“A rigged game of debt hide and seek”
•Sam Bankman-Fried’s Alameda Research firm almost collapsed in 2018 due to heavy losses from its trading algorithm but was saved by SBF raising funds from lenders and investors.
• In 2019, Alameda sponsored the inaugural Binance Blockchain Week conference, which SBF used to get in touch with investors to get funding for his failing trading firm.
• Later in April 2019, FTX was launched with a promise to offer a safe haven for institutional investors. With the launch of the FTX, Bankman Fried used Alameda to fuel its growth as the trading company became the major market maker for the exchange.
• While Bankman Fried had claimed earlier that Alameda and FTX have always operated independently, recent evidence suggests otherwise — namely thatBankman Fried instructed code be created to give Alameda an unfair advantage on FTX trades.
• A new report published by blockchain analytics firm Nansen concludes that both entities were created by crypto businessman Sam Bankman-Fried and were intertwined from the very beginning; of the initial 350 million FTT tokens minted 86% were controlled by either entity.
A new report from The Wall Street Journal uncovered that Sam Bankman-Fried and his crippled exchanges could have crashed as early as 2018 before FTX even came on the scene. According to former Alameda Research employees, their trading algorithm was behind their downfall, making a multitude of quick automated trades but being unable to predict price movements correctly. Alameda had lost two-thirds of its assets due to the price plunge of XRP in 2018 and was on the brink of collapse when Bankman-Fried raised emergency funds with investors offering returns up to 20%. In 2019 at Binance Blockchain Week, SBF reached out to more investors in order to build his firm back up. Finally, with the launch of FTX, Bankman-Fried used Alameda to be the major market maker for the exchange; making it easier for traders to buy from and sell to them. It is claimed that sometimes Alameda strategically took losses in order to allure users over.
Rescuing Alameda from Collapse
In 2018, SBF stepped in to save Alameda from near collapse by personally investing over $10 million of his own money in the company. This massive injection of capital allowed Alameda to stay afloat and continue operations through 2019.
Binance Blockchain Week Sponsorship
In 2019, Alameda stepped up as one of the sponsors for Binance’s Blockchain Week, an event hosted by Binance that sought to bring together some of the top minds in blockchain technology and crypto trading. It was later revealed that this sponsorship money actually came directly from funds raised by FTX during its ICO process earlier that year.
This is one of the first pieces of evidence suggesting an intertwined relationship between the two entities. Alameda sponsored the Binance Blockchain Week and SBF took this opportunity to get in touch with potential investors for his failing trading firm. Later in April, FTX was launched by Bankman Fried and Alameda played a big role in fueling its growth. Surprisingly, Alameda also seemed to always take the losing side of a trade in order to attract traders.
Market Making Position for FTX by Alameda
Alameda currently holds a market-making position on FTX, meaning they are actively providing liquidity and helping create order books for FTX trades in various cryptocurrencies. Further evidence suggests that this market-making position was created with funds from both Alameda and FTX — again indicating a close connection between the two entities.
Though Bankman Fried initially declared that there were no connections between Alameda and FTX, recently released evidence suggests otherwise. The United States Securities and Exchange Commission (SEC) lawsuit unveiled a code that gave Alameda an immoral edge over other traders. Furthermore, it allowed them to preserve a negative balance regardless of how much collateral they had placed with the exchange. Bankman-Fried’s code allowed Almeda to maintain a negative balance in the FTX platform regardless of the amount of collateral put forward by them.
The Nansen Report Details on Minted FTT Tokens
Nansen’s research revealed that a large portion of the initial 350 million FTT tokens was moved into wallets belonging to Alameda and FTX. In fact, their combined holdings represented 86% of the total FFT supply. This stockpiling of tokens restricted the circulation of FTT, making them extremely susceptible to price manipulation and leading to highly volatile market conditions. When token prices skyrocketed in 2021, it is speculated that rather than risk an uncontrolled sell-off of tokens on exchanges by cashing out their holdings, both firms instead took out loans with their existing positions as collateral. This allowed them to maintain near full control over the token’s trading volume, preventing major disruption of price fluctuations and ensuring greater stability in the markets.
The report provides further proof that SBF may have been less than honest about its relationship with both companies. It details how SBF used funds from both entities to mint new FTT tokens — tokens that are now worth billions of dollars — further strengthening their interconnectedness.
After taking a deeper look into this complex situation between Sam Bankman-Fried and his two companies, it appears that there is indeed more than meets the eye when it comes to their relationship with each other. From rescuing Alameda from near collapse to sharing resources between entities via token minting, it seems clear that these two organizations are much more closely linked than originally believed — proving once again that looks can be deceiving!
a bit of levity to the situation maybe? Happy 2023 everyone! https://t.co/0FCUfPPatw— MetaFi (@Metafiweb3) January 2, 2023
More Than Meets The Eye
Nansen had suspected that the sudden surge in FTT value from $0.10 to $84 was a result of Alameda Research and Genesis Global Trading combining their large positions of FTT tokens and using them as collateral in taking out loans. Nansen estimated that such leveraging on the token resulted in almost a billion-dollar worth of exchange between both firms. However, after the crypto crash of June 2022, firms such as Three Arrows Capital, Celsius, and more were facing liquidity crisis which led Alameda to take a similar step in order to resolve it; however, this could only be done if they sold their FTT token for cash yet doing so would collapse its price and cause disruption within FTX exchanges.
As more days go by and more is learned about FTX, Sam, and Alameda the revelations that are coming out are shocking and tragic. The truth is even more devastating than one would have assumed and the loss of funds due to one man’s massive manipulation of the market is immense. What will be the end result? As sam relaxes in his parent’s million-dollar estate there are those whose lives have been tremendously upended. Will the court system deliver them justice or will this just be another “rich get away with murder” situation?