The Fall of FTX: A Deep Dive into Dubious Token Transfers

Blockchain technology has revolutionized the financial industry in numerous ways, but with this disruptive power comes the potential for misuse.

by Faruk Imamovic
SHARE
The Fall of FTX: A Deep Dive into Dubious Token Transfers
© Getty Images News/Michael M. Santiago

Blockchain technology has revolutionized the financial industry in numerous ways, but with this disruptive power comes the potential for misuse. The recent collapse of FTX, a once-thriving cryptocurrency exchange, has sent shockwaves through the industry.

New evidence suggests that questionable interactions between FTX and Alameda Research, a major liquidity provider and trading firm, may have played a significant role in this downfall.

Suspect Transactions Prior to the Collapse

Blockchain data analysts from Nansen, a renowned firm specializing in tracking and deciphering blockchain activities, have unearthed a series of concerning transactions leading up to FTX's dramatic implosion.

This includes a massive transfer of $4.1 billion worth of FTT tokens between FTX and Alameda Research in the weeks prior to the crash. The genesis of the FTX collapse, according to widespread reports, centered on revelations concerning Alameda’s staggering $14.6 billion asset pool.

Notably, a significant 40% of these assets were held in FTT tokens as of September 2022. Further investigation by Nansen unveiled dubious on-chain activities between FTX and Alameda even before this alarming detail was made public.

From September 28 to November 1, the data reveals that Alameda sent an astonishing $4.1 billion in FTT tokens to FTX, in addition to consistent transfers of United States dollar-pegged stablecoins totaling $388 million. Such vast movements didn't go unnoticed, especially when on-chain evidence indicated that FTX was in possession of around 280 million FTT tokens, representing a whopping 80% of the token's total supply.

Manipulating the Market?

With this information in hand, a pressing question arises: Was this an attempt to artificially stabilize or inflate their balance sheets? Nansen’s analysis suggests this may be the case. With FTX and Alameda combined controlling approximately 90% of the total FTT supply, it's feasible that these entities might have tried to support each other financially.

Further insights from the report hint at Alameda potentially liquidating FTT tokens over-the-counter and even using them as collateral for loans from other cryptocurrency lenders. "This theory is backed by historical on-chain data where we observed regular large inflows and outflows between FTX, Alameda and Genesis Trading wallets with transfer volumes up to $1.7 billion as seen in December 2021," notes the report.

Moreover, the unraveling of the Terra ecosystem and the subsequent bankruptcy of Three Arrows Capital (3AC) seems to have aggravated Alameda’s liquidity problems. This is evidenced by the drastic drop in the value of FTT, which may have compelled Alameda to secure a covert $4 billion FTT-backed loan from FTX.

Ftx
SHARE