FTX’s failure to keep its sister company Alameda Research solvent and the subsequent collapse of both companies is likely the result of the liquidity crunch brought on by the Terra-LUNA collapse in May, according to blockchain analytics company Nansen.

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Fast facts

  • “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,” according to Nansen’s report.
  • The analysis showed Alameda may have faced severe liquidity issues in May and June, as a significant portion of its balance sheet had consisted of illiquid assets and FTT tokens.
  • The analytics firm said the large reserves of FTT on Alameda’s books were “likely used as collateral by Alameda to borrow against,” yet if “the borrowed funds were used to make illiquid investments, FTT would become a central weakness for Alameda.”
  • Nansen’s report also confirmed that some US$4 billion of FTT was sent from Alameda to FTX during mid-June, coinciding with the collapse of crypto hedge fund Three Arrows Capital (3AC), suggesting that FTX provided a US$4 billion loan backed by FTT to Alameda.
  • Nansen’s on-chain data did not directly verify whether user funds were siphoned from FTX to Alameda to save it from liquidation, but “the unusually large FTT inflows from FTX post-Luna/3AC hint at a plausible case.”
  • The analysis concluded that “the eventual collapse of Alameda (and the resulting impact on FTX) was perhaps inevitable,” due to how intertwined the two entities were and the “over-leverage of collateral.” 

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