Liquidators of cryptocurrency company Alameda have lost more than $11 million in just two weeks. How?
There are more curiosities in the fate of bankrupt trading company Alameda Research: since the beginning of this year, the liquidation team has already lost more than $11 million due to its actions. Previously, several tens of thousands of dollars were lost in the process of finding and collecting Alameda and FTX assets on various decentralized platforms. Now that amount runs into the millions. Here are the details of the situation.
As a reminder, trading company Alameda Research was declared bankrupt at the same time as cryptocurrency exchange FTX. Accordingly, liquidators are now searching for assets that could be used to reimburse creditors.
However, cryptocurrencies and decentralised finance is a relatively new industry and few people know how to interact with it. As such, liquidators’ association with such platforms leads to losses. For example, late last week it was revealed that liquidators caught a liquidation on the Aave platform. And a completely unnecessary mistake led to this.
Aave platform founder Stani Kuleshov
Alas, the losses did not end at tens of thousands of dollars. They ended up increasing tenfold.
What’s happening to FTX assets
According to analysts at platform Arkham Intelligence, Alameda’s liquidation team has lost a total of $11.5 million, with the largest loss per mis-transaction estimated at $4.85 million.
Position liquidation
According to CryptoPotato sources, liquidators gained control of one of Alameda’s cryptocurrency wallets a fortnight ago. A short position of 9,000 ETH or $10.8 million was opened on it, secured by 20 million USDC and 4 million DAI.
The short position means that traders were betting on the downside of the asset, i.e. shorting it. This transaction involves borrowing a certain amount of the crypto-asset, selling it and then buying back the same amount at a lower price. Accordingly, if the value of the coin instead starts to rise, the trader will lose some or all of the money.
In dollar terms, the wallet’s balance was $15.2 million. By today, that figure had dropped to $300,000.
As a reminder, collateral is needed to create positions with borrowed funds, or so-called leverage. The volume of the security must be increased as the liquidation approaches, i.e. the direction of the rate in the opposite direction from the transaction to a predetermined level. If this is not done, the transaction will be liquidated, which translates into a loss. A similar collateral principle is also used in decentralised lending, i.e. borrowing against collateral.
The losses happened because of the marked rise of Etherium in recent weeks. Still, since the beginning of this year, the price of the altcoin has risen by more than 30 percent, which is also true for many other popular digital assets.
Etherium exchange rate over the past 30 days
Before that, Arkham Intelligence noticed another movement of funds. Here’s the relevant replica.
On the morning of December 29, 2022, 7 million USDC and 4 million DAI were withdrawn from the decentralized Aave protocol and sent to a separate wallet on Optimism with an address that ends in “0x7b7”.
Withdrawal transactions
This brought Alameda’s open position on Aave dangerously close to liquidation. Then 11.4 million USDC was liquidated in the Optimism chain. The total liquidation including the “tax” for Aave was USD 11.5 million. Naturally, this approach does not improve the prospects of the company’s creditors receiving funds, but rather the opposite.
Here are some more details from Arkham.
Surprisingly, the transactions from the wallet took place before and during liquidation. Among the two liquidation transactions, wallet 0x997 sent a five-figure amount to Optimism to account 0x7b7. We don’t quite understand why this was a higher priority than closing the position.
Transactions
More specifically, Aave has a feature that allows a position to be closed instantly without “shuffling” its collateral. If the liquidators had used it, they would have been able to save approximately 15 million USDC. From the aforementioned position on Aave, $300,000 can still be recovered. However, if the price of Etherium continues to rise, that amount will also be liquidated.
As you can see, the liquidation team lacks experience in decentralised finance. Obviously, hiring an expert on these issues would help avoid financial losses. Although, as the events of recent days show, representatives of the liquidator's side for some reason do not think in this direction. Instead, they keep racking their brains with DeFi platforms while losing a lot of money.
Related posts
