Blockchain data analyzed by Coinbase director Conor Grogan has raised questions about Alameda Research's redemption of over $38 billion in Tether (USDT) tokens in 2021. Grogan's findings suggest that Alameda may not have had equivalent assets under management to support these redemptions.

Speculation Abounds as Alameda Faces Questions over USDT Redemptions

During the peak of the cryptocurrency market bull run in 2021, the total value of USDT creation exceeded Alameda's recorded assets. This has led to speculation about how Alameda managed such significant redemptions.

Grogan also puts forward that a substantial portion of USDT redemptions ordered by FTX may have come from Alameda's holdings, totaling 3.9 billion USDT. These redemptions occurred during the collapse of Terra's algorithmic stablecoin.

Onchain data shows that Alameda was responsible for minting $39.55B of USDT, a number that is 47% of Tether's circulating supply today

A previous report by Protoss estimated the number at around $36.7B; I was able to update these figures with additional wallets I found pic.twitter.com/fYBvGAYlFd

— Conor (@jconorgrogan) October 9, 2023

Arbitrage Opportunities: How Alameda Capitalized on USDT Trading

In January 2021, former Alameda co-CEO Sam Trabucco shed light on the reports of substantial USDT mints and shared insights into how Alameda capitalized on arbitrage opportunities tied to USDT's value relative to various trading pairs across exchanges.

Trabucco explained that the premium at which USDT traded compared to $1 was often volatile, particularly when it involved Bitcoin-to-USDT trades. He emphasized that these trades held more liquidity and significance in determining USDT's trading price than USDT-to-USD markets on exchanges.

Moreover, Trabucco pointed out that stablecoins like USD Coin (USDC) had less volatile premiums due to differences in the creation and redemption processes compared to USDT. Most market participants acquired and traded USDT from markets, not directly from Tether's treasury.

Trabucco noted that when USDT traded above $1, sophisticated firms like Alameda could take advantage of arbitrage opportunities. They could sell USDT for profit, while also helping to maintain the stablecoin's peg to the US dollar.

This strategy allowed Alameda to collect premiums on arbitrage opportunities by creating and redeeming USDT tokens when necessary. Sam Bankman-Fried, the founder of FTX and affiliated with Alameda Research, confirmed that Alameda actively redeemed USDT for US dollars during the same period.

The blockchain data and insights provided by Grogan and Trabucco shed light on the complex dynamics and strategies employed by cryptocurrency firms in the stablecoin market. It also highlights the challenges of maintaining stablecoin pegs and managing significant redemptions in a rapidly evolving crypto ecosystem.