Alameda Minted $38B USDT for Arbitrage Profits

Alameda Research's blockchain data reveals Alameda redeemed over $38B for Tether USDT tokens in 2021, despite not having equivalent assets under management.

Oct 10, 2023 - 13:56
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Alameda Minted $38B USDT for Arbitrage Profits
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Blockchain data, as highlighted by Coinbase director Conor Grogan, suggests that Alameda Research redeemed over $38 billion for Tether USDT tokens in 2021. What makes this figure even more intriguing is that Alameda did not have equivalent assets under management at the time. The on-chain data further reveals that Alameda was responsible for minting $39.55B of USDT, which constitutes a whopping 47% of Tether's circulating supply today.

While the above figures are staggering, they are not without contention. A previous report by Protoss had estimated the number to be around $36.7B. However, Grogan updated these figures after identifying additional wallets, leading to the current estimate of $39.55B.

In January 2021, Sam Trabucco, the former co-CEO of Alameda, provided insights into the significant USDT mints carried out by Tether. He explained how Alameda leveraged arbitrage opportunities related to the value of USDT against various trading pairs on different exchanges. Some key insights:

  1. USDT's Volatile Premium: The premium at which USDT trades to $1 has been notably volatile. For instance, Bitcoin-to-USDT trades often resulted in a slight deficit in basis points compared to BTC/USD trades.
  2. USDT vs. Other Stablecoins: Other USD stablecoins, like USD Coin (USDC), had a less volatile premium due to the different creation and redemption processes involved with USDT. Most market players acquire and trade USDT from markets and not directly from Tether's treasury.
  3. Alameda's Strategy: When USDT's value exceeded $1, Alameda, with its sophisticated trading setups, would sell. They capitalized on their ability to create and redeem USDT as needed, ensuring a win-win situation for both the trading firm and the stability of USDT's dollar peg.

"And note, *these* are the best markets to use to determine where USDT is trading — the combo of BTC/USDT and BTC/USD markets, e.g., are WAY more liquid than any exchange's USDT/USD market, so the prices from these (even though its a two-leg trade) matter way more."

Alameda's strategy was clear: capitalize on the premium of arbitrage opportunities. They were able to "safely put on big bets" due to their ability to handle USDT creations and redemptions. By selling at a price higher than where they created, they not only made profits but also maintained USDT's price close to $1. This strategy allowed Alameda to profit by collecting the premium on arbitrage opportunities through its ability to create USDT tokens.

"Obviously we're making money because we can, e.g., selling above where we create, but we're also bringing the price in line so that when aggro buyers come in, it sticks close to $1."

Sam Bankman-Fried, a notable figure in the crypto industry, also weighed in on the debate in 2021. He confirmed that Alameda actively redeemed USDT for U.S. dollars, countering claims that USDT couldn't be created or redeemed for dollars.

Philip Bohmer Philip is a seasoned journalist that brings clarity to the complex world of cryptocurrencies through his articulate and insightful articles. His passion for blockchain technology fuels his writing, making him a trusted voice in the rapidly evolving digital currency landscape.