Every member of the cryptocurrency community felt as though the past 48 hours had gone on forever as we watched Sam Bankman-Fried’s FTX and its native token FTT crash. What exactly happened with FTX and FTT that wrecked the entire industry, going from being one of the top three cryptocurrency exchanges to now caving into its rival exchange Binance? Let’s dig in!!
Binance vs. FTX: The Ultimate Showdown
On Sunday, Alameda Research Balance Sheet Got Leaked!!
Alameda has $14.6 billion of assets, against $8 billion of liabilities. Alameda Research’s assets are reportedly held in illiquid altcoins, and the FTT token makes up the majority of its financial sheet.
$3.66 billion was made up of unlocked FTT tokens, and the third-largest entry on the assets side of the accounting ledger was $2.16 billion in FTT collateral.
$3.37 billion of the remaining assets comprised $292 million SOL, $863 million locked SOL, 134 million USD, and $2 billion equity securities.
Alameda Research’s CEO Caroline Ellison dismissed the reports by tweeting that the specific balance sheet is for a subset of their corporate entities. Alameda has more than $10b of assets that aren’t reflected there, Ellison tweeted.
Binance CEO CZ shocked the community on Sunday by announcing it’s going to liquidate FTT tokens it received from the FTX last year as part of Binance’s exit from FTX equity.
“Due to recent revelations that have come to light, we have decided to liquidate any remaining FTT on our books,” CZ tweeted.
An unknown wallet earlier that day transferred 30 million FTT tokens worth roughly $584.8 million to a Binance exchange wallet, which Binance CEO CZ later confirmed was part of the liquidation of the tokens.
This caused massive dumping of FTT tokens and the community started panicking as they proceeded to withdraw their assets from FTX expecting a Terra Luna situation again.
FTX saw approximately $6 billion in withdrawals in two days and yesterday even had to halt withdrawals for a few hours, further causing worries.
SBF and Ellison remained calm and confident following Binance’s statement with SBF even indirectly accusing CZ by tweeting “A competitor is trying to go after us with false rumors. FTX is fine. Assets are fine.” The tweet is now deleted ironically!!
CZ responded to the ongoing FUD by tweeting “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. Onwards.”
Maybe CZ was hinting at SBF when he mentioned that he won’t support lobbying against other industry players behind their backs. Things started spiraling since then and within a few hours, the crypto community witnessed the slow collapse of the FTX exchange and FTT token.
Binance to the Rescue, FTT Remains Hopeless
Who would have thought we would see a day when who was considered to be one of the strongest players in the industry will ultimately bow down to its rival exchange?
FTX CEO Sam Bankman-Fried aka SBF tweeted “Things have come full circle, and FTX.com’s first, and last, investors are the same: we have come to an agreement on a strategic transaction with Binance for FTX.com (pending DD etc.).”
Binance signed a non-binding LOI, intending to fully acquire FTX and help cover the liquidity crunch that the latter is facing, and the financial details of the deal are yet not disclosed.
Binance CEO CZ noted that Binance has the discretion to pull out from the deal at any time, and as it is a highly dynamic situation, the team is assessing the situation in real time.
SBF asserts that customers are protected and he thanked CZ, Binance, and all FTX supporters for their assistance.
“I know that there have been rumors in the media of conflict between our two exchanges, however Binance has shown time and again that they are committed to a more decentralized global economy while working to improve industry relations with regulators. We are in the best of hands,” SBF praised Binance like no other.
SBF did clarify that FTX US and Binance US are two separate companies and are not currently impacted by this.
But the main issue is that Binance is only gearing up to acquire FTX and not Alameda Research which is the root cause for this insolvency.
Rumors are floating in saying that FTX tampered with users’ assets for its trading operations in Alameda Research and used FTT as collateral leaving a giant hole in the balance sheet.
People are worried about how big the gap is in the balance sheet for FTX to agree to a buyout by its rival Binance who exposed its insolvency in the first place.
This event is going to be more traumatizing than the Terra collapse as it concerns one of the trusted top exchanges, which who a few months back, was playing a savior role to help companies that got affected by the Terra-LUNA crash.
According to the most recent CoinMarketCap chart, Sam Bankman- Fried’s trading platform Alameda Research lost close to $2.5 billion from its market cap, bleeding it by 81% in a single day.
The FTT token is currently trading at $4.74, representing a loss of 78.84% on the day, an 81.76% loss over the previous week, and a total loss of 80.51% over the previous month.
Since a significant portion of SBF’s fortune is linked to his business dealings with FTX and Alameda Research, a decline in the price of FTT tokens had an immediate impact on his private fortune. SBF’s net worth went down from $16 billion to $991 million in 24 hours.
The Beginning of the end: SBF, FTX & Alameda
FTX founder aka SBF Sam Bankman-Fried launched his first company, a hugely successful cryptocurrency trading firm called Alameda Research, and treated it like his firstborn.
After the arbitrage chances dried up, Alameda switched to becoming a market maker and made enormous profits using quantitative trading techniques. It gained a reputation for offering tremendous returns, but also for covertly dumping on retail.
Things started taking a turn when Alameda co-CEO Sam Trabucco suddenly resigned in August stating he “can’t personally continue to justify the time investment of being a central part of Alameda.”
Well, what a coincidence that a month later FTX President Brett Harrison stepped down from the exchange.
But SBF and FTX along with Alameda were playing the ultimate saviors during the after-effects of the infamous Terra Luna crash and were on the front lines trying to save companies who got affected by the same.
After a while, the Texas State Securities Board started investigating both SBF and FTX US. They were accused of offering unregistered securities products in the U.S. through the yield-bearing service.
SBF did have his eye on politics and stated he could spend up to $1 billion or more in the 2024 elections which would have made him the biggest-ever political donor in a single election. But later he went on to redact his claims.
Well, he still didn’t back off entirely as he donated $50M in the upcoming midterm elections and this caused a commotion in the community.
Shockingly, the CFTC proposed Digital Commodities Consumer Protection Act (DCCPA), which is still under development, was leaked last month and describes how it will govern the cryptocurrency industry.
SBF supported the bill and was accused of quietly lobbying to get the DCCPA bill passed which gives the CFTC power to kill DeFi but benefits FTX, thus inviting more criticism from the crypto community.
For Sam, the public backlash was severe as people’s attitudes changed as they realized that his motives might not be what they initially believed.
This change in attitude served as a sign of what was to come and was a crucial factor in the intensity of the current FUD.
The situation regarding FTX, FTT, and Alameda Research still remains uncertain as Binance could back out of the deal anytime and no one else has come to the rescue of Alameda yet. The upcoming days are crucial both for the firms and users with the whole industry ready to get shaken up if FTX can’t bounce back from this.
Stay SAFU!!
