Written by: Adi, former Alameda Research employee

Compiled by: Luffy: Foresight News

Alameda Research once had a story about a "fat finger" transaction that caused a short-term market crash that caused repercussions around the world, but at the time, the public did not know the truth behind the scenes. (Translator's note: Fat fingers refer to the fact that in the ever-changing electronic financial market, traders must operate quickly. High-intensity work coupled with huge pressure makes traders likely to press the wrong keyboard.)


This happened a few weeks after I joined Alameda. I was just getting a handle on the company's engineering workflow and starting to understand the trading systems. At a high level, Alameda's transactions operate in two modes:

The main one is our semi-systematic strategy, where the trader sets the model parameters to control a complex automated trading system. This way, traders don't make actual trades, but fine-tune algorithms to decide how to execute those trades at high frequency.

However, every once in a while, traders need to execute trades manually. Typically, manual operations may be required if our automated trading systems malfunction due to market volatility, or if arbitrage opportunities exist where we have not set up automated trading.

Our automated trading systems handle the vast majority of Alameda's transactions. Therefore, we perform sanity checks to ensure that orders sent are reasonable relative to current market prices. But this is not the case with manual trading, which is discretionary in nature.

The tricky thing about risk is that it's often invisible until it pops up and bites you in the butt.

Well, on October 21, 2021, an Alameda trader's hand slipped.

The trader attempted to sell a batch of BTC based on the news and placed the order through our manual trading system. They moved the decimal point a few wrong places and instead of selling Bitcoin at the current market price, they sold it at a cheaper price.

The results are immediate. On some trading venues, the price of Bitcoin plummeted from a high of $65,000 to a low of $8,000, but was quickly recovered by arbitrageurs.

The sudden price action ignited discussion on crypto Twitter, with traders scrambling to figure out what was going on:


News media also began to take notice. Binance US, one of the major venues for the flash crash, released a statement claiming it was caused by one of their “institutional traders” who had a “flawed trading algorithm.”

I guess Caroline called them.


Alameda's losses from the "Fat Finger" trade were staggering in the tens of millions of dollars. But since this was an honest mistake, nothing was done except implementing additional sanity checks for manual transactions.

The way Alameda usually works, we wait until something goes wrong and then rush to fix it. This is why it took us so long to implement sanity checks, any "traditional" trading firm would never have started trading without doing this.

After that, everything went back to normal. According to SBF, the benefits we gain from moving quickly outweigh the occasional costs we incur due to missed risk checks, hacks, and more. This is SBF's work philosophy and it drives the corporate culture he created at Alameda and FTX.

The Bitcoin flash crash has been a mystery in the public mind for nearly two years. Now you know who is responsible and what happened behind the scenes.