​CoinMetrics analyst finds the likely reason for the collapse of FTX

What’s new? CoinMetrics head of research and development Lucas Nuzzi has reported that Alameda Research may have received a bailout from FTX in Q2 2022 that saved it from collapse, but ended up making the trading platform insolvent. The analyst warns that he drew his conclusions based on a study of on-chain data that may have been misinterpreted.

1/ I found evidence that FTX might have provided a massive bailout for Alameda in Q2 which now came back to haunt them.40 days ago, 173 million FTT tokens worth over 4B USD became active on-chain. A rabbit hole appeared 🧵👇 pic.twitter.com/DtCyPspME0 — Lucas Nuzzi (@LucasNuzzi) November 8, 2022

What information did the analyst provide? Nuzzi believes that he has found evidence of FTX providing assistance to Alameda (both owned by Sam Bankman-Fried). Blockchain data shows that on September 28, 173 million of FTX’s (FTT) native tokens of $4,19 billion were moved to Alameda Research. On the same day, Bankman-Fried reported rotating funds in several FTX wallets, which would have no effect on the company’s operations.

Nuzzi states that the FTT was derived by Alameda Research directly from the original smart contract of the token initial public offering (ICO). That 2019 contract automatically issued 173 million coins, then the entire amount was sent to the FTT developer’s address, which is likely controlled by someone at FTX, Nuzzi writes.

According to the analyst, Alameda Research could have crashed if it had not received funding from FTX. Otherwise, the company could repeat the fate of hedge fund Three Arrows Capital, crypto lending platform Celsius and crypto broker Voyager Digital. FTX bought the latter’s assets in September for $1,42 billion. Alameda Research’s bailout ended up taking a toll on FTX’s own balance sheet, causing it to become insolvent.

According to media reports, Alameda had $14,6 billion in assets as of June 30, with FTT tokens representing the largest share.

Nuzzi believes that Changpeng Zhao, the CEO of the Binance exchange, may have learned about this transaction, and took advantage of it by announcing the start of the liquidation of its positions in FTT. This, in turn, led to a liquidity crunch at FTX. Zhao then entered into a strategic deal with FTX which involved a full acquisition to address the liquidity crunch and withdrawal of user funds from the exchange. Following the announcement of the buyout, FTT plummeted by 76,3% and as of November 9, 10:30 UTC it is trading at $4,2626, according to Binance.