Breaking Down the Infamous Alameda Balance Sheet

As we gear up for Sam Bankman-Fried’s day in court, it seems prudent to step back and unpack what happened in late 2022 that got us here today:

It is one of the most consequential documents in financial history, given that it caused the collapse of a $32 billion empire in just nine days and now to a highly anticipated criminal trial.

“It” is the infamous balance sheet of Sam Bankman-Fried’s trading firm, Alameda Research. Its explosive contents served as the basis for a Nov. 2, 2022, story by CoinDesk’s Ian Allison. The article raised questions about how sturdy the company’s financial underpinnings were – and, by extension, how safe Bankman-Fried’s better-known crypto exchange FTX was.

It turns out, not at all.

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For the protection of our sources we are not publishing the document itself but rather describing its contents – in finer detail than ever before. Labeled “Consolidated Balance Sheet 2022 Q2,” it gets into the nitty gritty of Alameda’s knotty empire.

Much of that empire relied on tokens of projects Alameda was unusually close with – particularly the formerly white-hot crypto startups it invested in. For example, it led eight-figure investment rounds in the closely linked projects Oxygen and Maps.me and counted nearly $600 million worth of those projects’ tokens (locked and unlocked) on its balance sheet. When FTX went bust it stranded 95% of those projects’ token supply in a state of limbo that seems to continue to this day. Those projects’ tokens have since lost much of their value but even back then they were unlikely to be worth that much in practice. Attempting to trade them at scale on the open markets would have shattered their value.

Alameda had multiple ties to Bonfida, the project behind Solana’s version of ENS, the popular wallet naming service in the Ethereum ecosystem. It was the primary market-maker for Bonfida’s native token FIDA. It acquired millions of FIDA tokens by investing in that startup. Notably, Bonfida developers inherited development duties over the purportedly decentralized Serum crypto exchange, another FTX production.

In SRM the bounds of reality and believability began to break down for Alameda. It was a token that FTX Group coders had conjured out of nothing for the benefit of Serum, the SBF-founded trading infrastructure for much of Solana blockchain-based DeFi. Alameda reported holding nearly $183 million worth of locked SRM and $300 million unlocked, plus nearly $320 million in SRM collateral and an additional $330 million in locked SRM as a liability.

But it was Alameda’s miles-deep holdings of FTT, the exchange token minted specifically by FTX, that proved to be the empire’s undoing. CoinDesk’s Nov. 2 2022 article authored by Ian Allison revealed that billions of dollars of FTT backed up Alameda’s largess – a fact that spooked market participants and eventually set off a run on FTX. It was during that chaos that people began to realize that the emperor had no clothes.

Four days after Allison’s story came out, Binance CEO Changpeng “CZ” Zhao tweeted that “due to recent revelations,” his exchange would sell its hefty FTT holdings. That quickly drove down the price of FTT, putting Bankman-Fried’s companies into a tailspin.

Bankman-Fried was forced two days later to seek a bailout from Binance. But that proposed takeover fell apart in a day, something another Allison scoop revealed was likely to happen hours before it was made official. Then, on Nov. 11, Bankman-Fried’s companies were forced to file for bankruptcy protection.

Allison’s initial scoop on the balance sheet revealed above was widely cited as the catalyst for the collapse. Thousands of news stories credited CoinDesk for setting off the chain of events, including pieces from high-profile publications like The New York Times, The Wall Street Journal, Bloomberg, The Financial Times, The Verge, New York Magazine, CNN and NPR’s “Planet Money” podcast.

CoinDesk journalists went on to win a George Polk Award, one of the top journalism honors, for their FTX coverage. And they’re finalists for the prestigious Gerald Loeb Award; winners for that will be announced next week.

Prosecutors expect jury selection (“voir dire”) to take about a day, and are asking the judge overseeing the case to treat Friday, October 6 as a trial day instead of as the first day of a four-day weekend.

They’re also citing the need to schedule out-of-town witnesses as a key issue for the first few days of the trial, suggesting they may bring their heavy hitters – the FTX inner circle – out early.

— Danny Nelson, Nick Baker