Alameda Research: What Happened? [2022 Updated]

Binance and FTX announced that, pending due diligence, Binance would acquire FTX to help with a “liquidity crunch”.

Concerns mounted about FTX’s apparent insolvency, causing a slowdown in withdrawals and a massive fall in price of its native token, FTT.

Alameda Research’s balance sheet had a lot of the over-valued FTT thus the token’s freefall has inevitably taken down the firm. Let’s take a look at how that unfolded.

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Alameda Research: What Happened? [2022 Updated] 5

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What is Alameda Research?

Alameda Research is Sam Bankman-Fried’s crypto quantitative trading firm. Here is a screenshot of its website (as of writing this, the website has gone offline).

Alameda Research website closed

The firm uses internally developed technology and its team’s deep crypto expertise to trade thousands of digital asset products, including all major coins and altcoins, as well as their derivatives.

SBF started the firm in 2017 to trade on all major crypto exchanges and markets.

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Who is behind Alameda Research?

Sam Bankman-Fried founded Alameda Research in 2017.

Sam Bankman-Fried

In August 2021, promoted traders Sam Trabucco and Caroline Ellison to co-CEOs so he could focus on his FTX cryptocurrency exchange. Both are natives of Boston.

Caroline Ellison got her Bachelor’s degree in Mathematics from Stanford. She worked at Jane Street, which is where she met SBF.

Sam Trabucco is a former competitive Scrabble player who studied computer science at MIT. That’s where he met SBF.

How Alameda Research Made Money

The quantitative trading charged basis points on billions in volume a day making millions daily. By investing that income into blockchain platforms like Uniswap and Compound that connect lenders and borrowers with little overhead, it generated an additional 7% to 50% annualized depending on the asset.

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Alameda Held A Lot of FTT

An investigation into the financials of Alameda revealed that the firm had an entangled relationship with FTX. The investigation revealed that even before FTX got in trouble, Alameda was likely broke. FTT is the token issued by FTX that provides users a discount on the trading fees as well as commissions on referrals.

As of June 30, Alameda had $14.6 billion in assets against $8 billion in liabilities. Most of its growth and success came from investments in assets very closely tied to FTX. FTX is a cryptocurrency exchange run by Sam Bankman-Fried.

Alameda Research owned a lot of FTT tokens on its balance sheet. It had $3.66 billion worth of unlocked FTT and FTT collateral worth $2.16 billion adding up to $5.82 billion. The market cap was $3.32 billion then. Therefore, the firm was overvaluing its assets (you could argue that this was due to how differently CoinMarketCap and FTX calculate ‘circulating supply.’)

Another problems was that FTT tokens were relatively illiquid had Alameda been forced to sell. Meanwhile, SBF was promoting FTT.

On top of that, the firm had immense exposure to FTX and financially benefited from the fees at FTX which were used to buy and burn FTT token. That being said, the investment activities of Alameda Research were separate from the investment activities of FTX and FTX Ventures, a crypto venture capital firm linked to FTX.

The rest of the assets the firm held (mostly crypto) were shrouded in mystery. However, it was revealed that Alameda held SRM (Serum’s token, which was co-founded by SBF), MAPS, OXY, and FIDA. Of these assets, SRM, MAPS, and OXY had all lost large portions of their value since the end of June, FIDA had gone up. Alameda also held SOL — $863 million ‘locked’ and $292 million unlocked.

It was unclear what the rest of the equity securities were or how much they were worth. Alameda had approximately $8 billion in liabilities, of which $7.4 billion was loans.

Alameda’s precarious situation came as a surprise to most people considering the spate of rumored and in-progress acquisition bids it had entered across the ecosystem. But it is worth noting that most of those offers were designed to reduce the overall investment made by Alameda, SBF, and FTX.

Alameda was one of the two largest issuers of the tether token, receiving more than $31 billion worth of tether as of November 2021.

The collapse of Three Arrows Capital (3AC) is still fresh in investors’ memories because it was liquidated by multiple lenders after ghosting. It was unable to pay its lenders as cryptocurrency markets plummeted following the collapse of Terra-Luna.

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Alameda Bailed out Ailing Crypto Firms

SBF made headlines and won a lot of fans when he (through his firms) announced he’d bail out ailing crypto firms. For example, FTX extended a $250 million line of credit to crypto lender BlockFi and a day later, Alameda Research, gave Voyager Digital a $500 million line of credit.

FTX later struck a deal to acquire BlockFi outright. SBF walked away from giving Celsius a similar rescue and he said in an interview that FTX still has money to help out other companies on the verge of collapse.

However, a close examination of those agreements found that Bankman-Fried wasn’t always doing that out of the kindness of his heart. For example, it was revealed that Alameda already owed Voyager $377 million so i was a case of a borrower bailing out its lender.

Alameda Research Falls

As I write this, Alameda Research has lost a ton of value after the FTX token, FTT went into free fall. This was caused by a series of events.

In a nutshell, when Binance announced that it intended to liquidate its FTT position, Caroline Ellison announced Alameda would purchase the FTT from Binance for $22. But there was a liquidity crunch and FTT fell by a lot in a small time frame.

Since Alameda’s balance sheet was disproportionately weighted towards an over-valued FTX Token (FTT) position, it also lost a ton of value. FTX CEO Sam Bankman-Fried, whose net worth was tied to Alameda and FTX, saw his estimated personal wealth plummet nearly 94% to $991.5 million in a single day. Many crypto firms, both public and private, have seen their valuations struggle this year.

Before you leave

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Alameda Research: What Happened? [2022 Updated] 5