Unveiling the New "DeFi Gang" FTX and the Expansion of Its Backing Institution Alameda

This article was published on September 9, 2020, by Chain News, authored by Xiao Mao Ge.

With the wave of Decentralized Finance (DeFi) sweeping in, the legendary trader Sam Bankman-Fried and his market-making firm Alameda Research, along with the centralized exchange FTX, find themselves at the center of DeFi's focal events, becoming a force that cannot be ignored in leading this wave.

Sam Bankman-Fried (hereinafter referred to as "SBF") has been making dazzling moves recently. He led FTX to acquire the crypto asset management tool Blockfolio for $150 million (this is currently the 6th largest merger and acquisition deal in the cryptocurrency industry), and he also pushed a team to build a brand new decentralized trading platform Serum DEX based on the Solana public chain, while personally taking control of the liquidity mining project SushiSwap, which was mired in a trust crisis with its founder. His every move has attracted the attention of the entire crypto world. Even a photo of him napping on a makeshift bed in the office after several sleepless days of overtime has been widely circulated, much to the delight of the crypto community.

As more professionals flood into the crypto industry, the landscape of the crypto world is quietly changing. If we jokingly refer to the influential groups and affiliated companies in the crypto world as "gangs", could FTX, the decentralized trading platform Serum, and the professional market maker Alameda Research become the rising "crypto gang" that focuses on the core business of "trading"?

This is worth exploring.

1. What kind of grand "trading map" is SBF building?

First, let’s outline the core business and timeline of FTX and its affiliated companies.

Sam Bankman-Fried is the co-founder of FTX and Alameda Research. Now, he also holds the new title of "Co-founder of Serum", but all stories begin with him as a trader in his "old profession", and the core business line of the entire map revolves around "trading". The two companies most directly related to SBF and also the most core are:

• The exchange FTX, which focuses on derivatives trading: This exchange officially launched on May 1, 2019, offering over-the-counter trading, futures, indices, and spot trading. It is known for its innovative trading products such as altcoin indices and leveraged tokens;

• Alameda Research: Initially positioned as FTX's proprietary quantitative trading firm, providing liquidity to the crypto market, and also the founding team behind the FTX cryptocurrency exchange and Serum decentralized exchange.

However, since the beginning of this year, with the launch of the decentralized exchange Serum, we find that Alameda Research is not only positioned as a proprietary quantitative trading firm but is also involved in investing in numerous blockchain projects and startups, with the entire Alameda Research/FTX group's map continuously expanding.

In terms of the development of compliant centralized exchange business, in early May this year, FTX launched the crypto asset spot exchange "FTX.US" in the United States. This exchange has registered as a money services business (MSB) with the Financial Crimes Enforcement Network (FinCEN) and has obtained most state-level money transfer licenses (MTL) in the U.S.

In late August, FTX announced the acquisition of the cryptocurrency asset management tool Blockfolio for $150 million, marking it as the 6th largest merger and acquisition deal in the cryptocurrency industry to date, also demonstrating the exchange's determination to accelerate growth in the retail market. After the acquisition, Blockfolio has already indicated plans to launch trading tools.

As for the decentralized trading platform, the actions of Alameda Research and FTX have been even more dazzling.

First, the decentralized exchange Serum, launched by Sam Bankman-Fried on the high-performance blockchain platform Solana, has officially gone live. This DEX is built on the new public chain Solana, not only achieving Ethereum interoperability and proposing cross-chain solutions for Bitcoin to facilitate asset-level interoperability but also providing features such as cross-chain swaps to realize a comprehensive decentralized trading infrastructure.

Recently, Sam Bankman-Fried temporarily took over the AMM trading protocol SushiSwap from an anonymous team, proposing to create a SushiSwap branch on Serum. If this proposal is realized, it will also bring new opportunities to the Serum ecosystem.

Here is a summary of the possible future map around "trading" for Sam Bankman-Fried and affiliated companies, compiled by Chain News:

1. Centralized exchange: FTX + U.S. compliant division FTX.US

2. Decentralized exchange: Serum + AMM trading protocol SushiSwap (community project, not directly controlled, but SBF has considerable influence in this project)

3. Quantitative trading and investment institution: Alameda Research

4. Blockfolio: The cryptocurrency asset management tool acquired by FTX for $150 million. To date, Blockfolio's mobile downloads have surpassed 6 million, with daily active users in the hundreds of thousands, coming from over 90 countries and regions worldwide.

It is also worth mentioning that the Wall Street high-frequency trading firm Jump Trading, under the push of Sam Bankman-Fried, announced earlier this month that it would invest in the decentralized exchange Serum and provide liquidity for this DEX. This marks a milestone event for traditional Wall Street trading giants venturing into the decentralized finance space. Jump Trading, established in 1999 and headquartered in Chicago, was responsible for providing liquidity for the well-known trading software Robinhood in 2018.

2. Unveiling the Mystery of Alameda Research

Many people began to notice Alameda Research from a news report in February this year. Previous data from the Bitfinex leaderboard showed that around February 24 this year, the account certified as FTX CEO Sam Bankman-Fried had a paper loss of $13.12 million on Bitfinex.

FTX subsequently published an official announcement responding with an article explaining "hedge arbitrage trading", stating that one could go long on cheap assets and short on expensive ones (i.e., going long on Bitfinex, where trading costs are lower, and shorting on other exchanges like BitMEX, where perpetual contract funding rates are higher), to achieve hedge arbitrage trading. From subsequent official announcements, we learned that although FTX is an exchange, its founder Sam Bankman-Fried is also the founder of the proprietary trading market maker Alameda Research, which indicates that Alameda Research is achieving arbitrage in the cryptocurrency market through some quantitative or hedging strategies.

Currently, there is not much information available about Alameda Research in the market. From the limited information, it can be understood that Alameda Research's initial main business was as a proprietary quantitative trading company and liquidity-providing market maker, but since this year, more and more blockchain projects have publicly disclosed investments by Alameda Research, indicating that the institution has developed a rapidly expanding investment business, with its selling speed and coverage potentially placing it on the list of the most active crypto venture capital firms.

We speculate that Alameda Research plays a role similar to a "think tank" in the entire ecosystem, with its business lines including trading (quantitative trading + market making), OTC business, research and analysis business, and investment business.

3. Alameda Research's Entry into the DeFi Investment Map

Based on the disclosed information, Chain News has collected Alameda Research's investment map to date:

Trading Ecosystem Solution UpBots

The trading ecosystem solution UpBots aims to combine DEX and CEX to form a trading system, integrating various DeFi protocols that support collateral and lending, and supporting seamless switching between bot trading and manual trading. The project completed a $1.1 million token sale financing at the end of August, with other investors including CMS, Taureon, and others. UpBots also revealed that the project is seeking to be listed on the decentralized exchange Serum.

DeFi Derivatives Protocol Perpetual Protocol

The DeFi derivatives protocol Perpetual Protocol comes from Taiwan and claims to have introduced an automated market maker mechanism called "vAMM" (virtual AMM). vAMM uses the same constant product formula as Uniswap but does not store a real asset pool; instead, real assets are stored in smart contracts. The project was previously named "Strike Protocol" and completed $1.8 million in financing, led by Multicoin Capital, with participation from Three Arrows Capital, CMS Holdings, and Alameda Research. Binance is also an investor in this project.

DeFi Mobile Application Frontier

The DeFi mobile application Frontier aims to provide integrated services for accessing multiple DeFi applications on mobile. The project announced in August that it completed $1.85 million in private placement financing, with investors including Alameda Research, FTX, Woodstock Fund, Mechanism Capital, NGC Ventures, CoinGecko, Spark Digital Capital, Black Edge Capital, AU21, TRG Capital, Bidesk, and Matic Network co-founder Sandeep Nailwal. The FRONT token is planned to be listed on the decentralized derivatives exchange Serum, and the Frontier application suite will also add support for the Solana token SRM.

Decentralized Options Trading Protocol Hedget

Hedget is a decentralized options trading protocol launched by the blockchain project Chromia, allowing investors to create and trade different options products on-chain, hedging against price fluctuations and risks from mortgage positions. Additionally, the protocol uses the Chromia blockchain to enhance support for layer two networks, enabling faster transactions at lower costs. Alameda Research announced in August a $500,000 strategic investment in the decentralized options trading protocol Hedget (HGET) in exchange for 100,000 HGET tokens, making Hedget the latest IEO project on FTX.

Cross-Chain Liquidity Solution RAMP

RAMP DEFI provides a cross-chain liquidity unlocking solution, allowing non-ERC-20 token holders to collateralize digital assets and utilize them effectively. Specifically, it allows users to generate a stablecoin rUSD based on collateralized assets, which can then be used to borrow, lend, and trade another ERC-20 token eUSD, thereby unlocking liquidity for asset owners staking on various chains. The project announced in August that it completed over $1 million in oversubscribed private placement, with private investors including Alameda Research, ParaFi Capital, XRP Capital, IOST, Signum Capital, Ruby Capital, and Blockwater VC.

Stablecoin Aggregation Protocol mStable

mStable is an Ethereum-based stablecoin aggregation protocol, which is a smart contract system that can mint stablecoins (such as mUSD) by injecting other stablecoins (like DAI, USDT, USDC). Users can also destroy mUSD to redeem other stablecoins, paying a portion of the redemption fee. FTX has launched spot, quarterly, and perpetual contracts for mStable's token Meta (MTA) at the end of July.

Institutional Trading Communication Platform Paradigm

Paradigm aims to become an institutional-level trading communication platform for cryptocurrencies, allowing users to customize trading layouts, providing a modular interactive interface, and enabling multiple tools to trade side by side. The project builds trading based on protocols, providing front-end interfaces and order matching engines, allowing exchanges and traders to enter a single global liquidity pool, abstracting proprietary liquidity models. At the same time, Paradigm provides developers with a platform for implementing settlement logic and financial tools, supporting spot, derivatives trading, and lending, with off-chain order relays for on-chain settlements, allocating fees to developers proportionate to contract usage.

Crypto Quantitative Trading Company Folkvang

Folkvang is a new quantitative trading and liquidity provider based in Hong Kong, which, like Alameda Research, is a crypto quantitative trading company focusing on computer and algorithmic trading strategies. Alameda Research made an investment of over a million dollars in this competitor in March this year. Folkvang stated at the time that it would impose restrictions on Alameda to prevent the latter from gaining any unfair trading advantages.

Ontology-Based DeFi Project OIN Finance

OIN Finance is an ontology-based DeFi project aimed at building a DeFi ecosystem centered around the Ethereum blockchain. According to the project's white paper, OIN's cross-chain technology supports decentralized cross-chain asset exchanges, and its cross-chain architecture aims to promote the integration of OIN's DeFi ecosystem with other public chain DeFi ecosystems.

Synthetic Asset Protocol Linear Finance

Linear Finance is a DeFi synthetic asset protocol similar to Synthetix. The project announced this month that it has secured $1.8 million in private placement financing, with participating institutions including NGC Ventures, Alameda Research, Hashed, CMS Holdings, Genesis Block, Kenetic Capital, and others.

In summary, most of the projects that Alameda Research is currently investing in are in the DeFi or trading sectors. Additionally, many newly invested projects will be listed on FTX or have plans to be listed on the decentralized exchange Serum.

As of the time of publication, the decentralized options trading protocol Hedget, in which Alameda Research has invested, has become the latest IEO project on the FTX exchange. We can speculate that the projects invested in by Alameda Research are likely to empower the entire ecosystem through various means in the future, such as through FTX IEO or the newly launched Serum DEX.

Moreover, regarding the aforementioned investment portfolio, the official stance is also quite noteworthy. Alameda Research has stated to Chain News that it does not wish to promote its investment portfolio with an emphasis on investment. They pointed out that for some projects, Alameda Research only participated in a "very small" amount of investment, and they have also conveyed the idea that "investment does not imply endorsement" to the invested projects. The Alameda Research team particularly emphasizes that they want to remind investors "not to make irrational decisions just because some projects are part of Alameda Research's investment portfolio."

4. Meet the Traders Behind Alameda Research

It is well known that FTX CEO Sam Bankman-Fried is also one of the co-founders of Alameda Research, but if you open the team information on the official Alameda Research website, it is difficult to define the core team members with various so-called job titles. For example, if you open the LinkedIn pages of several key members on the Alameda Research website, you will find that they hold the simple title of Trader at Alameda Research. So, who are the "traders" behind Alameda Research?

Caroline Ellison is a key core member at Alameda Research. She graduated from Stanford University with a degree in mathematics and previously worked as a stock trader at the well-known Wall Street trading firm Jane Street alongside Sam Bankman-Fried. According to her description in a podcast, after a brief meeting with Sam Bankman-Fried in a café in 2018, she decided to leave her Wall Street job and dive into the cryptocurrency industry by joining Alameda Research.

Caroline Ellison

The Alameda Research website publicly introduces six team members, most of whom have experience working in traditional financial trading:

• Sam Trabucco and Troy Tsui previously worked as bond traders and fixed income traders, respectively, at the quantitative trading firm SIG;

• Ryan Salame, responsible for OTC business, previously worked at Ernst & Young;

• Nate Parke, who previously served as an engineer at UC Berkeley RISE Lab, is currently responsible for engineering development at Alameda Research.

Additionally, it is worth reviewing the personal experiences of Sam Bankman-Fried, the "most important trader" at Alameda Research. Sam Bankman-Fried graduated from the Massachusetts Institute of Technology with a degree in physics and previously worked as an ETF trader at the well-known Wall Street trading firm Jane Street, where he designed the company's automated OTC trading system.

Sam Bankman-Fried

It must be said that we are surprised to find that the entire FTX team consists of only about 40 members, compared to other exchanges or blockchain companies that often have hundreds or even thousands of employees, making the entire team "small but elite".

Alameda Research is even more distinctive, as the team introduction on the company's official website differs from the conventional corporate structure of traditional companies. Alameda Research does not highlight so-called workplace identities and titles; CEO SBF's position is also listed at the end of the team. The introduction of team members simply returns to the pure identity of "trader" or "engineer", each performing their duties, reflecting a more open and equal corporate culture.

However, this compact, agile, and remarkable team is pioneering in the world of decentralized finance, influencing the future direction of this new world. Their actions cannot be ignored.