FTX token FTT collapse following the liquidity crisis, Binance walks away from bailout deal.
Updated: Dec 13, 2022
Surprises in the crypto world never end!
Traders and investors had just recovered from the Terra Luna's and Celsius Network's cases that affected the entire crypto industry. However, an investigation published by Coindesk concerning Alameda Research -a leading trading firm founded in 2017- has uncovered a large Pandora's box. More specifically FTX -one of the three leading exchanges in the world- ends up in the crosshairs because it risks failing if someone does not intervene as soon as possible, while the FTX token FTT plunged over 85% during the last hours.
But how did such a large, multi-billion dollar company, one of the three most significant exchanges in the world, die overnight? Why did Binance make this strategic move? What will happen now?
Let's see together what exactly happened, taking a few steps back and retracing backwards from the birth of FTX to the present moment.
Former FTX CEO Sam Bankman-Fried arrested
The statement below announces the arrest of SBF by the Royal Bahamas Police Force on 12 December 2022.
The tangled issue among FTX, Almeda Research, and Binance
In 2019, Binance was one of the first investors in FTX.
FTX has overgrown from 0 revenue to $1.2 billion in 2 years and acquired more than 15 other companies. Its founder became the richest under 30 in the world.
The two exchanges, Binance and FTX, continued to compete during the crypto winter (which began this May). Both were among the main saviours of those companies that did not withstand the collapse of stablecoin USDT.
At the end of September, FTX bought $1.4 billion of loans from the bankrupt digital company Vojager and provided the fintech company BlockFi- which was on the verge of collapse- a credit line of $400 million in return for the possibility of buying the company.
In November, SBF was targeted for criticism because he began to exert pressure on the US political system to pass a regulation called DCCPA that would have given a hard blow to the DeFi sector and other exchanges bringing benefits only to FTX.
All of this is how the first bomb exploded!
Alameda Research finance situation
Coindesk publishes an investigation that has seriously questioned the actual soundness of the finances of Alameda Research, the trading company sister of the crypto exchange. An internal document revealed that 41% of the total assets that Alameda Research would have in cash are holdings in FTT. But not only that, but Alameda also has $7.4 billion of loans that it has contracted thanks to the guarantee provided in FTT created by the sister company.
The fear that began to creep in is that Alameda Research and FTX are colossal sand castles that come down at the first great difficulty.
Binance CEO CZ
Here the second bomb explodes: the founder and CEO of Binance CZ tweeted after the revelations that came to light that the exchange would reveal any remaining position on FTX left by the deal of 2021.
The result? Investors started to sell their FTT, but as was predictable, no one was interested in buying the token, and the price fell by 35% in one night (subsequently recording almost -80%).
Things have even gotten worse.
FTX has seen a massive increase in withdrawal requests, specifically $6 billion, in the last 72h. For this reason, everyone tried to recover their money from the exchange before it was too late, which generated a further wave of panic, worsened by the fact that there had not yet been a statement from SBF or FTX.
The icing on the cake came during the afternoon of November 8 when FTX suspended all withdrawals from its platform, and here comes the twist.
The Bailout fail
Rumours and Tweets say that Binance is proposed for takeover. The founder and CEO of FTX, Sam Bankman-Fried, also known as SBF, announced a preliminary agreement -a non-binding letter of intent- with the giant exchange Binance to sell FTX to Binance. A few minutes later, CZ confirmed it, adding more details about the rescue.
But on the evening of November 9, Binance tweeted:
"As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of FTX.com."
After all these ups and downs, the questions remain many.
The agreement concerns only FTX, not Alameda Research. If Alameda Research collapses, we will see a cascade effect on the entire crypto industry because they have lent much money to protocols and companies.
Other assets could have adverse effects from all this shock, such as Solana. Since Alameda also held large amounts of this token, on November 8, SOL fell from $32 to $24. Since SBF holds 10% of the company and FTX capitalist ventures such as sequoia and paradigm, Robinhood has not received any notice of this agreement.
Following all these events, all CEXs are now publishing their Proof of Reserve.
TRON founder Justin Sun time to shine
The latest actor, Justin Sun enters the stage with this tweet:
Is this help felt by Binance and Tron? Or is it a deliberate move, maybe a market manipulation?
And you, what do you think? What is your opinion about it?