The crash of FTX threw the market into disarray after it stopped withdrawals and filed for bankruptcy. Apart from FTX, other firms also filed for bankruptcy due to loss of funds in the stock exchange.
During the filing, the crypto market learned that the firm did not have a proper structure to manage its operations. That is why many top shots have declared the fall due to the management of the exchange. In addition, SBF has exploited the customers’ assets without their knowledge, which indicates poor management.
But the issue gets interesting as SBF continues to try to protect Alameda Research from the problems with FTX. Alameda even moved earlier before the stock market’s bankruptcy to withdraw a sum of $204 million from FTX, protecting itself from the crash.
Sam Bankman-Fried had previously denied that the two firms operate together. But the latest reports revealed that both Alameda and FTX are in sync with each other.
Alameda aid to FTX in 2021 revealed
As SBF refuses to cooperate with Alameda Research, those interested in the case reveal their cooperation. The investigations have revealed that Alameda once covered a $1 billion loss for SBF-led crypto exchange in 2021.
The details of the bailout are that FTX was facing losses due to a client’s leveraged trade going south. Unfortunately, FTX buffers that would have protected it from the losses failed. The obscure token was MobileCoin, which recorded an incredible price increase but could not sustain it.
The MobileCoin price skyrocketed from $6 to $70 in April 2021. Then, after a short time, the crypto crashed, causing a massive loss to a trader who borrowed heavily against it. As a result, the FTX exchange faced millions in losses, leading to Alameda’s bailout.
SBF’s crypto exchange allowed the trader to leverage MobileCoin as it is a standard practice among crypto exchanges. Typically, users of exchanges that offer leverage will use their assets as collateral for the leveraged positions.
If the value of the asset falls, the exchange will liquidate the positions themselves to get their money back. But MobileCoin’s fall was too low to enable FTX to cover its costs.
FTX turned to Alameda as a last resort
The crash of MobileCoin led to hundreds of millions of dollars in losses for SBF’s crypto exchange. But Alameda swooped in to save the firm. The action shows that the sister company of FTX was the last resort in a time of lack of funds.
Many disagree with SBF’s claims that Alameda and FTX operate independently. Since the firm wants to save the other in crisis, it is clear that the former CEO’s claims of not knowing how Alameda works are lies.
SBF stated in an interview in November that Alameda Research had a leveraged position worth billions of dollars with FTT before the bankruptcy. But unfortunately the exchange could not liquidate it due to the speed with which FTT crashed.
Featured image from Pixabay, chart from TradingView.com