5. Trader who borrowed ("cashed out") is now being margin called by lawyers who are managing the FTX bankruptcy.
6. Investigation of whether this was an insider deal to funnel away money from FTX, because no legitimate margin desk, CVA or MVA process would allow such a thing.
I mean, it wasn't even FTX who bought the bankrupt position, but Alameda. (since Alameda was the backstop provider)
Bankrupt positions were usually sold for 1% under market price to backstops, so if mobile coin traded at 60 dollars and trader goes bankrupt, Alameda bought the position for 59.4 dollars per mobile coin (what a sweet deal!). The trade is done for trader. I am not convinced that if you go bankrupt, because you bought some GME at $120, you can go after the counter party who sold you GME at that price. (You can try, but it's some bad faith stuff).
This trade underlines again why the commodities exchange act is so vital to the whole country, and shows just how crappy FTX liquidation model is. [1]
Also, I really like trade because it's smart and funny.
Would you even need to take anonymization steps for this as another commenter has suggested (fake/stolen KYC and anonymized collateral)?
It seems to me that whomever was making these trades knew (suspected/or had actual inside operational information-but possibly from prior trades) that Alameda would buy the position and he would not be liable for the subsequent deflation of price.
If you knew that Alameda were going to backstop at 1% under the market price, this seems like an obvious trade to make. But how would you know that Alameda were going to do that without inside information?
2) The information that backstop providers buy the position once your margin fraction is >= 1.5% is public info from documentation [1][2].
3) It is an obvious trade and theoretically still possible on exchanges which have backstop providers and/or "insurance funds" to prevent clawbacks. (It depends on their risk model whether they allow you to open such a position in the first place, though. I don't know about their models at all!)
But just because it is obvious, it doesn't mean it is easy to pull off. Most people fail at the first step, which is that you have initial margin to open a position and then actually move the price in your favour. Then you have people, who will try to bet against you, hunt your stops etc.
5. Trader who borrowed ("cashed out") is now being margin called by lawyers who are managing the FTX bankruptcy.
6. Investigation of whether this was an insider deal to funnel away money from FTX, because no legitimate margin desk, CVA or MVA process would allow such a thing.