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FTX Insolvent? Binance Enters Protection Mode
Hold on to your hats--but not your FTT, apparently. In a move that has started to shake the markets over the weekend, Binance CEO, Changpeng Zhao (CZ), confirmed that Binance will liquidate the remaining exchange token of major exchange FTX, FTT, on its balance.
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
Lots of speculation has surrounded the move announced by CZ on November 6, as many in the industry have pointed out that FTX and Alameda Research (a project with close ties to FTX) could be overly collateralized with FTT. The over-collateralization is estimated to be in the neighborhood of a few billion dollars of value.
For those missing some context, it looks to be highly probable that Alameda/FTX has loans collateralized with FTT (FTX exchange tokens), of which they own a vast majority of the free float for.
— Dylan LeClair 🟠 (@DylanLeClair_) November 6, 2022
CZ is responding by unloading all of Binance’s stake. https://t.co/VawEE8kHLP
CZ has since confirmed that this is “not a war or battle.” In some ways, this is both a chance to continue market consolidation--if users leave FTX, Binance is a good bet to receive some of these users and their funds--as well as a hedge to protect against another LUNA/Celsius event.
CZ also noted that Binance will make efforts to dump the tokens to reduce market impact. But the FUD is real. There are already signs of users leaving FTX and stablecoin assets moving between Alameda and FTX.
For those confused about #FTX & #FTT, here's the TLDR:
— Duo Nine | discord.gg/ycc (@DU09BTC) November 6, 2022
1️⃣ FTX prints FTT out of thin air
2️⃣ FTX lends FTT to Alameda Research
3️⃣ Alameda Research borrows USD stables against FTT
4️⃣ Alameda Research sends USD stables to FTX
5️⃣ Repeat = infinite money
🚨 No need to sell FTT! pic.twitter.com/RJiEpbcgrf
The face of FTX, founder Sam Bankman-Fried (SBF), has called for levelheadedness in this time of sudden chaos. Even calling out the “unfounded” speculation.
2) A bunch of unfounded rumors have been circulating. You can see https://t.co/EBmqPhqCBl.
— SBF (@SBF_FTX) November 6, 2022
FTX keeps audited financials etc. And, though it slows us down sometimes on product, we're highly regulated.
SBF has recently been in the crosshairs of many big names in the industry for his perceived favoring regulation of Decentralized Finance (DeFi) and betraying the principles of the crypto industry.
CZ’s words speak for themselves when he points out that he will not stand for anyone--like SBF-- who lobbies against those in the industry. Is this move a subtle act of war or business as usual to protect users?
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
Despite not being quite a ‘war or battle,’ get your popcorn ready, folks, because it appears the show has just begun.