I was a bit unsure what to make of it The Wall Street Journal and The New York Times’ reports of text messages sent on Signal between rivals Changpeng “CZ” Zhao and Sam Bankman-Fried around the time FTX went up in smoke. That’s because I’m not entirely sure who leaked them or who benefits from them. But I’m pretty sure someone leaked to both outlets as reports went up within hours of each other. So someone wants everyone to know about this!

Since I don’t understand what’s going on, I’m going to go through these two stories, which are broadly the same, suggesting that the provenance was similar. (As old readers know, re-identifying anonymous sources is one of my favorite games, though it’s mostly played within the confines of my own skull.) Here’s what stands out.

coordination exchange

So I guess I’ll start with what raised my eyebrows: a group chat log reports was called “Exchange Coordination”. What?

Like, okay, we have Zhao and Bankman-Fried, okay. Also in these chats, according to the Log, were Tether’s Paolo Ardoino, Tron’s Justin Sun, and Kraken co-founder Jesse Powell. That’s one hell of a group chat.

I mean don’t get me wrong, I’m guessing JPMorgan CEO Jamie Dimon has the phone number of Goldman Sachs CEO David Solomon and they probably have the phone number of Wells Fargo CEO Charles Scharf as well. I bet one of them can call Citi CEO Jane Fraser whenever they want! But I don’t think they’re all in a group chat called “big bank coordination,” not least because that’s the sort of thing that confuses antitrust lawyers.

The most charitable explanation for “Exchange coordination”, I think, is that it’s crypto’s ersatz version of something like Swift, which is, after all, a messaging platform. It just looks terribly funny.

Unstable coins

The next thing I noticed was Tether. I’ve long been fascinated with Tether, not least because its executives pass it on CNBC to embarrass themselves. (It’s always funny!) In this case, it stands out because it’s a stablecoin, and Bankman-Fried has a history with stablecoins. Mainly, The New York Times previously reported that the FBI is investigating his company’s Terra/Luna transactions to see if they were market manipulation.

Most of the sell orders on Terra, the algorithmic stablecoin that depegged, came from FTX’s sister company Alameda Research – which had also shorted Luna. The death spiral on the tokens led to a massive amount of market contagion, knocking out Three Arrows Capital, Celsius, and Babel Finance, among others.

Two things strike me here. The first is that, hilariously, the contagion was probably part of how Alameda and FTX fell, when people panicked. But the second one is much less funny: FTX mentioned Terra/Luna as Alameda traded against them. That sucks for retail investors, man.

“The more damage you do now, the more jail time.”

In the chat on Nov. 10, Tether’s Ardoino “expressed concern that Alameda was trying to push the price of Tether down and drag other cryptocurrencies with it,” the log reports. Tether is an important token widely used in crypto. Should anything happen to it, much of the industry would be in deep trouble.

“Stop now, don’t do more damage,” Zhao wrote to Bankman-Fried in the chat. The New York Times. “The more damage you do now, the more jail time.” He also pointed to a $250,000 transaction by Alameda, claiming it was designed to destabilize Tether.

Strange claim, at first glance. A $250,000 transaction in Tether is like a Tuesday. But! The allegations about Alameda’s Terra/Luna dealings suggest none big trade, but many small ones. The Wall Street Journal quotes “a person close to Alameda” and says the transactions were aimed at “closing positions and returning funds to lenders.” I don’t know who the source was on that, but it’s not out of the question that it’s Bankman-Fried himself, as that explanation satisfies him and, as I think we’ve all discovered, he’s got a killer case of “can’t shut the fuck up”-itis.

Also, for the record, Bankman-Fried told both Time and the log that “to my knowledge neither myself nor Alameda have ever attempted to deliberately unlink Tether or other stablecoins.”

Who benefits?

My first hunch is that the chats here may have been leaked by Bankman-Fried – because of the aforementioned “can’t fucking shut up”-itis. I’m just not sure what the motive would be here. Shifting the blame from himself as the only bad actor to a larger group of players in the industry? After all, revealing the existence of the group chat makes no sense to most participants.

That suspicion is reinforced by the byline on the Time story: David Yaffe-Bellany, who wrote a story in November that revealed that Bankman-Fried slept soundly after the collapse of his empire.

On the other hand, the emphasis on stablecoins seems strange to me. Zhao’s exchange, Binance, kicked off many stablecoins — Circle’s USDC, the Paxos dollar, and TrueUSD — in favor of its own, BUSD, which is issued in partnership with Paxos. Meanwhile, Coinbase has suggested that anyone using Tether should use USDC instead. We know from FTX’s downfall that Zhao will ruthlessly shoot down competitors as the revelations about FTX’s true financial condition came after Zhao announced that he would flood the market with FTX’s FTT token. So there is a possibility that the source of these chats is Zhao himself, who wants to make Bankman-Fried look even worse.

In fact, Zhao publicly rebuked Kevin O’Leary, the investor and Shark cage rigid, for defending Bankman-Fried only this morning. If the chats make Bankman-Fried look particularly bad among his peers, Zhao looks good by comparison.

Someone is playing with fire here, and I don’t know who

There is a third, external possibility. Caroline Ellison was the CEO of Alameda when all this was going on. Given the coordination between Bankman-Fried and Alameda, I suspect she knew about this chat — whether or not she was in it. She loses nothing by making everyone look worse. She also fits the bill for “a person close to Alameda” as quoted in The Wall Street Journal.

As for the chance that another player in the chats – Ardoino, Sun or Powell – leaked them, I doubt it. Those players all stand to lose in revealing coordination between exchanges. In addition, the chats make Tether look like terribly vulnerable. Since it plays such a key role in crypto, toppling it would likely cause an even bigger slump than what we’ve already seen. But who knows! If there’s one thing I’ve learned over the past year, it’s that crypto is full of very chaotic drama queens.

Someone is playing a dangerous game and I don’t know who. What I do know is that the elephants dance the tarantella, and if I were a mouse in the crypto industry, I’d do my best to steer clear.