​Nansen finds a connection between FTX’s bankruptcy and Terra’s collapse

What’s new? Experts at analytics firm Nansen believe that FTX’s collapse was likely triggered by the collapse of the Terra ecosystem. According to them, there was never a clear delineation between FTX and Alameda Research (a trading company within the FTX Group), and FTX’s strategy for keeping Alameda afloat began to collapse around the time Terra collapsed. Experts published their findings on November 17 in a special report.

The full version of the Nansen report

What other statements have been made? According to Nansen, the Luna/Terra collapse exposed a deep flaw in the tangled relationship between FTX and Alameda. Two weeks ago, it became clear that Alameda had at least $5 billion worth of FTX’s (FTT) tokens on its balance sheet, and that much of its assets were illiquid. Within days, the news prompted many FTT holders to cash out their tokens or withdraw deposits from FTX. After a deal to acquire FTX from Binance fell apart, FTX filed for bankruptcy.

Experts write that FTX created the FTT token with the participation of Alameda. They shared most of the total FTT token volume, which never went into circulation. Nansen’s analysis showed that FTX controlled about 80% of the FTT supply, even though the company said in documents that it would only hold half of the tokens. This became a “gordian knot” for FTX, as it could not sell a large amount of its FTT stock without collapsing the price.

The initial success of Alameda, FTX, and the rapid growth of FTT likely resulted in a higher balance sheet value for Alameda. This high book value of FTT’s positions has likely been used by Alameda as collateral for loans.

Nansen speculates that after Terra’s ecosystem collapsed, Alameda took funds from FTX. At the time Terra lost its peg to the dollar and took $40 billion out of circulation, there was an inflow of $4 billion from Alameda to FTX. These funds may have been related to the provision of collateral that was used to secure loans.

The collapse of the FTX crypto exchange and the bankruptcy of the FTX Group led to problems in the cryptocurrency market. For example, the credit division of crypto broker Genesis Global Trading suspended customer withdrawals, after which the Gemini crypto exchange suspended payments under its Earn program, the credit partner of which is Genesis Global Capital.

Earlier it became known about the possible bankruptcy of the following platforms due to the collapse of FTX: AAX exchange, Gate exchange, and crypto lending platform BlockFi.

To find out what implications await the crypto market as a result of FTX’s collapse, see GetBlock Magazine’s special feature.