I think also people just aren't used to getting Straight up lied to. Um, that was something that came out a lot in a bunch of these cases was they, they were like, you know, Celsius was a, it was based in the U S you know, surely they must've been regulated. Surely someone was making sure they weren't just lying to us. And turns out, no, there was no one doing that until everything fell apart. Um, so I think a lot of things went into it, but you know, it was, it was this weird period of time where it was like reality had just been paused for a second.

AI assessment note: “I think there was, uh, just sort of mass hysteria to some extent”

Q to Alameda. And they were used for pretty unbelievable things that didn't really seem like they had a chance of, you know, returning any money, including almost five billions of loans, five billion in loans to Sam and his lieutenants. I mean, what could be the possible order of operations that runs through someone's mind that allows them to do that and think they're going to get away with it?

A Well, I mean, I think that they were probably hoping that Alameda Research's trading operations would go a lot better than they did. Um, you know, Alameda Research sort of started out in the run up to sort of a historic cryptocurrency bull market. And so there was a period of time where a lot of people were making a lot of money on the market and, you know, it's possible that they were hoping that that would happen again and Alameda would just, you know, make the right trades and make it all back or something like that. Um, but I'm not, I'm not really sure how they justified this to themselves. I mean, it seems like Sam Bankman Freed had an extremely high tolerance for risk. Um, even when the possibility of things going wrong was substantially higher than the possibility of them going right, he sort of felt that it was still appropriate to take that kind of risk. Um, and so I think that might be a part of it. Um, But, you know, it's really hard to say. I mean, I think that, uh, they were just hoping that things would go better in the crypto world than they were, that, um, you know, that people would be willing to loan money to FTX and Alameda if necessary, um, and that this would be, like, a temporary stopgap, maybe.

AI assessment note: “it seems like Sam Bankman Freed had an extremely high tolerance for risk”