Bankless How the FTX Meltdown Happened—explained by Castle Island's Matt Walsh
Nov 16, 2022
Matt Walsh, General Partner at Castle Island VC and co-host of On the Brink, offers keen insights into the FTX collapse. He passionately questions the lack of oversight that allowed Sam Bankman-Fried to operate unchecked. The discussion covers the ripple effects of the meltdown, the importance of self-custody in crypto, and the psychological trust issues surrounding exchanges. Walsh emphasizes the urgent need for regulatory reforms and accountability to prevent future crises while exploring strategies for rebuilding a more resilient industry.
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Exchange Conflict of Interest
- Owning a prop shop and an exchange creates a major conflict of interest.
- This conflict can lead to capital misuse, as seen with FTX and Alameda.
Alameda's Data Advantage
- Alameda Research had access to FTX's granular trading data, creating an unfair advantage.
- This setup allowed them to potentially front-run other traders on the exchange.
Front-Running Setup
- Alameda was structurally set up to potentially front-run FTX customers due to shared data access.
- This inherent conflict of interest was ignored by many due to SBF's persona and perceived success.
