Understanding the FTX and Alameda Relationship
In the world of cryptocurrencies, the plot can thicken faster than a bowl of instant oatmeal. New reports, particularly one from blockchain analytics firm Nansen, unveil shocking connections between the now-defunct FTX exchange and the trading firm, Alameda Research. Both were birthed from the entrepreneurial brain of Sam Bankman-Fried, whose current predicament with U.S. authorities would make even the best courtroom drama seem dull.
The Early Days: A Seed of Poor Intentions
Nansen’s analysis reveals that as far back as May 2019, Alameda was one of the founding liquidity providers for FTX. Out of a hefty initial supply of 350 million FTT tokens, a staggering 27 million were allegedly parked in Alameda’s FTX deposit wallet. This means that the two entities had a grip on 86% of the supply. Talk about monopolizing the market! With so few tokens circulating, the chances of price manipulation became about as high as your cousin betting on their alma mater during March Madness.
The 2021 Market Frenzy
Fast forward to the bull run of 2021, and things get a bit more dramatic. The FTT token skyrocketed from a humble $0.10 to an eye-popping $84. During this euphoric rise, Nansen suspects that Alameda and FTX couldn’t cash out their hefty holdings without alarming the entire market. Instead, they likely turned to loans, using their FTT stock as collateral, which sounds like a savvy financial move—until it isn’t.
The Cracks Begin to Show
Here’s where the drama unfolds. Nansen discovered approximately $1.6 billion worth of FTT exchanged between Alameda and struggling brokerage Genesis Global Trading in September 2021. It’s like watching a high-stakes poker game where everyone starts to realize the house is rigged. Instead of dividends, FTX and Alameda funneled cash back into buying more FTT to inflate prices—a classic case of leveraging until they topple over.
Cascading Failures and the Inevitable Crash
When June 2022 hit, it was as if a storm rolled through and wrecked the carefully constructed façade. With firms like Three Arrows Capital and Celsius already swimming with problems, Alameda found itself in deep water, struggling with liquidity. A liquidity crunch meant the dreaded reality of selling its FTT for cash, but doing so risked crashing the very price they were attempting to protect. Over $4 billion of FTT tokens moved from Alameda to FTX, a maneuver some speculate involved customer deposits to pump liquidity into Alameda. Cue the horrified gasps.
The Final Blow: Binance’s Bold Move
Ultimately, the revelation of all this chaos spilled out when Changpeng Zhao, the CEO of Binance, decided to liquidate their leftover investments in FTX. In a matter of moments, investors were rattled like a can of soda shaken too hard. This decision initiated a bank run on FTX and left FTT reeling under intense selling pressure. Users soon figured out that the funds FTX had promised were akin to unicorns—magical but non-existent. And just like that, the fall of the third-largest cryptocurrency exchange started to unfold.
