Crypto trading firm Alameda Research might be insolvent • Hacker News Board

Re: Crypto trading firm Alameda Research might be insolvent

#171

Post by janmo » Fri, Nov 04, 2022, 4:53 PM UTC

dcolkitt wrote: post #108

As someone in the industry, it's almost certainly not . 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…

"Most of the liabilities on their balance sheet are probably these token deals, rather than loans made in hard currency."

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).

Re: Crypto trading firm Alameda Research might be insolvent

#172

Post by zby » Fri, Nov 04, 2022, 4:56 PM UTC

guelo wrote: post #148

zby wrote: post #61

Earlier quoted context omitted.

> If the liabilities are collateralized by assets on their balance sheet, then the financial risk is not to Alameda but the lender! What does that mean? How collateralization changes Alameda risk? It reduces the lender risk a bit - but it does not touch the borrower risk at all: https://www.investopedia.com/terms/c/collateral.asp "In the event that the borrower does default, the lender can seize the collateral and se…

That depends on the terms of the loans. Can be recourse or non-recourse.

Right - but it looks like an exception not the standard way: https://www.investopedia.com/terms/n/nonrecoursedebt.asp Would you expect the Alameda loans to be non-recourse?

Re: Crypto trading firm Alameda Research might be insolvent

#173

Post by janmo » Fri, Nov 04, 2022, 5:05 PM UTC

JumpCrisscross wrote: post #153

dcolkitt wrote: post #108

As someone in the industry, it's almost certainly not . 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…

> the bulk of their liabilities are in the same tokens on their balance sheet 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…

Alameda has taken loans from Voyager and BlockFi, those are in hard currencies, USD or bluechip crypto such as BTC/ETH.

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.

Re: Crypto trading firm Alameda Research might be insolvent

#174

Post by amluto » Fri, Nov 04, 2022, 5:14 PM UTC

shorthistory wrote: post #149

toyg wrote: post #139

Earlier quoted context omitted.

- internet person says he works in the crypto space - is actually financially illiterate Checks out, sadly.

Why would a market maker hold so much of an asset. Market makers do not typically hold $B of anything. Alameda does not need to borrow so much FTT to make markets.

In conventional markets, market makers need the ability to sell that which they make a market in. This can be done by actually owning the asset, by having a credit relationship enabling sales without owning the asset, by naked shorting, etc.

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.)

Re: Crypto trading firm Alameda Research might be insolvent

#175

Post by the_mitsuhiko » Fri, Nov 04, 2022, 5:17 PM UTC

kennend3 wrote: post #133

dcolkitt wrote: post #108

As someone in the industry, it's almost certainly not . 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…

> First very simple point, to become insolvent you have to actually take a loss somewhere. 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 wit…

More importantly in some jurisdictions (eg: Germany) insolvency is not just a fun little accounting definition but comes with criminal charges if a company doesn't immediately file for insolvency.

Re: Crypto trading firm Alameda Research might be insolvent

#176

Post by LatteLazy » Fri, Nov 04, 2022, 5:21 PM UTC

rippercushions wrote: post #120

LatteLazy wrote: post #111

Earlier quoted context omitted.

I'm just taking the numbers from the article itself and the assumption that FTT specifically is worthless (extreme enough on it's own). If you assume a fire-sale on everything, then everyone is insolvent all the time...

A fire-sale of (say) a skyscraper in Manhattan is a very different proposition to a fire-sale of random shitcoins.

That really depends. Most buildings are financed with mortgages, so if there is a real estate crash then they can actually have negative values, even after only a small price drop. Even FTT coins can only be worth zero. This is one of the unexpected dangers of "safe" assets: people will lend on safe assets, so fund managers leverage up until they're not safe anymore and you get 2008 type issues.

Ultimately all of this is pretty standard for Hedge/Investment funds. If you want safe, diversified, limited downside investments, get an few index funds. The minute you go to a hedge fund you're asking for risk whether the underlying is questionable crypto or US Treasuries...

Re: Crypto trading firm Alameda Research might be insolvent

#177

Post by stephc_int13 » Fri, Nov 04, 2022, 5:21 PM UTC

dcolkitt wrote: post #108

As someone in the industry, it's almost certainly not . 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…

"Market Maker"

How is that even legal?

Re: Crypto trading firm Alameda Research might be insolvent

#178

Post by drexlspivey » Fri, Nov 04, 2022, 5:35 PM UTC

stephc_int13 wrote: post #177

dcolkitt wrote: post #108

As someone in the industry, it's almost certainly not . 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…

"Market Maker" How is that even legal?

Why would it be illegal .. ?

Re: Crypto trading firm Alameda Research might be insolvent

#179

Post by dcolkitt » Fri, Nov 04, 2022, 5:39 PM UTC

kennend3 wrote: post #133

dcolkitt wrote: post #108

As someone in the industry, it's almost certainly not . 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…

> First very simple point, to become insolvent you have to actually take a loss somewhere. 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 wit…

Alice is a trading firm. Alice borrows $1 billion, Alice then uses $1 billion to go out and buy $1 billion of assets. To become insolvent, the value of Alice's assets has to fall below the value of her liabilities. Otherwise, Alice can simply liquidate her assets to repay her debts.

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.

Re: Crypto trading firm Alameda Research might be insolvent

#180

Post by dcolkitt » Fri, Nov 04, 2022, 5:45 PM UTC

toyg wrote: post #139

kennend3 wrote: post #133

Earlier quoted context omitted.

> First very simple point, to become insolvent you have to actually take a loss somewhere. 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 wit…

- internet person says he works in the crypto space - is actually financially illiterate Checks out, sadly.

I graduated with a degree in finance from Wharton, worked as a quant at Citadel Securities, and have been a high-frequency trader for more than a decade. But I'm more than sure that your credentials at finance or trading are more qualified. :)