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It seems likely that Binance won\u2019t be able to complete its planned acquisition of struggling competitor FTX after just one working-days worth of review.<\/p>\n
On Tuesday, Binance made an announcement stating that they were no longer interested in acquiring FTX because they had been unable to perform their own due diligence. After conducting their own review of FTX\u2019s finances, Binance decided that they would not proceed with the acquisition.<\/p>\n
After publishing its own report on the company\u2019s finances, CoinDesk reported that the company was having trouble paying its bills. And then, after the publication of CoinDesk\u2019s report, CZ announced that he had sold off some of his shares in FTX.<\/p>\n
After FTX had sought assistance from and been rejected by other major cryptocurrency trading platforms, including Coinbase and OKEX, Binance struck a deal with them.<\/p>\n
Another day, another crypto exchange that leveraged their own token for exponential growth and almost died, bringing the broader market down with them.\u00a0 How did this happen? How did the face of crypto lose $12b+ and how did so many other get liquidated so quickly?\u00a0 Is something nefarious going on or is this just good strategy?\u00a0<\/span><\/p>\n This post is in part a summary of the brilliant Shaan Puri. Make sure to read his twitter thread<\/a>.<\/p>\n Let\u2019s start from the beginning.\u00a0 Early on Binance saw the value of FTX and their team. In fact, Binance was one of their early investors. (Binance invests in many startups.).\u00a0 The issue is that the crypto exchange started growing like crazy.\u00a0 FTX at one point had become the second largest exchange in the world (behind Binance). They were so successful that they began investing heavily in the promotion of crypto.\u00a0 If you watched last years SuperBowl, you undoubtedly saw Matt Damon talking about FTX and crypto.\u00a0 They also happen to sponsor FTX Arena in Miami (home of Lebron James\u2019 former team the Miami Heat).\u00a0<\/span><\/p>\n Between 2019 and 2022, FTX experiences unparalleled growth.\u00a0 Their original mission was to generate as much wealth as possible, to be used for charitable causes following the principles of effective altruism.\u00a0 Additionally, Sam Bankman-Fried (commonly referred to by his initials SBF) becomes a celebrity over night.\u00a0 The genius in his 20\u2019s essentially becomes the face of crypto for many.\u00a0\u00a0<\/span><\/p>\n While Binance was an early supporter of FTX, they now had a problem on their hands.\u00a0 The age old tale of friends becoming enemies comes to the forefront.\u00a0 Binance, seeing the growth decided to sell much of their equity in the company in 2021.\u00a0 A big % of the sale (allegedly ~ $2,000,000,000) included the FTX token FTT (the token used by FTX for trading fees and more).\u00a0\u00a0<\/span><\/p>\n The challenge here really boils down to supply and demand.\u00a0 A token is only worth as much as somebody is willing to pay for it.\u00a0 The fact is that the value of the FTT token remained high, but a massive dump can create liquidity issues.\u00a0 Additionally, Coindesk published an article indicating that SBF\u2019s hedge fund Alemeda has roughly $12b in assets, but nearly $7B of Alemeda\u2019s assets were FTT tokens..<\/span><\/p>\n Allegedly, Binance CEO Changpeng Zhao ( often referred to as CZ)had concerns about SBF communicating with regulators and attempting to lobby organizations on deeper regulation of Binance (once again the leading crypto exchange).\u00a0 <\/span>The combination of factors led to CZ announcing that Binance intended to sell its holding of FTT.\u00a0 A combination of low trading volume, and a whale willing to dump the price created a liquidity crisis for binance.\u00a0 \u00a0 <\/span>During the decline, Alameda echoes the previous collapse of Luna, celsius, voyager, etc. stating they would buy FTT from anyone at $22.\u00a0 The issue is that they really couldn\u2019t.\u00a0 The bluff didn\u2019t work.\u00a0 The titanic begins sinking.\u00a0 Withdrawals are paused, the entire crypto market drops 10-20% within hours.\u00a0\u00a0<\/span><\/p>\n Within hours, SBF announces that a strategic transaction is coming and binance is going to acquire the company.\u00a0 CZ responds stating:<\/span><\/p>\n \u201cThis afternoon, FTX asked for our help. There is a significant liquidity crunch. To protect users, we signed a non-binding LOI, intending to fully acquire <\/span>http:\/\/<\/span>FTX.com and help cover the liquidity crunch. We will be conducting a full DD in the coming days.\u201d CZ <\/span>Twitter<\/span><\/a><\/p>\n<\/blockquote>\n Within a matter of days, billions upon billions of crypto assets were lost.\u00a0 Additionally, Gas prices were at their highest in months as traders took massive haircuts converting risky assets into less risky assets. <\/span>Binance has the keys to castle at this point. It\u2019s up to them if they commit to the deal or let FTX fail.\u00a0 CZ emparted some sage wisdom<\/span><\/p>\n \u00a0<\/p>\n Two big lessons:\u00a0<\/strong><\/p>\n 1: Never use a token you created as collateral.\u00a0<\/strong><\/p>\n 2: Don\u2019t borrow if you run a crypto business. Don\u2019t use capital \u201cefficiently\u201d. Have a large reserve.<\/strong><\/p>\n Binance has never used BNB for collateral, and we have never taken on debt.<\/strong><\/p>\n Stay #SAFU.<\/strong><\/p>\n \u00a0<\/p>\n Two big lessons: <\/p>\n 1: Never use a token you created as collateral. <\/p>\n 2: Don\u2019t borrow if you run a crypto business. Don't use capital "efficiently". Have a large reserve.<\/p>\n Binance has never used BNB for collateral, and we have never taken on debt.<\/p>\n Stay #SAFU<\/a>.\ud83d\ude4f<\/p>\n — CZ \ud83d\udd36 Binance (@cz_binance) November 8, 2022<\/a><\/p><\/blockquote>\n\n
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