Who is reporting on the big crypto group chat?

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I wasn’t quite sure what to make of the Wall Street Journal and New York Times reports of text messages sent on Signal between Changpeng rivals CZ Zhao and Sam Bankman-Fried around the time FTX went up in smoke. This is because I’m not quite sure who leaked them or who will benefit from them. But I’m pretty sure someone leaked these two outlets because the reports came out within hours of each other. So someone wants everyone to know!

Because I don’t understand what’s going on, I’m going to skim through these two stories, which are the same in broad strokes, suggesting that the sourcing was similar. (As longtime readers know, re-identifying anonymous sources is one of my favorite games, though it’s usually played within the confines of my own skull.) Here’s what stands out.

Coordination of exchanges

So I guess I’ll start with the thing that made me frown: a group chat reported by the Journal was called the exchange coordination. What?

Like, okay, we have Zhao and Bankman-Fried, okay. Also in those discussions, according to the Journal, were Tethers Paolo Ardoino, Trons Justin Sun and Kraken co-founder Jesse Powell. It’s one hell of a group chat.

I mean, don’t get me wrong, I suspect that JPMorgan CEO Jamie Dimon has the phone number of Goldman Sachs CEO David Solomons and both of them probably also have the phone number of Wells Fargo CEO , Charles Scharfs. I bet any of them can call Citi CEO Jane Fraser whenever they want! But I don’t think they’re all sitting in a group chat called big bank co-ordination, not least because that’s the kind of thing that gets antitrust lawyers foaming.

The most charitable explanation of Exchange coordination, I suppose, is that its cryptos ersatz version of something like Swift, which is an email platform after all. It just looks awfully funny.

Unstable parts

The next thing that hit me was Tether. I have a long-standing fascination with Tether, not least because its executives keep going to CNBC to embarrass themselves. (It’s funny every time!) In this case, it stands out because it’s a stablecoin, and Bankman-Fried has some history with stablecoins. In particular, The New York Times previously reported that federal authorities were reviewing the transactions of its Terra/Luna companies to see if they were market manipulation.

Most of the sell orders on Terra, the algorithmic stablecoin that broke away, came from FTX sister company Alameda Research, which also shorted Luna. The token death spiral has led to massive market contagion, taking down Three Arrows Capital, Celsius, and Babel Finance among others.

Two things stand out to me here. The first is that, hilariously, the contagion was probably part of the downfall of Alameda and FTX, as people panicked. But the second is much less funny: FTX listed Terra/Luna while Alameda traded against them. That sucks for retail investors, man.

The more damage you do now, the longer you will spend in jail.

In the November 10 chat, Tethers Ardoino expressed concerns that Alameda was trying to drive down the price of Tether and drag other cryptocurrencies with it, the Journal reports. Tether is a major token widely used in crypto if anything were to happen to it much of the industry is in deep trouble.

Stop now, cause no more damage, Zhao wrote in the chat to Bankman-Fried, according to The New York Times. The more damage you do now, the longer you will spend in jail. He also pointed to a $250,000 swap by Alameda and claimed it was intended to destabilize Tether.

Strange claim, at first glance. A $250,000 trade in Tether is like a Tuesday. But! The allegations regarding the Alamedas Terra/Luna swaps do not suggest one big swap but many small ones. The Wall Street Journal quotes a person close to Alameda as saying the transactions were aimed at closing positions and returning money to lenders. I don’t know who the source was on this, but it’s not outside the realm of possibility, it’s Bankman-Fried himself since this explanation benefits him and, as I think we all have discovered, he has a killer case of not being able to shut his mouth – that is.

Also, for the record, Bankman-Fried told The Times and Journal that to my knowledge, neither I nor Alameda have ever attempted to intentionally detach Tether or any other stablecoin.

Who benefits?

My initial impulse is that the cats here may have been leaked by Bankman-Fried due to the aforementioned inability to close shit. I don’t know what the motive would be here. Shift blame from himself as the only bad actor to a larger group of industry players? After all, revealing the existence of the group chat doesn’t make sense to most participants.

The Times article byline reinforces that suspicion: David Yaffe-Bellany, who wrote a story in November that revealed Bankman-Fried was sleeping very well after his empire collapsed.

On the other hand, the focus on stablecoins seems odd to me. Zhaos exchange, Binance, has launched numerous stablecoins Circles USDC, Paxos dollar and TrueUSD in favor of its own, BUSD, which is issued in partnership with Paxos. Meanwhile, Coinbase has suggested that anyone using Tether use USDC instead. We know from the fall of FTX that Zhao will ruthlessly bring its competitors to their knees as the revelations about FTX’s true financial situation came after Zhao announced that he was flooding the market with FTX’s FTT token. So it’s possible that the source of these cats is Zhao himself, seeking to make Bankman-Fried even worse.

In fact, Zhao publicly berated Shark Tank investor and star Kevin OLeary for standing up for Bankman-Fried this morning. If the cats make Bankman-Fried look particularly bad among his peers, Zhao looks good in comparison.

Somebody’s playing with fire here, and I don’t know who

There is a third outer possibility. Caroline Ellison was the CEO of Alameda when all of this was happening. Given the coordination between Bankman-Fried and Alameda, I suspect she was aware of this conversation, whether she was there or not. She loses nothing by making everyone look worse. It also matches the bill from someone close to Alameda, quoted in the Wall Street Journal.

As for the likelihood that another Ardoino, Sun or Powell Cats player leaked them, I doubt. These actors all have to lose by revealing the coordination between the exchanges. Also, cats make Tether very vulnerable. Because it plays such a key role in crypto, toppling it would likely trigger an even bigger meltdown than what we have already seen. But who knows! If I’ve learned one thing over the past year, it’s that crypto is full of very chaotic drama queens.

Someone is playing a dangerous game, and I don’t know who. What I do know is that elephants dance the tarantella, and if I was a mouse in the crypto industry, I would do my best to stay away.

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