An analysis of the collapse of FTX and Alameda Research has been published by blockchain and cryptocurrency analysis firm Nansen. The report says Terra’s collapse, and the ensuing liquidity crunch, likely triggered the domino effect that led to the company’s implosion. Nansen’s study further details that “FTX and Alameda have had close ties since the very beginning.“
A report shows that the collapse of Terra LUNA and intertwined relationships may have initiated the demise of FTX and Alameda.
On November 17, 2022, five researchers from the Nansen team published a blockchain analysis and comprehensive review of “the collapse of Alameda and FTX.“The report notes that FTX and Alameda had ” narrow links “, and blockchain records confirm this fact. The rise of FTX and Alameda began with the launch of the FTT token and the “two shared the majority of FTT’s total supply which did not really enter circulation“, detailed the Nansen researchers.
The meteoric rise of FTX and FTT has led to Alameda’s balance sheet swelling which “was probably used as collateral by Alameda to borrow.“The Nansen researchers detail that if borrowed funds were used as leverage to make illiquid investments, then”FTT would become a central weakness for Alameda.The Nansen researchers say the weaknesses began to show when Terra’s once-stable UST coin depreciated and caused a massive liquidity crunch. This led to the collapse of crypto hedge fund Three Arrows Capital (3AC) and crypto lender Celsius.
Although not associated with Nansen’s report, 3AC co-founder Kyle Davies said in a recent interview that FTX and Alameda Research “have agreed to negotiate against customers“. Davies hinted that FTX and Alameda were stop hunting his cryptocurrency hedge fund. After the contagion effect of Celsius and 3AC, Nansen’s report states that “Alameda would have needed cash from a source that would still be willing to lend against their existing collateral.”
Nansen details that Alameda transferred $3 billion from FTT to the FTX exchange and most of those funds remained on FTX until the collapse. “Evidence of FTX’s actual loan to Alameda is not directly visible on chain, possibly due to the inherent nature of CEX’s which may have obscured clear and accurate information, onchain traces are clear“, admit the Nansen researchers. However, outflows and a Bankman-Fried Reuters interview suggest to Nansen researchers that TTF guarantees may have been used to secure the loans.
“Based on the data, Alameda’s total TTF outflow of $4 billion to FTX in June and July may have been the provision of some of the collateral used to secure the loans (worth at least $4 billion) in May/June which was revealed by several people close to Bankman-Fried in a Reuters interview “, reveals Nansen’s study. The report concludes that the balance sheet of Coindesk article ” which highlighted concerns about Alameda’s balance sheetwhich ultimately led to the “back and forth battle between Binance and FTX CEOs”.
“The article caused a ripple effect on market participants, Binance held a large position in FTX “, noted the Nansen researchers. ” From this point on, the intertwined relationship between Alameda and FTX became more troubling, given that client funds were also in the equation. Alameda was at the stage where survivability was its chosen priority, and if one entity collapsed, other problems could start brewing for FTX.The report concludes:
Given the interweaving of these entities, as well as the over-indebtedness of the guarantees, our post-mortem analysis is as follows [onchain] post-mortem suggests that Alameda’s eventual collapse (and resulting impact on FTX) was, perhaps, inevitable.