My hypothesis regarding FTX, which as of this writing is maybe 40% 
confidence:

1) Alameda is the largest counterparty on FTX derivatives (swaps) markets.

2) (Least confident) Alameda got better-than-public terms with respect to 
posting collateral for its swaps. It was both not arms-length and not 
publicly known.

3) Alameda, and not FTX directly, was vulnerable to a liquidity crisis if 
FTT declined in value, because Alameda was heavily leveraged and their 
lenders could pull the lines.

4) If Alameda unwound positions to raise liquidity to repay lenders, that 
would more than deplete liquidity available on FTX (while crashing several 
of their submarkets in various ways), leading to cascading failures and 
notional losses far in excess of FTX's ability to cover with their 
insurance fund. Risk of that caused large traders to unwind their own 
positions.

5) Since unwinding their own positions is equivalent to Alameda unwinding 
its positions... liquidity crisis anyway.

6) FTX was shopped to many people, and they saw billions of dollars of 
hole and said "Yeah, no."

7) Binance said "Lol maybe."

8) The market currently overstates how likely "Lol maybe" is to become 
"Yes."

9) Regardless, Alameda has no equity value and will have to unwind most of 
their positions, which is going to materially impact much of crypto, 
including several affiliated projects where the consolidated FTX group is 
a major player.

## Contagion

Alameda was the largest borrower in crypto, or close to it, and their 
lenders were either a) very good at paring risk yesterday or b) are 
totally #*(%(#ed.

My bet is that some big names are in bucket b.

I do not think the market yet understands the degree to which it is 
exposed to the failure of a systemically important institution. I expect 
other systemically important institutions to fail.

Written at approximately 12:50 PM JST on 11/9/2021. -- patio11