FTX Downfall In all probability Sparked By The Collapse Of Terra

In his first court docket submitting, new FTX CEO and chapter trustee John Ray III revealed yesterday an excellent better extent of the fraud and chaos behind the collapse.

“By no means in my profession have I seen such an entire failure of company controls and such an entire absence of reliable monetary info as occurred right here,” Ray mentioned within the submitting.

Famend on-chain evaluation agency Nansen has now produced its personal report back to discover the origins of the catastrophe. It says Bankman Fried corporations had been carefully linked from the start.

Nansen Findings Uncover The Early Entanglements of FTX and Alameda

It was no secret that Alameda was one of many first, if not the primary, liquidity suppliers on FTX. Nonetheless, how shut the entanglements had been was to stay a secret till not too long ago.

The connecting hyperlink was the FTT token, which the trade created. Alameda’s pockets was already interacting with FTX earlier than it had even launched in Might 2019.

[A]half from different CEX addresses, it was the one clearly identifiable counterparty.

Though comparatively low in quantity (~$160k), this strongly means that both Alameda was closely concerned in FTX’s inception or there was no clear separation between Alameda and FTX then – and maybe, even each.

Additionally startling is Nansen’s discovering that Bankman-Fried‘s two corporations shared a lot of the entire FTT provide that by no means entered circulation.

Nansen’s evaluation discovered that FTX managed 280 million of the entire 350 million FTT (~80%), regardless that Bankman-Fried’s firm claimed to personal solely half of all tokens.

The preliminary success and the meteoric rise of FTT’s worth from $0.10 to an ATH of $84 within the bull market of 2021 in the end artificially inflated Alameda’s steadiness sheet. This excessive steadiness sheet valuation might then be leveraged by Alameda to acquire loans backed by FTT.

However when the borrowed funds had been used for illiquid investments, FTT grew to become a “key vulnerability” for Alameda. Unable to promote massive quantities of its FTT with out sending the worth plummeting, the corporate skilled liquidity shortages.

“This was a Gordian knot for Alameda’s FTT holdings and created an extra co-dependency between Alameda and FTX,” Nansen wrote in his report.

With the collapse of Terra/UST, the Gordian knot grew to become inevitable, as many collectors started to claw again loans following the collapse of 3AC and Celsius. So what was the answer? Extra loans in opposition to FTT as collateral.

In the end, after the collapse of Terra/ UST, Alameda had few choices to repay the recalled loans, so it turned to FTX once more.

Alameda deposited about $4 billion price of FTT tokens on FTX between early June and July, peaking through the 3AC collapse within the week of June 12, 2022.

“That is according to the interview from Reuters with a number of individuals near Bankman-Fried, revealing a $4b mortgage from FTX to Alameda backed by FTT tokens, Robinhood shares, and different asset,” as Nansen hypothesizes.

Final however not least, Binance CEO Changpeng Zhao was the one to convey down the home of playing cards together with his notorious tweets about promoting all FTT tokens and warning Bankman Fried’s trade could possibly be the following Terra Luna.

At presstime, the Bitcoin worth remains to be buying and selling sideways following preliminary FTX shock, awaiting if there are additional contagion results available on the market.