Is this the end of FTX?
After a spectacle, Binance announced it would acquire FTX.
After a spectacle, Binance announced it would acquire FTX. But how did it get here?
When the largest exchange in the crypto industry tries to buy the third-largest one, it’s a certainty: history is being written. Binance, or more precisely its CEO Changpeng "CZ" Zhao, signs an agreement to buy out his biggest competitor—an unprecedented move even in crypto.
More than just sister companies
The news site Coindesk investigates internal Alameda Research documents, a sister company founded by FTX CEO Sam Bankman-Fried (SBF), showing Alameda has a closer tie to FTX than previously thought. In particular, the large share of the FTT coin creates concerns. FTT is the native token of the FTX platform, which swings with the company’s health.
Beyond the risky link between the two SBF-led entities, another realization emerges: Alameda Research is huge. Really huge. The company had total assets of about $14.6 billion as of June 30 this year, according to Coindesk. FTT accounts for at least $2.16 billion — a criminally high percentage of the total balance sheet, as will become clear later. Because if the FTT token crashes, it could threaten the financial health of its sister company FTX.
Binance puts pressure on its rivals
The real story kicked off on November 6. Last Sunday, CZ teased on Twitter that the company planned to sell FTT reserves on Binance’s balance sheet. Given Terra (LUNA)’s crash this summer, the risk of holding an illiquid token was simply too high.
Liquidating our FTT is to mitigate a big risk. We learned from LUNA. We’ve supported before, but we won’t pretend to love companies after the recent split. We’re not against anyone, but we also won’t back anyone who lobbies against other players in the industry behind their backs.
CZ via Twitter.
Although Alameda CEO Caroline Ellison tweeted the same day that her firm would buy all FTT on the market offered by Binance for a maximum price of $22 per coin. Still, Binance couldn’t stop the price from dropping — because Binance preferred a “free market” and declined the deal. FTT was trading at $4.11, a daily drop of 77%. Gracy Chen, managing director at Bitget, says this could signal similar risk for other players in the sector:
"The big concern sparked by this event isn’t just the conflict itself, but how user assets are held by exchanges and other financial actors. This is a known risk factor for many investors and users and has spooked the market."
Gracy Chen.
Liquidity problems at FTX
Worries about FTX’s obligations led to anxiety among investors on November 7-8. A massive withdrawal from FTX began. Customers saved what they could and pushed the exchange to the brink of bankruptcy.
It won’t surprise anyone that news about customer fund withdrawals reached us soon after. Since then, Ether (ETH), Solana (SOL), and Tron (TRX) can no longer be withdrawn from the platform. Reuters, citing internal documents, reports that investors pulled roughly $6 billion from their FTX accounts in just 72 hours.
Saviors in the wings
Then came the knockout punch: Binance CEO Zhao tweeted his intention to take the baton on the afternoon of November 8. Binance had signed a so-called non-binding LOI to begin a full takeover of its rival FTX.
FTX CEO SBF had previously spoken of a "deal with Binance for a strategic transaction," though the tweet didn’t make clear that a full acquisition was intended. The thread then took a bizarre turn, with SBF thanking his would-be biggest rival for helping the crypto ecosystem.
"Many thanks to CZ, Binance, and all our supporters. CZ has done incredible work and will continue to do so to help grow the global crypto ecosystem."
A few days earlier, the rhetoric was less conciliatory: "A competitor is spreading false rumors," SBF tweeted a day earlier. It’s still unclear when the deal will close. An agreement is far from a binding promise of a takeover. Binance reserves the right to audit FTX’s books. If they back out, there would be no legal consequences. The crypto sector, however, will have to hold its breath for now.
