A closer look at Sam Bankman-Frieds Alameda Research and Caroline Ellison, CEO in her twenties

The close ties between crypto exchange FTX and affiliated trading firm Alameda Research were well known across the industry, investors and industry executives said wealth.

Alameda was a quantitative trading company founded in 2017 by Sam Bankman-Fried. Known for aggressive trading strategies, the company offered crypto trading across all markets and was led by CEO Caroline Ellison. In 2019, FTX spun off from Alameda and was backed by some of the biggest names in venture world including Tiger Global, SoftBank and Sequoia Capital. The exchange was valued at $32 billion in January, which is notable given that venture funding rounds were starting to decline at this point. FTX had about 1 million users and employed about 300 people, including US and international ones, a spokesman said Thursday.

Bankman-Fried, who owned a majority of FTX and Alameda, was a media star for much of 2022, appearing frequently on CNBC and Bloomberg and on the cover of wealth. The 30-year-old billionaire also became known as a crypto lender of last resort and bailout BlockFi and Voyager Digital to borrow money.

Who is Caroline Ellison?

In comparison, not much is known about Caroline Ellison, who hails from Boston, is the 20-year-old daughter of economists and received her math degree from Stanford University in 2016. ellison, in a podcast recorded when she was a retailer at Alameda (she became CEO in July 2021), spoke of her childhood love for Harry Potter. (She could not be reached for comment on this story.)

Her lack of experience was evident. Ellison said she had no intention of becoming a trader and didn’t know what to do with her life: “What do math students do? Guess I’ll apply for some internships at some trading firms, let’s see how that goes.” In September 2016, she got a job at Jane Street, a quant trading firm that Bankman-Fried also worked at after she completed two internships. Less than two years later, Ellison joined Alameda in March 2018 after meeting Bankman-Fried, who had just founded the company. “I decided it was too cool an opportunity to pass up,” she said at the time.

Ellison made the switch from trading stocks on Jane Street to crypto at Alameda, according to the two-year-old podcast. Her year and a half trading experience was actually more than many Alameda peers, but she also admitted that it took “a lot of adjustments,” with the “most obvious big thing being that stock markets are a lot more efficient than crypto markets.” Her new role required Ellison to hold capital in different wallets on 20 different exchanges, and she said she was concerned about “the likelihood of my money being stolen”. Ellison was used to making limited decisions, but after joining a small startup with a few people, she realized that “there are a bunch of decisions that have to be made and someone has to make all of them, a lot of which are really uncertain. ”

“Everyone in crypto knew”

Rumors of Alameda’s bankruptcy began circulating earlier this year after Terra’s LUNA, an algorithmic stablecoin, cryptobank Celsius, and Three Arrows Capital, the hedge fund, each failed, said Cory Klippsten, founder and CEO of Swan Bitcoin, a financial services firm Company. Klippsten is not an investor in FTX or Alameda, but has posted several tweets critical of Bankman-Fried and FTX since March.

FTX made loans to Alameda using funds customers deposited on the exchange for trading, according to The Wall Street Journal reported Thursday. Alameda currently owes FTX about $10 billion, which accounts for more than half of FTX’s $16 billion in client assets, the story says. Ellison said in a video meeting with FTX employees last week that she, Bankman-Fried and two other FTX executives were aware of the decision to send client funds to Alameda. This was announced by the WSJ. FTX declined to comment.

“There was no Great Wall of China between FTX and Alameda,” said Klippsten, who saw the balance sheet, which showed Alameda had more than $5.82 billion worth of FTT tokens, accounting for 40% of its total assets. The $5.82 billion included $3.66 billion that was “locked up” or totally illiquid, Klippsten explained. “Created out of thin air by FTX, these FTT tokens are extremely illiquid and inherently worthless.”

CoinDesk’s coverage of the balance sheet caused a bank run. FTX began to implode early last week after seeing about $5 billion in customer withdrawals. But FTX only had liquidity to fund 80% of it at 1.7x leverage, Bankman-Fried said in a tweet. On Wednesday rival Binance pulled out of plans to buy FTX. Two days later, FTX, Alameda Research and about 130 related companies submitted for Chapter 11 Bankruptcy protection in Delaware on Friday. Bankman-Fried stepped down as CEO while Ellison also appears to be out of a job.

It is not immediately clear which of the portfolio companies are affected by the bankruptcy. FTX and FTX US, the VC arm FTX Ventures and Alameda did more than 200 investments, wealth reported. Alameda has completed 184 deals, including investments in Solana and Stocktwits, while FTX Ventures’ 48 deals include SkyBridge Capital and Dave. FTX has 21 investments including Circle and Liquid Global.

“Everyone in crypto knew it [FTX and Alameda] were married at the hip. Anyone could see that,” said one FTX investor, who asked not to be identified wealth.


A private equity manager who declined to invest in FTX because its valuation made no sense noted that order flow payment (PFOF) is not typically used by crypto trading firms. This differs from stocks, where online brokers like Robinhood Markets aggregate trades from their partners and route them to market makers like Citadel Securities, Susquehanna International Group and Wolverine Holdings and charge a fee. pursuant to a regulatory filing dated November 3, 10Q. The process allows online brokers to offer to consumers ‘free’ trading but sometimes at a ‘cost’ for not getting the best price. regulators such as the Securities and Exchange Commission scrutinized the use of PFOF by online brokers due to potential conflicts of interest.

But firms trading crypto generally do not use PFOF. “It’s a spread or commission business,” notes Dan Dolev, a senior fintech equity research analyst at Mizuho Securities USA. For example, instead of PFOF, Kraken charges client trades fees calculated as a percentage of the listing’s trading currency volume, a spokeswoman said. coin base also does not use PFOF but charges commission for trading. But Robinhood champions the use of PFOF in crypto, claiming that it sends orders to trading venues offers competitive prices.

Alameda acted as a market maker and without PFOF may have had preferential access to FTX trades or other preferential access to FTX, the private equity executive said wealth. This could have included better visibility of what customers are doing. “Without PFOF in [crypto] The industry wonders about the market maker relationship with exchanges, and people have always wondered about the FTX/Alameda relationship, especially since it was co-owned by Sam,” the manager said. Could Alameda have seen orders piling up on FTX to sell a coin, allowing them to take that information and push the trades? “It’s definitely possible they had better access to see what’s happening,” the manager said. (No one at Alameda could be reached for comment and the website has been taken offline.)

Interestingly, at least in hindsight, this relationship was one of the reasons why some investors said they thought FTX was unlikely. “They had one of the biggest backstops – a super profitable crypto exchange linked to the #1 crypto trader,” said the investor. With the implosion of FTX, this investor’s once multi-million dollar stake was wiped out.

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