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Moonstone Bank

rbstern

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One of the interesting wrinkles now out as public knowledge in the FTX debacle is how they tried to backdoor their way into a U.S. banking license.

Getting a U.S. banking license is an arduous affair. Government regulators and accountants are going to take a detailed look all the way up your asshole, to make sure you aren't trying to use the bank to launder money. A bank can be used to launder a lot of money, if that's your intent. The (legit part of the) government has a big interest in protecting against that abuse.

Farmington State Bank was a tiny Washington state bank; in 2018, it was acquired by the founder of Deltec, a Bahamian bank, deeply involved in crypto. Deltec was an attempt by Tether to make that crypto currency look more solid and liquid by supposedly backing the coin with reserve dollars held in a U.S. bank. Deltec and Tether have been the subject of investigations and lawsuits since that acquisition.

It now looks like FTX, via Alameda Research, was trying to use that same, now worn trail, to make their own coin, FTT, more liquid. Alameda bought a stake in Farmington State Bank in 2021. The bank was renamed to Moonstone and repositioned as a banking technology (read: crypto) concern.

How this ties into the FTX fraud/collapse: FTX's primary fraud-related issue was its "reserves", the assets used to assure customer deposits, were based on their own FTT cryptocoin. FTT was thinly traded, with a tiny portion of its total coins in circulation. The remaining coins were minted by their subsidiary, Alameda Trading, and were "on deposit" at FTX, as collateral for cash (customer deposits) that FTX was lending to Alameda for highly leveraged investing.

The artificial scarcity of FTT drove up the price of FTT, and allowed FTX to value its deposits at a not-in-any-way-real market price, based on their own hoarding of the coin they themselves (via Alameda) were producing. If they actually tried to sell those coins in any kind of quantity, the value of FTT would collapse. And with that collapse, FTX would be illiquid. When this structure and overvaluation was revealed by the leaked FTX balance sheet in October, that's exactly what happened.

The bank investment was all part of the whitewash. It was a backdoor attempt at legitimacy. Alameda's investment in Farmington/Moonstone was at a ridiculous valuation, nothing in the same universe that a legit bank would ever see for an investment. The reason for this is that FTX/Alameda wasn't investing in a bank. It was investing in an already regulatory-approved bucket to gain/hold assets that would back FTX, if they could conceal the fraud long enough.

The fact that a U.S. regulated bank was allowed to take an investment from Alameda without regulators sounding an alarm is an indicator of how much juice FTX and Bankman-Fried had with the government.
 
It occurred to me: Imagine you are an apple farmer in eastern Washington. You opened a savings account at Farmington State Bank in 1975. You've kept your money there all this time. You still have the toaster they gave you when you opened the account. You don't even know what crypto is.

And then this **** happens.
 
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