FTX Downfall Likely Triggered by Terra Collapse

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Last Updated on November 18, 2022 by Bitfinsider

It was no secret that Alameda was one of the first liquidity providers on FTX, if not the first. The closeness of the entanglements remained a secret until quite recently.

Nansen’s discovery that Bankman-two Fried’s enterprises shared the majority of the total FTT supply that never reached circulation is also shocking.

Nansen’s investigation revealed that FTX controlled 280 million of the total 350 million FTT (80%), despite Bankman-company Fried’s claiming ownership of only 50 percent of tokens.

The early success and stratospheric rise of FTT’s price from $0.10 to an all-time high of $84 in 2021’s bull market unnaturally bloated Alameda’s balance sheet. Alameda could utilize its high balance sheet valuation to secure loans guaranteed by FTT.

However, when the borrowed monies were used for illiquid investments, FTT became Alameda’s “main vulnerability.” Incapable of selling huge quantities of their FTT without causing the price to collapse, the corporation encountered liquidity issues.

In his assessment, Nansen stated, “This was a Gordian knot for Alameda’s FTT assets and created greater dependence between Alameda and FTX.”

With the demise of Terra/UST, the Gordian knot became unavoidable, as numerous creditors began to recoup loans following the demise of 3AC and Celsius. So what was the answer? More loans secured by FTT collateral.

After the fall of Terra/ UST, Alameda was left with few choices to repay the returned loans, thus it once again went to FTX.

Alameda placed around $4 billion worth of FTT tokens on FTX between early June and mid-July 2022, with a surge during the week of June 12, 2022, when 3AC collapsed.

Nansen hypothesizes, “This is consistent with the Reuters interview with numerous persons close to Bankman-Fried, which revealed a $4 billion loan from FTX to Alameda guaranteed by FTT tokens, Robinhood shares, and other assets.”

In the end, it was Binance CEO Changpeng Zhao’s controversial comments about dumping all FTT tokens and warning that Bankman Fried’s exchange could be the next Terra Luna that brought down the house of cards.

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