How Did Alameda Research Lose Billions of Dollars of FTX User Funds?

Posted on 11/22/2022

“Your honor, what we have is a worldwide organization that was run effectively as the personal fiefdom of Sam Bankman-Fried,” James Bromley, newly appointed counsel to FTX’s new management, said.

Sam Bankman-Fried (SBF) was known as the central bank of crypto. SBF has fallen from grace as FTX crumbled. Cryptocurrencies, startups, and technology were FTX’s primary focus. FTX made US$ 300 million worth of real estate purchases in the Bahamas.

How Did Alameda Research Lose Billions of Dollars of FTX User Funds?
From the very beginning, the line between Alameda Research, the crypto hedge fund mostly owned by SBF, and FTX were blurred. However, Twitter users by looking at transaction data identified thousands of sizable transactions from FTX to Alameda Research. So likely one can postulate that user funds were sent to Alameda over a period of time. The majority of outflows occurred in the fourth quarter of 2021. One can conclude that Alameda got impacted before the 2022 crypto rout. Alameda might have lost considerable amounts of user funds by early 2022. At this point, SBF could have let Alameda fall. FTT (the digital token of FTX) was essential for keeping the “Ponzi” alive and the cryptocurrency was central to both Alameda and FTX’s survival. As long as FTT was able to perform, they could use it as collateral for loans and sell it in the open market. However, the leaking of Alameda’s balance sheet via a CoinDesk article proved to be the disastrous downfall of FTX and SBF. Alameda Research was trading billions of dollars from FTX accounts and leveraging the exchange’s native token as collateral FTT.

Source: Court Filing.

Alameda Research was involved in all sorts of activities and participated in DeFi borrowing and lending to cross-chain bridges across many different ecosystems. Alameda’s approach was similar with respect to ERC-20 tokens and were channeled cross-chain through bridges. Alameda is estimated to have sent US$ 9.5 billion worth to bridges alone. ERC-20 is the technical standard for fungible tokens created using the Ethereum blockchain. Some of the data on Alameda Research shows that DeFi lending protocols were a major destination of outflows for the ERC-20 tokens in the billions, which was followed by LP/farming protocols, and then non-FTX exchanges.

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