22% of the volume of all deposits and withdrawals using the platform’s digital wallets is linked to Alameda Research, the market maker owned by Sam Bankman-Fried. According to Bloomberg, this could create a conflict of interest.
Journalists noted the growing role of the trading firm, which in 2021 earned revenue of more than $1 billion, placing it on a level with Wall Street players. The expanded scale allowed it to become a key player from DeFi to venture investments and lending of troubled firms.
According to CB Insights, since 2020 Bankman-Fried’s companies have participated in 117 funding rounds.
The Voyager Digital and Celsius Network restructurings demonstrated the enormous influence of the market maker on the industry.
The trend has raised concerns that, in the absence of proper regulation and due to active involvement in the development of regulatory requirements there will be ground for conflicts of interest between FTX and Alameda Research.
Bankman-Fried, who owns 50% of the first firm and 100% of the second, regards concerns about gaining advantages in operations as unfounded. According to him, Alameda sends orders and has access to client information just as other users do.
Bloomberg explained that in traditional financial markets these two lines of business are generally not linked. That approach helps ensure competition among stakeholders and lowers prices for clients. On the cryptocurrency market, such regulation remains to be developed.
A spokesperson for FTX, in response to the request, said that all trades through the order book go through the same counterparty-matching process. Alameda operates on the same terms as other clients, he added.
According to Bankman-Fried, Alameda Research is currently no longer the largest market maker on FTX. However the closed nature of trading information on the centralized platform does not allow either to confirm or deny this assertion.
With a reasonable degree of certainty, this can be inferred by examining on-chain data associated with the exchange and the trading firm’s addresses.
According to AnChain.ai, in the period from June 1 to July 22 addresses identified as Alameda wallets were the largest depositors of stablecoins (10% of all USDT and 30% USDC) and liquidity providers for all known FTX wallets.
According to Arkham, since 2018 roughly 52.4% of the market maker’s deposit and withdrawal volume has gone to the “related” exchange. For FTX, this figure for Alameda stood at 22%. By comparison: on Binance the trading firm accounts for only 4% of the transferred on-chain value.
Journalists noted that the cited data indicate only large flows between the firms and cannot confirm Alameda’s status as the largest market maker on FTX. Full disclosure of deal data with identifiers would be required. The latter would be possible in the event of registration with the SEC.
The big difference between crypto markets and stock markets is that in the latter you have policy, procedures and a regulator who will conduct investigations, said David Weisberger, co-founder of CoinRoutes.
In July, SEC Chair Gary Gensler stated, that the agency is considering whether to eliminate potential conflicts of interest when platforms also act as market makers. At that time the official did not provide examples of such conduct.
FTX and Alameda Research are under the oversight of the Bahamas regulator. The exchange has also received authorization from U.S. regulators to operate from several agencies in the European Union, Japan, Australia, Switzerland and Dubai.
A spokesperson for FTX said that the U.S. unit is in talks with the SEC about registration after laying the groundwork for digital asset platforms.
In July 2021, Bankman-Fried did not rule out a future purchase of Goldman Sachs or CME Group.
In January 2022, FTX raised $400 million at a valuation of $32 billion.
For more on Bankman-Fried, read ForkLog educational cards.
Follow ForkLog’s Bitcoin news on our Telegram — cryptocurrency news, prices and analysis.