March 27, 2024
revelations by Coinbase's Conor Grogan on Alameda Research's $38B Tether redemptions
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Alameda Research’s 2021 USDT Redemption Spree Sparks Controversy

Blockchain data flagged by Coinbase director Conor Grogan has brought to light that Alameda Research redeemed over $38 billion worth of Tether (USDT) tokens in 2021, even though they didn’t possess the equivalent assets under management. Grogan points out that during the peak of the broader cryptocurrency market bull run in 2021, the total value of USDT creation exceeded the total assets in Alameda’s books.

Grogan also suggests that a substantial portion of the USDT redemptions, totaling 3.9 billion USDT, requested by FTX were likely sourced from Alameda’s tokens. The majority of these redemptions occurred during the collapse of the Terra Luna algorithmic stablecoin.

In January 2021, former Alameda co-CEO Sam Trabucco commented on reports of significant USDT minting by Tether and provided insights into how Alameda capitalized on arbitrage opportunities related to the USDT’s value in various trading pairs across different exchanges. Trabucco explained that the premium at which USDT traded above $1 was typically volatile, especially in Bitcoin to USDT trades, which resulted in a slight deficit compared to BTC/US dollar trades. He emphasized the significance of using markets like BTC/USDT and BTC/USD to determine USDT’s trading value, as they were more liquid than any exchange’s USDT/USD market.

Trabucco also noted that stablecoins like USD Coin (USDC) had a less volatile premium due to their creation and redemption processes, in contrast to USDT. Since select firms had the ability to create and redeem USDT, most market participants acquired and traded USDT from markets rather than directly from Tether’s treasury. He explained that when USDT’s value exceeded $1, firms like Alameda, equipped with efficient setups and trading bots across multiple exchanges, would want to sell, contributing to price stabilization.

According to Trabucco, Alameda’s ability to create and redeem USDT tokens allowed them to take significant positions safely, resulting in a win-win situation for the trading firm and the stability of USDT’s dollar peg. He stated that Alameda made money by selling USDT above the creation cost while helping maintain its price close to $1.

In light of this, Alameda profited by exploiting arbitrage opportunities and collecting premiums through its USDT token creation capability. Additionally, Bankman-Fried, the founder of FTX, confirmed in 2021 that Alameda actively redeemed USDT for US dollars.

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