Report Shows Trading Firm Alameda Research Was Already Insolvent in 2018
Years before the recent collapse, the trading firm Alameda Research is said to have been insolvent before FTX rescued it with customer funds.
Valentin
March 11, 2023
According to a report in The Wall Street Journal, Sam Bankman-Fried’s now-bankrupt crypto trading firm, Alameda Research, was on the verge of collapse in 2018 due to heavy losses incurred from its automated trading algorithm, which was designed to make a large number of fast trades but ended up guessing wrong about price movements.
The firm lost almost two-thirds of its assets as a result of the XRP token’s price drop and was on the brink of collapse. However, Bankman-Fried was able to save the company by raising funds from lenders and investors, promising them returns of up to 20% on their investment. In January 2019, Alameda sponsored the inaugural Binance Blockchain Week conference, and Bankman-Fried used the event to connect with investors and secure funding for his struggling trading firm.
In April of the same year, FTX was launched with the promise of providing a safe haven for institutional investors. Bankman-Fried used Alameda to fuel the growth of FTX, with the trading company becoming the major market maker for the exchange and always open for other traders to buy and sell from.
However, according to the United States Securities and Exchange Commission (SEC), Bankman-Fried instructed his team to create a piece of code that would give Alameda an unfair advantage on FTX, allowing the firm to maintain a negative balance on the exchange regardless of the collateral placed and ensuring that Alameda’s FTX collateral wouldn’t be immediately sold if its value dropped below a certain threshold.
This suggests that, contrary to Bankman-Fried’s claims, Alameda and FTX were not operating independently.
Three years later, the trading firm is officially bankrupt
With the downfall of FTX came also the death of Alameda Research, one of the, if not the largest crypto trading firm in the space. To be precise, Alameda Research was the reason for the downfall of FTX. Today, FTX CEO Sam Bankman-Fried published a Twitter thread, explaining what happened. In it, one tweet mentioned that Alameda is winding down trading:
