With memories of the early summer crypto crash, precipitated by the utter collapse of Terra’s ecosystem, still fresh in the collective psyche of investors, rumors of a bank run on the crypto exchange FTX have captivated a much more cautious and weary audience. At the heart of this showdown lies a very public feud between the founder of Binance, Zhao “CZ” Changpeng, and the owner of FTX, Sam Bankman-Fried. With the stability of the entire crypto sphere hanging in the balance, the stakes cannot be any higher.
The backstory
Toward the start of November, Coindesk cited an internal FTX document that suggested financial vulnerabilities in the balance sheet of Sam Bankman-Fried’s other major enterprise, Alameda Research. While FTX is the world’s second-largest crypto exchange after Binance, Alameda Research is primarily concerned with crypto trading activities. As of the 30th of June, Alameda had $14.6 billion in assets. However, as per the document, FTX’s FTT token constituted the largest asset on Alameda’s balance sheet, including $3.66 billion in unlocked FTT as well as $2.16 billion in FTT collateral. As a refresher, holders of the FTT token receive rewards and discounts on FTX’s trading fees. FTX maintains FTT’s value by using a third of its trading commissions to buy back FTT coins, which are then burnt.
Of course, Alameda not only had FTT-denominated assets but liabilities as well. For instance, Coindesk cited $292 million in “locked FTT” that is part of Alameda’s total liabilities worth around $8 billion.
With so much of Alameda’s balance sheet comprising of the FTT tokens, it does increase the trading arm’s financial vulnerabilities, which then pose negative ramifications for its sister enterprise, the FTX Exchange. For instance, according to BitcoinMagazine’s Dylan LeClair, Alameda has FTT assets worth $5.82 billion, while the market cap of the FTT token on the 03rd of November was just around $3.35 billion.
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
Binance’s Zhao “CZ” Changpeng then picked up Coindesk’s report and tweeted that the exchange will liquidate “any remaining FTT on our books” while adding the qualifier that this liquidation will take place in a manner so as to minimize “market impact.”
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.
— CZ Binance (@cz_binance) November 6, 2022
In a separate tweet, CZ then justified this action as “post-exit risk management” while citing the example of Terra’s LUNA crash earlier this summer.
1) A competitor is trying to go after us with false rumors.
FTX is fine. Assets are fine.
Details:
— SBF (@SBF_FTX) November 7, 2022
FTX then hit back by suggesting that Binance was simply trying to go after the exchange due to peer rivalry.
3) It’s heavily regulated, even when that slows us down. We have GAAP audits, with > $1b excess cash. We have a long history of safeguarding client assets, and that remains true today.
— SBF (@SBF_FTX) November 7, 2022
FTX also assured investors that it could easily cover all client holdings, with GAAP audits certifying over $1 billion in excess cash. FTX has also offered to buy Binance’s FTT holdings.
-Binance invests in FTX.
-FTX lobbies against Binance.
-FTX accuse Binance of killing it slowly by selling FTT.
-FTX offers to buy FTT from Binance.
-But Binance wants to sell in Open Market.
-Meanwhile People accuse Bybit of selling BIT Tokens.
-Bybit says FTX is selling it.
GM
— Emperor (@EmperorBTC) November 8, 2022
Despite these assurances, investors continue to withdraw liquidity from the FTX Exchange, hammering the FTT token in the process.
Source: https://dune.com/1chioku/sweet-home-alabama
According to Dune Analytics, FTX has suffered a net outflow of over $147 million over the past 24 hours.
Source: https://coinmarketcap.com/currencies/ftx-token/
Moreover, the FTT token is down over 20 percent in the past 24 hours.
What Is Next for FTX and Its FTT Token?
It’s even more damning that @SBF_FTX is blocking anyone saying to get their coins off of FTX
If I had coins on FTX, I would certainly remove them https://t.co/adrNHFduqW
— Matthew Hyland (@MatthewHyland_) November 7, 2022
There are isolated reports that FTX is blocking some withdrawals.
I have withdrawn funds from FTX. Not because I think they’re insolvent, but bank runs are extremely reflexive (they fud themselves into reality).
This method worked for me after having transactions requested for hours.
USDT worked the fastest.
Great spot @Auri_0x. https://t.co/qvgwva8JCA
— CryptoJoe (@Crypto_Joe10) November 8, 2022
If you want instantaneous withdrawals, apparently, the best way would be to withdraw your assets to Solana and then Wormhole to Ethereum.
#BTC -4.5% to $19.8K as FTX, the 2nd largest crypto exchange run by Sam Bankman Fried, experienced a bank run after Binance, the #1 crypto exchange, liquidated all FTX in house tokens (FTT). Crypto markets appear to be stabilizing after SBF assured investors about FTX solvency. pic.twitter.com/UyY0we7xlR
— Gary Black (@garyblack00) November 8, 2022
Readers should note that it remains unlikely that FTX will go under. However, bank runs are essentially a self-fulfilling prophecy. If enough people believe that there will be a bank run, then most definitely, there will be a bank run. Trade accordingly.
The post FTX vs. Binance Showdown: If Enough People Think That There Will Be a Bank Run, Then There Will Be a Bank Run by Rohail Saleem appeared first on Wccftech.
