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Alameda Research: The Quantitative Empire Behind FTX and Its Collapse

Overview of Alameda Research Founded in 2017 by Sam Bankman-Fried and Tara Mac Aulay, Alameda Research was a quantitative trading firm specializing in cryptocurrencies. Originally based in Hong Kong and later in the Bahamas, Alameda quickly rose to become one of the most powerful players in the crypto ecosystem—acting as a market maker, liquidity provider, investor, and arbitrage trader. The firm claimed to manage billions in digital assets, operating on most major platforms like Binance, OKX, Huobi, Coinbase, and FTX. Its structural closeness to FTX—founded in 2019 by the same person—made the Alameda–FTX duo one of the most influential combinations in the industry. However, this relationship between Alameda and FTX ultimately triggered one of the biggest financial scandals in modern history, exposing opaque practices, conflicts of interest, and catastrophic risk management.

Key takeaways

Alameda’s Services and Trading Strategies

Alameda Research stood out for its algorithmic trading expertise and complex arbitrage strategies. Its model was built on three main pillars:
  • Geographical arbitrage: Alameda profited from price discrepancies between markets, especially between Asia and North America. This included the famous « kimchi premium » in South Korea, which reportedly earned Sam Bankman-Fried his initial profits.
  • Market making: Alameda provided liquidity on numerous exchanges, allowing it to buy and sell assets rapidly with minimal spreads, generating consistent income.
  • Strategic investing: Alongside trading, Alameda heavily invested in Web3 projects, emerging tokens, and platforms—often during seed or private sale rounds. Dozens of projects received backing, including Solana, Serum, Oxygen, and Maps.me.
The firm was known for its speed of execution and ability to seize high-frequency opportunities across the global crypto market. It also played a vital role in supplying initial liquidity to the FTX platform.

Murky Ties with FTX and the Collateralization Scheme

A central issue in the Alameda/FTX scandal was the opaque interconnections between the two entities. Despite claims of independence, post-collapse investigations revealed that Alameda had privileged access to FTX customer funds. In practice, Alameda used customer deposits as leverage to place high-risk bets—often borrowing against or exchanging the FTX native token (FTT), which it held in massive quantities. This led to a form of circular collateralization, where illiquid assets backed enormous loans hidden from auditors and users. The system held up until November 2022, when CoinDesk published a report revealing that a majority of Alameda’s assets were tied to FTT—a token tightly controlled by FTX. Shortly afterward, Binance announced it would sell its FTT holdings, triggering a domino effect: a massive bank run and the simultaneous collapse of both FTX and Alameda.

Collapse, Investigation, and Legal Proceedings

Within days, Alameda Research ceased operations. The company filed for bankruptcy in November 2022 under Chapter 11, alongside FTX and over a hundred related entities. Investigations uncovered disastrous financial management, rudimentary (or nonexistent) accounting systems, undocumented internal loans, and misappropriation of funds for personal use (including real estate purchases in the Bahamas). Sam Bankman-Fried was arrested in December 2022, extradited to the U.S., and found guilty of fraud, money laundering, and conspiracy in November 2023. Co-founder Tara Mac Aulay had distanced herself from the company well before the scandal, citing unethical internal practices. Other executives, including former Alameda CEO Caroline Ellison, pleaded guilty and cooperated with authorities.

Lessons for the Crypto Industry

The collapse of Alameda Research shook trust in centralized crypto ecosystems. It showed that even the most “respected” players could operate without strong governance or transparency. The scandal sparked a global shift in investor, regulator, and developer expectations. Key long-term impacts include: Acceleration of global regulation of crypto exchanges. Decreased trust in native tokens used as collateral. Rise of Proof of Reserves solutions. Renewed focus on decentralized, auditable, and transparent systems. U.S. regulators (SEC, CFTC, DOJ) and authorities in other jurisdictions have since launched investigations that continue to shape the regulatory framework of the crypto sector.

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Conclusion

Alameda Research, once viewed as a titan of crypto trading, ultimately became a symbol of systemic failure in an emerging, under-regulated ecosystem. As both architect and casualty of the FTX collapse, the firm exemplified the dangers of opacity, excessive leverage, and collusion between supposedly independent entities. The case remains a reference point in discussions around regulation, governance, and risk management in the crypto world. While it resulted in massive losses, it also triggered a wave of restructuring and a shift toward more rigorous practices in digital finance.

Disclaimer :

Trading is risky and you may lose all or part of your capital. The information provided does not constitute financial advice and/or an investment recommendation

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