What Happened at Alameda Research?

There are many competing theories available of exactly how Alameda and FTX burned through as many billions of dollars as they did, the reality of the matter looks something much like a combination of all of the following factors.

To be clear, we still don’t have a perfect understanding of what exactly happened at Alameda Research and FTX. However, at this point, I feel that we have enough information to get a grasp on the broad strokes. Through a combination of Twitter users’ investigations, forum anecdotes, and official news releases, the history of these two intertwined companies becomes progressively less hazy, slowly coalescing into something resembling a consistent narrative.

Of course, without witness testimonies and a full financial investigation, our claims only remain tentative at best. Any given piece of information may be flawed or even fabricated. However, if they are assembled together and put in context, they together lend credence to the following timeline:

SBF, Trabucco, and Caroline were (probably) initially well-intentioned but not especially competent at running a trading firm.

Alameda Research made large amounts of book profits via leveraged longs and illiquid equity deals in the 2020-2021 bull market.

Although Alameda was likely initially profitable as a market maker, their edge eventually degraded and their systems became unprofitable.

Despite success with some discretionary positions, on net, Alameda & FTX jointly continued to lose large amounts of money and liquid cash throughout 2021-2022 as a result of excessive discretionary spending, illiquid venture investments, uncompetitive market-making strategies, risky lending practices, lackluster internal accounting, and general deficiencies in overall organizational ability.

When loans were recalled in early 2022, an emergency decision was made to use FTX users’ deposits to repay creditors.

This repayment spurred on increasingly erratic behavior and unprofitable gambling, eventually resulting in total insolvency.

Details follow below.

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