Newly released court documents reveal a “$65 billion back door” that FTX had set up for Alameda, the now-defunct crypto exchange’s trading arm.
A case docket with a deck detailing FTX’s assets and liabilities shows that Alameda Research had the ability to borrow up to $65 billion from FTX without posting collateral, while FTX customers were subject to strict rules of collateral.
The deck also features code in the FTX platform that allegedly allowed for a back door for assets to be transferred from the exchange to Alameda under the radar. This meant that “certain individuals” could withdraw assets without leaving a record on the exchange ledger.
Alameda was also exempt from being liquidated when trades when against it, according to the documents.
At time of writing, it’s not clear who the “certain individuals” mentioned in the filing refer to.
The document suggests that all-in-all, FTX has about $5.5 billion in liquid assets that could be used to repay creditors, including $1.7 billion in cash, $3.5 billion in liquid crypto assets including FTT, and $300 million in various securities.
Among the various strategies for recovering the debt, “exploring potential reorganization opportunities for FTX exchanges” is listed.
Sam Bankman-Fried, former CEO of FTX, recently published a “pre-mortem” Substack post in which he partially blamed Binance chief executive Changpeng Zhao (CZ) for FTX’s demise.
“Three things combined together to cause the implosion:
a) Over the course of 2021, Alameda’s balance sheet grew to roughly $100 billion of Net Asset Value, $8 billion of net borrowing (leverage), and $7 billion of liquidity on hand.
b) Alameda failed to sufficiently hedge its market exposure. Over the course of 2022, a series of large broad market crashes came–in stocks and in crypto–leading to a ~80% decrease in the market value of its assets.
c) In November 2022, an extreme, quick, targeted crash precipitated by the CEO of Binance made Alameda insolvent.”
Investigation into the collapse of FTX and its associated entities is ongoing, and the amount that creditors will recover is yet to be determined.
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Source: https://dailyhodl.com/2023/01/18/court-docs-reveal-ftx-allowed-alameda-to-borrow-65000000000-for-trading-made-firm-exempt-from-liquidation/