The collapse of the cryptocurrency exchange FTX has led to increased attention on the role played by Alameda Research and former CEO, Caroline Ellison in the implosion of society.
Ellison, 28 years old, born into the family of two economists of WITH and graduated in mathematics a Stanford, met Sam Bankman-Fried at the trading company Jane Street Capital. Bankman-Fried like Caroline Ellison, grew up in a family of professors and both embraced the philosophy of “effective altruism“, which involves earning large sums of money to finance philanthropic activities that benefit society. Furthermore, according to what CoinDesk reported, the two would have been involved in a relationship on several occasions.
In 2017, Sam Bankman-Fried left Jane Street to found hedge fund Alameda, Caroline Ellison joined him soon after in what she later called “a blind leap into the unknown”. In an FTX-related podcast, Ellison said she had become a key trader at the firm and joining Alameda was “an opportunity too interesting to pass up”but dealing with clients capital was “a bit daunting” at the start of his career at the company in 2018.
“Mostly, in a way, it was something I wasn’t used to thinking about,” Ellison said. “So it was kind of a risk, imagine I traded on Jane Street but only for a year and a half, yet my experience as a trader was way beyond most of the traders in Alameda. I kind of wanted to go in and be like an expert on everything, but there was still a lot of things in the cryptocurrency world that I knew nothing about.”
Hedge fund Alameda frequently traded on the crypto exchange FTX
As reported by the investigation of Wall Street Journal, Alameda was a leading cryptocurrency trader executing trades on the FTX platform. Although Bankman-Fried was the founder and majority owner of Alameda, he eventually relinquished control of the company, primarily focusing on serving as CEO of cryptocurrency exchange FTX, which he founded in 2019. At its peak, FTX amassed a appraisal of approx $32 billion and was the third largest cryptocurrency exchange in the world in terms of volumes.
The busy atmosphere and rapid growth of both Alameda and FTX increased the strain on those at the helm. The Wall Street Journal previously reported that stimulant use was common among those at the top of Bankman-Fried. Ellison tweeted last year: “Nothing like regular amphetamine use to make you appreciate how stupid a normal, unmedicated human experience is.”
In 2021, Caroline Ellison named co-CEO of Alameda Research
In October 2021, Ellison was named co-CEO of Alameda along with Sam Trabucco In August 2022 when Trabucco announced on Twitter that he would resign from the role, Ellison becomes CEO of the company. Trabucco explained on Twitter that managing Alameda alongside Ellison was “difficult, exhausting and consuming“, adding that it would be “stayed as advisor”.
In the fall of 2021, cryptocurrency prices were near all-time highs, but by early 2022, digital coins were plummeting, and many investment and lending companies in the sector were facing financial pressure. In early November of this year, concerns regarding the financial health of Alameda and FTX were mounting. Rival crypto exchange Binance abandoned its tentative plan to acquire FTX after due diligence revealed that the CEO, Changpeng Zhao defined a budgetchaotic” in an interview with US media.
And it is precisely the relationship between the two companies, FTX and Alameda, which led them to collapse. FTX lent billions of dollars of client funds from the exchange to Alameda in an effort to shore up the company’s finances. When investors attempted to withdraw their funds from FTX, the crypto exchange was unable to meet their demands and plunged into insolvency.
The Wall Street Journal reported that during a meeting earlier this month before FTX filed for bankruptcy, Ellison briefed Alameda staff on FTX’s use of client funds to help Alameda deal with its liabilities and added that she, Bankman-Fried and other members of the firms’ leadership were aware of the decision.