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  /  cryptocurrency   /  Terra has Been the Worst Victim of the Entire FTX-Alameda Drama
Terra-has-been-the-Worst-Victim-of-the-Entire-FTX-Alameda-Drama

Terra has Been the Worst Victim of the Entire FTX-Alameda Drama

Terra is rumored to be the worst-hit victim after the FTX-Alameda drama and the FTX bankruptcy

In his first court filing, new FTX CEO and bankruptcy trustee John Ray III revealed an even greater extent of the fraud and chaos that led to the company’s demise. “I have never seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” Ray stated in the filing. This ongoing FTX-Alameda drama has ravaged the entire crypto market and Terra is among the worst-hit cryptocurrencies. 

Nansen, a well-known on-chain analysis firm, has now released its own report to investigate the disaster’s origins. Bankman Fried companies have been inextricably linked since their inception. Alameda was well-known for being one of the first, if not the first, liquidity providers on FTX. However, until recently, it was unknown how close the entanglements were. The FTT token, created by the exchange, served as the connecting link. Alameda’s wallet was already interacting with FTX before it even launched in May 2019. Nansen’s discovery that Bankman-Fried’s two companies shared much of the total FTT supply that never entered circulation is also surprising.

FTX controlled 280 million of the total 350 million FTT (80%), despite the fact that Bankman Fried’s company claimed to own only half of all tokens. The initial success and meteoric rise of FTT’s price from US$0.10 to an all-time high of US$84 in the 2021 bull market artificially inflated Alameda’s balance sheet. Alameda could then use this high balance-sheet valuation to obtain FTT-backed loans. FTT became a “key vulnerability” for Alameda when the borrowed funds were used for illiquid investments. The company experienced liquidity shortages because it was unable to sell large amounts of its FTT without causing the price to plummet. “This was a Gordian knot for Alameda’s FTT holdings, creating even more co-dependence between Alameda and FTX,” Nansen wrote in his report.

The Gordian knot became unavoidable with the collapse of Terra/UST, as many creditors began to claw back loans following the failures of 3AC and Celsius. So, what was the answer? More loans with the FTT as collateral. After the failure of Terra/UST, Alameda was left with few options for repaying the recalled loans, so it turned to FTX once more. Between early June and July, Alameda deposited approximately US$4 billion in FTT tokens on FTX, peaking during the 3AC collapse in the week of June 12, 2022. “This is consistent with the Reuters interview with several people close to Bankman-Fried, which revealed a US$4 billion loan from FTX to Alameda backed by FTT tokens, Robinhood shares, and other assets,” Nansen speculates. Last but not least, Binance CEO Changpeng Zhao was the one who brought the house of cards crashing down with his infamous tweets about selling all FTT tokens and threatening Bankman Fried’s exchange with becoming the next Terra Luna. At press time, the Bitcoin price is still trading sideways following the initial FTX shock, awaiting further market contagion effects.