>As someone in the industry, it's almost certainly not.
... to be proven wrong.
I also thought that question (Hindsight or Not?) might be interesting to more people than just me.
Alameda hold $5.8B FTT according to the article.
Any market makers able to advise how much is normally held relative to daily volume/mean transaction size?
2. Balance sheet shows they are not classic MM
3. Counterparty is FTX
4. ...
The ftt coin is shady as hell though. A 40% trading rebate for holding $1m is insane; that's nothing. And it's not open to anybody touching the US - a blatant attempt to prevent US regulations, which would catch this stuff.
It's very weird for exchange owners to get rich overnight. That doesn't happen in real markets, and it seems to only happen in crypto when the exchange is using customer deposits as leverage (Celsius) or trading on their own account, which means against their customers (binance, probably ftx)
This has absolutely NOTHING to do with being insolvent.
"Insolvency
In accounting, insolvency is the state of being unable to pay the debts, by a person or company, at maturity; those in a state of insolvency are said to be insolvent. There are two forms: cash-flow insolvency and balance-sheet insolvency. "
Insolvency deals with the inability to repay your debts (insufficient cash flow is the most common).
Alameda being in balance sheet insolvency would depend on their assets taking enough of a hit to wipe out the equity buffer.
To Doug's point the junk tokens are likely at book value on their balance sheet
For financial institutions, particularly those with short-term liabilities, illiquidity is insolvency. The initial liquidity depresses prices which marks down the balance sheet.
If the assets in question are marketable securities (stocks and bonds), traded commodities, or real estate, then that's generally true. If the asset is some shitcoin for which no real market exists, not so much.
The linked article in turn links to coin desk which writes
>> Also, token values may be low. In a footnote, Alameda says “locked tokens conservatively treated at 50% of fair value marked to FTX/USD order book.”
That suggests to me the unlocked coins are on the balance sheet at market value and the locked at a 50% haircut.
In fact you could turn your argument around to critize the article too, as they are based on the assumption that some of the assets should marked to zero, rather than examining empirically whether those assets could be either collateral or be used to pay the debt.
- is actually financially illiterate
Checks out, sadly.
Market makers do not typically hold $B of anything.
Alameda does not need to borrow so much FTT to make markets.
If you can’t naked short, and if sales settle effectively immediately (cryptocurrency confirmation may well be slow, but you can’t usefully sell something and buy it back using the sale proceeds without confirming or at least generating and signing the transactions), then you need access to the actual token so you can sell it.
In contrast, one can make a market in EUR/USD without actually sitting on a big pile of EUR and USD. In fact, market makers are likely to target an average position of zero in every currency except their home currency unless they are also trying to make some sort of long term bet. Similarly, I doubt you’ll find that most market makers in, say, grain futures have warehouses full of grain. (Grain wants to be eaten, not hoarded for the life of a business. Also, making commodity markets is an entirely different business than growing, storing, transporting, and using commodities.)
(This is not trading or market advice, obviously.)
The only way this can happen is if the value of Alice's assets falls below the cost basis in which she purchased those assets (plus some relatively minor short-term secured interested rate). For a trading firm engaged in mark-to-market accounting that condition represents a loss in the income statement. This isn't strange voodoo, this is just simple accounting identities.
Alameda's cost basis on Solana is the seed round at approximately ten cents, and it's currently trading at $30. Similar story for all the Solana protocol tokens. I don't know what Alameda's cost basis is on FTT (if it's even holding a significant amount financed with hard currency), but we can almost certainly say it's close to the seed round price because the founder of Alameda is literally the founder of FTX.
To make this story make sense Alameda at one point must have bought some asset that has fallen significantly from its cost basis. What exactly is this supposed asset? Because Alameda certainly isn't known for going out and taken levered long exposure on BTC, ETH or other post-seed liquid tokens.
Solana is only worth $33 right now at the current spot rate, but at the volume that would need to be liquidated to pay off Alameda's debts, the price would crash to pennies because the amount would represent over half of the daily trading volume in Solana for the past month. (For comparison, in the stock market, selling the equivalent a single-digit % of the daily volume of a stock can tank the stock.)
Similarly, Alameda owns 80% of FTT, which has a 24h trading volume of less than 20% of Alameda's debts, and fewer than 250 active daily traders. It would be literally worthless if Alameda tried to liquidate enough to pay off its debts. And as the linked blog points out, FTT is just a shitcoin exchanged between two related entities on their accounting books, meaning that at least $5.8 billion of the value of FTT, i.e., 80% of the putative value, is purely made-up.
OTOH, as the Voyager debt was collateralized entirely with shitcoins, it's possible that the other $7+ billion in Alameda debt was also collateralized in shitcoins. If that's the case, than Alameda should be solvent because it appears they actually have about $100m in cash assets. But if not, they are legally insolvent.
> This has absolutely NOTHING to do with being insolvent.
This has everything to do with being insolvent.
If you don’t lose money somewhere - interests costing more than what you win being a loss for exemple - you should be able to pay back what you owe in the end.
You could be temporary insolvent because you have issues with payment delays and are strapped for cash but there are ways to deal with that especially at Alameda size.
It's so delightful that the finance people are coming out all salty!
The number is going down. If you organize your life around this number going up, and it goes down, everyone is going to laugh.
You chose this life!
There is sometimes some meaning in finance somewhere. Like some VCs can get some meaning from, a biotech investment makes a great drug that helps people.
But what you chose, there is none. There will be many stages of grief, they do not happen in order or one at a time.
> First very simple point, to become insolvent you have to actually take a loss somewhere.
C'mon dude. Listen to yourself. It's over. This isn't peak cringe but it's getting there.
Do we have evidence of this?
The article says $292mm are FTT-denominated, with the rest unknown. Absent further information, it’s fair to assume some of that is dollar denominated. With less than 2% cash to cover liabilities, even a small amount of normal borrowing could render Alameda insolvent.
Moreover, if the losses are entirely passed through, whose are they? That’s over $7bn of losses sitting on someone’s balance sheets. Are they distributed? Is it FTX’s?
From Voyager's bankruptcy filing we know Alameda owes them $650m in USD, and hasn't repaid them yet, instead SBF is trying to push forward a shady deal that would allow FTX to take over Voyager's asset.
Deal to which state regulators have filed and objection in bankruptcy court by the way.
On Jul 8th Alameda research tweeted: "happy to return the Voyager loan and get our collateral back whenever works for voyager".
Simple question here, how do they return $650m USD, if they only have $134m in liquid assets (cash) and the rest is in illiquid tokens such as FTT, MAPS and other tokens with fancy names and inflated marketcaps?
No... We know that they owe $650m USD to Voyager Digital and they haven't repaid it yet, instead after failing to bail out Voyager, SBF is trying to acquire its assets with a VERY shady scheme through FTX.
We also know that SBF has spent a lot of effort to bail out BlockFi, and I am confident they are one of Alameda's biggest creditor, we know that BlockFi only lends stables, BTC, ETH and a few other bluechip coins, no FTT, MAPS etc...
So everything is indicating that Alameda's liabilities are in USD/BTC/ETH, while their assets are FTT, MAPS, a few SOL and other low liquidity "shitcoins".
Seems like what Alameda was doing is to take out loans to pump some shitcoins and mainly its own (FTT).
https://cointelegraph.com/news/alameda-research-happy-to-ret...
How is that even legal?
Hypothetical scenario: Alice invests $100M in seed rounds for a bunch of tokens. The token values go way up, and the holdings are nominally worth $14B. Alice borrows $7B in real dollars. Alice loses those real dollars on other bets. The nominal value of the tokens is still $14B, but Alice can't actually liquidate them for $7B in real dollars. So Alice is functionally unable to pay back the loans.
So Alice took a loss somewhere (on the other bets) and is effectively insolvent, but you can't assess that just by looking at the cost basis of the tokens that Alice still holds.
(I don't know if this actually describes Alameda; it's entirely possible that Alameda's loans are token-denominated as you're saying, in which case Alameda would be solvent. I'm just pointing out that it's more complicated than just looking at the cost basis.)
https://www.coindesk.com/business/2022/11/10/sam-bankman-fri...
First very simple point, to become insolvent you have to actually take a loss somewhere. They may have a lot of junk tokens on their balance sheet, and these tokens may be overmarked, but Alameda's cost basis (most of them were from seed rounds) is still way below their current value.
With Three Arrows it was very obvious where the loss was from, they were hyper-bullish and doubling down on BTC all the way from $69,000 to $18,000 using leverage. By contrast Alameda is notorious for being dollar maxis, constantly taking money off the table, and very rarely having any sort of long-term major beta exposure. (A big reason they have a reputation as mercenaries in the space.)
The second point is that the bulk of their liabilities are in the same tokens on their balance sheet. This is particularly true for the FTT token, almost certainly the FTT on their balance sheet is simply a loan from FTX (which is essentially the same org) to Alameda to make a market on FTT on FTX. Regardless if FTT collapses, it wouldn't matter cause insolvency both the asset and liability side of the balance sheet would go down.
Most likely this is true for much of the rest of their liabilities. Crypto trading firms like Alameda make a huge proportion of their revenue from being "paid market makers" for specific token projects. It's very hard for new tokens to bootstrap liquidity. So the typical arrangement is a token project will "lend" Alameda something like 5% of the supply, which Alameda will use to be a market maker in that token at all of the major venues. Most of the liabilities on their balance sheet are probably these token deals, rather than loans made in hard currency.