Cryptocurrency Lending Saga Unveiled: The BlockFi-FTX-Alameda Triangle
The BlockFi-FTX-Alameda Connection
The second week of the trial provided a front-row seat to the crypto community's version of a courtroom thriller. Zac Prince, the head of BlockFi, took the stand to shed light on the lending activities that preceded FTX's collapse. BlockFi, a crypto lending firm, had loaned an eye-popping $1.1 billion to Alameda, and as the story unraveled, it seemed like SBF had given the orders.
The crypto lending saga involved Alameda's peculiar $65 billion "credit line" on FTX's customer crypto, as well as allegations of $100 million Chinese bribes. Former staff members and individuals close to Bankman-Fried's inner circle claimed that SBF was at the helm, orchestrating it all.
As the trial continued, it was revealed that SBF had expressed hopes of launching a new venture, while Ellison, one of the witnesses, admitted to the fraud involving FTX and Alameda. Shockingly, one of the team members had clandestinely recorded this admission, and this audio clip would later become key evidence in the case.
CRYPTO CREEPS: In Bankman-Fried Trial "All Hands" Meeting Audio Has Caroline Ellison Laughing as Christian Drappi on the Stand #CryptoCreeps - Inner City Press tale: https://t.co/zBlgcJ7zaj More on this, 2d man & troll, on @SubstackInc here https://t.co/TjG7Y0KGkY pic.twitter.com/5pqIJkbUxO— Inner City Press (@innercitypress) October 13, 2023
By the eighth day of the trial, Zac Prince, the BlockFi CEO, resumed his testimony. He disclosed that BlockFi had loaned $800 million to Alameda, and when Bankman-Fried's crypto empire faltered, BlockFi went bust.
BlockFi had begun lending to SBF's trading firm in early 2021, and they had performed due diligence, including thorough KYC checks, for both retail and institutional clients. Alameda had initially borrowed $50 million from BlockFi by May 2021, but a year later, BlockFi had issued over $1 billion in open-term loans to SBF's so-called hedge fund.
However, trouble brewed on the horizon. Terra's ecosystem collapsed, resulting in defaulted loans owed to Prince's lender. Three Arrows Capital (3AC) incurred heavy losses, prompting BlockFi to recall $650 million in loans disbursed to Alameda. To add to the turmoil, BlockFi found itself with $350 million trapped on FTX, which had halted withdrawals in November 2022.
Alameda had provided shares in Robin Hood and Grayscale's Bitcoin Trust (GBTC) as collateral to BlockFi, further complicating the web of interconnected deals.
Unveiling the Cryptocurrency Domino Effect
Caroline Ellison's testimony uncovered a shocking revelation. Hundreds of millions had been borrowed from other lenders like Celsius, Genesis, and Voyager, with these loans being repaid using user assets deposited on FTX. It was a house of cards that was beginning to crumble.
Regarding the failed FTX-BlockFi merger, Prince disclosed that the terms included a future acquisition and an extended credit line. Although the deal held promise, it ultimately never materialized.
In hindsight, Prince shared his opinion that Alameda would never have received loans from lenders if the risks associated with FTT and the treatment of FTX customer assets had been disclosed to the public.
The second week of Sam Bankman-Fried's trial brought forth a gripping narrative of cryptocurrency lending, where billions were at stake, and allegations of fraud and deceit took center stage. As the trial adjourned for now, the crypto community eagerly awaits the next chapter in this high-stakes drama, with more witnesses set to take the stand. The cryptocurrency world's intrigue knows no bounds, and the BlockFi-FTX-Alameda triangle continues to captivate both enthusiasts and skeptics alike. Stay tuned for more twists and turns in this unfolding saga.