The plummet of the third largest cryptocurrency exchange in the world
Earlier this week, Sam Bankman-Fried (SBF) also greeted employees with the surprising news: “I’m sorry.” Bad news has kept popping up over the past few days, leading to the exchange FTX’s FTT tokens being over 80% of their value lost. Coinmarketcap.com
consequences ReutersFTX’s seed of death germinated a few months ago. It all started with Bankman-Fried’s mistake when he decided to bail out another bankrupt crypto company. Some trading through its subsidiary Alameda Research is unprofitable.
Sam Bankman-Fried (left) and CZ Painting: Bloomberg
Three sources say Changpeng Zhao (CZ), the CEO of Binance, cannot ignore the loss as he also owns more than $2 billion in FTT exchange FTX tokens. They fought over words for months on social media.
On November 7th, CZ confirmed the decision to liquidate FTT tokens, citing that “this is a necessary risk management measure”. On November 8th, SBF and CZ announced a strategic agreement between the two parties. However, the conflict came to a head on September 11, when CZ announced that Binance had pulled out of the deal and sold all FTT amid fears of a second Luna crash.
Bankman-Fried immediately began looking for alternative clients. However, if Binance’s CEO “spins the wheel,” analysts say it won’t be possible to win it all back. On November 8th, the FTT token was still trading at $22 per coin, but it has now fallen to around $3.46.
The relationship between CZ and SBF
The two owners of Binance and FTX have known each other for three years. Six months after FTX’s launch in 2019, CZ bought 20% of the roughly $100 million stock market value “with the goal of co-developing the crypto economy.”
But they haven’t maintained a close relationship in the past 18 months. FTX has quickly become the third largest cryptocurrency exchange in the world. According to a former Binance employee, CZ believes that FTX is gradually becoming a major force for his company to compete with. He started finding ways to limit.
source revealed Reuters, May 2021, FTX applies for a license in Gibraltar for a subsidiary. But when he sent the information to major shareholders, Binance did not support him. Over the next two months, FTX’s legal team and advisors contacted Binance at least 20 times regarding asset sourcing, banking relationships and asset ownership. Binance only responded a few times. In June 2021, a lawyer for FTX stated that Binance “did not interact fairly with us,” risking serious disruption to a project important to the company. A Binance legal officer told FTX that he tried to contact CZ’s secretary, but the information requested was “too general” to give him all he wanted.
In July 2021, Bankman-Fried acquired CZ’s stake in FTX for $2 billion, ending the partnership between the two. Binance is no longer the main shareholder, the Gibraltar regulator has granted a license to the FTX subsidiary.
Bankman-Fried does not pay cash in CZ, but in FTT tokens. Last week, CZ “unloaded” this token, causing its price to drop rapidly.
price confrontation
In May and June, FTX’s Alameda Research division suffered a series of trading losses, including a $500 million loan deal in support of Voyager Digital. That money wasn’t enough to save Voyager, however, and the company filed for bankruptcy protection in July and was auctioned off by FTX for $1.4 billion in September.
To support Alameda, Bankman-Fried is moving at least $4 billion in FTX funds backed by FTT tokens and a stake in trading platform Robinhood Market. But seriously, part of that is customer deposits in return.
In making this decision, Bankman-Fried did not tell other FTX executives for fear of disclosing unfavorable information. However, a Nov. 2 balance sheet obtained by CoinDesk showed that the bulk of Alameda’s $14.6 billion in assets was backed by FTT. At the time, Alameda CEO Caroline Ellison tweeted that the information “only belongs to one of the legal entities.”
On November 7th, CZ announced the sale of FTT tokens “due to the emergence of information”.
Fell down after one night
In a message to employees this week, Bankman-Fried said that FTX saw a “massive outflow” of $6 billion that left the exchange in 72 hours. After that, the FTX website wasn’t even available.
When CZ announced that they would sell the entire FTT, Bankman-Fried confidently fended off his opponent’s “attack”. He told Slack staff that the user withdrawal wasn’t surprising either.
But when things get worse and no supporters are found, Bankman-Freed is forced to contact CZ. Binance CEO confirmed that he received a call from FTX CEO. Bankman-Fried has entered into a non-binding agreement with Binance to purchase FTX assets outside the US. Hours later, Bankman-Fried sent “a huge thank you to CZ” on Twitter.
On Slack, Bankman-Fried assures employees that they “live to fight another day.” However, staff were shocked because they had no idea how their boss was spending money on Alameda and that the withdrawal issue was so serious.
On September 11, Binance announced the cancellation of the deal.
“Sad day,” CZ tweeted.
On the same day, Sam Bankman-Fried was no longer listed as a billionaire. Bloomberg as assets fell from nearly $16 billion to less than $1 billion.
In his last tweet on the evening of November 10, Sam Bankman-Fried said, “Sorry. I made a mistake and I should have done better.”
Bao Lam (Track Reuters)