Alameda Research, FTX’s sister trading desk, saved the exchange from a potential $1 billion trade loss in early 2021.
This information comes in the wake of former FTX CEO Sam Bankman-assertions Fried’s that FTX and Alameda were independent businesses.
According to those familiar with the situation, FTX sustained significant losses after a client’s leveraged deal on an obscure crypto currency went bad, as was revealed by the Financial Times on Friday. The “buffers” intended to safeguard the exchange from losses on a faulty trade, however, were unable to insulate FTX.
Collecting collateral up front from the borrower is a typical risk-management practice employed by businesses when lending money.
The lender cancels the loan and sells the customers’ assets on their behalf to recoup its costs if the borrower’s collateral value falls below a certain amount.
The in question coin, named MobileCoin, experienced a price increase of $6 to $70 in April 2021 before experiencing a quick drop. When a trader at that time borrowed money against the coin while holding an excessively big stake, Alameda was forced to step in and aid settle the debt. The trading desk suffered a loss of hundreds of millions of dollars.
Nansen’s further blockchain evidence also reveals that Alameda served as FTX’s lender of last resort during times of cash shortage.
FTX and Alameda were both founded by Sam Bankman Fried, and the event indicates strong relationships between the two organizations despite the former CEO’s claims that he had no knowledge of what was going on at Alameda.
Sam Bankman-Fried explained during an interview last month that Alameda itself had a leverage position worth billions open with FTX, prior to going bankrupt.
Though the position had been collateralized by FTT token, the FTT market was too illiquid and dropped too fast for FTX to liquidate the position, and thus stay solvent.
