Alameda Covered a $1 Billion Loss for FTX in 2021 (Report)

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FTX’s sis­ter trad­ing desk, Alame­da Research, bailed out the exchange before it suf­fered a pos­si­ble $1 bil­lion trade loss in ear­ly 2021. 

This news comes amid claims from for­mer FTX CEO Sam Bankman-Fried that FTX and Alame­da were inde­pen­dent­ly oper­at­ed firms. 

  • As report­ed by the Finan­cial Times on Fri­day, peo­ple famil­iar with the mat­ter said FTX suf­fered mas­sive loss­es after a client’s lever­aged trade on an obscure cryp­to token went south. Mean­while, the “buffers” designed to shield the exchange from loss­es on a bad trade failed to pro­tect FTX. 
  • A com­mon risk-man­age­ment pro­ce­dure used by firms when lend­ing mon­ey is to col­lect col­lat­er­al from the bor­row­er in advance. If the borrower’s col­lat­er­al val­ue falls to a cer­tain lev­el, the lender clears the loan and sells the cus­tomers’ assets on its own behalf to cov­er its costs. 
  • The token in ques­tion, called Mobile­Coin, spiked from $6 to $70 in April 2021, only to crash just as fast short­ly after­ward. At the time, a trad­er bor­rowed against the coin with an unusu­al­ly large posi­tion, which Alame­da had to step in and help cov­er. The trad­ing desk lost hun­dreds of mil­lions of dol­lars in the process. 
  • Addi­tion­al blockchain evi­dence pro­vid­ed by Nansen also sug­gests that Alame­da act­ed as FTX’s lender of last resort when funds were short. 
  • The event sig­nals deep ties between Alame­da and FTX, both com­pa­nies found­ed by Sam Bankman Fried, despite the ex-CEO’s claims that he had no knowl­edge of what was going on at Alameda. 
  • Sam Bankman-Fried explained dur­ing an inter­view last month that Alame­da itself had a lever­age posi­tion worth bil­lions open with FTX, pri­or to going bankrupt.
  • Though the posi­tion had been col­lat­er­al­ized by FTT token, the FTT mar­ket was too illiq­uid and dropped too fast for FTX to liq­ui­date the posi­tion, and thus stay solvent. 
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