Former employee exposes the 2021 BTC flash crash incident, Alameda's hasty trading results in tens of millions of dollars in losses
Aditya Baradwaj, former engineer at Alameda Research, a trading firm under FTX, recently released his second article "The Fat-Finger", following his earlier disclosure of gradually telling the story of Alameda. The article discusses Alameda's incident in 2021.
Looking back at Adi: Revealing the true face of SBF: the real experiences of an Alameda engineer, what irresponsible behaviors did FTX exhibit?
Table of Contents
Alameda's Way of Working
Shortly after joining, Adi learned that Alameda has two trading modes. One is a semi-automatic trading system where traders must regularly set parameters and fine-tune algorithms.
The other is when the trading system malfunctions due to market volatility, or there are arbitrage opportunities in the market that they have not set up trades for, Alameda traders need to engage in manual trading.
The majority of Alameda's trades are automated, and traders conduct sanity checks to ensure the liquidity, risk, and other parameters of automated trading.
However, manual trading is different. Adi pointed out that Alameda's manual trading has a high degree of autonomy, which led to the "fat finger" event on October 21, 2021.
Alameda's Fat Finger Event
Adi recounted how an Alameda trader intended to sell a batch of BTC but instead of selling at market price, mistakenly entered a price with several zeros missing.
This led to a flash crash in the BTC price on some exchanges, dropping from $65,000 to $8,000.
Although the price quickly recovered to its original level due to arbitrage traders, such a flash crash drew widespread attention in the crypto community.
Binance US in the Spotlight
Adi pointed out that Binance US was at the center of the flash crash. A Binance spokesperson later told CoinDesk that it was due to a "flaw in the trading algorithm of institutional traders."
Adi speculated that former Alameda CEO Caroline Ellison may have called Binance US to inform them of the incident.
Alameda's Single Trade Losses in the Millions
Adi stated that this event resulted in losses of tens of millions of dollars. However, it was an unintentional error, as at that time, they had conducted additional sanity checks for manual trading and found no optimization issues.
This is how Alameda operates. He said:
We wait for problems to arise before quickly correcting them. However, if it were a "traditional" trading institution, they would never start trading without a complete sanity check. SBF believes that the benefits of rapid corrections far outweigh the costs of inadequate risk management, hacking, and other reasons.
He emphasized that this is SBF's work philosophy, which further drives the culture of Alameda and FTX.
Adi concluded by stating that the flash crash from that year has always been a mystery, but now everyone should understand what happened and who should be held responsible.
He seemed to suggest that SBF should take responsibility.