The liquidators become the liquidated.

The restructuring team that is trying to locate and recover customer funds as part of the bankruptcy process for FTX and sister company Alameda Research is having a difficult time navigating the DeFi space.

The team recently attempted to move funds into an Alameda Research-owned multi-sig wallet but in the process lost 4 Aave Wrapped BTC (aWBTC), worth approximately $72,000, according to a report from blockchain intelligence firm Arkham Intelligence.

“The liquidators would benefit from having a DeFi expert to advise on the mechanics of closing Alameda DeFi positions and retrieving as much money as possible,” Zachary Lerangis, head of operations at Arkham, told Decrypt.

DeFi protocols, which enable users to trade, borrow, and loan crypto without intermediaries, require a certain level of sophistication to navigate. For instance, the way loans work on Aave, borrowers deposit collateral and borrow against it. Aave requires loans to be overcollateralized, meaning the ratio between collateral and borrowed funds has to stay above a certain threshold or risk being liquidated. Once a loan has been repaid, the borrower can unlock their collateral.

But it appears that the Alameda liquidators didn’t know that.

“Rather than paying back the debt to close out the position, the liquidators opted to remove all the extra collateral, putting the position in danger of liquidation,” the Arkham team wrote in the report. “This resulted in the liquidation of around 4 WBTC, $72K at current prices.”

But that wasn't the only "embarrassing on-chain faux pas," said Arkham. Among the team’s other gaffes were nine failed attempts to move $1.75 million worth of Lido (LDO) tokens that were still vesting. At the time of writing, the wallet still has $3 million worth of LDO.

There’s another wallet that Arkham says belongs to Alameda that has sent $0.60 worth of DAI stablecoin and $0.02 COLLAR token to the multi-sig, but still has $1.5 million worth of funds in the wallet that have yet to be moved.

Arkham says the wallets it has identified have at least $25 million worth of Alameda’s funds deployed in DeFi protocols, like $6 million USDC, a stablecoin issued by Circle, being used to secure a $2 million NEAR loan on Bastion Protocol. There’s also funds stuck on other chains. For example, one Alameda wallet shows a $300 balance on Etherscan, but has $4.4 million worth of ETH still sitting on Aurora.

FTX, a once dominant exchange, collapsed in November following a bank run on the exchange that forced the company to admit it did not hold one-to-one reserves of customer assets, freeze withdrawals, and ultimately file for bankruptcy. Sam Bankman-Fried, founder of FTX and trading firm Alameda, has since been arrested and charged with eight financial crimes, including wire fraud and conspiracy to commit money laundering. Authorities allege that FTX customer funds were being funneled to Alameda for its own trading and investments, resulting in the loss of billions of dollars.

FTX restructuring team took a victory lap in court yesterday for having located $5 billion worth of assets. But at the start of the bankruptcy process, newly appointed FTX CEO John Ray III said that the liquidators didn’t know how much money the company had or how to access it.

There have also been suspicious transactions since FTX, including Alameda Research, entered Chapter 11 bankruptcy protection on November 11. At the end of December, blockchain sleuth ZachXBT spotted Alameda wallets swapping obscure tokens for Bitcoin and Ethereum by way of mixers, used to obscure transactions.

“Alameda ETH addresses are digging around in the sofa for spare change” one blockchain researcher wrote on Twitter.