Analysis of the FTX and Alameda collapse indicates that the Terra Luna fallout is beginning to have a domino effect

An analysis of the collapse of FTX and Alameda Research has been published by blockchain and crypto-currency analytics firm Nansen. The report states that Terra’s collapse, and subsequent liquidity crisis, likely triggered the domino effect that led to the company’s implosion. The Nansen study further details that “FTX and Alameda had a close relationship from the very beginning.“

A report shows that the collapse of Terra LUNA and intertwined relationships may have initiated the demise of FTX and Alameda.

On November 17, 2022, five researchers from the Nansen team published a blockchain analysis and comprehensive review of “Alameda and FTX collapse.“The report notes that FTX and Alameda had ” close ties “, and blockchain records confirm this fact. The rise of FTX and Alameda began with the launch of the FTT token and the “two shared the majority of the total FTT supply that didn’t actually enter circulation“, detailed the Nansen researchers.

The meteoric rise of FTX and FTT led to Alameda’s bloated balance sheet, which “was probably used as collateral by Alameda to borrow.“Nansen researchers detail that if the borrowed funds were used as leverage to make illiquid investments, then “FTT would become a central weakness for Alameda.“Nansen researchers say the weaknesses began to emerge when Terra’s once-stable UST coin depreciated and caused a massive liquidity crisis. This led to the collapse of crypto hedge fund Three Arrows Capital (3AC) and crypto lender Celsius.

Although not associated with Nansen’s report, 3AC co-founder Kyle Davies said in a recent interview that FTX and Alameda Research “agreed to negotiate against clients“. Davies suggested that FTX and Alameda were stop hunting his crypto-currency hedge fund. After the contagion effect of Celsius and 3AC, Nansen’s report states that “Alameda would have needed liquidity from a source that would still be willing to make a loan against their existing collateral.“

Nansen details that Alameda transferred $3 billion from FTT onto the FTX exchange and most of those funds remained on FTX until the collapse. “The evidence of the actual loan from FTX to Alameda is not directly visible on the chain, perhaps due to the inherent nature of CEX that may have obscured clear and accurate information, the onchain traces are clear“, the Nansen researchers admit. However, outflows and a Bankman-Fried Reuters interview suggest to Nansen researchers that FTT guarantees may have been used to secure loans.

“Based on the data, the total outflow of $4 billion from Alameda’s TTF to FTX in June and July may have been the provision of some of the collateral used to secure loans (worth at least $4 billion) in May/June that was revealed by several people close to Bankman-Fried in a Reuters interview “, the Nansen study reveals. The report concludes that Coindesk’s balance sheet item ” Which highlighted concerns about Alameda’s record“, which ultimately led to the “back and forth battle between Binance and FTX CEOs”.

“The article caused a ripple effect among market participants, Binance held a significant position in FTX “, the Nansen researchers noted. ” From that point on, the intertwined relationship between Alameda and FTX became more troubling, given that client funds were also in the equation. Alameda was at the stage where survival was its chosen priority, and if one entity collapsed, other problems could begin to brew for FTX.“The report concludes:

Given the interlocking nature of these entities, as well as the over-leverage of the collateral, our post-mortem analysis is as follows [onchain] post-mortem suggests that the ultimate collapse of Alameda (and the resulting impact on FTX) was, perhaps, inevitable.