Alameda Research's $38 Billion USDT Redemption Raises Eyebrows

Blockchain data, recently highlighted by Coinbase director Conor Grogan, has stirred intrigue in the crypto world.

by Faruk Imamovic
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Alameda Research's $38 Billion USDT Redemption Raises Eyebrows
© Getty Images News/Michael M. Santiago

Blockchain data, recently highlighted by Coinbase director Conor Grogan, has stirred intrigue in the crypto world. The data indicates that Alameda Research, a major cryptocurrency trading firm, redeemed an astonishing $38 billion for Tether USDT tokens in 2021.

However, what's drawing attention is the mismatch: Alameda reportedly didn't have an equivalent amount in assets under management.

Tethering Between Profit and Stability

In the midst of the cryptocurrency market's bull run in 2021, there were reports of a value discrepancy.

Grogan pointed out that the total value of USDT creation at the time surpassed Alameda’s reported assets. So, what exactly was happening? Former Alameda co-CEO Sam Trabucco shed some light on the matter in January 2021.

Trabucco emphasized the significance of specific market pairs in understanding USDT's trading position, stating, “these are the best markets to use to determine where USDT is trading — the combo of BTC/USDT and BTC/USD markets, e.g., are WAY more liquid than any exchange’s USDT/USD market." While many in the market deal with USDT by acquiring it from exchanges, firms like Alameda have the unique capability to directly create and redeem USDT.

This advantage provides them with significant arbitrage opportunities. Speaking to this, Trabucco mentioned, "And when USDT gets above $1? A sophisticated firm like Alameda... is gonna want to sell! And we do — a LOT”.

Trabucco's revelation points to a strategic gameplay. With their ability to directly interact with USDT creations and redemptions, Alameda could "safely put on big bets", leading to what Trabucco described as a “win-win” situation.

“Obviously we’re making money...but we’re also bringing the price in line so that when aggro buyers come in, it sticks close to $1”.

USDT Arbitrage: A Lucrative Game

It wasn't just Trabucco speaking about this.

Sam Bankman-Fried, another voice from Alameda, confirmed in 2021 that the firm actively redeemed USDT for U.S. dollars. In essence, Alameda's deep involvement in the arbitrage process allowed them to capitalize on the premium between USDT's market value and its dollar peg, leading to substantial profits.

It's undeniable that as the crypto world continues to grow, the strategies and mechanisms within become even more intricate. The tale of Alameda's USDT redemptions offers a compelling glimpse into the myriad ways institutions are navigating and profiting in this complex landscape.

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