Even Sam Bankman-Fried rival Changpeng ‘CZ’ Zhao, head of Binance Holdings, says he didn’t short FTX’s native token, FTT
As his luck would have it, Michael Lewis has been trailing FTX founder Sam Bankman-Fried for the past few months. The author ofwon’t be short of material, but one thing he probably won’t find is a big group of sceptics who successfully wagered on the demise of the $32bn crypto exchange.
But financial engineers are trying to solve that problem. Derivatives allowing institutions to bet against unlisted start-ups are beginning to gain traction, and that’s good news because short selling can help in holding unicorns to account. We shouldn’t count on venture capitals . Their desire not to miss out on the next big thing will tend to trump the fear of backing a dud. VCs only need a few spectacular wins to make decent returns; a start-up blowing up is a cost of doing business.
Equities short seller Marc Cohodes concluded FTX was a bad actor months ago. He highlighted various red flags on social media but saw no way to profit from his informational advantage. “I did this one way for free…. I didn’t stand to profit from exposing this guy,” he told thepodcast. “My friends saw me tweeting and talking about this thing and said: what are you doing …? It’s not a [publicly traded] stock, there’s no way to play it or make money.
Synthetic derivatives offer a potential workaround. Founded by two former Forge employees in 2021, Caplight Technologies lets professional investors make bullish or bearish bets on unlisted start-ups via call and put options. It recently received financial backing from Deutsche Boerse.
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