Comment by hn_throwaway_99

The sad thing is that most people don't learn lessons from history. It took me far too long to start learning lessons from history.

After an asset bubble and collapse people will understand why we have a lot of the regulations from the 1930s.

That's not really a lot compared to what Wallstreet is steeling daily.

You do understand what you described is basically Bolshevik/French revolution only different times.

Some men with some power using young starry eyed young people to grab much more power from incumbents.

At all of the exchanges and trading firms I’ve worked with (granted none in crypto) one of the “must haves” has been a reconciliation system out of band of the trading platforms. In practice one of these almost always belongs to the risk group (this is usually dependent on drop copy), but the other is entirely based on pcaps at the point of contact with every counterparty and positions/trades reconstructed from there.

If any discrepancies are found that persist over some time horizon it can be cause to stop all activity.

Fun fact, centralized crypto exchanges don't use crypto internally, it's simply too slow.

As a contractor, I helped do some auditing on one crypto exchange. At least they used a proper double-entry ledger for tracking internal transactions (built on top of an SQL database), so it stayed consistent with itself (though accounts would sometimes go negative, which was a problem).

The main problem is that the internal ledger simply wasn't reconciled with with the dozens of external blockchains, and problems crept in all the time.

> JPMC proposed using crypto, internally, to consistently manage cash flow.

Yikes, how hard is it to just capture an immutable event log. Way cheaper than running crypto, even if only internally.

It's all merkle trees under the hood. I feel like the crypto coin stuff has overshadowed the useful bits.

If its for internal why not just use a normal append only log. x amount transferred from account y to account z. A three column csv oughta do it.

> I hypothesized, given how shitty the codebase was, that they must be tracking this stuff poorly.

That is like half of the plot of Office Space

This sounds like a situation that I know about at the placed identified by name in your comment. It took months to track down the issue.

Thanks for posting this, I will definitely listen to it.

While I haven't listened yet, one thing I don't really buy when it comes to blaming Evolve is that it should fundamentally be Synapse's responsibility to do reconciliation. This is what completely baffled me when I first worked with another BaaS company - they weren't doing any reconciliation of their ledgered accounts with the underlying FBO balances at the partner bank! This was insane to me, and it sound likes Synapse didn't do it either.

So even if Evolve did make accounting mistakes and have missing transactions, Synapse should have caught this much earlier by having regular reconciliations and audits.

Rambling interview. As best as I can tell Synapse said there were technical issues with Evolve the bank.

Meanwhile this article said Synapse withdrew from Evolve the end user funds. Mr. Holmes of Evolve said the bank “transferred all end user funds” to other banks at the request of Synapse, but declined to identify them

https://www.nytimes.com/2024/07/09/business/synapse-bankrupt...

Wise also recently switched their US bank provider from Evolve to Community Federal Savings Bank. Maybe they had similar issues?

From a cursory look at how it describes itself (BaaS, etc), Evolve is hardly a "bank" in the traditional sense of the word.

Sankaet is full of shit.

If you live in a developed country it should be sufficient to ask them to account for it with a note that a formal complaint will be sent to relevant authorities if nor dealt with in timely manner.

That stuff like this is in order is the foundation of kapital societies and is taken quite seriously.

I had a similar situation with Santander many years ago: it was a small amount and happened when I was closing my account, bank manager couldn't explain it and escalating the problem was a pain - especially because I was about to move to another country and had more urgent things to do.

I wonder how common issues like these are...

You're likely correct it was theft. I was told by a CTO there that topping up accounts with bank money where it has been hacked away was daily routine and cheaper than fixing the systems. Incompetence would not manifest on routine operations like this.

> I had my unfounded suspicion it was some internal subtle theft going on

Had you watched Office Space recently?

But the fundamental difference is that the regulatory structures are in place to recover your money if a bank loses it. That's not the case with fintech middlemen. Take the Synapse case:

* End customers are really a customer of Yotta, a (silly IMO) fintech where interest was essentially pooled into a sweepstakes prize.

* Yotta was a customer of Synapse - they used Synapse BaaS APIs to open customer accounts (again, these accounts were really just entries in Synapse's ledger, and they underlying funds were supposed to be stored in an FBO account on Evolve).

* Synapse partnered with Evolve, who is the FDIC insured bank.

Synapse went bankrupt, and Yotta customers are finding out they can't access their money. But the bankruptcy court is at a loss as to really what to do. FDIC isn't getting involved, because as far as they can tell, Evolve hasn't failed. Synapse is basically out of the picture at this point as they are bankrupt and there isn't even enough money left to do a real audit, and Yotta is suing Evolve alleging they lost customer funds. But, in the meantime, Yotta customers are SOL.

If you had a direct relationship with an FDIC-insured bank, and they lost your money, there would be a much clearer path for the FDIC to get involved and make you whole (up to $250k).

> They were required to keep certain logging for 7 years but he would just delete it anyway when disks were starting to get full.

I’m highly skeptical of this claim. Every bank I’ve worked with adheres to their records requirements like it’s life or death (because it kind of is for the bank).

Tell your friend he’s exposing himself to hard prison time if he’s not just making up a story. If his boss tells him that they don’t have budget to retain the logs he should be whistle blowing, not violating federal banking laws to save what is a rounding error in their IT budget.

There is a pretty fundamental difference, and it’s that Wealthfront (and M1, Robinhood, Fidelity, etc) are registered broker-dealers. Broker-dealers are regulated just as stringently as banks, but by the SEC and FINRA as opposed to the Fed. Broker-dealers have been running passthrough FDIC programs for decades, and in a lot of ways have more stringent regulations than banks. The most notable is that they are forced to segregate assets (can’t put client assets on the balance sheet, they have to custody them separately), which is the ultimate way banks fail and need the FDIC to bail them out. Source: used to work in broker-dealer auditing

Yes, it's the same basic principle going on at Wealthfront/etc.

It's possible (probable?) that they have better accounting controls. But I personally wouldn't keep anything above SIPC limits at Wealthfront (or any near competitor like Robinhood, M1, etc). And I'd be keeping records on my own.

And I'd make peace with the fact that SIPC resolution is a completely different ballgame from FDIC turnaround for assets held directly at an insured bank (which is like single business day don't-even-notice fast). I.e. not use it as the sole source of emergency funds, have months of expenses at a different institution, etc.

Many fintechs are not licensed to hold funds and work with bank partners who hold your actual funds. That allows them to say they're insured because they're not co-mingled with the corporate funds in the event of insolvency. This doesn't stop them from making accounting errors.

The FDIC said you can't do this anymore starting Jan 1, 2025. So I expect it to stop in about 30 days. The FDIC will probably find a few laggards and throw some fines at them, and the process will then probably completely stop.

the problem is the discrepancy between what the Fintech means when they say fdic insured, and what the customer hears when they're told fdic insured. the customer (erroneously) assumes it means that if the Fintech or anyone else has problems, the customer is covered up to the 250k fdic limit. what the Fintech means, is that there's someone they're partnered with that is a bank and is fdic covered. How the money is deposited into the bank is up for interperation. if there Fintech is being dishonest, they have one bank account at a bank, and all of the customers money goes into that one shared account, they're not technically lying - the money is fdic insured. unfortunately for the customers, that's not the same as each of them being fdic insured is the Fintech goes under. fdic doesn't seem to want to clarify this issue either, which is a problem.

Dade: This is every financial transaction Ellingson conducts, yeah? From million dollar deals to the ten bucks some guy pays for gas.

Kate: The worm eats a few cents from each transaction.

Dade: And no one's caught it because the money isn't really gone. It's just data being shifted around.

I mean... Fraud is defined by intent.

You can argue negligence over mistake. But fraud definitely requires intent.

I’m constantly amazed by how much the crypto community thinks they understand fractional reserve banking while getting it so completely wrong.

In fractional reserve banking, money that is loaned out is accounted for as liabilities. These liabilities subtract from the overall balance stored (reserved) at the bank. The bank is not printing money new money, no matter how many times this idea gets repeated by people who are, ironically, pumping crypto coins that were printed out of thin air.

I think it’s incredible that cryptocurrencies were literally manifested out of bits, but the same people try to criticize banks for doing this same thing (which they don’t).

There's more to it than that; balances are exceeded by the sum of "assets held by the bank" and "assets owed to the bank".

@serbuvlad: “When the banks do this it's called "fractional reserve banking", and they sell it as a good thing. :)”

How dare you criticize our holy banking system /s