FTX and Alameda Research

Crazy story this one. Firstly what is FTX and Alameda Research? And how do these tie into each other?

FTX: #

Before there demise this crypto exchange was the second largest by volume traded everyday and best in its class for derivative products for traders. Their slogan was “FTX” “For The Traders”. Gaining traction in the industy as the best and gaining rights to the miami heats stadium plus SBF the CEO regularly visiting DC in the US meeting with the SEC regarding regulatory policies. The colapace of this company came to surprise everyone in the industy, but looking back there were warning signs everyone passed off as the founder being intrinsic.

Alameda Research: #

Was a quant prop crypto trading firm specialising in arbatriage trading. And were on the the first crypto trading firms to take advantage of the different in bitcoin price from country to country.

How do these 2 companies connect? #

So unlike TradFI, CEX’s in crypto need to have the actual crypto on hand as there is a limited supply of each coin unlike fiat currency. They were running the CEX like a fractunial reserve where you do not need to have all cash on hand at all times. But unlike TradFI, in crypto you cannot just print more BTC, ETH etc. So what happened was Alameda was taking funds from the FTX crypto exchange to use for trading allowing them to generate greater returns. But what happens when they start losing on trades and are unable to pay back the orginial money they took? Well nothing yet as everyone trusts that FTX would never do this. But one people started to find out and rumours of insolvantcy started to spread we begain to see a classic bank run start. FTX saw a rise in withdrawls, the most they had ever seen in one day, 5 billion. But that was it, after that they had no more funds to send out to clients. Now if this occured with a major bank like JP Morgan the Central Bank aka the FED would step in and just print some more cash to bail the bank out - like we saw in 2009 with multiple banks. This did not occur as how can you print more cryptocurrency? The whole point of cryptocurrency is that there is a finite reserve of it which drives price action and scarity of the asset.