Nansen Claims FTX Disaster Likely Triggered By Terra’s Downfall

Blockchain analysis firm Nansen claims that the FTX crypto exchange and its sister entity, Alameda Research had always lacked a clear delineation.

It also asserted that the collapse of the Terra ecosystem was when FTX’s efforts of propping up Alameda began to fall apart.

An analysis

On Thursday, a detailed analysis was published by the company, just a week after the intertwined companies crumbled, thereby rattling the entire crypto industry.

The Nansen team said that they had conducted an on-chain investigation, which revealed that the Terra/Luna collapse had highlighted a major flaw in the relationship of FTX and Alameda Research.

When the collapse occurred and Three Arrows Capital (3AC) filed for bankruptcy, Alameda Research sent a significant amount of FTT tokens to the FTX exchange.

Sam Bankman-Fried launched the quantitative trading company, Alameda Research, back in 2017, and wallets linked to it transacted with wallets that eventually came under FTX’s control after it was founded in 2019.

Nansen said in its blog post that even though the transactions were only worth $160,000, it shows that Alameda played a vital role in FTX’s launch.

Moreover, it also makes it apparent that Alameda and FTX had been intertwined since the beginning and had not been separate entities, as Sam Bankman-Fried had claimed.

The downfall

The companies’ downfall ultimately came about due to questions about the relationship between the two and the money flowing from one to the other.

Two weeks ago, it had become apparent that about $5 billion of the assets listed on the balance sheet of Alameda Research were FTT tokens, which is the native token of the FTX exchange.

Moreover, it also disclosed that the majority of Alameda’s assets were illiquid. The news drove many FTT holders to sell their holdings and others pulled out their funds from the FTX exchange.

Eventually, FTX declared itself bankrupt, after Binance backed out of a deal of acquiring the exchange.

The FTT

The team at Nansen also discovered that 80% of the supply of the FTT token had been under the control of FTX itself, even though its documents said that it would only have 50% of the total supply of 350 million.

However, analysts said that this put Alameda Research into a difficult situation because it could not sell off large quantities of the tokens, as this would result in a price crash.

Since it could not do so, Alameda decided to take out loans from Genesis against its FTT holdings last year in September.

Genesis has confirmed that its exposure to FTX is significant, but it has not said anything about lending to Alameda.

On Wednesday, Genesis announced that client withdrawals would be suspended due to the turmoil in the market.

According to Nansen’s analysts, Alameda did not have a lot of options for paying its loans after the Terra ecosystem collapsed, so it borrowed funds from FTX.

On-chain data reveals that when Terra collapsed, Alameda had transferred about $4 billion worth of FTT tokens to FTX. This could have been collateral for the loans.