hn_throwaway_99
8 months ago
Tell that to Synapse customers. Many millions of dollars are missing.
Banks have to follow strict rules to account for where all the money goes. But the way fintechs work, they usually just have one or a couple underlying "FBO" accounts where all the pooled money is held, but then the fintech builds a ledger on top of this (and, as the article points out, to varying levels of engineering competence) to track each individual customer's balance within this big pool of money. In Synapse's case, their ledger said the total amount of all of their individual customer balances ended up being much more than the actual funds held in the underlying FBO accounts. Lots of folks are assuming fraud but I'm willing to put money that it was just a shitty, buggy ledger.
FWIW, after seeing "how the sausage is made", I would never put money into a fintech depository account. Use a real bank. Fintechs also often put out the fake promise that deposits are FDIC insured, but this only protects you if the underlying bank goes belly up, not if the fintech loses track of your money.
See https://www.forbes.com/sites/zennonkapron/2024/11/08/what-th...
chairmansteve
8 months ago
90 million dollars missing and 250 million dollars frozen. That 250m probably needed by some people to pay rent.
Backed by Andreesen Horowitz who are conducting a scorched earth jihad against all government regulation.
https://finance.yahoo.com/personal-finance/synapse-bankruptc...
abirch
8 months ago
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.
bboygravity
8 months ago
That's not really a lot compared to what Wallstreet is steeling daily.
ozim
8 months ago
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.
user
8 months ago
mrfox321
8 months ago
At a big co I worked at, the lack of consistency between trading systems caused money to (dis)appear (into)out of thin air.
Prior to one of these hiccups, I hypothesized, given how shitty the codebase was, that they must be tracking this stuff poorly.
This led to an argument with my boss, who assumed things magically worked.
Days later, we received an email announcing an audit one one of these accounting discrepancies.
JPMC proposed using crypto, internally, to consistently manage cash flow.
Not sure if it went anywhere.
HolyLampshade
8 months ago
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.
phire
8 months ago
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.
naasking
8 months ago
> 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.
hooverd
8 months ago
It's all merkle trees under the hood. I feel like the crypto coin stuff has overshadowed the useful bits.
im3w1l
8 months ago
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.
DanielHB
8 months ago
> 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
mlloyd
8 months ago
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.
phonon
8 months ago
Synapse says that it was actually the Bank (Evolve) that made the accounting mistakes, including missing transactions, debits that weren't reported, sending in flight transaction to Mercury while debiting Synapse incorrectly etc.
https://lex.substack.com/p/podcast-what-really-happened-at-s...
hn_throwaway_99
8 months ago
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.
rawgabbit
8 months ago
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...
zimbatm
8 months ago
Wise also recently switched their US bank provider from Evolve to Community Federal Savings Bank. Maybe they had similar issues?
abenga
8 months ago
From a cursory look at how it describes itself (BaaS, etc), Evolve is hardly a "bank" in the traditional sense of the word.
hipadev23
8 months ago
Sankaet is full of shit.
hgomersall
8 months ago
I had money disappear from my HSBC account. As in, the double entries didn't match by a small amount (it was a payment between two of my accounts that didn't match up, which I couldn't trivially reconcile in the books). I pursued this for a while but they never even properly acknowledged it let alone fix it.
I had my unfounded suspicion it was some internal subtle theft going on, but incompetence is probably a better explanation.
tossandthrow
8 months ago
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.
pera
8 months ago
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...
lores
8 months ago
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.
DanielHB
8 months ago
> I had my unfounded suspicion it was some internal subtle theft going on
Had you watched Office Space recently?
TexanFeller
8 months ago
I’m skittish about real banking institutions as well. Vanguard for example outsourced a bunch of their dev work to India a few years ago. Had a friend that worked as a sysadmin for BoA. They were required to keep certain logging for 7 years but he would just delete it anyway when disks were starting to get full.
superzamp
8 months ago
Coincidentally written something about this yesterday [1], but the gist of my take summed up is that the nature of accounting oriented data models doesn’t help when dealing with multiple FBO accounts.
The main problem is that accounting defaults to full fungibility of monetary amounts represented in a ledger, which has the effect of losing track of the precise mapping between assets and liabilities, so you end up in a position where you simply cannot tell precisely to a bank _who_ are the actual customers they owe money to.
[1] https://www.formance.com/blog/engineering/warehousing-promis...
ThinkingGuy
8 months ago
I like Cory Doctorow's saying: "When you hear the term 'fintech,' think 'unlicensed bank.'
chairmansteve
8 months ago
"Fintechs also often put out the fake promise that deposits are FDIC insured, but this only protects you if the underlying bank goes belly up, not if the fintech loses track of your money".
Would you count Wealthfront as a fintech? I was finding their marketing compelling, but this thread makes me think twice.
eweise
8 months ago
In addition to a ledger, fintechs need a reconciliation system to ensure the ledger is correct. Does the card processor audit files match your ledger? Does your ACH and check processing systems match the ledger? What about external money movements at the sponsor bank. Are they recording in the ledger?
ajuc
8 months ago
> In Synapse's case, their ledger said the total amount of all of their individual customer balances ended up being much more than the actual funds held in the underlying FBO accounts. Lots of folks are assuming fraud but I'm willing to put money that it was just a shitty, buggy ledger.
Bugs are as likely to show more and less money than there really are. But bugs in production will almost always show more :)
e40
8 months ago
I had been debating the merits of using Flourish, but I'm sticking with SNOXX on Schwab. Same rate and I think SNOXX has to be safer, right? Even with the Flourish FDIC guarantee, as others have pointed out, it's only for the underlying back not Flourish itself.
bradleyjg
8 months ago
In Synapse's case, their ledger said the total amount of all of their individual customer balances ended up being much more than the actual funds held in the underlying FBO accounts. Lots of folks are assuming fraud but I'm willing to put money that it was just a shitty, buggy ledger.
If there was no malfeasance then no money would be gone. The totals would add up, they just wouldn’t no know who was owed what. Since the totals don’t add up, someone got the extra.
throwaway2037
8 months ago
> Fintechs also often put out the fake promise that deposits are FDIC insured
Does this still happen?moffkalast
8 months ago
The fact that practically all funding most of the world runs on these days is just a bunch of variables in some shitty program never stops being weird to think about. All it takes to create or destroy trillions is one (or maybe a few) CPU ops.
It really stretches the belief into fiat money to the absolute limit.
PittleyDunkin
8 months ago
> Lots of folks are assuming fraud but I'm willing to put money that it was just a shitty, buggy ledger.
I'm not sure there's much difference. Intent only matters so much.
serbuvlad
8 months ago
> In Synapse's case, their ledger said the total amount of all of their individual customer balances ended up being much more than the actual funds held in the underlying FBO accounts.
When the banks do this it's called "fractional reserve banking", and they sell it as a good thing. :)