Jesse Powell and Kevin Zhou on How FTX and Alameda Lost $10 Billion

**SPEAKER_1** (0:00)
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Just a quick note that we're releasing what would typically be a Tuesday show on a Monday, due to the Thanksgiving holiday coming up. But don't fret, we have a great conversation for you to tune into on Tuesday as well. A special edition of The Chopping Block to go over the first-day declaration in the FTX bankruptcy, the US versus Bahamas jurisdictional battle, genesis and crypto lending, and all the other craziness that happened last week. As for this episode, I reached out to Jesse Powell, co-founder of Kraken who ran a centralized exchange for a long time, and Kevin Zhou of Galois Capital who could offer his perspective as a trader on FTX. The two of them mentioned some past observations about FTX that, in hindsight, seemed suspicious, plus discussed how Alameda, which had been seen as top traders, could have lost so much money. As you might expect, SAM coins, such as FTT, played a big role. I also asked Jesse for his views on Not Your Keys, Not Your Coins, since he is an exchange owner, and we dive into how FTX's collapse reflects on the media, VCs, and regulators. This was an incredible discussion and I hope you enjoy it as much as I did. Hey everyone, just a quick note before we begin. Unchained is doing its annual survey. Head to surveymonkey.com/r/unchained 2022 to tell us how you think we're doing and how we could improve, whether it be on the podcast, in the newsletter, or in our premium offering. Looking forward to hearing your thoughts. Again, the link is surveymonkey.com/r/unchained 2022, and you can also check the show notes for the link.
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Today we have a conversation between an exchange owner and an institutional trader who are going to be discussing the collapse of FTX. Here to discuss are Jesse Powell, co-founder of Kraken, which disclosure is a former sponsor of the show, and Kevin Zhou, co-founder of Galois Capital. Welcome, Kevin and Jesse.

**SPEAKER_2** (3:45)
Hey, thanks for having us. Yeah, thanks for having us.

**SPEAKER_1** (3:48)
The crypto industry has been absolutely rocked by the seemingly never ending saga of FTX, which every day seems to reveal even deeper levels of incompetence, malfeasance, perhaps fraud.
Jesse, since you're an exchange owner, I wanted to get your opinion on what exactly happened here. What do you think the root of the issue was?

**SPEAKER_2** (4:11)
Yeah, I think these guys, first of all, didn't really know what they were doing when it came to running what should be like a Fort Knox type of operation. I think they were traders, first and foremost. I think they were very inexperienced operators and they took on a lot. I think a huge amount of work for the number of people that they had on the team.
Our whole security team is 100 plus people and they were doing what the whole company is doing with 50 people at one point. They wouldn't have been able to do all the things that you would normally do and build. From the outside, we figured that this was going to catch up with them at some point. They were accumulating a lot of technical debt. We didn't anticipate that it was as bad as it is. It seems like they hadn't done any kind of accounting or reconciliation in three years and that they basically had no controls in place and very few people knew what was actually going on there.