Lucas Nuzzi Profile picture
Nov 22 16 tweets 7 min read
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

Nov 13
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
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
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
Aug 11
Yes, the "Mock" Merge last night was eventually a success... but we did see some hiccups that might impact users when the real Merge takes place.

We've been working on it for nearly a year at @coinmetrics and thought I'd share some notes 👇
Nearly all clients (nodes) struggled to determine what was the final block of the PoW chain last night.

That's because of the high rate of reorgs (changes in block ordering) witnessed in Goerli/Prater.
Multiple validators had to restart their nodes which led to a decrease in the number of peers/validators online.

Our primary node pair at @coinmetrics (Lighthouse + Geth) strangely saw the transition to PoS twice at slots 3639527 and 3639557 (roughly 5 minutes apart).
Read 6 tweets
Jun 15
22Q2 is the first time in the history of stablecoins where Total Supply decreased.

Even if we exclude UST, over 10B has been redeemed *directly from the treasuries* of major issuers

Some @coinmetrics data 👇 Image
Tether has seen the most redemptions out of all centralized issuers, with a decrease of ~7B in total supply (on ERC, OMNI and TRX).

The sharpness of that decrease suggests that a single entity, or small cohort, was behind it. Image
Nearly 40% of MakerDAO's DAI was retired as a result of liquidations, the largest liquidation event of its history. Image
Read 4 tweets
Jun 14
Celsius calls itself a "network" or a "lender"

But in reality, they operate more like a highly-leveraged hedge fund.

Their business model consists of deploying user deposits across DeFi protocols with the goal of maximizing yield.

1\ A thread on what went wrong 🧵
2\ Fundamentally, when the ultimate goal of your product is to maximize yield, you need to have a solid risk framework.

You need to be able to determine when a risk is not worth the marginal yield, especially when user funds are at stake.

Pretty reasonable, right?
3\ Except that Celsius does not seem to have such a framework, at least not publically available.

What we've seen instead over the past year is an increased appetite for risk and willingness to deploy millions in highly experimental DeFi protocols.
Read 14 tweets

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