Alameda Research: Explained

Alameda Research Explained

During the trial of FTX founder Sam Bankman-Fried, the role of company Alameda Research in the dramatic collapse of the cryptocurrency exchange was regularly referred to. In the wake of the FTX debacle, many reports pointed to the contribution of Alameda to the platform's spectacular fall from grace. But what is Alameda Research?

Alameda Research trading firm

Alameda Research was a DeFi (decentralised finance) investment firm established by SBF in October 2017. Headquartered in Hong Kong, the private equity firm, described by some as a quantitative cryptocurrency trading firm, made hundreds of investments.

Described as a crypto hedge fund, Alameda made profits in crypto arbitrage by trading Bitcoin between Japan and the US. In 2019, it is reported, some of this income was used to get the FTX crypto exchange off the ground.

As the digital asset industry suffered the crypto winter of 2022, Alameda was still investing heavily in DeFi projects, reportedly extending credit in excess of $800 million to firms like Voyager and BlockFi.

Alameda collapsed after a balance sheet was leaked that claimed the business relied heavily on FTT, the token issued by FTX.

The fall of Almeda sparked the bankruptcy of BlockFi, the crypto lender, amid claims it was owed $671 million by Alameda Research. BlockFi was also exposed to more than $350 million in funds frozen on the FTX exchange.

While FTX and Alameda appeared to be distinct entities, it was reported in December 2022 that Alameda had handed over some $1 billion to assist the exchange after a company incident on the trading platform.

Trading activity

Alameda was engaged in OTC (over-the-counter) cryptocurrency trading and also offered ‘full-service’ crypto trading on every exchange and market.

It was reported that in 2022, head of its collapse, Alameda was managing more than $1 billion in digital assets and trading up to $10 billion every day in coins, tokens, and derivatives.

It was believed to be holding some 40 cryptocurrencies, including major names like Solana, Bitcoin, Ethereum, Meta, DODO, and Swipe. But it was its exposure to FTT, the token of FTX, that proved critical.

End of an empire

Media investigations into the relationship between the two companies, by CoinDesk, among others, revealed that 40% of Alameda’s assets were FTT.

These reports of Alameda’s reliance on FTT spooked investors, who fled the FTX exchange and dumped FTT. Unable to keep up with withdrawal requests, FTX went into freefall.

There had been hopes that Binance, the largest crypto exchange, would step in to provide liquidity for its nearest competitor and complete a buyout. But Binance stepped away from the idea.

The business tweeted in November 2022 that it was abandoning the takeover plans following corporate due diligence and reports of customer funds being ‘mishandled’.

With customers flooding out and the potential buyout off, both FTX and Alameda filed for Chapter 11 bankruptcy and SBF stepped down. Initial court reports put the liabilities of Alameda and FTX at between $10 and $50 billion.

Fall from grace

Alameda Research had become established as a significant DeFi investor. In just five years, it made more than 220 investments, according to reports.

Many of these took the form of capital injections into DeFi solution firms. For example, Fordefi, the FinTech and software company, announced in November 2022 that Alameda was among the investors to contribute to the $18 million it had raised to create an institutional DeFi wallet.

With Alameda being so deep in the DeFi industry, its collapse caused problems for many projects.

Maps.me and Oxygen, both recipients of tens of millions of dollars from the firm, ended up with almost all of their token supply frozen on the collapsed FTX exchange.

FTX didn’t hold equity in either firm, but did hold a substantial amount of MAPS and Oxy tokens and was custodian for more than 95% of the total supply.

Day in court

During SBF’s criminal trial, resulting from the collapse of FTX, it was repeatedly alleged that FTX customer funds were used by Alameda.

Accounting expert Professor Peter Eaton, giving evidence on the apparent disappearance of $9 billion of customer funds, was clear in his assessment. Eaton conducted a painstaking analysis of the FTX and Alameda books and found substantial deficits.

Alameda was supposed to be holding around $11.3 billion in FTX customer funds, but little more than $2 billion of that was being held in company bank accounts. Eaton testified that almost 70% of the loans Alameda was making were funded with FTX customer funds.