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Prominent traders are anticipated to maintain robust security measures to fend off hacks and phishing threats, common issues in the cryptocurrency sphere.
However, this wasn't the case for Alameda Research, the trading firm overseen by Sam Bankman-Fried. Recent allegations from former employee Aditya Baradwaj have brought to light that the firm suffered losses upwards of $200 million due to prevalent security issues that are rampant in the crypto sector.
According to Baradwaj's statement on social platform X, Alameda Research prioritized rapid progress over security. Such an approach led to little or no code testing and improper accounting of balances. To further amplify concerns, Baradwaj revealed that vital data like blockchain private keys and exchange API keys were easily accessible to multiple employees as they were stored in plaintext. CoinDesk, a reputable crypto news source, confirmed Baradwaj's association with Alameda through the payslips he furnished.
The trading firm's shortcomings were evident when it lost $40 million via yield farming on a dubious new blockchain. In this instance, the creator of the network seized Alameda's funds, resulting in prolonged negotiations. The final outcome of these negotiations remains uncertain.
Yield farming, while offering attractive rewards by allocating tokens to a financial app on blockchain, can be manipulated by bad actors to block withdrawals after pooling significant funds, causing losses.
Another setback for Alameda was a leak of private crypto storage keys, attributed possibly to an ex-employee, leading to a loss of over $50 million in assorted tokens. The most significant blow came when the firm lost $100 million, having been deceived by a counterfeit phishing link promoted on Google Ads.
These incidents are part of a broader pattern of security oversights at Alameda. A recently unveiled biography of Bankman-Fried by Michael Lewis reveals the founder faced daily losses in the company's initial phase and even misplaced a substantial sum in XRP tokens at one point.
These incidents spotlight the relaxed security protocols at Alameda and the evident neglect of its staff. Enhanced private key storage and diligent vetting of DeFi transactions could have prevented these extensive losses.
Additionally, FTX, another establishment under Bankman-Fried, faced a setback of over $400 million after filing for bankruptcy in November 2022. Insufficient private key safeguards were identified as the root cause, which potentially risked over $1 billion for the company.
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