FTX CEO Describes Yield Farming as a Ponzi Scheme

Sam Bankman-Fried, the CEO of FTX, has actually used his description of precisely what “yield farming” is. Alert listeners to the Odd Lots podcast on Apr. 25 will have seen that what Bankman-Fried in fact explained was a book example of a ponzi plan.

The strange episode was sped up in a discussion with previous Goldman-Sachs financial investment lender Matt Levine. Levine merely asked Bankman-Fried how yield farming works, setting the FTX CEO off on a winding description of ‘X Token’– the fictional token which originates from a box that does “actually absolutely nothing.”

Despite doing actually absolutely nothing, Bankman-Fried discussed that X Token is set to alter the world. In ponzi-scammer parlance, this procedure is called “offering the dream.” It is the method fraudsters utilize to win over their marks and transform them into real followers.

” You begin with a business that constructs a box and in practice this box, they most likely dress it as much as appear like a life-altering, you understand, world-altering procedure that’s gon na change all the huge banks in 38 days or whatever. Perhaps in the meantime really, overlook what it does or pretend it does actually absolutely nothing. It’s simply a box …,” started Bankman-Fried

” … And then this procedure concerns a token, we’ll call it whatever, ‘X token.’ And X token pledges that anything cool that takes place due to the fact that of this box is going to eventually be functional by, you understand, governance vote of holders of the X tokens. They can vote on what to do with any profits or other cool things that take place from this box. And naturally, up until now, we have not precisely offered an engaging factor for why there ever would be any profits from this box, however I do not understand, you understand, possibly there will be, so that’s sort of where you begin.”

At this phase of the description, Bankman-Fried has actually developed a do-nothing box and tokens produced by the do-nothing box. Aside from altering the world with this idea, what occurs next?

” So anybody who goes, takes some cash, puts it in package, every day they’re gon na airdrop, you understand, 1% of the X token pro-rata among everybody who’s put cash in package. That’s in the meantime, what X token does, it gets handed out to package individuals.”

Bankman-Fried now looks for to position a market cap on the do-nothing box.

” Well, X token has some market cap? It’s most likely not absolutely no. Let’s state it’s, you understand, a $20 million market cap …”

” Wait, from very first concepts, it ought to be absolutely no,” inserts Matt Levine. “When you explain it in this absolutely negative method, it seems like it must be absolutely no, however go on.”

” Describe it by doing this, you may believe, for example, that in like 5 minutes with a web connection, you might produce such a box and such a token,” specifies Bankman-Fried.

” Like a few of the magic remains in like, how do you get that [$20 million] market cap to begin with, however, you understand, whatever we’re gon na proceed from that for a 2nd … if the overall quantity of cash in package is a hundred million dollars, then it’s going to yield $16 million this year in X tokens being offered for it. That’s a 16% return. That’s respectable. We’ll put a little bit more in? And perhaps that takes place till there are $200 million dollars in package. You understand, advanced traders and/or individuals on Crypto Twitter, or another sort of comparable celebrations, go and put $200 million in the box jointly and they begin getting these X tokens for it.”

But wait, there is more. The more that is put in package, the more cash it keeps paying, and the more the token cost increases.

” And they’re like ’10 X’ that’s crazy. 1X is the standard.’ Therefore then, you understand, X token cost goes method up. And now it’s a $130 million market cap token due to the fact that of, you understand, the bullishness of individuals’s use of package. And now suddenly naturally, the wise cash’s like, oh, wow, this thing’s now yielding like 60% a year in X tokens. Of course, I’ll take my 60% yield? They go and put another $300 million in the box … and then it goes to infinity. And after that everybody earns money.”

The cash goes to infinity. To some individuals that may seem like some type of voodoo economics, or Buzz “to infinity and beyond” Lightyear economics, and even simply an excellent old-fashioned ponzi plan. According to Bankman-Fried nevertheless, it’s the magic cash of “yield farming” and do-nothing boxes.

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