Lucas Nuzzi Profile picture
Nov 22, 2022 16 tweets 7 min read Read on X
1/ Over the past few weeks, my team at @coinmetrics has been obsessed with answering one question:

How did Alameda manage to lose billions of dollars of FTX user funds?

I think we've found some answers 👇🧵 Image
2/ First, let's get something straight:

The line between Alameda and FTX was immensely blurred from the very beginning.

Our analysis showed thousands of large transactions from FTX to Alameda, so user funds were likely siphoned over the course of many months.
3/ The chart below shows the amount of ETH sent by Alameda in USD terms and the various applications they used.

It's truly astonishing: Alameda was involved in everything from DeFi borrowing and lending to cross-chain bridges across many different ecosystems. Image
4/ Their approach was similar w.r.t ERC 20 tokens, which were also frequently sent cross-chain via bridges

They sent a total of $9.5 billion to bridges alone(!!!). We're still investigating the extent to which they might have lost user funds as a result of bridge hacks. Image
5/ As you can see, the majority of the outflows happened in Q4 2021. Things noticeably cool down after that.

To us, this is a sign that they took a huge hit as markets contracted in Q4.

As mindblowing as this might be: it's possible by the time Terra happened, they were broke.
6/ So to recap where they might have lost considerable amounts of user funds by early 2022:

📉Directionally wrong trades, likely leveraged
📉DeFi lending markets, esp. stablecoin-denominated
📉Cross-chain bridges, either hacked or their native tokens becoming worthless
7/ At that point, the right thing to do would've been to come clean and return what was left of user funds.

However, as we now know, SBF is both narcissistic and delusional so instead they focused on 2 things:

1. Keeping the lights on and morale high
2. Pumping their FTT bag
8/ FTT became central to both Alameda and FTX's survival.

As long as FTT performed adequately, they could use it as collateral for loans and sell it in the open market.

So when the CoinDesk article revealed that FTT was FTX's largest position, they faced an existential threat.
9/ It's clear looking at FTT markets on Binance that a large investor was allocating a considerable amount of USDT into protecting key price levels. First at $23.5, then at $10.

Our hypothesis is that Alameda was propping up that market, potentially with FTX user funds. Image
10/ This evidence adds a whole new dimension to the question of "where did user funds go?"

It's possible that funds were also used to prop up FTT's price starting in early 2022 when it outperformed several other similar tokens.
11/ For better or worse, the FTX bubble was popped on Binance's FTT-USDT market, potentially by Binance.

Binance was where price discovery was happening as FTT collapsed. This sharp increase in sell order volume on Nov 7 had something to do with it. Image
12/ Binance is a key player in this because, as I speculated previously, they might have seen this coming via similar on-chain analysis or by sensing Alameda's desperation.

Regardless, they positioned themselves favorably and walked out with FTX's entire share of futures volume: Image
13/ One thing I've realized is that the FTX/Alameda story is also a story about arrogance. Up until the very end they thought they could trade their way out of this mess.

On Nov 10 we caught them borrowing 1,000,000 USDT on Aave at a 52.9% interest rate:…
14/ Make sure to check out the full report and subscribe to State of the Network, our free newsletter:
15/ Also, huge shoutout to the @coinmetrics team that contributed to this analysis @onchain_brewer, @ctbrazell, @matiasandroid_, @kylewaters_, @natemaddrey, @luyongxu, @Mudabir

Show them some love and give them a follow if you appreciated this thread.
Make sure to also check out @onchain_brewer's excellent deep dive into the data 👇

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More from @LucasNuzzi

Apr 4
1\ Today we uncover a mystery deeply embedded in smart contracts: patterns that enable us to predict the nature of a smart contract with the help of AI.

Our paper, "Reputation Oracles" was published today demonstrating how you can use this to identify scammers with 94% accuracy.Image
2\ We see reputation assessment as one of the most promising areas at the intersection of crypto and AI.


Users have little to lose if the model hallucinates, but a lot to gain if it prevents them from interacting with a contract trying to steal their funds.
3\ To get a baseline for positive reputation, we sourced smart contract deployer addresses from @PortexAI ().

Portex maps applications that implement primitives deemed valuable and spearheaded by reputable
Read 10 tweets
Feb 15
How much does it cost to 51% attack Bitcoin and Ethereum?

To find out, we simulated what an attack would look like.

Our paper, Breaking BFT, was published today with some interesting results ⬇️…Image
1/ The mere possibility of these types of attacks has caused significant anxiety.

You often hear questions like:

Will Bitcoin remain resilient against 51% attacks after the 21M cap is reached??

Can Lido takeover Ethereum if it controls 34% of validators??
2/ These are the boogieman of blockchain security but their costs and expected utility remain a mystery.

To better understand these risks, we simulated these attacks using a new model called Total Cost to Attack (TCA).

TCA is the sum of expenses an attacker would incur.Image
Read 12 tweets
Mar 9, 2023
1/ The size of the Bitcoin blockchain is growing at an unprecedented rate.

But how concerning is this trend, really? Will it prevent regular folks from running nodes?

A thread on Ordinals and post-Taproot Bitcoin 👇 Image
2/ Taproot has completely (and inadvertently) changed how data gets stored on the Bitcoin blockchain.

While there is no doubt this increase in state growth has been driven by Ordinals, this is really just the tip of the iceberg.

The block space floodgates have been opened.
3/ But why now?

You see, there used to be a size limit to how data (or scripts) were encoded into Bitcoin transactions.

That limit was removed with Taproot most likely to pave the way for bigger proof sizes like ZKPs (@EricWall's wet dream) to be added to Bitcoin. Image
Read 11 tweets
Nov 13, 2022
1/ FTX might have minted Serum (SRM) off thin air to prop up its balance sheet:

Serum's total supply increased by 60% this year via 2 huge mints. These were not previously disclosed based on anything I could find.

1st mint: Feb 19, 50M SRM
2nd mint: May 25, 50M SRM
2/ Earlier today, it was reported that FTX valued its SRM position at $2.2bn USD: the largest position on its balance sheet.

Serum's market cap is less than $88mn, so they likely valued their holdings using a much higher price for SRM, which is probably illegal.
3/ A key question is how did FTX get this many SRMs?

These 2 mints might be how. 60% of new tokens to prop its balance sheet when FTX needed it the most.

Feb 19: Crypto crashes 50% from ATH…

May 25: Crypto funds blew up (Alameda)…
Read 7 tweets
Nov 10, 2022
Here's how you know FTX is done. Let's read between the lines.

Why would they have to "swap" these tokens instead of withdrawing them? Simple: FTX is no longer in possession of them.

This is not a "credit facility". It's not an "injection" of liquidity. Allow me to explain 👇
The loan that FTX made to save Alameda was likely in crypto.

They lent out their customer's crypto and that's why they weren't able to meet all of their withdraws, a large chunk of their balance sheet went to Alameda.

Today, 2 FTX whistleblowers confirmed it on Reuters: Image
Alameda either used that crypto to repay its short-term liabilities OR used it as collateral for another loan.

Therefore, SOMEONE ELSE is in possession of these TRX, BTT, JST.. and other tokens.

If those were used as collateral for another loan, that someone else is screwed.
Read 6 tweets
Nov 8, 2022
1/ I found evidence that FTX might have provided a massive bailout for Alameda in Q2 which now came back to haunt them.

40 days ago, 173 million FTT tokens worth over 4B USD became active on-chain.

A rabbit hole appeared 🧵👇 Image
2/ That day, September 28, over 8.6 Billion USD worth of FTT was moved on-chain.

That was by far the largest daily move of FTT in the token's existence and one of the largest ERC20 daily moves we ever recorded at Coin Metrics. Image
3/ I went through all transfers that happened that day using CM ATLAS and ranked them.

I found a peculiar transaction that interacted with a contract from the FTT ICO.

This 2019 contract *automatically* released 173 Million FTT from the token's ICO.… Image
Read 16 tweets

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