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Analysis of right and wrong in the Alameda and REEF Finance incident

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Analysis of right and wrong in the Alameda and REEF Finance incident

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Both Success and Failure Attributed to Alameda

On March 12th, the cross-chain DeFi protocol REEF Finance, based on the Polkadot blockchain, announced an investment from Alameda Research. Alameda Research made a direct investment of $20 million in REEF tokens through over-the-counter trading. As Alameda Research is one of the most influential venture capital institutions in the current cryptocurrency market, the news caused the REEF token to surge again, even breaking the previous high on February 11th.

However, a bombshell was dropped yesterday by Sam Trabucco, a quantitative trader at Alameda Research, announcing that Alameda Research has no relationship with REEF Finance, does not support the project, and does not recommend any business dealings with the team.

Following this tweet, REEF immediately plummeted by nearly 30%. What led Alameda Research to take such drastic measures to end this collaboration?

Chronology of Events

From information released by Alameda Research and REEF Finance, it is inferred that initially, the investment agreement between Alameda Research and REEF Finance was for an $80 million token investment, with REEF Finance required to sell tokens to Alameda Research at an 80% market price discount. However, for some reason, REEF Finance did not request lock-up of the tokens for this transaction and completed the first $20 million transaction. After the tokens were delivered, Alameda Research transferred all the tokens to the Binance exchange (claiming not to have sold them), at which point REEF Finance realized the situation was not right, as the unlocked tokens undoubtedly gave Alameda Research an advantage.

When Alameda Research requested the subsequent $60 million transaction, REEF Finance refused to proceed with the transaction to avoid the potential risk of token dumping. They planned to discuss other solutions; however, Alameda Research threatened REEF Finance that if they did not comply with the original contract, Alameda Research would sell all the tokens, publicly declare the investment a failure, and collaborate with other exchanges to delist the REEF token.

CEO Denko Mancheski proposed to proceed with the transaction but requested token lock-up, which violated the original contract conditions. Legally, Alameda Research was not obligated to agree to this condition. Additionally, Alameda Research stated that they could accept a three-month linear unlock, but due to a lack of trust in REEF Finance, all tokens had to be handed over to Alameda Research for safekeeping. In other words, REEF Finance had to trust that Alameda Research would unlock the tokens linearly over three months as agreed, a proposal that REEF Finance naturally could not accept, leading to the breakdown of negotiations.

Following the breakdown of negotiations, the FTX exchange initiated a poll on Twitter regarding whether to delist REEF, but the tweet seems to have been deleted by the official account.

Alameda Research founder Sam did not offer much response to the matter, only retweeting others' tweets on Twitter and stating:

"Sometimes a team can lose more reputation than another, creating an asymmetry in the public relations war. This time it really messed up."