Clemente suggests Alameda Research’s collapse might be linked to the Terra incident in May 2022, based on their FTX balance history. He speculates it could be due to high leverage or risky transactions for FTX.
A crypto expert named Will Clemente believes that Alameda Research, which is connected to the cryptocurrency exchange FTX, faced serious financial trouble starting in May 2022. This was when the Terra Luna ecosystem had big problems.
Clemente reached this conclusion by looking at the financial history of Alameda Research on FTX. He’s known for analyzing cryptocurrencies and runs a company called Reflexivity Research that investigates digital assets. According to him, the issues Alameda Research faced may have started when the Terra Luna ecosystem had its troubles back in May 2022.
LUNA (LUNC) Dealt Fatal Blow to Alameda
Before the Omnibus Hearing on September 13, Will Clemente reviewed a government exhibit that showed Alameda’s financial history on FTX. He noticed that Alameda’s balance went up to $12 billion in less than two months, but he believes the real problem for Alameda was LUNA.
When the Terra ecosystem had problems, it caused the prices of Bitcoin and other cryptocurrencies like Ethereum to drop, which marked the beginning of a tough period for investors. This happened after the Terra stablecoin and its support coin, LUNA, became unstable. The crises involving LUNA and FTX were some of the most challenging situations the cryptocurrency industry has faced this year.
A report from Nansen, a company that studies blockchain, suggests that the collapse of the FTX exchange and its related company Alameda Research was linked to the fall of the Terra/LUNA stablecoin. According to the report, FTX might have been in trouble right from the moment the Terra/LUNA stablecoin system, which had two tokens, failed to keep a steady value.
It’s important to note that during this collapse, around $48 billion in value was lost, leading to many companies going bankrupt because they had taken on too much risk.
While some reports blamed FTX and Alameda for making bad decisions, the Nansen report has a different view. It believes the collapse happened because of “malfeasance,” which means dishonest or illegal behavior, rather than just poor management.
How the FTX and Alameda Collapse Affected Others
When it became known that there were around $5 billion worth of FTT tokens, which made up most of Alameda’s assets, people who held these tokens started selling them quickly. This caused a big rush to take the tokens out of the FTX exchange.
The situation got worse when the CEO of Binance, Changpeng Zhao (known as CZ), hinted that Binance, the largest exchange by trading volume, might sell its $584 million worth of FTT tokens. This caused even more panic.
FTT tokens had very few available for buying and selling, so even small sales could make the price drop a lot. What made things worse was that FTX had control over 80% of the FTT tokens, which was more than usual.
Both Alameda and FTX had a lot of FTT tokens, and they were closely connected. When one started selling, it affected the other’s financial situation.
After the Terra/LUNA crash, FTX secretly lent billions of dollars from its customers to Alameda. This was described as “commingling.” The report from Nansen supports the idea that there were huge losses, making it a possible explanation for the Terra crisis. This is because FTT tokens were used as collateral, but they couldn’t be easily sold, causing FTX to stop people from taking out their money.
Important: Please note that this article is only meant to provide information and should not be taken as legal, tax, investment, financial, or any other type of advice.
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