Key Insights:

• FTX sues LayerZero Labs to reclaim $21M, alleging opportunistic behavior during a liquidity crisis.
• Multiple financial deals between Alameda Ventures and LayerZero Labs are scrutinized in the lawsuit.
• LayerZero’s $45M loan to Alameda Research and failed $10M STG token deal are focal points in FTX’s legal pursuit.

FTX, the bankrupt crypto exchange, filed a lawsuit against LayerZero Labs on September 9, aiming to recover $21M. The lawsuit alleges that LayerZero capitalized on FTX’s financial struggles. The legal action is rooted in a series of transactions between Alameda Ventures, the investment division of FTX’s affiliate Alameda Research, and LayerZero Labs.

Beginning this year until May, Alameda Ventures poured in a significant $70M to secure roughly a 4.92% share in LayerZero. Furthermore, during a public auction in March, they purchased 100M STG tokens for $25M, with the distribution scheduled to commence in March 2023.

Super excited to work with @LayerZero_Labs!

They're building out a key missing piece of crypto infrastructure–cross-chain liquidity.

And more importantly, they're doing a great job of building great products. https://t.co/TvEC6sfpeE

— SBF (@SBF_FTX) March 30, 2022

The Complicated Dynamics of Loans and Failed Deals

In a further financial entanglement, LayerZero loaned $45M to Alameda Research in February, featuring an 8% annual interest rate. When FTX’s liquidity crisis began to unfold in November, LayerZero acted swiftly to negotiate the return of its stake from Alameda Ventures. The proposed deal involved LayerZero forgiving the $45M loan in exchange for the return of its shares in Alameda Ventures.

Another agreement centered around 100 million STG tokens also appeared on the horizon. LayerZero agreed to repurchase these tokens at a discounted $10M on November 9. However, this deal has yet to reach completion, leaving many questions about both companies’ commitments.

put simply

we did indeed buy all of the tokens (back)

better is better

– RAZ & Bryan https://t.co/anBSloYRLV

— raz (@ryanzarick) November 10, 2022

FTX Lawsuit Alleges Opportunistic Exploitation and Financial Misconduct

FTX alleges that LayerZero capitalized on Alameda Research’s liquidity shortfall. Reportedly, within a day, a rapid “distress-sale” arrangement was made with Caroline Ellison, the chief executive of Alameda Research. The legal action seeks to invalidate these contracts and retrieve $21.37M from LayerZero Labs, $13.07M from its ex-COO, Ari Litan, and $6.65M from its affiliate, Skip and Goose.

LayerZero Labs has remained silent on these accusations thus far. It should be noted that this isn’t FTX’s first attempt to reclaim lost funds; the bankrupt exchange is concurrently seeking to recover billions from various other subsidiaries’ transactions before its downfall.

As these legal wranglings unfold, the case serves as a sobering reminder of the volatile and interconnected landscape of the burgeoning crypto industry. While FTX’s efforts to recover its financial losses are still in progress, the impacts of its bankruptcy continue to reverberate far and wide.

This lawsuit has no connection with LayerZero Power Systems, a distinct entity that owns the LayerZero trademark but does not operate in the crypto arena.

With legal proceedings about to get underway, all eyes in the crypto community are focused on this landmark case. Its outcome will set the tone for resolving similar disputes in this ever-evolving sector.