Binance CEO Changpeng Zhao (CZ) announced yesterday via Twitter that the exchange will liquidate all FTX native tokens (FTT) on its books following “some findings” last week that suggested that questionable practices were used to maintain the value of the FTT token.
These recent developments left Zhao questioning the token’s and FTX’s stability. Zhao acknowledged that the token sale could last for months due to the enormous size of Binance’s FTT holdings.
In a series of tweets, he explained the reason for the liquidation, beginning with this:
“Due to recent revelations that have came to light, we have decided to liquidate any remaining FTT on our books.”
Zhao acknowledged that the token sale could last for months due to the enormous size of Binance’s FTT holdings.
“We will try to do so in a way that minimizes market impact. Due to market conditions and limited liquidity, we expect this will take a few months to complete.”
According to the CEO, last year, Binance received $2.1 billion in BUSD (Binance’s stablecoin) and FTT from existing FTX equity. It is worth noting that Binance was an early investor in FTX.
As part of Binance’s exit from FTX equity last year, Binance received roughly $2.1 billion USD equivalent in cash (BUSD and FTT). Due to recent revelations that have came to light, we have decided to liquidate any remaining FTT on our books. 1/4
— CZ 🔶 Binance (@cz_binance) November 6, 2022
The Backstory: Alameda & FTX’s “Siamese Twin” Situation
Sam Bankman-Fried’s massive cryptocurrency empire is officially split into two main parts: FTX (a crypto exchange) and Alameda Research (a hedge fund/trading firm), both renowned in their respective industries.
A private financial document disclosed that Alameda and FTX share unusually close ties, as Alameda’s balance sheet shows that its financial capacity is primarily based on the FTT token issued by FTX, an independent but ‘sister’ company.
The balance sheet revealed that Alameda’s single largest asset was $3.66 billion in “unlocked FTT,” and the third largest asset was a $2.16 billion stack of “FTT collateral,” mind you, these are just the big numbers. These figures accounted for one-third of Alameda’s total net equity of $14.6 billion.
Away from the accounting jargon, while this ultra-close correlation is not illegal or unethical and should not necessarily be cause for concern, it does imply that Alameda and FTX, which are supposed to be independent, are rather tightly and dangerously cuffed to each other. This, in a nutshell, means if one party falls off the boat, the other will almost certainly follow.
“It’s fascinating to see that the majority of the net equity in the Alameda business is actually FTX’s own centrally controlled and printed-out-of-thin-air token,” said Cory Klippsten, CEO of investment platform Swan Bitcoin and a known critic of altcoins.
Binance’s Frosty Relationship with FTX
CZ’s Binance was an early backer of Bankman-Fried’s FTX. Given that CZ has previously criticized some moves made by FTX, it is not a stretch to speculate that Binance is acting in response to news of FTT dominating Alameda’s asset list.
CZ had also notably taken a dim view of FTX’s July spending spree, in which it bailed out struggling crypto companies such as Voyager Capital and Liquid Exchange.
CZ’s Purported Competitor Elimination Drive Fuelled By BUSD Monopoly On Binance
Binance, in September, had announced the removal of stablecoin pairs USDC, USDP, and TUSD from the exchange, automatically forcing users to migrate to Binance’s BUSD. The exchange cited the need to enhance liquidity and capital efficiency for users as the driving forces behind the decision.
Many criticized this move as a heinous attempt to eliminate competitors. According to some, CZ’s latest move to liquidate Binance’s FTT holdings is just the latest in a long line of measures aimed at undermining “industry cooperation.”
CZ, however, has taken a defensive stance, citing “post exit-risk management” as the reason for the liquidation.
“Liquidating our FTT is just post-exit risk management, learning from LUNA.”
“We gave support before, but we won’t pretend to make love after divorce. We are not against anyone. But we won’t support people who lobby against other industry players behind their backs.”
He drew a parallel with the bankruptcy chaos that erupted following the Terra/LUNA crash in May, using the well-known analogy of being stuck between a rock and a hard place.
CEO Changpeng Zhao stated that the sale is not a move against competitors, reiterating Binance’s stance of encouraging collaboration among industry players.
“Regarding any speculation as to whether this is a move against competitor, it is not. Our industry is in its nascency and every time a project publicly fails, it hurts every user and every platform”.
SBF’s Purported “Lopsided Lobbying” For Crypto Regulation
The phrase “but we won’t support people who lobby against other industry players behind their backs” used by CZ in one of his tweets suggests that SBF may have struck a raw nerve.
Sam Bankman-Fried has openly advocated for increased government regulation in the cryptocurrency space, particularly with regard to DeFi platforms. In what seemed like a lopsided blueprint for regulatory oversight and industry standards, he only identified DeFi platforms as ideal candidates for regulation, leaving out centralized exchanges like his FTX.
However, his proposal was met with harsh criticism from some individuals who felt that DeFi is intrinsically self-regulated and that any regulatory action would be redundant at best and would effectively crush DeFi’s entrepreneurial spirit and ultimately put DeFi Legos under the control of a small group of centralized crypto powerhouses—such as SBF’s FTX exchange.
Sam Bankman-Fried’s Reaction to CZ’s Tweets
In response to CZ’s tweet about the liquidation, Sam Bankman-Fried, CEO of FTX, tweeted,
“Anyways I was going to write a different thread, but I took a deep breath and reminded myself of something we’d all do well to remember: that we’re all in this together, and I wish the best to “everyone” driving the industry forward.”
SBF’s measured response to CZ’s tweets may have allayed the fears of many about the Twitter feud escalating into a “clash of the crypto titans.”
5) Because I respect the hell out of what y’all have done to build the industry as we see it today, whether or not they reciprocate, and whether or not we use the same methods.
Including CZ.
Anyway — as always — it’s time to build.
Make love (and blockchain), not war.
— SBF (@SBF_FTX) November 6, 2022
Market Impact
Over the weekend, FTT fell 15% due to a withdrawal surge fueled by what Bankman-Fried called “unfounded rumours.” FTT has since regained its upward momentum, with panic withdrawals appearing to have subsided and tensions dissipating. FTT is up 5.7% at press time, trading at $22.84.
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