Tensions between Sam Bankman-Fried and Changpeng Zhao led to a letter of intent to buy FTX from Binance, which shook the entire crypto market.
On November 2, an article published in CoinDesk raised alarms in the crypto world, due to an alleged lack of solvency of FTX and its venture capital (VC) arm, Alameda Research.
El article analyzed a balance sheet allegedly leaked by an Alameda Research employee. This balance sheet showed that Alameda Research was based on FTX's FTT token and not in independent assets such as fiat currencies, other cryptocurrencies or any asset of value.
2/11: Alameda Research's Leaked Balance Sheet Data
Financial data also showed that Alameda's assets (as of June 30) stood at $14.600 billion.
- Most of them, 3.660 million of these assets were unlocked FTT tokens.
- Even worse, Alameda's third largest asset inflow was 2.160 million in collateral FTT.
- But there is still more, 292 million of Alameda's liabilities were also locked FTT tokens.
Alameda's other assets include $3.370 billion in cryptocurrency assets:
- $292 million in SOL unlocked.
- $863 million in SOL locked.
- $41 million in SOL collateral.
- An undefined amount of SRM, FIDA, OXY and MAPS tokens.
Plus:
- $134 million in cash and cash equivalents.
- 2.000 billion in equity securities.
6/11: The battle begins: Binance vs FTX
Following the release of Alameda Research's balance sheet earlier this week, Binance CEO Changpeng Zhao posted a tweet comparing FTX's situation to that of Binance. Terra ecosystem and announced the sale of all its FTT tokens (more than 200 million), which they had received after liquidating their participation in the exchange.
Binance CEO reassured the sector, assuring that the sale would be done in a controlled manner, minimizing the impact that a massive sale could have on the crypto market and ensuring that he would try to avoid high volatility.
Sam Bankman-Fried, CEO of FTX, and Caroline Ellison, CEO of Alameda Research, took to Twitter to reassure users, assuring them that both the exchange and its investment arm had liquidity and assets to spare. Ellison even offered to Buy all Binance FTT tokens at $22 each.
For his part, Bankman-Fried noted that FTX is a heavily regulated exchange, which is why they are continuously audited and have the liquidity to meet their clients' disbursements.
8/11: The circle closes. Binance and FTX sign a letter of intent
At first, the cross-posting was seen as a Power fight between two of the industry's major players.
However, since the weekend FTX was registering strong outflows of money, with disbursements that, in the last 3 days had exceeded 6.000 billion dollars.
Finally, yesterday afternoon, the exchange was forced to stop the operation temporarily and stop withdrawals from its customers.
Shortly after, the two CEOs made public the signing of an LOI or letter of intent, a non-binding agreement by which Binance could acquire 100% of FTXThe goal, according to Changpeng Zhao, is to protect users' investments and the crypto sector in general.
The problem with FTT tokens and Alameda Research
In principle, there is nothing wrong with Alameda Research having a large part of its assets invested in FTT. However, it is worth introducing some context into this matter in order to understand what has happened.
What is FTT token?
FTT is the token created by the FTX exchangeIt is a utility token that offers its holders discounts on platform transactions. The exchange burns a portion of the token supply, based on trading volume.
In this way, FTT investors are exposed to the trading activity of the platform and are creates a demand to hold the token.
Why did Binance hold FTT tokens?
Binance made a large investment in FTX in 2019. In 2021, Binance sold its position in the exchange and received $2.100 billion in BUSD (Binance's own stablecoin) and FTT, although the percentage of each is unknown.
Why did Binance decide to sell its FTT?
Announcing the FTT token sale, Binance's CEO was quick to point out that it was “not a war” against anyone. However, he did point to the fact that Sam Bankman-Fried was financing and working with political lobbies which could be detrimental to other players in the sector.
This, coupled with rumors about the possible insolvency of FTX and a flat market, in which Binance has seen its market share grow, created a perfect scenario for put pressure on FTX and the general public's trust, deeply affected by the events of Celsius Network and Terra (MOON).
The pressure worked and since Zhao posted his tweet, the FTT token went from $25 to $22, where it remained until November 8, when it plummeted, first to $15 and later to less than $3.
What is a Letter of Intent or LOI?
A letter of intent is a document that describes the general plans of an agreement between two or more parties before entering into a legal agreement. It is not a contract and cannot be legally enforced.
However, it means a stable commitment between two parties. Simply put, an LOI could be considered as a non-binding agreement.
Has Binance bought FTX?
No. For now, the only thing that exists is a “purchase intent. At the moment, there is no official agreement. Binance assures that they are “assessing the situation in real time” and has reserved the right to “withdraw from the agreement at any time".
On the other hand, an acquisition of this size must go through regulators before becoming effective. In this case, Binance's purchase of FTX could face, first of all, the antitrust laws that could prevent an official purchase agreement.
How has the FTX situation affected Bitcoin?
$200 million in Bitcoin long positions were liquidated yesterday, which caused it to lose the 18.000 level, marking a two-year low.
After briefly spiking above $20.000 after the deal was made public, Bitcoin lost more than $2.000 in less than two hours, according to TradingView data, marking a low of $17.600, something that has not been seen since 2020.
The selling pressure was so high that it managed to break through the buying support of $18.000.
Coinglass data shows a time of pain for long investors, who were caught off guard by the events. Long liquidations on the exchanges reached 100,000 214 millionCombined with the shorts, total liquidations for the day were over $900 million.
At the time of writing, Bitcoin is trading around $17.400.
Why is Solana (SOL) down?
Sam Bankman-Fried was one of the first investors in Solana. In fact, Solana is one of the so-called “Sam Coins”, a name for the FTX CEO's favorite tokens, which has caused SOL to be dragged into the events at FTX.
The same has happened with Serum, a decentralized exchange built on Solana and developed by Bankman-Fried, and its native token SRM.
🚨 Update: Binance gives up on buying FTX 🚨
Changpeng Zhao has posted a tweet on his official Twitter account announcing his decision to abandon the purchase of FTX. “Sad day. We tried, but…” are the few words with which the CEO of Binance has announced his decision to abandon the purchase.
