Coinbase director Conor Grogan’s analysis of blockchain data has sparked inquiries into Alameda Research’s redemption of over $38 billion in Tether (USDT) tokens in 2021. Grogan’s findings raise doubts about whether Alameda had sufficient assets under management to support these redemptions.
Alameda Faces Scrutiny Amid Speculation about USDT Redemptions
In the midst of the 2021 cryptocurrency market boom, the total value of USDT creation surpassed Alameda’s documented assets. This has ignited speculation regarding Alameda’s ability to handle such substantial redemptions.
Grogan also suggests that a significant portion of USDT redemptions initiated by FTX might have originated from Alameda’s holdings, amounting to 3.9 billion USDT. These redemptions took place during the collapse of Terra’s algorithmic stablecoin.
Seizing Arbitrage Opportunities: Alameda’s USDT Trading Strategy
In January 2021, former Alameda co-CEO Sam Trabucco shed light on reports of significant USDT mints and shared insights into Alameda’s utilization of arbitrage opportunities tied to USDT’s valuation relative to various trading pairs across exchanges.
Trabucco clarified that the premium at which USDT traded compared to $1 was frequently volatile, especially in Bitcoin-to-USDT trades. He stressed that these trades had more liquidity and influence on USDT’s trading price than USDT-to-USD markets on exchanges.
Furthermore, Trabucco highlighted that stablecoins like USD Coin (USDC) exhibited less volatile premiums due to distinctions in their creation and redemption processes compared to USDT. Most market participants obtained and traded USDT from markets, rather than directly from Tether’s treasury.
Trabucco observed that when USDT traded above $1, sophisticated entities like Alameda could exploit arbitrage opportunities. They could profitably sell USDT while also assisting in maintaining the stablecoin’s peg to the US dollar.
This approach allowed Alameda to accumulate premiums through arbitrage opportunities by creating and redeeming USDT tokens when necessary. Sam Bankman-Fried, the founder of FTX and affiliated with Alameda Research, verified that Alameda actively exchanged USDT for US dollars during the same period.
The blockchain data and insights presented by Grogan and Trabucco illuminate the intricate dynamics and tactics employed by cryptocurrency firms in the stablecoin market. They also underscore the difficulties of upholding stablecoin pegs and managing substantial redemptions within the rapidly evolving crypto landscape.