The world’s largest exchange signed a letter of intent to acquire FTX.com. FTX is the world’s third-largest exchange and both FTX and Binance were – perhaps too soon – dubbed winners of crypto winter after both companies were able to weather the downturn without mass layoffs or bankruptcy proceedings.
So, for many investors, the news that Sam Bankman-Fried was planning to sell FTX.com to Binance and Changpeng Zhao, who goes by CZ, was shocking.
Putting it into context, Binance and FTX were beefing last week on Twitter after CZ announced that Binance would be selling out of its position in FTT, which is FTX’s token.
In response, Sam Bankman-Fried assured investors that his company was “fine,” though we now know – thanks to a tweet from CZ – that part of this sale comes as FTX faces a “liquidity crunch.”
View the original article to see embedded media.
But the real shock of this news comes from the fact that, prior to last week, there wasn’t a reason to raise the red flag around FTX.
Following the depegging of Terra’s algorithmic stablecoin UST and the collapse of Luna, many investors faced huge losses. The ripple effect was spread throughout the crypto industry, with Three Arrows Capital falling, which then led to a series of events that resulted in both Celsius and Voyager declaring bankruptcy.
So what does this have to do with FTX and Binance?
Well, as companies from Coinbase to Gemini laid off staff, both FTX and Binance were able to weather the worst of the brutal winter. Back in July, FTX and Sam Bankman-Fried said that the company had a “few billion” on hand to help struggling crypto companies.
Before FTX won the initial bidding war for Voyager’s assets with a $1.4 billion bid, Alameda Research – SBF’s crypto-trading firm – gave Voyager $200 million. FTX also handed BlockFi a revolving credit facility of $250 million this summer.
FTX also has FTX Ventures, a multi-billion dollar venture capital fund which was offering aid.
Unlike FTX, Binance has largely minded its own business throughout this iteration of crypto winter. CZ has previously thrown snarky remarks at the industry saying, for example, that the company was able to hire instead of lay off staff because it had not spent millions on Super Bowl ads, but until now it hasn’t offered a financially-backed helping hand to struggling crypto firms.
It did support the Terra network airdrop when that was launched earlier this summer but unlike Bankman-Fried’s remarks, CZ did not claim to have billions in reserve to help out the industry.
And even when CZ announced that he was exiting FTT, he noted that the move was made to avoid another Luna mistake, which pushed SBF to tweet that “FTX is fine.”
This leaves investors wondering what’s happening next between Binance and FTX. The agreement, as noted by both Bankman-Fried and CZ, is a non-binding letter of intent for Binance to purchase FTX.com. CZ even said that the company plans to conduct full due diligence in “the coming days.” And Bankman-Fried has said that “customers are protected.”
Bankman-Fried praised Binance and noted that FTX is “in the best of hands.” And despite the “liquidity crunch” that CZ cited, the joining of two powerhouses leads to a lot of questions.
