An analysis of the collapse of FTX and Alameda Research has been published by blockchain and cryptocurrency analysis firm Nansen. The report says that Terra’s collapse, and the subsequent cash 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 beginning.“
A report indicates 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 “two shared the majority of FTT’s total supply, which did not really enter circulation“, detailed the Nansen researchers.
The sharp rise in FTX and FTT has led to Alameda’s balance sheet recovery, which “was probably used as collateral by Alameda to borrow.“The Nansen researchers describe that if borrowed funds were used as leverage to make illiquid investments, then”FTT would become a key weakness for Alameda.The Nansen researchers say the weaknesses began to show when Terra’s once-stable UST coin depreciated, causing a massive liquidity crunch. This led to the collapse of crypto hedge fund Three Arrows Capital (3AC) and crypto lender Celsius.
Although not connected to Nansen’s report, 3AC co-founder Kyle Davies said in a recent interview that FTX and Alameda Research “has agreed to negotiate with customers“. Davies hinted that FTX and Alameda stopped chasing 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 security.“
Nansen says 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 CEXs, which may have hidden clear and accurate information, onchain traces are evident“, 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 investigation. The report concludes that the balance of the 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 had a large position in FTX “, noted the Nansen researchers. ” From this point on, the intertwined relationship between Alameda and FTX became more troubling as client funds also entered the equation. Alameda was at the stage where survival was its chosen priority, and if one unit 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] autopsy suggests that Alameda’s eventual collapse (and consequent impact on FTX) may have been inevitable.