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Coinbase’s head of product and business operations, Conor Grogan, estimated that Alameda Research (Alameda) minted $39.5 billion in USDT (Tether) before its bankruptcy. At its peak, Alameda’s Tether made up about half of its assets under management.
Former Alameda executive Sam Trabucco said Alameda was one of a few companies that was able to restore Tether’s $1 peg through minting and redemptions. The FTX-affiliated hedge fund redeemed $4 billion in USDT after the collapse of the algorithmic stablecoin TerraUSD.
Alameda and Cumberland Enabled USDT Arbitrage
USDT is a stablecoin that relies on active arbitrage to keep its value at $1. Traders can increase its value by selling other coins like Bitcoin in exchange for Tether.
Read more: How to Buy USDT in Three Easy Steps – A Beginner’s Guide
Cumberland and Alameda, both firms that profit from the spreads between bid and ask prices, received billions in Tether to improve liquidity for traders. Alameda supplied crucial liquidity for FTX customers until both companies filed for bankruptcy in 2022.
Protos estimates that Alameda received $36.7 billion of all the USDT Tether issued at between 2014 and 2021. Grogan’s later estimates include balances in public wallet addresses, addresses in court filings, and information from the FTX bankruptcy estate.
FTX and Alameda filed for bankruptcy after reports surfaced that Alameda’s balance sheet held a large proportion of FTT tokens. FTX lacked liquidity to meet the ensuing withdrawal demand and tried to raise funds from external investors.
On Nov. 11, 2022, the exchange filed for bankruptcy and appointed insolvency expert John Ray to oversee the remuneration of customers. Prosecutors charged former FTX CEO, Sam Bankman-Fried, with conspiracy to commit money laundering, fraud, and campaign finance crimes.
Read more: FTX Collapse Explained: How Sam Bankman-Fried’s Empire Fell
Former Alameda CEO Caroline Ellison to Testify
Bankman-Fried’s criminal trial commenced at a Manhattan Federal court a week ago. After the court selected its jury, prosecutors and defense made opening statements and heard a testimony from FTX co-founder Gary Wang.
According to Wang, FTX’s code had a loophole that enabled Alameda to borrow FTX customer money. Bankman-Fried then allegedly used the loans, backed by Alameda’s FTT tokens, to fund his and other executives’ lavish lifestyles.
Caroline Ellison, Alameda’s former CEO, is expected to take the stand in New York later on Tuesday. Like Wang, Ellison was a member of Bankman-Fried’s inner circle of trusted lieutenants who is expected to reveal more details on the complicated relationship between FTX and Alameda.
Bankman-Fried’s defense is expected to portray Ellison as Bankman-Fried’s disgruntled ex-lover who ignored their client’s instructions to hedge Alameda against a crypto downturn. Her indifference, Bankman-Fried’s lawyer Mark Cohen previously argued, could have “offset” the severity of FTX’s collapse.