The crypto winter has swallowed one of the world’s leading crypto suppliers. FTX, which up until now was ranked the third largest exchange by trading volume, announced Tuesday they were being acquired by rival exchange Binance, the absolute largest exchange in the biz.
Binance CEO Chengpeng Zhao put the news out on his Twitter, saying that FTX came to them for help with a “significant liquidity crunch,” meaning that the company was running out of its own cash assets to finance its transactions. Earlier on Tuesday, The Block reported that the exchange stopped processing crypto withdrawals. According to Etherscan, the last transaction on FTX took place around 10 a.m. ET.
This afternoon, FTX asked for our help. There is a significant liquidity crunch. To protect users, we signed a non-binding LOI, intending to fully acquire https://t.co/BGtFlCmLXB and help cover the liquidity crunch. We will be conducting a full DD in the coming days.
— CZ 🔶 Binance (@cz_binance) November 8, 2022
Events have moved incredibly fast. On Sunday, Zhao said he was selling off its FTT token holdings , which were FTX’s native token worth nearly $US529 ($734) million, calling it “post-exit risk management” and citing the Terra/Luna crash that was the original catalyst for the May crypto market crash. Apparently, Zhao had some understanding of what was going on at FTX early on. In response to Zhao’s move, FTX CEO Sam Bankman-Fried tried to offer a small olive branch by tweeting “make love (and blockchain), not war.”
At around 11 a.m ET Tuesday, Bankman-Fried wrote his team was working on “clearing out the withdrawal backlog” which he claimed would fix the liquidity issues, and promised that all users’ crypto assets would be covered, though he did not give a timeframe when that would happen.
1) Hey all: I have a few announcements to make.
Things have come full circle, and https://t.co/DWPOotRHcX’s first, and last, investors are the same: we have come to an agreement on a strategic transaction with Binance for https://t.co/DWPOotRHcX (pending DD etc.).
— SBF (@SBF_FTX) November 8, 2022
Compare this to last year, when SBF told the Financial Times buying out massive investment banking firms like Goldman Sachs was not “out of the question,” and it’s easy to see how far the once-mighty have fallen.
The letter of intent is non-binding, so there is a possibility that things could change. Zhao wrote they have the capacity to back out at any time, though Bankman-Fried personally needs to do something to turn things around. Last week, CoinDesk first reported based on internal documents that the FTX CEO’s own Alameda Research, a crypto trading firm, relies heavily on the FTT token to survive. Though Alameda has $US14.6 ($20) billion in assets, it has a base of $US3.66 ($5) billion FTX token as well as $US2.16 ($3) billion in FTT collateral. The price of FTX’s native token tanked on Monday with murmurings of liquidity issues.
Just yesterday, Alameda CEO Caroline Ellison was throwing stones at Zhao and Binance for it selling off its FTT token. Though Alameda relying so hard on FTX to fund its activities does point to a massive hole in its finances that could put a massive strain on SBF’s crypto empire going forward, once the buyout process commences in earnest.
There doesn’t seem to be winners anymore, not in the crypto world. Up until just a few weeks ago, Bankman-Fried was gobbling up crypto assets from other failed entities. FTX recently acquired failed crypto exchange Voyager’s assets to the tune of nearly $US1.42 ($2) billion, and Bloomberg reported he was eyeing Celsius’ lingering assets as well. Just a few months ago, the exchange also announced it would start letting users trade in stocks.
FTX is certainly not the first exchange to suffer a liquidity crisis in the past seven months. Most recently, the Crypto platform Freeway halted withdrawals. Celsius, which was once one of the largest crypto exchanges, is currently dealing with allegations that it operated a Ponzi scheme. It’s now working through bankruptcy proceedings.