Download:《Insights From the FTX Implosion》by Ben Giove

Compilation: The Way of DeFi

Is anyone else feeling exhausted from this chaotic week?

Yesterday, we reviewed the crazy events surrounding FTX.

But the situation is changing rapidly and there is still a lot we don’t know.

Today’s post will take a deeper look at the data:

When did users start to withdraw funds from FTX en masse? How much funds did Alameda move on DeFi? Which DeFi protocols were hit the hardest?

These days are among the darkest in the crypto space.

FTX, the second largest centralized exchange led by founder and CEO Sam Bankman-Fried, is on the brink of collapse. The exchange is unable to meet users' 1:1 withdrawals and is said to have a customer deposit gap of up to $8-10 billion.

It’s unclear what exactly caused FTX to lose these massive amounts of money, but many have speculated that there was financial commingling between the exchange and Alameda Research, a trading firm co-founded and owned by SBF.

Fortunately, on-chain data can help us gain insight into what’s going on, the connection between Alameda and FTX, and the impact of the exchange’s implosion on DeFi.

Here are some of the most interesting insights we found.

FTX experiences massive bank run, whales flee

Over the past week, FTX has seen over $8.7 billion in withdrawals, compared to $7.7 billion in deposits, for a net outflow of $1 billion. Unsurprisingly, this is the largest of any exchange during this period.

Source: Nansen

While the panic began after CZ’s tweet on November 6, the exchange had already seen significant outflows of funds long before that.

Source: Nansen

For example, the USDC balance in FTX’s main Ethereum hot wallet peaked at $40.83 million on October 26, even though many withdrawals during this period were from Alameda. This raises some interesting questions, such as whether they need to withdraw funds to meet liquidity needs elsewhere (a question we’ll touch on later).

We can also see that the liquidity of stablecoins on exchanges has been declining at an alarming rate. FTX wallets held $140.3 million in USDC on November 4, but by November 6, as the run began to fully unfold, this number had dwindled to just $3.1 million.

Following CZ’s tweet, ETH on FTX also dropped dramatically, with more than 358,000 ETH withdrawn from the platform between November 5 and November 7.

Source: Dune Analytics

For ERC20 tokens other than ETH, the value of these assets held on FTX fell by about $1 billion between November 5 and November 10. While some of this can be attributed to stablecoin outflows and price declines, the fact that this balance has been gradually declining seems to indicate that FTX users are “fleeing” by first withdrawing larger, more liquid assets and then moving on to smaller, less liquid assets.

Source: Dune Analytics

While many big players, such as Multicoin Capital, have large amounts of funds trapped on FTX, some whales were able to flee with some or all of their funds.

For example, wallet 0xbe385b59931c7fc144420f6c707027d4c2d37a81 withdrew $269 million in USDC and USDT from FTX between November 6 and 8.

It is not known who owns this wallet, but we can glean some clues by looking at other addresses it interacts with.

Transactions between wallet A and wallet B; Source: Nansen

Since its creation, this wallet (let’s call it Wallet A) has received 11,008 ETH from another address (Wallet B) 0x0d71587c83a28e1adb9cf61450a2261abbe33632.

Transaction between Wallet B and Genesis OTC; Source: Nansen

Wallet B has an equally interesting history. Since its creation, it has received 857,860 ETH from Genesis OTC, while sending 507,785 ETH to Three Arrows Capital.

Transactions between Wallet A and Wallet C; Source: Nansen

In addition, wallet A also sent 9,319 ETH to another wallet 0x3cad0dac0800808385af3490c058ad5bc9ef563e (wallet C). Moreover, wallet C itself has a noteworthy interaction history, according to data, it has received 33,289 ETH from Mirana Ventures (the early investment arm of the centralized exchange ByBit).

Transaction between Wallet C and Mirana Ventures; Source: Nansen

Shortly after receiving the ETH from Mirana, Wallet C transferred it to the same Genesis OTC wallet.

Transaction between Wallet C and Genesis OTC; Source: Nansen

Hopefully you can draw your own conclusions based on this trading history.

Alameda tries to help FTX plug the gap

Events and revelations over the past few days suggest that the relationship between FTX and Alameda Research is closer than many thought. This idea is confirmed when looking at trading data that shows that Alameda is trying to help fill the gap at FTX.

We can see that although Alameda withdrew tens of millions of funds from FTX between October 25th and November 4th as mentioned earlier, Alameda deposited more than $360.9 million in USDC and BUSD into FTX between November 5th and 7th.

This would seem to lead one to believe that FTX funds were commingled with Alameda, as no rational actor would deposit funds with a financial institution that was experiencing a run in order to preserve their capital.

Alameda appears to have tried, but failed, to plug FTX’s massive gap.

Alameda still holds about $50.9 million in tokens and has $12 million in on-chain secured debt

Despite speculation that the company was about to shut down following the collapse of FTX and the drop in the price of FTT (which the company used as collateral for loans), Alameda still appears to be holding millions of tokens on-chain.

According to a set of wallets suspected to be Alameda provided by Larry Cermak of The Block, the company has about $50.9 million worth of assets that are not USD, ETH or BTC. Among them, their largest position is BIT, the token of the centralized exchange ByBit, which was obtained through the token swap of FTT. In addition, there are rumors that it seems that Alameda still holds 100 million tokens, which is worth about $32 million at current prices.

The largest positions for projects not directly tied to FTX or Alameda are xSUSHI and LDO, with the firm holding a combined $5.8 million worth of these tokens. Given their volatile state, it seems likely that Alameda will liquidate their positions in each of these tokens, acting as a small oversupply in an increasingly illiquid market.

Given how active they are in DeFi, Alameda unsurprisingly has exposure to more than just tokens. The company also has a combined outstanding debt of around $12.8 million from two mortgage lending platforms, Clearpool and TrueFi.

Source: TrueFi

Alameda has historically been a frequent user of these products, as they used to have their own pool, Maple Finance, which was the largest low-collateral lending platform in DeFi. Thankfully, this pool has been defunct and no Maple pool has come into contact with Alameda.

Additionally, it’s worth noting that the $5.5 million loan to Alameda through Clearpool was made through a licensed pool, with Apollo Capital and Compound Credit Partners as the only lenders.

MIM, USDT, stETH under pressure

While Alameda has some exposure to DeFi tokens and undercollateralized lending platforms, the DeFi protocol most affected by the chaos of the past few days is Abracadabra, an overcollateralized lending platform that allows users to mint Magic Internet Money (MIM), a stablecoin pegged to the U.S. dollar.

Alameda is a major user of Abracadabra, using FTT as collateral to mint MIM.

Abracabdra’s Alameda and FTT exposure is significant, as more than 35% of outstanding MIM supply was backed by FTT on November 3.

This also led to DeFi users reducing their exposure to stablecoins during the chaos of FTX and Alameda.

So how do we tell? Just look at the largest stablecoin exchange, Curve.

The MIM-3 CRV pool on Curve, which is the largest source of liquidity for MIM, has become very unbalanced during this period. At press time, the composition of the pool is 13.8% 3 CRV and 86.2% MIM, rather than the ideal 50/50 ratio.

This loss of liquidity caused MIM to decouple significantly, falling as low as $0.93 before completing the re-peg once again.

This quick rebound is likely due to the nature of CDP-based stablecoins, as Alameda was incentivized to buy cheap MIM, creating demand for it to pay off their debt, which they have since repaid in full. MIM also benefits from a very high A-factor on Curve, allowing it to maintain its $1 peg even when the pool is heavily unbalanced.

Although Alameda repaid its debt, the liquidity crunch in stablecoins has spread to other assets such as USDT.

The 3 Pools (DAI/USDC/USDT) on Curve are also obviously unbalanced, consisting of 15.2% DAI, 15.3% USDC, and 69.4% USDT, instead of the ideal three-way split.

This suggests that liquidity providers are afraid of the risk of USDT and are “fleeing” by withdrawing USDC and DAI from the pool.

USDT lending rates on Compound; Source: Parsec

Additionally, other DeFi users are shorting USDT as the asset’s utilization rate is 87% on Aave and 92% on Compound, causing borrowing rates on the stablecoin to spike. This suggests that users are borrowing USDT to short, possibly out of concern that Tether is a credit risk to FTX and Alameda, although both have denied the allegation. USDT briefly traded to $0.97 on November 9, but has since returned to its peg.

The imbalances in these Curve pools indicate a great deal of fear in the market, particularly around stablecoins that Alameda has confirmed or suspected exposure to. Savvy investors may want to keep an eye on the composition of these pools in the coming days and weeks, as a rebalancing of these pools could indicate a receding of market fear.

in conclusion

The transparency of the blockchain allows us to glean a wealth of insights around the impact of FTX’s stunning collapse — and we’ve only scratched the surface in this post.

We can see funds shuttled back and forth between FTX and Alameda before and during the event, leading to credible evidence that the two entities were more closely connected than anyone thought. We also know that a very large entity was able to withdraw hundreds of millions of stablecoins during the run, recovering some or all of their funds.

We can also see that Alameda still has over $50 million in tokens that could potentially be dumped on the market, and $12 million in outstanding loans, which seems to be at very high risk of default.

Finally, we can see that the collapse of FTX has caused chaos throughout the DeFi space, with liquidity for both MIM and USDT drying up and DeFi users shorting the latter heavily.

More information will come to light in the days, weeks, and months ahead. But the beauty of blockchain means you can seek answers in the meantime.