{"id":1746933,"date":"2022-11-21T06:03:03","date_gmt":"2022-11-21T11:03:03","guid":{"rendered":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/?p=1746933"},"modified":"2022-11-21T12:19:22","modified_gmt":"2022-11-21T17:19:22","slug":"alameda-the-firm-at-the-heart-of-ftxs-catastrophic-collapse","status":"publish","type":"post","link":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/alameda-the-firm-at-the-heart-of-ftxs-catastrophic-collapse\/","title":{"rendered":"Alameda: The Firm at the Heart of FTX\u2019s \u201cCatastrophic Collapse\u201d"},"content":{"rendered":"<aside class=\"mashsb-container mashsb-main mashsb-stretched\"><div class=\"mashsb-box\"><div class=\"mashsb-count mash-medium\" style=\"&quot;\"><div class=\"counts mashsbcount\">20<\/div><span class=\"mashsb-sharetext\">SHARES<\/span><\/div><div class=\"mashsb-buttons\"><a class=\"mashicon-facebook mash-medium mash-nomargin mashsb-noshadow\" href=\"https:\/\/www.facebook.com\/sharer.php?u=https%3A%2F%2Fwww.conservativenewsdaily.net%2Fbreaking-news%2Falameda-the-firm-at-the-heart-of-ftxs-catastrophic-collapse%2F\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Facebook<\/span><\/a><a class=\"mashicon-twitter mash-medium mash-nomargin mashsb-noshadow\" href=\"https:\/\/twitter.com\/intent\/tweet?text=&amp;url=https:\/\/www.conservativenewsdaily.net\/breaking-news\/?p=1746933&amp;via=ConservNewsDly\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Twitter<\/span><\/a><a class=\"mashicon-subscribe mash-medium mash-nomargin mashsb-noshadow\" href=\"#\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Subscribe<\/span><\/a><div class=\"onoffswitch2 mash-medium mashsb-noshadow\" style=\"display:none\"><\/div><\/div>\n            <\/div>\n                <div style=\"clear:both\"><\/div><\/aside>\n            <!-- Share buttons by mashshare.net - Version: 4.0.47--><p>In late 2017, MIT alumnus <a href=\"https:\/\/www.theepochtimes.com\/t-sam-bankman-fried\">Sam Bankman-Fried<\/a> <a href=\"https:\/\/www.forbes.com\/profile\/sam-bankman-fried\/?sh=2f8e97094449\">left<\/a> the quantitative trading firm Jane Street to start his own cryptocurrency trading firm,\u00a0Alameda Research. Founded prior to <a href=\"https:\/\/www.theepochtimes.com\/t-ftx\">FTX<\/a>, Alameda got its start by <a href=\"https:\/\/finance.yahoo.com\/news\/ftx-ceo-sam-bankman-fried-profile-085444366.html\">taking advantage<\/a>\u00a0of bitcoin price differentials between Japanese and U.S. exchanges, namely\u00a0by buying bitcoin for a low price in the United States and selling for a premium in Japan.<\/p>\n<p>At the time, Bankman-Fried <a href=\"https:\/\/finance.yahoo.com\/news\/ftx-ceo-sam-bankman-fried-profile-085444366.html\">estimated<\/a> this trade netted about $20 million before the price spread narrowed as competitors took advantage of the same trade. Alameda\u2019s <a href=\"https:\/\/twitter.com\/AlamedaTrabucco\/status\/1385180941186789384?s=20&#038;t=EaFCG17YVx_KrPOTRFIlIw\">initial strategy<\/a> involved various trades similar to the Japan\u2013U.S. bitcoin arbitrage.<\/p>\n<p>After two years of running the quant fund, the 27-year-old entrepreneur embarked on the ambitious goal of starting a crypto trading exchange that would become FTX.<\/p>\n<p>\u201cAt the time, it seemed extremely risky,\u201d Nishad Singh, a childhood friend of Bankman-Fried who would later become the lead engineer of FTX, <a href=\"https:\/\/finance.yahoo.com\/news\/ftx-ceo-sam-bankman-fried-profile-085444366.html\">told<\/a> Yahoo Finance.<\/p>\n<p>In the early days, Alameda Research was the main liquidity provider for FTX, according to Bankman-Fried, accounting for half of the volume on the exchange. According to people familiar with the company, however, it was the other way around.<\/p>\n<p>Jason Choi, an entrepreneur who met Bankman-Fried before FTX started, wrote in a\u00a0<a href=\"https:\/\/threadreaderapp.com\/thread\/1592502785873825794.html\">Twitter thread<\/a> that\u00a0the impetus for founding FTX was to use client funds to capitalize Alameda Research.\u00a0These claims were also <a href=\"https:\/\/www.wsj.com\/articles\/ftx-tapped-into-customer-accounts-to-fund-risky-bets-setting-up-its-downfall-11668093732\">bolstered<\/a> by a recent Wall Street Journal report on commingling between the two firms.<\/p>\n<p>However, Bankman-Fried said in a now-deleted tweet, \u201cWe don\u2019t invest client assets.\u201d<\/p>\n<p>Alameda\u2019s undercapitalization may have led to desperate measures, Choi suggested, pointing to a key announcement by Alameda Research last year. In a <a href=\"https:\/\/twitter.com\/AlamedaTrabucco\/status\/1385180941186789384?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1385180941186789384%7Ctwgr%5Ed27bac5e1132254dfa92cc1150ecee048eabc9db%7Ctwcon%5Es1_&#038;ref_url=https%3A%2F%2Fthreadreaderapp.com%2Fthread%2F1592502785873825794.html\">tweet<\/a>, Alameda co-CEO Sam Trabucco announced that the fund had shifted away from quantitative strategies such as the Japan\u2013U.S. arbitrage and instead had moved to a buy-and-hold approach. The firm was now \u201creally long\u201d on crypto assets.<\/p>\n<p>One of these assets was Dogecoin. Trabucco\u2019s justification for investing in the dog-based token was \u201call based on noticing how it goes up when Elon tweets.\u201d<\/p>\n<p>Choi speculated that this cavalier shift by Alameda was the result of thinning profits from their quant trades as \u201ctheir edge eroded.\u201d As a result, they \u201cbegan to assume massive directional risks in crypto.\u201d<\/p>\n<p>Trabucco <a href=\"https:\/\/twitter.com\/alamedatrabucco\/status\/1562519114979356673?lang=en\">resigned<\/a> from Alameda Research in August.<\/p>\n<p>Terry Sawchuck, CEO and founder of wealth management firm Sawchuk Wealth, told The Epoch Times that Alameda was \u201cat the core of why FTX had its catastrophic collapse.\u201d<\/p>\n<p>\u201cIt appears that Alameda ran into difficulty raising capital to increase leveraged bets, so, at some point, FTX began using its own issued token (FTT) as collateral to borrow money from many industry players and then gave it to Alameda to continue to finance their increasingly larger bets on crypto.\u201d<\/p>\n<figure id=\"attachment_4858637\" class=\"wp-caption alignnone\"><a href=\"https:\/\/img.theepochtimes.com\/assets\/uploads\/2022\/11\/11\/FTX-Samuel-Bankman-Fried-1200x800.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"lazy wp-image-4858637 size-post-thumbnail\" src=\"https:\/\/www.theepochtimes.com\/assets\/themes\/eet\/images\/white.png\" data-src=\"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-content\/uploads\/2022\/11\/FTX-Samuel-Bankman-Fried-700x420-1.jpg\" alt=\"Epoch Times Photo\" width=\"640\" height=\"384\" \/><figcaption class=\"wp-caption-text\"><noscript><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-4858637 size-post-thumbnail\" src=\"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-content\/uploads\/2022\/11\/FTX-Samuel-Bankman-Fried-700x420-1.jpg\" alt=\"Epoch Times Photo\" width=\"640\" height=\"384\" \/><\/noscript><\/figcaption><\/a> Samuel Bankman-Fried, founder and former CEO of FTX, testifies on Capitol Hill on Feb. 9, 2022. (Saul Loeb\/AFP via Getty Images)<\/figure>\n<h2>An Unholy Alliance<\/h2>\n<p>Commingling client funds wasn\u2019t the extent of the controversial relationship between Alameda and FTX.<\/p>\n<p>According to a <a href=\"https:\/\/www.wsj.com\/livecoverage\/stock-market-news-today-11-14-2022\/card\/alameda-amassed-crypto-tokens-ahead-of-ftx-listings-public-data-shows-z6KFN051ToEpFohTXA89?mod=Searchresults_pos1&#038;page=1\">Wall Street Journal<\/a> article,\u00a0Alameda Research collected large amounts of tokens before FTX stated that it would be listing tokens between the start of 2021 and March 2022. In traditional markets, this practice is called \u201cfront running.\u201d<\/p>\n<p>Front running is both illegal and unethical when a trader is acting on inside information.<\/p>\n<p>Owen Rapaport, cofounder of crypto compliance firm Argus, <a href=\"https:\/\/decrypt.co\/114708\/alameda-research-18-tokens-insider-info-ftx\">told<\/a> Decrypt Media that the levels of front running by Alameda far exceed those of most prosecuted cases in the traditional finance world.<\/p>\n<p>While there is some disagreement around whether these laws apply to crypto, the Boston-based law firm Newman and Shapiro <a href=\"https:\/\/newmanshapiro.com\/the-increase-of-illegal-frontrunning-in-the-cryptocurrency-world\/\">believes<\/a>\u00a0that the practice is illegal under current law.<\/p>\n<p>In addition to front running, former employees told Choi that FTX programming allowed for privileged access to Alameda, granting it faster trade executions than standard users. Other special privileges were granted to Alameda as well.<\/p>\n<p>After FTX froze client withdrawals on Nov. 8, Bankman-Fried continued to siphon the exchange\u2019s funds to Alameda, <a href=\"https:\/\/etherscan.io\/tx\/0x9a243ccfa09c93ef5a7071240bfdece69227434993d6235322805ee2e70129bc\">shown<\/a> by the crypto transaction tracking website Etherscan. Soon after, Reuters released its <a href=\"https:\/\/www.reuters.com\/markets\/currencies\/exclusive-least-1-billion-client-funds-missing-failed-crypto-firm-ftx-sources-2022-11-12\/\">report<\/a> on Bankman-Fried\u2019s \u201cbackdoor,\u201d which was allegedly used to funnel $10 billion to his investment fund from FTX.<\/p>\n<p>\u201cNever in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,\u201d acting CEO John Ray and former Enron bankruptcy overseer <a href=\"https:\/\/docs.google.com\/viewerng\/viewer?url=https:\/\/assets.bwbx.io\/documents\/users\/iqjWHBFdfxIU\/rgJS1JHEf2XE\/v0\">said<\/a> in a court filing on Nov. 17.<\/p>\n<p>\u201cFrom compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.\u201d<\/p>\n<h2><strong>Is Decentralization the Answer?<\/strong><\/h2>\n<p>The collusion between Bankman-Fried\u2019s investment fund and his crypto exchange has raised serious ethical concerns. Industry leaders and U.S. officials have united in <a href=\"https:\/\/www.theepochtimes.com\/fraud-romance-and-regulatory-neglect-the-ftx-scandal-deepens_4862942.html\">calls<\/a> for regulation while some crypto experts would prefer to see a shift toward decentralization.<\/p>\n<p>In an opinion <a href=\"https:\/\/www.coindesk.com\/layer2\/2022\/11\/11\/ftx-showed-the-problems-of-centralized-finance-and-proved-the-need-for-defi\/\">piece<\/a> for CoinDesk, Amanda Cassatt, founder and CEO of Serotonin,\u00a0a Web3 marketing agency, highlighted the relative stability of decentralized exchanges such as Uniswap and Balancer amid the FTX blowup. She believes that regulators don\u2019t help the average person and instead provide privileges to those with more political access.<\/p>\n<p>\u201cWhat [Bankman-Fried] wanted from regulation wasn\u2019t consumer protection, but rather to protect his incumbent position and entrench his competitive moat,\u201d Cassatt said. \u201cIf there is a silver lining for the FTX fiasco, it is a reminder of the importance of decentralization.\u201d<\/p>\n<p>Taking a more middle-ground approach, Blockworks research analyst Matt Fiebach told The Epoch Times that while he sees self-custody and decentralized finance as \u201cthe main value propositions of the crypto space,\u201d he thinks regulation has its place.<\/p>\n<p>\u201cAnybody who\u2019s custodying assets on behalf of retail funds, institutions \u2026 there should be clear transparency in what they\u2019re doing with those assets,\u201d Fiebach said.<\/p>\n<p>Some traditional investors say that decentralization isn\u2019t the main point here.<\/p>\n<p>\u201cIt\u2019s an interesting dichotomy because without \u2018centralized exchanges,\u2019 crypto growth would likely have been minuscule by comparison,\u201d Sawchuk said. \u201cThe issue is less with decentralization and more with lack of regulatory oversight.\u201d<\/p>\n<p>The wealth manager believes that stronger regulatory oversight is needed to clean up the crypto industry and that current regulators aren\u2019t doing their job.<\/p>\n<p>\u201cThe fact that this guy hasn\u2019t been arrested yet raises some very serious red flags,\u201d he said.<\/p>\n<div class=\"author_wrapper\">\n<div class=\"one_author_block round\">\n<div class=\"top_row\">\n\t\t\t\t\t<a href=\"https:\/\/www.theepochtimes.com\/author-liam-cosgrove\"><img decoding=\"async\" src=\"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-content\/uploads\/2022\/11\/LiamCosgrove_WEB.jpg\" alt=\"Liam Cosgrove\" \/><\/a><\/p>\n<p>Follow<\/p>\n<\/div>\n<p>Liam Cosgrove works as a freelance journalist covering business, markets, and finance. He received his bachelor&#8217;s degree in mathematics from the University of California, Santa Barbara.<\/p>\n<\/p><\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>In late 2017, MIT alumnus Sam Bankman-Fried left the quantitative trading firm Jane Street to start his own cryptocurrency trading firm,\u00a0Alameda Research. Founded prior to FTX, Alameda got its start<\/p>\n","protected":false},"author":1,"featured_media":1746936,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","fifu_image_url":"https:\/\/cndimages.nyc3.digitaloceanspaces.com\/breaking-news\/wp-content\/uploads\/2021\/01\/IMG_2758-scaled-1.jpg","fifu_image_alt":"","footnotes":""},"categories":[547],"tags":[],"class_list":["post-1746933","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-the-bongino-report"],"fifu_image_url":"https:\/\/cndimages.nyc3.digitaloceanspaces.com\/breaking-news\/wp-content\/uploads\/2021\/01\/IMG_2758-scaled-1.jpg","_links":{"self":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts\/1746933","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/comments?post=1746933"}],"version-history":[{"count":0,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts\/1746933\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/media\/1746936"}],"wp:attachment":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/media?parent=1746933"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/categories?post=1746933"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/tags?post=1746933"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}