The liquidators become the liquidated.
The restructuring team that is trying to locate and recover customer funds as part of the bankruptcy process for FTX and sister company Alameda Research is having a difficult time navigating the DeFi space.
The team recently attempted to move funds into an Alameda Research-owned multi-sig wallet but in the process lost 4 Aave Wrapped BTC (aWBTC), worth approximately $72,000, according to a report from blockchain intelligence firm Arkham Intelligence.
“The liquidators would benefit from having a DeFi expert to advise on the mechanics of closing Alameda DeFi positions and retrieving as much money as possible,” Zachary Lerangis, head of operations at Arkham, told Decrypt.
DeFi protocols, which enable users to trade, borrow, and loan crypto without intermediaries, require a certain level of sophistication to navigate. For instance, the way loans work on Aave, borrowers deposit collateral and borrow against it. Aave requires loans to be overcollateralized, meaning the ratio between collateral and borrowed funds has to stay above a certain threshold or risk being liquidated. Once a loan has been repaid, the borrower can unlock their collateral.
But it appears that the Alameda liquidators didn’t know that.
“Rather than paying back the debt to close out the position, the liquidators opted to remove all the extra collateral, putting the position in danger of liquidation,” the Arkham team wrote in the report. “This resulted in the liquidation of around 4 WBTC, $72K at current prices.”
FTX Restructuring Team Has Clawed Back $5B in Lost Assets
But that wasn’t the only “embarrassing on-chain faux pas,” said Arkham. Among the team’s other gaffes were nine failed attempts to move $1.75 million worth of Lido (LDO) tokens that were still vesting. At the time of writing, the wallet still has $3 million worth of LDO.
There’s another wallet that Arkham says belongs to Alameda that has sent $0.60 worth of DAI stablecoin and $0.02 COLLAR token to the multi-sig, but still has $1.5 million worth of funds in the wallet that have yet to…