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Have there been any changes at Twitter in the last five minutes? Let me see.
In the last five seconds — this is how hard it is to keep up with this news. We can’t even stop the podcast for one hour without this man hopping on Spaces and wreaking havoc.
I’m Kevin Roose. I’m a Tech Columnist at “The New York Times.”
And I’m Casey Newton from “Platformer,” and you’re listening to “Hard Fork.” Today on the show, Twitter continues to melt down, what the collapse of FTX means for the future of crypto, and what to make of the layoffs across the tech industry.
Isn’t this fun?
While, Kevin, I do enjoy seeing on Thursday nights, I would like to begin seeing other people, so.
I won’t take offense to that. In fact, I feel much the same way. All right. So Casey, what has happened at Twitter since last week?
Well, the first thing, which you know, is that the layoffs happened, and they were as severe as had been predicted. So about 50 percent the company, in one fell swoop, just got sort of wiped out, and it led to just a ton of confusion that took days and days to play out.
Right. Including one of the people that we spoke to on last week’s episode was laid off, but not both.
That’s right. And each one of these stories is super sad. Of course, some people were bracing for it. Some people sort of expected it and were happy to not be part of the company anymore. Other people really needed those jobs.
I talked to people who were on the leadership team who are making lists of who is going to get laid off, and they were jockeying, trying to get people who were pregnant, or here on a visa, or were undergoing chemo treatment, trying to make sure that they could hang on. So this is really, really serious, existential stuff for a lot of those employees.
So these major layoffs happen, about half the company. And then, I assume, that after shedding these thousands of employees this newly-streamlined and efficient company went straight to work improving Twitter’s products and services, restored the company to profitability, and rode off gracefully into the sunset.
You know what, Kevin? That’s such a beautiful story, and I wish it were true. But that actually is not the way that it happened.
OK. Well, tell me what happened.
Would you believe that within hours of sending out these notices to all these poor employees, some of those same employees start to get new messages, and those messages say, hey, we may have gotten a little bit over our skis, what would you think about coming back and working for the Twitter corporation? So hundreds of people are contacted and offered their old jobs back hours after they just lost them.
Wow. So do these employees accept these offers? Do they say, I’ll come back but I want double the money? Like what are they — how do they respond?
No one was offered double the money. For the most part, these employees don’t have a lot of leverage, and actually, some of them were really nervous. So for various legal reasons, they were going to get about three months’ worth of pay if they’re layoff proceeded as according to plan, but if they’re now told, you got to come back to your job, there’s actually a question of whether they can say no.
And some people think that if they do say no then they’re going to get fired for abandoning their job, and then they’ll lose out on that three months’ pay. So for some people, this has actually become a very stressful situation because they would rather sort of gracefully depart from the company and get that free money, basically.
So layoffs and then un-layoffs happen, and what happens next?
So the last 24 hours have been a novel. Like when the inevitable streaming show gets made, like this is going to be the two-parter, and it all starts on Wednesday night with an email from Elon Musk.
And now, Kevin, you know that it was a big deal that Elon emailed the company because in the two weeks since he’s owned it he had not said one word to the entire company.
Right. They were just learning about what he thought through his Twitter feed like everyone else and often learning about their own fates and jobs from his Twitter feed. But he actually did email them.
Yes. And now we should say, he was talking to some executives. He was talking to some employees. He was talking to intermediaries. But in terms of the sort of company-wide address that you or I would have made if we had acquired Twitter, that did not happen until Wednesday night when he does send them an email.
And this is not really a “Hi, hello, my name is Elon, and I think you’re doing an amazing job” email. It’s a little bit more of a “This company is in crisis, and I need you all to get back to work immediately. And I know that you were all told some time ago that you could work remotely forever, but now you’ve got to show up to the office 40 hours a week. And that starts when the sun comes up.”
Like literally the next day you have to come to the office or what? Or you’re fired?
Yeah. And as we’ll talk about, later in the day he does do a meeting with employees where he says, if you don’t show up at the office, I will consider that you tendering your resignation.
Wow. So he sends this email, not exactly a feel-good, rally-the-troops email. What else is in the email?
Well, he tells them that they’re going to need to increase subscription revenue to 50 percent of Twitter revenue. Currently 89 percent of Twitter’s revenue is ads, so that represents essentially pivoting the entire company.
And then he sends a second email like 17 minutes after he sends the first one that says, oh, also, our top priority now is fighting bots and spam, which — I don’t understand how that gets them any closer to making 50 percent of their revenue from subscriptions, but I suppose we’ll just hear more about that over time.
So this email goes out late Wednesday night. Thursday morning, these Twitter employees wake up. They’re supposed to go to the office. What happens next?
Well, everyone starts talking about this message in Slack that was posted a lawyer on Twitter’s privacy team, and the first thing that the message says is, in this lawyer’s opinion, no one has to go back into the office because that represents a change in their employment contracts which they didn’t agree to, so that’s kind of thing one.
Thing two, though, and probably more consequential, is that the Chief Information Security Officer, the Chief Privacy Officer, and the Chief Compliance Officer are all no longer with the company, and so some of the key watchdogs who help to protect the users and their data are just not there anymore.
It does not seem good or auspicious for Twitter’s future.
That’s right. And Moreover, the same lawyer says that they are hearing that engineers are being told by the Musk regime that they’re going to be in charge of, quote, “self-certifying” that any code they’re writing or products they’re shipping comply with the rules and regulations of the Federal Trade Commission and just sort of the laws of the land.
So if you’re an engineer, and you’re good at writing code, and you work at Twitter, you also need to have some real familiarity with FTC rules and consent decrees.
Right. Because the way that this usually works at a company that has been sued and settled with federal privacy regulators, as Twitter has, is that you have a privacy review process. So every time you change your app or implement some new feature, it first has to go through this process where a bunch of lawyers and other people who work on privacy issues review it and say, is this breaking the terms of our agreement? Is this going to get us sued or fined? How could this impact user privacy?
And only after that committee signs off on it do you get to actually send the feature, put it live, and give it to users. So this is essentially saying like, we’re not doing that anymore. Instead, engineers are going to have to certify themselves that the features that they’re putting out into the world are legal, and safe, and not going to get us fined.
That’s right. And the lawyer says, this is really dangerous. Our users deserve better. And then it ends with a link to Whistleblower Aid, which is an organization for whistleblowers to blow the whistle on the companies they work at.
This is like the ultimate Jerry Maguire going-out-with-a-bang Slack message, which is striking coming from anyone at a company like this but is especially striking coming from a lawyer. In my admittedly brief experience working with corporate lawyers, they tend to be pretty careful people. They communicate very cautiously. This Slack message seems very unlawyerly.
Yeah. And in any ordinary story that would be more than enough news, but this is Twitter in this moment, which means that there was even more to come. So a few hours later, Elon called an impromptu all-hands meeting. People only had about an hour’s worth of notice.
He showed up 15 minutes late, and he sort of delivered another kind of State of the Union address on what was happening in the company.
And was this one the uplifting “everything’s going to be OK, I’m going to take care of you, we’re going to get through it together” message?
Well, it included the phrase, quote, “bankruptcy is not out of the question.”
Oh my God.
So not —
So not exactly — not exactly a light meeting.
No. It was kind of an escalation of this email in which he sort of doubles down on the idea that a recession is coming. He says Twitter could potentially lose billions of next year, and he’s not sure how much runway the company has left. So if you worked at Twitter and you weren’t worried about its future before, at the end of this meeting you were really, really nervous.
Yeah. I saw you tweeting about this all-hands meeting today, and this actually struck me as particularly crazy because when he acquired this company two weeks ago, sure, it had issues. It was not the most profitable company. It was not the biggest social network.
But it was not struggling to this degree. It was not talking about potentially going bankrupt, and it’s just striking to me how much has changed and can change in just a two-week span.
And it makes me nervous because the last thing I want to do is have to explain a Twitter debt restructuring on a podcast.
Yeah, we’ll have to do that on Twitter Spaces. OK, that’s what’s been happening at Twitter the company, but a lot has also been happening on Twitter the website.
So first I want to talk about this ongoing craziness about verification on Twitter, which I have been trying to follow as closely as I can, and even I am still not sure as of this moment what it means to have a check mark next to your name on Twitter. So walk me through the changes that have been going on at Twitter in the past week when it comes to verification.
Yeah, so a verification badge, since it was created in 2009, has been intended to signify one thing, which is that whoever is tweeting from this account is who they say they are, whether it’s a person, or a government agency, a sports team, that sort of thing.
Elon came along and said, we don’t really like that system. It feels really elitist. We want to make verification open to way more many people. And by the way, I supported this idea. I do think that people should be able to optionally verify their identities on Twitter. I think it could do a lot of good.
But then Elon rolls out the actual plan, and the plan says that you have to pay us $8 a month. If you do pay us $8 a month, you get a verification badge. And we will verify you no matter who you say you are, and we will make no effort to verify your identity.
They make a second choice, which is that they use the same blue check mark that has always stood for “This person is who they say they are” to now represent the new verification, which just means “I have $8.” And do you know how they communicated that, Kevin?
Let me guess. Poorly?
Well, through Elon’s tweets. So it wasn’t as if an email went out. And it’s at this point that a company begins to wish that it had a marketing or a comms team, but at this point, of course, Twitter has neither.
And so on Wednesday people start to take advantage of this new system where they can register any username, they can pay $8, and they can become a, quote, “verified account” and say anything they want.
Right. So this is why, for example, I checked Twitter this morning and saw a tweet from Nintendo or someone purporting to be Nintendo that featured an image of Mario giving the middle finger.
Just desecrating the image of Mario because Mario would never do that.
So this has been, just from what I can tell, a total fiasco, and it really does feel like the whole point of the verification badge has been turned upside down in ways that are confusing and potentially dangerous. You can imagine something like this happening during an election and people retweeting things that look like they’re coming from official news accounts or politicians but are actually coming from random people, scammers and spammers, who pay $8 a month to get this check mark.
Yeah, I think it’s safe to say it already has increased the amount of scams and spam on the platform. Just by introducing this change, they have, and so it’s a really unfortunate thing. And frankly, I think it probably informs why you saw some executive departures on Thursday.
So Elon Musk — I checked his Twitter feed just before we started recording. He does not seem to be reacting to the chaos at his platform very well. He’s mostly been staying silent, although he has tweeted a couple of times that Twitter usage is higher than ever.
So what do you make of that, that it does seem like Twitter is melting down — in some ways, the platform already seems like it’s gotten worse and more chaotic — but he’s saying, usage is up, people are logging on, and he doesn’t seem to be mourning what’s happening there?
Yeah, but we know what he’s saying behind closed doors. It’s one thing to go on the timeline and say, oh, wow, Twitter usage is up, which — I believe that it is up. But we know that he’s emailing employees saying, we’re in a dire situation and we might go bankrupt.
And those things are compatible, right? Because a lot of people watch car wrecks, too. They rubberneck. So likewise with Twitter, I can certainly imagine that usage on the platform has been up over the past few weeks. But, frankly, a lot of that usage seems to be people just gawking at the spectacle and the total implosion of Twitter the company and maybe if Twitter the service.
That’s right. And people are also managing to game the Trending page, which — just in the spirit of how — why is some of this usage increasing? Well, people have found that without a team of curators like Twitter used to have before the layoffs last week that used to write descriptions for all of these trends and to keep some of the obvious scams off that page, if you look at the Trending Topics in the United States on Thursday, you would have seen a bunch of Chinese-language posts that it turns out were actually gambling scams, according to a Chinese reporter who I spoke to.
So there’s just a lot of danger on the platform right now, and if Elon doesn’t clean it up, it’s really hard to see how he accomplishes his goals.
So Casey, I saw a line in a story today about Twitter and Elon Musk where it said that the publication had reached out to Twitter for comment but that Twitter’s entire Communications Department had been laid off and so there was no one to give them comment. Has that been true for you as well? Have you heard anything from Twitter or any of the executives who left the company?
Yeah. So on Monday, Twitter had a Communications Department of two people that did make it through that first round of layoffs, but by Thursday they were both gone.
Executives — I’ve seen one or two posts from executives saying that they left the company, but nobody is explaining why they left in any great detail. And as far as how we’re supposed to get comment from Twitter going forward, most people are just sort of tweeting at or emailing Elon Musk and hoping that he decides to respond.
And I want to just circle back to one thing that you brought up earlier, which is this remark by Elon Musk at this all-hands meeting with Twitter employees, that bankruptcy isn’t out of the question for the company. From your reporting, does it seem like the bankruptcy of Twitter is an actual plausible outcome here?
I can tell you it very much seems like one to the employees that I’ve spoken with. Employees are even speculating maybe this is part of the plan, that maybe if bankruptcy is declared that Elon won’t have to pay them what he has agreed to pay them so far. And you can certainly imagine a lot of reasons why he would want to be able to restructure his debt because we know that he faces a ton of that debt.
So I don’t think that bankruptcy is out of the question of all. I think the question is, what would it actually mean in practice? It probably wouldn’t mean that the website shut down immediately. It would probably still continue to operate. But wow, it would be very difficult for them to build innovative new products or really even just kind of stabilize if they were under that kind of financial pressure.
And a lot of the reason for that financial pressure is that advertisers, as we talked about last week on the show, are very skittish about Twitter under its new leadership. I imagine that the drama of this week has not reassured them that things are going to calm down can go back to normal.
I think when all of the people in charge of privacy, and security, and content moderation quit the company it does not reassure advertisers. Advertisers don’t look at that and say, why don’t we double my spending this year?
Right. I do not want to put a billboard on a burning building, and that is increasingly what it feels like is happening at Twitter.
Also, by the way, it’s worth saying there are now fake brands all over Twitter tweeting profanity and vulgarity. It’s not just Mario that’s flipping people off. There’s a lot of brands flipping a lot of people off right now.
Right. So this is not going well for Elon Musk. It is not going well for Twitter employees. It is not going well for Twitter users. And so I guess I’m left to wonder, where do you think will be next week? What’s your prediction for the next turns of the screw in this ongoing Twitter debacle?
I think the events of Thursday are going to inspire a lot more employees to resign, even if they don’t necessarily have a job lined up. I think that these resignations are going to increase the chance that we see a significant Twitter outage because something breaks and they’re just not able to turn it back on again.
And I think we’re going to see a steady drip of additional product announcements from Elon about things that he’s going to say Twitter is going to do. He’s probably going to say they’re all coming within a week or two, and then we’ll just have to see if any of them actually materialize. But I think the amount of chaos on the Twitter story will, sadly, continue to accelerate over the next week.
Which will be great for Twitter usage but will not be great for Twitter revenue or for my productivity.
That’s right. And God knows you haven’t written a story in ages, so.
I wrote a story yesterday. Thank you very much. Thanks a lot. In fact, we’re going to talk about that story —
Oh, good.
— which is about another calamitous meltdown in the tech industry.
Wait. Kevin, you’re telling me there was more than one calamity this week?
Twitter was not the only story. While you were getting Twitter scoops, I was poring over the dramatic implosion of the crypto world, and we’re going to talk about that right after the break.
So I’ve been following the story. I’ve been writing about it. Have you been following what’s going on with Binance and FTX?
OK, so I told you I was going to mostly try to stay out of it because I wanted you to be able to give me a thorough explanation of all of this on the podcast, but there were so many headlines crossing the wire that I could not help but read just a few of them. The good news is, having read four or five stories on this now, I still barely understand anything that’s going on.
OK. So you are in a state of confusion. I am here to get you out of that state of confusion. So what I’m about to tell you is a story that could be an episode of “Succession.” It is so dramatic. It involves feuding billionaires, rumors of sabotage, and a high-stakes battle over the future of the crypto industry.
I don’t feel like I’m overstating things when I say that this is the biggest crypto story of the year, and a lot of people out there are saying that it might be a turning point for the entire crypto movement. They’re calling it crypto’s Lehman Brothers moment.
I’m worrying that you’re under-hyping this.
No, I stand by this. And I actually think that once I explain what’s going on to you you will agree with me.
So the headline from this week is that one of the largest crypto exchanges in the world, FTX, completely imploded, and it imploded in basically the most dramatic way imaginable. And I think it’s worth slowing down and just explaining what happened.
So I apologize upfront. This is going to get a little alphabet soupy because it’s about a company called FTX led by a guy who goes by SBF and there’s also a person named CZ involved.
Oh, come on.
So just bear with me. So Casey, let’s start with FTX. What do you know about FTX?
I believe that FTX is a place where, if I had a mind to acquire some Bitcoin, I could acquire some Bitcoin. Am I right so far?
You’re one for one, OK.
OK. And what’s interesting about that is when I say that out loud I think, it seems like you could run a large and stable business doing that without risking taking the entire thing overnight, but I’m, apparently, wrong.
One would think. We’ll get there. What else do you know about FTX?
I know that it is run by Sam Bankman-Fried, a.k.a. SBF, who became quite prominent over the past year because he announced he was going to become, essentially, one of the biggest Democratic and progressive donors on the entire planet and spent a lot of the last year talking about that. So he became quite famous in a short amount of time.
Yeah. So he is, I would say, the biggest celebrity in the crypto world. He is a 30-year-old entrepreneur, crypto trader. He lives in the Bahamas. He’s sort of famous for having frizzy, unkempt hair and showing up to formal events in cargo shorts.
He is on billboards all over San Francisco and other cities. He’s sort of the public face of the crypto industry, really, and he’s quite rich. As you said, he’s become a very prominent Democratic donor. He’s also a big supporter of the effective altruism movement.
He pals around with celebrities. He throws these fancy conferences where people like Bill Clinton and Tony Blair show up. And he’s also the person within crypto who is seen as kind of the nice guy. Like a lot of crypto leaders are pretty skeptical of things like regulation and government oversight, and SBF and his companies — they have really been on the forefront of trying to ingratiate themselves with regulators and lawmakers.
He’s been going to Washington a lot. He’s been trying to get regulations approved for the crypto industry that would kind of give it some formalized above-board status in Washington. And as his fortune has grown, he has become kind of a spokesman for the industry. “Fortune” actually put him on the cover recently with a headline that asked if he was the next Warren Buffett.
Which, by the way, if you’re a business leader and you ever get offered to be on the cover of “Fortune” with that cover line, turn it down. It’s a curse.
Yes, never be called the next Warren Buffett of anything. Casey, I will never call you the next Warren Buffett of journalism.
Oh, thank you.
So that’s FTX and SBF. What do you know about Binance?
Binance is not an American company, but it is also a place where, if you had a mind to buy some Bitcoin, you could buy some Bitcoin, yeah?
Right. So like FTX, which is headquartered in the Bahamas, Binance is an offshore crypto exchange. It is the largest crypto exchange. Some estimates have it at about half the crypto exchange market is controlled by Binance.
It started in China but subsequently moved out of China. It doesn’t have the headquarters, and it’s run by this guy named Changpeng Zhao, who is called CZ within the crypto world. And CZ is kind of this crypto bad boy. Like you can — if SBF is kind of like the Mario of crypto, CZ is kind of the Wario of crypto. Like he doesn’t like regulation. His company has been accused of facilitating money laundering and tax evasion, which it has denied at various points.
Wait. They’ve been using crypto to do money laundering?
I know. I know. Stop the presses. But they — for a company their size, they have been remarkably dismissive of attempts to kind of bring this industry to heel. They are banned from operating in a number of countries. He’s a very controversial but also a very, very wealthy figure in the crypto industry. He’s also — fun fact — one of the investors in Elon Musk’s Twitter bid.
Oh my gosh. I forgot about that.
So Binance and CZ put in $500 million into Elon Musk’s takeover, so he is, as of a couple of weeks ago, a shareholder in Twitter.
OK, so I know you’re about to tell me the rest of the story, but here’s why I’m excited to hear the rest of this story because one of the things that stuck out to me in what I did read yesterday was that SBF was worth like $16 billion, and normally, when you have that amount of wealth, it feels relatively stable. Like there’s not a lot that you can do to make that disappear very quickly.
But I read that SBF is now worth $1 billion, which is like just a staggering loss, and I can only imagine how that must have happened.
Yeah. He lost 94 percent of his wealth in a week, which — sometimes I’ve had bad weeks. I’ve never had a week that bad.
That’s one of the worst weeks you can have in this world, but let’s get to that.
So Binance and FTX, these two big crypto exchanges, basically the number-one and number-two crypto exchange in the world — they started off as kind of friendly. CZ and Binance were actually an early investor in Sam Bankman-Fried when he was starting FTX. They were friends. They were friendly.
But recently, SBF has been going around Washington trying to get crypto regulated in a way that has made a lot of other crypto fans, including CZ, very mad. So it’s a little esoteric, but basically, there’s this series of laws that Sam Bankman-Fried and FTX are supportive of in the US that would essentially make it possible for them to continue operating but would also make it harder for platforms like Binance to continue operating.
So a lot of crypto people accused SBF and FTX of trying to basically throw the rest of the crypto industry under the bus to save themselves. So these two companies, FTX and Binance — they really represent like these diverging paths in crypto.
One of them, FTX, is trying to basically play nice with regulators, accept that regulation is probably inevitable and try to shape it, and the other approach, this more Binance-driven approach, is kind of like, well, we don’t really want any of this regulation, and so we should resist it, we should embrace this idea of freedom, maybe move offshore where regulators can’t touch us, and keep doing what we’re doing.
And that’s what — Wario has always stood for that kind of freedom, so that makes sense to me.
So last week, CoinDesk, a crypto news site, publishes this story based on a leaked document from Alameda Research, which is a hedge fund run by SBF and affiliated in some sense with FTX. So Sam Bankman-Fried operates this exchange, FTX. He also started a hedge fund called Alameda Research.
And these two things together make up the vast majority of his wealth. Like this is sort of the whole kit-and-caboodle for SBF are these two businesses.
Yeah. He’s got a couple of other side projects like he owns a stake in Robinhood and a couple other businesses. He’s got like a venture arm. But FTX and Alameda — these are sort of the centerpieces of his crypto empire.
And this leaked document, which was written about in CoinDesk, says that Alameda Research has a big chunk of its balance sheet invested in something called FTT tokens.
Now, whenever I hear that a huge percentage of someone’s wealth consists of a token that I’ve never heard of, I always get very nervous, Kevin. I always think, whatever most of my wealth is in, I want it to be of a currency that existed before 2015.
OK. So FTT is the in-house crypto token of FTX’s exchange, and so this report suggests that this relationship between Alameda and FTX is actually closer than a lot of people had thought and that Alameda Research is holding on to a bunch of the tokens that were basically created out of thin air by FTX.
Now, when this came out, Alameda and FTX sort of said, nothing happening here, like this is only part of our balance sheet. There are actually more assets in Alameda that weren’t reflected in these leaked documents. But that was not enough to stop what happened next.
Can I ask you a question?
Yes.
We’ve been talking about these exchanges, and I said, in my mind, if I want to go to buy a Bitcoin, I buy a Bitcoin. In my mind, that’s how an exchange works. But all of them — they have these tokens. Why do they need this token? What do I do with this token at FTX?
Great question. It doesn’t do a ton. It basically gives you a discount when you trade on FTX, and this is a way that they are able to reward early users in a twist that will become important very shortly. When Binance invested in FTX years ago, when it was starting, it got a huge chunk of these FTX tokens.
And the idea was, we will use these tokens to get cheaper trades somehow, or maybe the value of these tokens will rise in some mysterious way if more people use FTX?
That’s sort of the idea. And they can also it turns out be used as collateral. So you can say, we have these tokens, which are now — the market is valuing at however many billions of dollars, so we’re going to count that as an asset on our books for the purposes of perhaps getting a loan, perhaps doing some deal with Alameda Research.
So these tokens are going to become important very shortly because what happens after this leaked document circulates is that Binance, which, remember has these FTX tokens from the time that it invested in FTX, announces that it’s going to sell its entire stake in FTX.
So CZ, the head of Binance, tweets, “We gave support before, but we won’t pretend to make love after divorce. We are not against anyone, but we won’t support people who lobby against other industry players behind their backs.”
When did they say this?
Just this week.
OK.
So CZ basically says, we’re selling off all of our FTX, which is valued at about $500 million, and this announcement starts tanking the price of the FTT token.
OK. I want to see if I can slow down and just repeat what you just told me.
Please.
OK. So step one, because of CoinDesk, we know that Sam Bankman’s business number two is hugely dependent on vast reserves of this token. Two, CZ is mad at SBF for his regulatory push, and so, three, CZ says, I see an opportunity to really screw this guy, and goes Wario mode.
Correct, correct, all correct so far. So there are rumors, speculations that Binance actually leaked the document to CoinDesk. They’ve denied that, but that’s out there. There’s no evidence for that.
But people are basically seeing this as a moment where CZ is trying to capitalize on perceived or actual weakness in Sam Bankman-Fried’s empire.
Which we have to say, if this is true, wow, what I like legendary pirate business move.
It is one of the biggest revenge moves in the history of capitalism if it’s true.
I would not want to have CZ as an ex-boyfriend, I have to say.
So the price of FTT starts tanking, and investors are getting very nervous, not just about their FTX tokens but about all the money that they may have tied up In FTX and Sam Bankman-Fried’s other enterprises.
They start pulling out tons and tons of money, about $6 billion over a three-day period, and this leaves FTX at a crisis point. It runs into a liquidity crisis. It can’t meet its obligations. And so in a very dramatic turn of events, early Tuesday morning we hear that FTX has agreed to sell itself to Binance.
And everything that you’ve just described — like that all happened within 24 hours, right?
Yeah. It’s all happening very, very quickly, and it’s all happening almost exclusively on Twitter. But the story just keeps getting crazier.
So when Binance agreed to buy FTX, it gave itself an out. It said, this isn’t binding. We’re still going to do due diligence. And then a day later, they announced that they are actually not going to buy FTX. They pull out of the deal.
And they say that the reason that they did is because they had dug into FTX’s books and its balance sheet, and they tweeted out, quote, “As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged U.S Agency investigations, we have decided that we will not pursue the potential acquisition of ftx.com.”
So right now, as of Thursday afternoon, the future of FTX is just completely up in the air. It could file for bankruptcy. Someone else could emerge to buy it at the last minute. But it’s in big trouble. It’s been reported that it has a shortfall of billions of dollars. Customers are having trouble getting their money out of the exchange, and everyone is just furious with SBF, who appears to have not been telling the truth when he said that FTX wasn’t investing customer deposits.
So SBF, after going incommunicado for a little while, came back on Thursday and tweeted this big thread in which he apologized several times. He said, “I f*cked up.” And then later in the thread, in a message that was clearly directed at CZ and Binance, he said, “Well played. You won.”
Oh, no.
Yeah. So I think there are sort of a couple immediate pieces of fallout from this. One, obviously, is that Sam Bankman-Fried is no longer the king of crypto. There is a new King of crypto, and it is CZ and Binance. They are now the undisputed biggest-by-orders-of-magnitude crypto exchange out there. They have won this rivalry, it appears, and that’s a big deal.
And so I think the second prediction to make is that crypto’s future as like a gently-regulated industry in the US is over. Whatever progress Sam Bankman-Fried in FTX thought they were making with regulators and lawmakers in Washington about getting some softer light-touch crypto regulations passed — no one in crypto is expecting that to continue now.
Yeah. That makes sense to me. I’m just really struck by — we’re, what, 11 months into the year? When this year started, I thought this is going to be the year when we see some crypto stuff go mainstream. January was the peak of NFT sales. It was like, this thing is really happening.
And then you get to November, and this business that looked immortal, that was just like a colossus of the crypto world, overnight just goes, poof. And, man, if you’ve been like looking for reasons to just not be in crypto ever for the rest of your life, like I feel like you have a pretty good one right now.
Totally.
This is madness.
Because FTX was thought of as the safe crypto company. It was the one that wasn’t going to explode in a huge — in a huge scandal, and now it’s there. It’s exploded. It had a huge scandal.
And so I think the third prediction that’s fairly easy to make is that this is, essentially, going to kill what is left of the crypto venture capital market.
Really?
Yeah. I mean, FTX — it had raised about $2 billion from investors before its implosion. Many of those investors were some of the biggest and best-known VC firms in Silicon Valley, Sequoia Capital, Lightspeed —
Paradigm, I read.
— SoftBank, Paradigm, I mean, really huge names in venture capital. Those investors may get wiped out.
Oh, and by the way, up until two days ago they thought that was one of the best investments they’d ever made was in FTX.
Yeah, it was thought of as like a fund-maker, like this is the thing that’s going to make your investors rich and get you more fundraising in the future. So among the VCs and other investors that I’ve been talking to, they’re saying like, basically, this is like — this is the last straw. If we can’t invest safely in something like FTX, if even that can blow up in our faces and lose us not just 50 percent of our money or 75 percent of our money but all or most of our money, then nothing is safe.
All right. Let’s try to think constructively [INAUDIBLE] because one thing we like to do on this show is to solve problems, Kevin. And so I want to talk through briefly how we would design a crypto exchange if we started one. So this is my idea for a crypto exchange.
It looks a little bit like FTX, but before you make your deposit, we tell you what we’re going to do with all that money. And you can actually see a list of those things. And maybe we’d even — we would tell you, if this entire thing is based on nonsense tokens we’ve just invented, we would have to write that down somewhere where you could inspect that. Do you think this would be a successful business?
Yeah. This is actually an idea that has been floated in the past is something called proof of reserves, where you would basically require crypto exchanges to prove that for every dollar that people put in to the exchange they actually keep $1.
Which is how we operate real banks.
Yeah, that’s — real banks are required to prove that they have reserves to cover — they have —
Wait. Kevin, is it possible that the reason that those regulations exist is because in the past banks maybe played fast and loose with people’s money and went out of business?
It’s possible, yes, I would say. So people are now saying, this proof of reserves idea, this idea that crypto exchanges should have to show in a cryptographically provable way that they have a dollar’s worth of reserves for every dollar that customers put in seems like a pretty common sense thing to me.
But that has been fought tooth and nail by parts of the crypto industry. Maybe this is the thing that pushes it over the finish line and actually gets us a sensible regulation that could prevent these kind of things in the future.
So that is the big news out of crypto this week. The Lehman Brothers moment has arrived. And I think —
And I’m sure that now we’ve — I’m sure that now we’ve talked about that nothing else is collapsing in the tech industry. Right, Kevin?
Yeah, it’s all stability and smooth sailing. But actually, this is not the only meltdown happening in tech right now. We’ll talk about some other ones after the break.
All right, Kevin. So continuing with our theme of companies having a very difficult time, we learned this week that Meta, the parent company of Facebook, has made the largest layoffs in its 18-year history. Mark Zuckerberg posted a note saying that he had decided to reduce the size of the team by about 13 percent let go more than 11,000 people. So that’s, what, almost triple what Twitter laid off? Meta, though, of course, has a much larger employee base.
So I think there has been this idea for most of the past five or six years that a handful of companies were immortal, the so-called FAANG companies, the Facebook, the Apple, the Amazon, the Netflix, the Google. And if you have sort of been ignoring tech layoffs up until now, very understandable. But I think this one might be the one where, for the rest of us, it really hit home the tech industry is having a tough time. Does it feel that way to you?
Yeah, it’s not just Meta and Twitter laying off people. It’s almost every company. Robinhood laid off 23 percent of its staff. Snapchat did big layoffs. Stripe and Lyft — these companies that were seen as sort of pillars of the tech economy are really struggling right now and are having to make big cuts.
I think there are a few things going on here. One is that the advertising market is really hurting, so if your business, like Meta’s, like Twitter’s, like Snap’s, is dependent on ads, you are having a bad quarter and a bad year. And I think there is also something to this idea that these tech companies really are overstaffed.
I know we talked about this last week in the context of Twitter, but Meta’s head count has grown much faster than I had actually realized. It’s added like something like 50,000 employees just in the last couple of years, and that doesn’t seem to track with the fact that the company’s business has been slowing down.
So I think there may be something to this idea that they just over-hired and maybe didn’t do a good enough job of weeding people out as they were making all these new hires.
So I think that’s true, but let’s talk about the number of people that Meta hired. So it’s like they hired 27,000 employees in 2020 and 2021 combined, according to “The Journal,” and they added 15,344 in the first nine months of this year.
That is a lot of people, and these layoffs are obviously very sad to the people who are affected. I’m sure it’s going to affect the company in unpredictable ways. But if you trim 11,000 people from Meta’s staff, you get them back to where they were in March of this year. So I think that’s just sort of an interesting thing to think about. As much as we talk about these layoffs is really significant — and they are in various ways — you’re sort of just rewinding back the clock a few months. And so if it were Meta reducing its workforce by half, if it were going back in time to 2017 in terms of how many employees it had, that’s when I would feel like, OK, there’s some sort of major structural correction that is taking place in the tech industry.
Instead, you see exactly what you just described, a curbing of some excess. Maybe not every single expense is going to get approved as quickly as it was a year ago, but at the same time, these companies are much bigger than they were two or three years ago. That remains the case today.
So I think you see some sort of belt-tightening in anticipation of something bad happening, but for the most part, it’s still kind of feels like full steam ahead to me for most of these companies.
Yeah, and I guess we’ll see pretty shortly if laying off double-digit percentages of their workers actually hurts these companies. And if it doesn’t, if they post good numbers next quarter, if their sites all don’t go down in flames, then maybe they were overstaffed. Maybe they didn’t need all of those people that they hired in the last few years.
I also think, in some ways, this is tech executives sort of correcting for decisions they made during the pandemic that may have been designed to shield their own employees from misfortune. So I know that at Meta, for example, there were a couple of quarters early in the pandemic where they just didn’t do performance reviews.
They just paused their normal performance review process and said, you know what? We’re not going to do performance reviews because everyone’s working from home. Maybe they have their kids who are home from school. Like it’s not a normal workplace environment. Things have been really disrupted, and so we’re just going to kind of take it easy on employees and not put them through this process whereby we try to weed out who the low-performers are and maybe quietly manage them out or lay them off.
So there were a couple years in there where I think tech companies were very quick to hire and very slow to fire, and I think that was, by and large, a compassionate choice. Like people were really struggling, including these highly-paid tech workers, with child care and other things. So it was not exactly fair to subject them to normal performance management processes.
But at some point, I think that had to resume, and so what you’re seeing now is maybe companies that would have fired or of their workers in a normal year didn’t do that for a couple of years, and so now they’re catching up.
Yeah. There’s this thing that I’m really curious about with the Meta layoffs in particular, which is whether this begins to shift the way that this company is perceived, particularly among regulators or not.
And the reason this is on my mind is that I read this headline in Politico that says, “EU to hit Facebook with new antitrust charges.” They’re taking a look into Facebook’s classified ads business. And this is sort of the view of Facebook that I think has been dominant over the past five years, which is, this company is giant, it’s basically a monopoly, it’s immortal, and it uses all of its advantages to discourage competition, and it kind of have the whole marketplace to itself.
This is how basically every regulator in the world treats it. Whenever they try to buy something, they’re told no.
But then there’s this other Facebook/Meta, which is the company that is losing its market share to TikTok, which has had its ads business hugely impacted by Apple and which laid off 11,000 people to conserve some of its free cash flow to try to get investors to support it again.
And I’m just curious whether anything can solve that disconnect or whether Facebook’s reputation was so poisoned by the last five or six years that, no matter what happens to the business regulators, in the EU still show up and say, nope, we’re still coming after you.
Right. The people in Brussels will still be screaming when Meta is down to four employees and a dog in somebody’s garage in Palo Alto. No, I do think there’s something to that. I think that Facebook is looking a lot less dominant.
I also think it’s worth just throwing a bone to Mark Zuckerberg here. I think the way that he communicated to his employees about these layoffs was actually quite good. He was honest. He took responsibility. He didn’t try to pass it off as this thing that just came out of the atmosphere that he had nothing to do with.
Especially in relief with how Elon Musk has handled layoffs at Twitter where there was no communication, where he said nothing under his own name, where he didn’t give people an explanation or an apology, where he just said, bye, I think how layoffs are handled is really important. And I think this is one of the better examples that I’ve seen.
Absolutely. It matters how you treat people for a lot of reasons because Meta is laying people off today, but it’s going to want to hire people in the future. I would not surprised if it hires 11,000 people back sometime over the next couple of years.
And you want people to take those jobs feeling like they are going to be supported if the business changes. So it matters that Zuckerberg is giving these people four month’s severance. Elon is giving his people one month of severance. And yes, Twitter is a much more constrained company financially, but again, the way that you treat these folks matters in terms of who you’re going to be able to come and work for you.
And that’s another curiosity that I have as we sort of bring up this comparison between Twitter and Meta, which probably sort of makes sense to close out the episode. I think there’s this perception that Elon Musk can do whatever he wants to his employees because he is a genius, he is Iron Man, he can do anything by snapping his fingers, and people just want to line up to follow him into whatever idea factory he happens to have set up shop in so that they can build the future together.
And yet, at the same time, we’re seeing in real time how Twitter went from an, admittedly, too slow, too chill place to work to becoming a burnout factory. All the people sleeping on the floor over the past week who were just told the official badge is no more — they probably are not going to want to work there that much longer.
And as that company goes out and tries to hire new people, what are the odds that people are going to say, yeah, that’s where I want to go bet my next three or four years of my life, is on the place that just killed a feature after some people made fun of it online?
Yeah I do think Elon Musk has done a great service to the other Silicon Valley CEOs who are in this very difficult position with struggling businesses because compared to 50 percent layoffs communicated with a very terse email — like 13 percent, 15 percent, 20 percent — those don’t look so bad in comparison to that.
I don’t think these are the last layoffs these companies are going to have to do, frankly. I think that if the economy stays the way it is, if their ad businesses don’t recover, I don’t see any reason that they’re not going to have to lay off a bigger fraction of their workforce next year.
Well, for the sake of those employees I hope it doesn’t come to that, but I guess we will have to see. And I have to say, the one last thing on my mind when it comes to Meta in particular is, this is a company that still plays a huge role in the way that ideas and discourse is shaped, and it has historically not paid enough attention to those issues.
And now it’s under the most difficult financial pressures in its entire history, so I think one thing that I’m going to try to report out over the next few days and weeks is how did those 11,000 cuts affect the teams that were responsible for being watchdogs and making sure that the content on the platform was being moderated well.
It’s a huge question in my mind, too, and I’m glad you brought it up because within the structure of a big tech company, the people working on things like trust and safety are often thought of as a cost center. You have your revenue centers and your cost centers, and the revenue centers are people working in ads, in sales, engineers who are building features that make money for the company.
Cost centers are seen as places where you just spend money, and those are sort of part of the cost of doing business. You need some amount of them but that they’re not crucial to your business. And I think that’s been a really broken model for a long time. I think those people are actually quite essential to the healthy functioning of a social media company, for example.
And so if those layoffs are concentrated in these so-called cost centers, I think we could see really quickly that they’re not actually pure cost centers, that they actually do have a meaningful impact on how these services work and how willing advertisers are to keep funding them.
Yeah I think that’s right. Well, we always like to close on a hopeful note, and I just want to say, if you’ve ever wanted to start a crypto exchange and do it the right way, there’s really never been a better time. If you are willing to commit to just running a crypto exchange that is not based on nonsense tokens and handles your customers’ money appropriately, I really think the sky’s the limit for you.
When are we issuing a crypto token, Casey? When is the Hard Fork token coming out?
Don’t even joke about such a thing.
We’ll be right back.
Hey, before we go, we’re planning a special mailbag episode. We want to answer your questions about the future of tech, whether that’s about AI, crypto, how social media is changing, whatever you want to know about the people and companies we’ve covered so far, how we cover them, really anything. So send your questions to hardfork@nytimes.com.
Casey, should we tell about the TikTok?
Tell them about the TikTok.
Well, we are on TikTok now. We’re making TikToks.
Don’t be surprised if we do a viral dance.
You can follow us Hard Fork.
Hard fork is produced by Davis Land. We’re edited by Paula Szuchman. This episode was fact-checked by Caitlin Love. Today’s show was engineered by Corey Schreppel, original music by Dan Powell, Elisheba Ittoop, and Marion Lozano.
Special Thanks to Hanna Ingber, Nell Gallogly Kate LoPresti, Shannon Busta, Mahima Chablani, and Jeffrey Miranda. You can email us at hardfork@nytimes.com. That’s all for this week. We’ll see you down the dusty trail.
