**Alameda Research’s Privileges and Special Treatment on FTX**
During the fourth day of Sam Bankman-Fried’s criminal trial, co-founder and CTO of FTX, Gary Wang, testified that Alameda Research, Bankman-Fried’s company, received special treatment on the exchange. Alameda had certain privileges that other accounts did not have, including an exemption from paying interest on its loan and being allowed to go negative without facing FTX’s auto-liquidation procedure. This meant that if Alameda’s accounts went more negative than FTX’s revenue, it was borrowing from FTX customer deposits. Wang also revealed that Alameda had a line of credit worth $65.3 billion, while other customers only had lines of credit in the single to double-digit millions.
**The Challenge of Accounting for Alameda’s Assets**
Properly accounting for Alameda Research’s assets proved to be a challenge for Bankman-Fried and his team. In early 2020, when Wang checked Alameda’s accounts, he found a negative balance of around $200 million, while FTX revenue was only about $150 million. Bankman-Fried instructed Wang to include the value of FTT tokens in the calculations, even though most of the tokens were owned by Alameda. Wang trusted Bankman-Fried’s judgment but had reservations about using illiquid tokens as collateral.
In June 2022, amid a crypto market downturn, Alameda’s lenders recalled their loans. However, no one could figure out how much money Alameda actually had. After accounting for a bug in the system that overstated Alameda’s debt, Wang calculated that Alameda owed FTX about $11 billion. Despite the negative balances, Bankman-Fried authorized the repayment of Alameda’s lenders.
**Alameda Secretly Covering FTX’s Losses**
Wang testified that Alameda Research sometimes took on losses suffered by FTX. For example, when an FTX user exploited the price of MobileCoin to generate fraudulent profits, Alameda’s funds were used to cover the exchange’s losses. Wang also revealed that Alameda often stepped in to cover losses due to flaws in FTX’s auto-liquidation engine. On certain days, FTX lost more money from imperfect liquidations than it made from trading fees.
Bankman-Fried had previously claimed that FTX had never experienced a day where losses exceeded trading fees. However, Wang’s testimony contradicted this statement. Additionally, Bankman-Fried tweeted that Alameda was treated the same as every other market maker on the exchange, but Wang testified that Bankman-Fried directed him to alter Alameda’s privileges on the same day.
**Bankman-Fried’s Plan to Shut Down Alameda**
In September 2022, Bankman-Fried drafted a document proposing the shutdown of Alameda Research after learning about an upcoming article that would expose FTX’s close relationship with Alameda. He complained about low morale among employees and his lack of trust in Alameda’s leadership. Bankman-Fried also expressed his preference for backing Modulo Capital, a company he had a 60% ownership stake in and whose co-founder he had a romantic involvement with.
Upon receiving the document, Wang and another executive asked Caroline Ellison, CEO of Alameda Research, how much they were currently borrowing from FTX. Ellison’s answer of $14 billion did not seem to phase Bankman-Fried. Less than two months later, Bankman-Fried declared bankruptcy for his companies, including Alameda Research.
**Hot Take: The Troubled Relationship Between FTX and Alameda Research**
The testimony provided by Gary Wang during Sam Bankman-Fried’s trial shed light on the troubled relationship between FTX and its sister company, Alameda Research. Wang revealed the special treatment given to Alameda, including exemptions from interest payments and auto-liquidation procedures. The challenge of accounting for Alameda’s assets and the use of illiquid tokens as collateral also came to light.
Furthermore, Wang’s testimony exposed instances where Alameda covered losses suffered by FTX and contradicted Bankman-Fried’s previous statements about the relationship between the two companies. The revelation of Bankman-Fried’s plan to shut down Alameda and his preference for Modulo Capital added another layer of complexity to the situation.
Overall, the trial has revealed a complex web of financial arrangements and questionable practices within the FTX ecosystem, raising concerns about transparency and trust in the crypto industry.
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