In November, one of the largest and most popular crypto exchanges, FTX, imploded, deepening the 2022 crypto winter. The corporation filed for bankruptcy after bailing out multiple crypto enterprises after the Terra-induced crisis in May 2022.
While FTX’s founder, Sam Bankman-Fried (SBF), and other executives are currently facing various fraud cases, new claims have emerged saying that the FTX-linked crypto trading firm, Alameda Research, was a walking red sign from the start.
SBF, on the other hand, gathered capital from multiple lenders and investors to save the faltering company, promising yearly profits of up to 20%. In April 2019, the former executive founded FTX, a crypto exchange billed as a safe haven for institutional investors looking to gain exposure to cryptocurrencies. Bankman-Fried then leveraged Alameda to fuel the exchange’s expansion by becoming the major market maker for FTX.
Despite claims that FTX and Alameda operated independently, recent litigation proved that the two companies collaborated from the start.
People familiar with the firm’s strategy said Alameda periodically took the losing side of a trade to entice clients to FTX. According to recent lawsuits, Bankman-Fried also instructed his co-founder to write programming that would allow Alameda to keep a negative balance on FTX regardless of how much collateral it posted with the exchange.
SBF also guaranteed that Alameda’s FTX collateral would not be automatically auctioned if its value fell below a particular threshold. As a result of this arrangement, Alameda received a line of credit from FTX, allowing the trading firm to borrow tens of billions of dollars from its customers to pursue its poor bets.