FTX Catastrophe Likely Triggered By Terra Collapse: Nansen

Blockchain analytics firm Nansen says that there was never a clear delineation between FTX and Alameda Research, and that FTX’s strategy for keeping Alameda afloat started to come apart around the time TerraUSD collapsed.

Nansen published a lengthy analysis of on-chain data on Thursday, just over a week after the intertwined entities collapsed, with the failure still reverberating broadly across the crypto sphere. 

“Piecing together the pieces from our on-chain investigation, it was evident that the Luna/Terra collapse revealed a deep flaw between Alameda and FTX’s muddled relationship,” the Nansen team wrote. “There were significant FTT outflows from Alameda to FTX around the Terra-Luna/ 3AC situation.”

Wallets belonging to Alameda Research, the quantitative trading desk co-founded by Sam Bankman-Fried in 2017, were interacting with what would later become FTX-controlled wallets before FTX began operating in May 2019. 

“Although relatively low in volume (~$160k), this strongly suggests that either Alameda was heavily involved in FTX’s inception or there was no clear separation between Alameda and FTX then,” the team wrote in its blog post, “and perhaps, even both.”

Questions about how much money was flowing between the two companies ultimately led to their downfall. 

It became clear two weeks ago that at least $5 billion worth of the assets on Alameda’s balance sheet were FTX Tokens, or FTT, and that a large portion of its assets were illiquid. Within days, the news triggered many FTT holders to cash out their tokens and others to pull their deposits off FTX’s exchange. After a deal for FTX to be acquired by Binance fell through, FTX filed for bankruptcy.

The Nansen analysis also found that FTX controlled roughly 80% of the FTT supply, despite company documents saying that it would hold only half of the 350 million supply. But that left Alameda in what the analysts describe as a “gordian knot,” as the firm couldn’t sell large quantities of its FTT stash without tanking the price. 

Instead, on-chain data suggests that Alameda was taking out loans against its FTT from Genesis in September 2021. 

Genesis has since confirmed that it has “significant exposure” to FTX, but has not commented on any of the theories about it being a major lender to Alameda. On Wednesday, the company suspended client withdrawals, citing “unprecedented market turmoil.”

The Nansen analysts hypothesize that Alameda would have had few options to repay the recalled loans after the Terra collapse and borrowed from FTX instead. On-chain data shows that around the time Terra lost its peg and wiped out $40 billion, there was a $4 billion inflow of FTT from Alameda to FTX. 

“Based on the data, the total $4b FTT outflows from Alameda to FTX in June and July could possibly have been the provision of collateral that was used to secure the loans (worth at least $4b) in May / June that was revealed by several people close to Bankman-Fried in a Reuters interview,” Nansen wrote in its report.