<story><title>Crypto trading firm Alameda Research might be insolvent</title><url>https://dirtybubblemedia.substack.com/p/is-alameda-research-insolvent</url></story><parent_chain><item><author>kennend3</author><text>&amp;gt; First very simple point, to become insolvent you have to actually take a loss somewhere.&lt;p&gt;This has absolutely NOTHING to do with being insolvent.&lt;p&gt;&amp;quot;Insolvency&lt;p&gt;In accounting, insolvency is the state of being unable to pay the debts, by a person or company, at maturity; those in a state of insolvency are said to be insolvent. There are two forms: cash-flow insolvency and balance-sheet insolvency. &amp;quot;&lt;p&gt;Insolvency deals with the inability to repay your debts (insufficient cash flow is the most common).</text></item><item><author>dcolkitt</author><text>As someone in the industry, it&amp;#x27;s almost certainly &lt;i&gt;not&lt;/i&gt;.&lt;p&gt;First very simple point, to become insolvent you have to actually take a loss somewhere. They may have a lot of junk tokens on their balance sheet, and these tokens may be overmarked, but Alameda&amp;#x27;s cost basis (most of them were from seed rounds) is still &lt;i&gt;way&lt;/i&gt; below their current value.&lt;p&gt;With Three Arrows it was very obvious where the loss was from, they were hyper-bullish and doubling down on BTC all the way from $69,000 to $18,000 using leverage. By contrast Alameda is notorious for being dollar maxis, constantly taking money off the table, and very rarely having any sort of long-term major beta exposure. (A big reason they have a reputation as mercenaries in the space.)&lt;p&gt;The second point is that the bulk of their liabilities are in the same tokens on their balance sheet. This is particularly true for the FTT token, almost certainly the FTT on their balance sheet is simply a loan from FTX (which is essentially the same org) to Alameda to make a market on FTT on FTX. Regardless if FTT collapses, it wouldn&amp;#x27;t matter cause insolvency both the asset and liability side of the balance sheet would go down.&lt;p&gt;Most likely this is true for much of the rest of their liabilities. Crypto trading firms like Alameda make a huge proportion of their revenue from being &amp;quot;paid market makers&amp;quot; for specific token projects. It&amp;#x27;s very hard for new tokens to bootstrap liquidity. So the typical arrangement is a token project will &amp;quot;lend&amp;quot; Alameda something like 5% of the supply, which Alameda will use to be a market maker in that token at all of the major venues. Most of the liabilities on their balance sheet are probably these token deals, rather than loans made in hard currency.</text></item></parent_chain><comment><author>deetsb</author><text>I&amp;#x27;d argue balance sheet insolvency is really the most colloquial definition insolvency. You can always sell assets (at a haircut of course) to evade cash flow insolvency (arguably that&amp;#x27;s closer to illiquidity really), but you can&amp;#x27;t do anything to get out of balance sheet insolvency except restructure your liabilities.&lt;p&gt;Alameda being in balance sheet insolvency would depend on their assets taking enough of a hit to wipe out the equity buffer.&lt;p&gt;To Doug&amp;#x27;s point the junk tokens are likely at book value on their balance sheet</text></comment>
<story><title>Crypto trading firm Alameda Research might be insolvent</title><url>https://dirtybubblemedia.substack.com/p/is-alameda-research-insolvent</url></story><parent_chain><item><author>kennend3</author><text>&amp;gt; First very simple point, to become insolvent you have to actually take a loss somewhere.&lt;p&gt;This has absolutely NOTHING to do with being insolvent.&lt;p&gt;&amp;quot;Insolvency&lt;p&gt;In accounting, insolvency is the state of being unable to pay the debts, by a person or company, at maturity; those in a state of insolvency are said to be insolvent. There are two forms: cash-flow insolvency and balance-sheet insolvency. &amp;quot;&lt;p&gt;Insolvency deals with the inability to repay your debts (insufficient cash flow is the most common).</text></item><item><author>dcolkitt</author><text>As someone in the industry, it&amp;#x27;s almost certainly &lt;i&gt;not&lt;/i&gt;.&lt;p&gt;First very simple point, to become insolvent you have to actually take a loss somewhere. They may have a lot of junk tokens on their balance sheet, and these tokens may be overmarked, but Alameda&amp;#x27;s cost basis (most of them were from seed rounds) is still &lt;i&gt;way&lt;/i&gt; below their current value.&lt;p&gt;With Three Arrows it was very obvious where the loss was from, they were hyper-bullish and doubling down on BTC all the way from $69,000 to $18,000 using leverage. By contrast Alameda is notorious for being dollar maxis, constantly taking money off the table, and very rarely having any sort of long-term major beta exposure. (A big reason they have a reputation as mercenaries in the space.)&lt;p&gt;The second point is that the bulk of their liabilities are in the same tokens on their balance sheet. This is particularly true for the FTT token, almost certainly the FTT on their balance sheet is simply a loan from FTX (which is essentially the same org) to Alameda to make a market on FTT on FTX. Regardless if FTT collapses, it wouldn&amp;#x27;t matter cause insolvency both the asset and liability side of the balance sheet would go down.&lt;p&gt;Most likely this is true for much of the rest of their liabilities. Crypto trading firms like Alameda make a huge proportion of their revenue from being &amp;quot;paid market makers&amp;quot; for specific token projects. It&amp;#x27;s very hard for new tokens to bootstrap liquidity. So the typical arrangement is a token project will &amp;quot;lend&amp;quot; Alameda something like 5% of the supply, which Alameda will use to be a market maker in that token at all of the major venues. Most of the liabilities on their balance sheet are probably these token deals, rather than loans made in hard currency.</text></item></parent_chain><comment><author>dchftcs</author><text>Given the assumption that their balance sheet is liquid enough or they have the cash flow to pay the debts, it&amp;#x27;s reasonable to say that they have take losses as a trading firm to be potentially insolvent.&lt;p&gt;In fact you could turn your argument around to critize the article too, as they are based on the assumption that some of the assets should marked to zero, rather than examining empirically whether those assets could be either collateral or be used to pay the debt.</text></comment>