In his first filing in courtFTX’s new CEO and trustee in bankruptcy, John Ray III, revealed an even greater extent of the fraud and chaos behind the collapse yesterday.
“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of reliable financial reporting as has occurred here,” Ray said in the filing.
Renowned on-chain analysis firm Nansen has now produced its own report to explore the origins of the disaster. He says the Bankman Fried companies were closely linked from the start.
Nansen findings reveal early entanglements of FTX and Alameda
It was no secret that Alameda was one of the first, if not the first, liquidity provider on FTX. However, the proximity of the entanglements was to remain a secret until recently.
The login link was the FTT token, created by the exchange. Alameda’s wallet was already interacting with FTX even before its launch in May 2019.
[A]apart from the other CEX addresses, this was the only clearly identifiable counterpart.
Although relatively small in volume (~$160,000), this strongly suggests that Alameda was heavily involved in the creation of FTX or that there was no clear separation between Alameda and FTX at the time – and may – even be both.
Also surprising is Nansen’s finding that Bankman FriedThe two companies share a large portion of the total TTF supply that never entered circulation.
Nansen’s analysis revealed that FTX controlled 280 million of FTT’s total 350 million (~80%), even though Bankman-Fried’s company claimed to only own half of all tokens.
The initial success and meteoric rise in price of FTT from $0.10 to an ATH of $84 in the 2021 bull market ultimately artificially inflated Alameda’s balance sheet. This high balance sheet valuation could then be leveraged by Alameda to obtain FTT-backed loans.
But when borrowed funds were used for illiquid investments, FTT became a “key vulnerability” for Alameda. Unable to sell large quantities of its FTTs without driving prices down, the company experienced cash shortages.
“It was a Gordian knot for Alameda’s FTT holdings and created additional co-dependency between Alameda and FTX,” Nansen wrote in his report.
With the collapse of Terra/UST, the Gordian knot became inevitable as many creditors began to recover loans following the collapse of 3AC and Celsius. So what was the solution? No more loans against FTT as collateral.
Finally, after the collapse of Earth/ USTAlameda had few options to repay the recalled loans, so it turned to FTX again.
Alameda deposited approximately $4 billion in FTT tokens on FTX between early June and July, culminating in the collapse of 3AC in the week of June 12, 2022.
“This is consistent with Reuters interview with several people close to Bankman-Fried, revealing a $4 billion loan from FTX to Alameda backed by FTT tokens, Robin Hood shares and other assets”, as Nansen’s hypothesis.
Last but not least, Binance CEO Changpeng Zhao was the one to bring down the house of cards with his infamous tweets about selling all FTT tokens and warning that Bankman Fried exchange could be the next Terra Luna.
As of press time, Bitcoin price is still trading sideways after the initial FTX shock, pending if there are any further contagion effects in the market.