I think I'm not alone in worrying that we might have overlooked red flags about FTX because of the fact that its founders considered themselves EAs.
Suppose all of us who failed to predict the FTX collapse were right to think, beforehand, that FTX was very likely an honest, non-fraudulent business. (Maybe because base rates for fraud were low or because investors thought so too.) Should we have even still been concerned about its business practices?
For instance, should FTX's impact on its customers have looked net-negative? Should its business have seemed objectionable from a "common-sense ethics" perspective? If so, the lack of discussion at the time would suggest that many of us were either blind to unwelcome news or afraid to speak out against an important funder.
Here are some considerations that might have suggested FTX's business practices were bad:
- "If customers are moving most of their savings out of stocks and bonds and into cryptocurrency, that probably makes them worse-off. FTX's mass-marketing might be encouraging people to do this, especially people who aren't financially savvy."
- "When customers make trades on the platform, they're probably trading against smart money and losing out. In fact, they're probably losing out more than usual because that smart money is Alameda and Alameda has a systemic advantage. Considering the amount FTX spends on marketing, customers must be losing a lot of money between exchange fees and market losses to Alameda."[1]
On the other hand, many people enjoy retail trading; some are probably aware of the costs and still find it worthwhile.
My tentative personal view is that a year ago, FTX's business looked neutral or mildly bad for customers, but not much worse than, e.g., Robinhood; that the reputational risk to EA looked small; and that, though specialists could've given these issues more attention, it was okay for the wider EA community to focus on other things.
What should someone with no inside information or ingroup bias have thought a year ago about FTX's business practices?
- ^
In hindsight it looks like all this might be false, but I assume we couldn't have known that at the time.
And (4) -- Would people have felt comfortable questioning the morality of FTX's known business, EA's reliance on FTX-derived funds, and certain leaders' endorsements of SBF without fear of ostracism or adverse effects on their career? From a standpoint of practical psychology, I think the answer is probably not, and we need to have the discussion about which geese we are willing to accept golden eggs from before we are offered the eggs. Once they start laying many eggs, the psychological incentives to not ask questions -- and to ignore those who ask questions -- is just too strong.