In what is being seen as a major shake-up in the world of cryptocurrencies, Binance, the world’s largest cryptocurrency exchange, has bailed out one of its biggest rivals FTX.
FTX has been devastated by a spate of withdrawals, and the move by Binance CEO Changpeng Zhao is an effort to stop a meltdown in the crypto business that could have been triggered by his decisions.
Earlier this week on Sunday, Zhao said Binance would liquidate its holdings of FTX’s in-house token, FTT, due to unspecified “recent revelations”. It triggered a wave of withdrawals from FTX, finally ending in what some experts have called a “forced sale” on Tuesday.
The panic in the markets was evident by a tweet Crypto research firm Nansen, which estimated that more than half a billion dollars had flowed off the platform over the previous 24 hours. The total withdrawal in the past 24 hours was estimated at $1.2 billion.
On Tuesday, Zhao tweeted: “This 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 FTX.com and help cover the liquidity crunch.”
The non-binding nature of the agreement would mean that Binance has the discretion to pull out at any time.
The size of the deal wasn’t disclosed, but FTX was once valued at $32 billion. According to stats by Reuters, Binance dominates the $1 trillion crypto industry, with over 120 million users.
In a series of tweets, which was the only comments available from FTX’s swashbuckling founder and CEO, Sam Bankman-Fried, thanked Binance and said: “Things have come full circle… we have come to an agreement on a strategic transaction with Binance for FTX.com (pending DD etc.).
“Our teams are working on clearing out the withdrawal backlog as is. This will clear out liquidity crunches; all assets will be covered 1:1. This is one of the main reasons we’ve asked Binance to come in. It may take a bit to settle etc. — we apologize for that.”
New York Times reported that Bankman-Fried apologized to his employees for not being communicative recently in an internal note and said the company had experienced roughly $6 billion of net withdrawals over the previous 72 hours.
Zhao and Bankman-Fried, popularly known by their initials CZ and SBF, are two of the most prominent personalities in the crypto industry.
In a tweet after the decision to buy FTX.com, Zhao said: “Two big lessons: 1: Never use a token you created as collateral. 2: Don’t borrow if you run a crypto business. Don’t use capital ‘efficiently’. Have a large reserve. Binance has never used BNB for collateral, and we have never taken on debt.”
The price of Bitcoin fell almost 10 percent to a 52-week-low $17,484 from the day’s high of $20,663 at one point on Tuesday, before recovering to $18,259 after the news of the deal. FTT was down almost 75 percent to $4.16 from $21.04 in one day’s trading.
Coinbase CEO Brian Armstrong also took to Twitter following the announcement in an effort to sooth frayed nerves of the investors.
In a long thread, Armstrong detailed why his company was different from FTX and said: “I think it’s important to reinforce what differentiates Coinbase in a moment like this. This event appears to be the result of risky business practices, including conflicts of interest between deeply intertwined entities, and misuse of customer funds (lending user assets).
“Coinbase has always strived to be the most trusted player in the space, and we don’t engage in this type of risky activity.
“We don’t do anything with our customers’ funds unless directed to by the customer. We hold all asset dollar for dollar, and users can withdraw their money at any time.”
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