FTX is suing LayerZero to recover $21 million under agreements made during FTX’s impending bankruptcy. Alameda Ventures had invested more than $70 million in LayerZero, but FTX’s bankruptcy complicated matters, and the exchange’s new management is trying to recover funds by citing past transactions at the time.
New arm wrestling triggered by FTX
The current management of FTX is suing the cryptocurrency transfer protocol LayerZero to recover $21 million following various agreements between Alameda Research and the company when the exchange was preparing to go bankrupt.
By way of background, in January 2022, when FTX was operating and no one expected it to collapse, Alameda Ventures paid over $70 million in 2 separate transactions to acquire around 5% of LayerZero and benefit from preferential rates on the purchase of Stargate (STG) and LayerZero (ZRO) tokens.
2 months later, Alameda Ventures paid $25 million to acquire 100 million STG tokens, which were to be transferred to it gradually over a period of 6 months. At the same time, LazerZero granted Alameda a $45 million loan in February 2022, at 8% annual interest.
Except that, according to the document published by FTX, LayerZero contacted Caroline Ellison, then CEO of Alameda Research, to recover the $45 million loan just as the liquidity crisis facing Sam Bankman-Fried’s empire was about to explode, i.e. in November 2022.
In return, the deal called for Alameda to return its 5% shareholding to LayerZero. In addition, LayerZero was also to buy back its 100 million STG tokens for $10 million, $15 million less than the initial purchase. However, this transaction never took place.
In other words, according to current FTX management, LayerZero tried to take advantage of the exchange’s weak position when it collapsed:
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“[While Alameda was insolvent, LayerZero received] equity valued at nearly $150 million (based on LayerZero’s most recent fundraising), a warrant entitling Alameda Ventures to receive approximately 2.5% of the total offering of all STG tokens mint, generated or created, or approximately 25 million STG tokens (trading at approximately $0.55/token as of August 31). “
Even, LayerZero would have interfered with Caroline Ellison’s attempts “to keep Alameda afloat”:
“The proposed sale of Alameda Ventures’ 100 million STG tokens for just $10 million was also unconscionable and would have resulted in a wholly disproportionate transfer of value from Alameda Ventures to LayerZero, demonstrating the inequitable nature of the deals LayerZero negotiated with Ellison as it frantically tried to raise funds to keep Alameda Research afloat “
LayerZero defends itself
Bryan Pellegrino, CEO of LayerZero Labs, has taken to X (formerly Twitter) in a lengthy post to set the record straight. According to him, FTX’s allegations are “totally unfounded”: he even claims that LayerZero proactively tried to clarify the situation with FTX, which the exchange’s management apparently ignored.
Regarding the FTX suit, the entire suit is filled with unsubstantiated claims. We have been in communication with the FTX liquidators for almost a year now and have time and time again attempted to proactively address the issue of ownership of the shares with them and have been…
– Bryan Pellegrino (@PrimordialAA) September 11, 2023
” […] The fact that they waited all this time to file a complaint filled with unsubstantiated claims leads me to believe that the objective is not to resolve the problem, but simply to prolong the proceedings in the hope of receiving more legal fees. First of all, I personally FILED millions in the month leading up to the bankruptcy, including $1 million up to November 7. “
Next, Bryan Pellegrino says that LayerZero had tried to settle out of court, and that FTX had not been cooperative at the time:
” […] We took the initiative to reach out to FTX and work cooperatively to reissue the tokens, leaving aside the question of ownership. FTX flatly refused, and its lawyer seemed to believe that he had custody of the physical keys needed to access the tokens and didn’t seem to have even a basic understanding of what private keys are or how they are composed. “
Finally, LayerZero’s CEO was confident about what would happen next:
“It is disappointing to see the rights holders resort to defamation; we look forward to the matter being resolved in the courts. “
