The Interconnected Web of FTX, Alameda Research, and the FTT Token: Unveiling the Motives and Consequences

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The Interconnected Web of FTX, Alameda Research, and the FTT Token: Unveiling the Motives and Consequences

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During the trial against Sam Bankman-Fried, the founder of FTX, former Alameda Research CEO Caroline Ellison shed light on the deep connection between FTX and its sister trading firm. Ellison disclosed that Alameda Research, under Bankman-Fried's direction, played a crucial role in supporting FTT, FTX's native cryptocurrency. This support was aimed at raising funds and strengthening FTX's equity cushion. Alameda also held significant holdings in Serum, MAPS, OXY, and Solana.

While FTT was marketed as a token offering trading fee discounts and rewards to FTX customers, Ellison revealed that Bankman-Fried had alternative motives. Alameda had struggled to obtain loans before the creation of FTT in 2019. The trial has confirmed that Alameda had a substantial credit line with FTX. However, in 2018, the exchange's customer funds were insufficient to support Alameda's business. Thus, Bankman-Fried developed FTT to raise funds and enable Alameda to attain loans more easily.

Before its public release, FTT was sold to investors in an initial funding round. Alameda Research, along with FTX executives and Bankman-Fried himself, received a share of the tokens. However, the majority of the initial distribution, around 60% to 70%, went to Alameda Research. Once FTT became available on public markets, its price quickly surged to $1, thanks to an influx of investment guided by Bankman-Fried.

In 2021, when Binance, an early investor in FTX, began selling some of its FTT holdings, Ellison was instructed by Bankman-Fried to start purchasing the tokens when the price decreased. This instruction was meant to be kept confidential between Ellison, Bankman-Fried, and a few others. Ellison expressed her concern about SBF's past reactions and apologized for being evasive when discussing FTT purchases with a trader. Ultimately, Alameda maintained the price of FTT, but incurred losses in the process.

The price of FTT eventually skyrocketed to $50, benefiting Alameda Research. Bankman-Fried proposed adding the value of Alameda's FTT holdings to its balance sheet to facilitate loans from third-party lenders. Although Ellison deemed this misleading as selling large amounts of FTT would decrease its price and diminish the total value of holdings, she and Bankman-Fried agreed to list FTT as a separate entry on the balance sheet.

The presence of FTT and other Sam coins on Alameda's balance sheet enabled the firm to secure substantial loans from lenders. However, according to Ellison's assessment, excluding Alameda's Sam coins would result in a net loss of approximately $2.7 billion. Even if Alameda attempted to sell its Sam coins, there wouldn't be sufficient demand, implying significant financial consequences for the firm.