Before FTX collapsed, Alameda Research It was considered one of the top quant trading firms and market makers within the industry. However, much of that perception may have been a sham, as a recent report detailed that Alameda was struggling financially in 2018. People familiar with the matter said Alameda lost money at the time and suffered huge losses from the half-failed xrp deal. -In 2018, the Company’s assets were reduced by more than two-thirds.
Alameda Research’s facade as a top quant cryptocurrency trading firm collapses, revealing early financial struggles
Sam Bankman-Fried’s (SBF)’s Alameda Research reportedly lost a lot of money early on. According to a report published by The Wall Street Journal (WSJ) in 2018. Alameda Research is a quantitative trading firm that he officially launched with Tara Mac Aulay in September 2017. Prior to launching Alameda, SBF worked for Jane Street, trading international Exchange Traded Funds (ETFs) before beginning his position as Development Director at the Center for Effective Altruism.
Report details that when SBF launched his Alameda, the trading firm was making millions of dollars from arbitrage. As an arbitrageur, SBF argued that opportunities originated from countries such as Japan and South Korea, as Bitcoin (BTC) trades at a premium in these regions. SBF said BTC is 30% higher than he is in South Korea, and 10% higher in Japan, due to the so-called “kimchi premium”. While there have been numerous reports highlighting that Alameda is making millions of dollars in cryptocurrency arbitrage, a recent Wall Street Journal report published on December 31, 2022 found that Alameda’s trades were consistently profitable. It is detailed that it was not raised.
SBF resigned as chief executive from Alameda, but he remained in control of the company until the end, according to reports. WSJ reporter Vicki Ge Huang said Alameda “played big bets and won and lost.” Additionally, the WSJ report found that SBF continually borrowed money to power such bets, promising double-digit returns if investors helped him out. Austin Campbell, former co-head of digital asset rates trading at Citigroup, said the firm had considered partnering with market makers like Alameda, but Campbell became skeptical of SBF’s firm.
“What I quickly realized was causing my heartburn was the complete lack of a risk management framework that could be articulated in a meaningful way.” ’” Campbell elaborated.
SBF’s lender solicitations raised questions about the company’s financial stability
The arbitrage opportunity quickly stopped, according to people familiar with the matter and the Alameda deal However, Alameda’s trading algorithm is said to have made many bad bets. In the spring of 2018, Alameda took a big hit betting on his xrp (XRP), losing more than his two-thirds of Alameda’s assets. As such, SBF has started seeking loans again with pitches promising a 20% return on him, according to a person familiar with the matter. According to documents seen by the WSJ, SBF’s lawyers explained how Alameda was a top market maker for him in certain pitches to lenders, but the lawyers declined to disclose financial information.
Others familiar with the matter said SBF searched for lenders at the Binance Blockchain Week event in Singapore in January 2019. Alameda said he sponsored the event with $150,000, but the conference was used by his SBF to solicit lenders and pamphlets were distributed to potential investors. According to the brochure, Alameda had $55 million in assets under management (AUM), but it remains to be seen if that data was factual. By February 2019, SBF decided to move Alameda from California to Hong Kong. A former associate said Alameda made around $1 billion in profits during the 2021 cryptocurrency bull market, but once the bull market ended, SBF’s bets started to sour.
According to reports, former Alameda CEO Caroline Ellison had a significant negative balance on FTX in May 2022, months before the FTX impact. . Complaints from Manhattan indictments, U.S. Securities and Exchange Commission (SEC) claims, and lawsuits filed by the Commodity Futures Trading Commission (CFTC) allege that Alameda’s losses were so high that SBF decided to sell his FTX. It indicates that you were forced to borrow money from your customers. Strengthen the company after losses. The WSJ also notes that the SBF considered closing Alameda months before the two companies collapsed, but that idea never materialized.
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