The scenario of what transpired in this case seems somewhat of a classic: one rival, Binance, saw a chance to try to eliminate another, FTX, and took it. One definitely won and one clearly lost in this economic battle between the two founders of cryptocurrency exchanges.<\/p>\n
In reality, however the story is much more convoluted<\/a>. It turns out that the main reason why Binance was able to do that were the big mistakes FTX did<\/a> and the ponzi-style gambles it did with investors’ money.<\/p>\n Binance was established in 2017 and has since grown to become the largest cryptocurrency exchange in the world by Changpeng Zhao, a Canadian citizen of Chinese descent. In 2017, Bankman-Fried established the quantitative trading company Alameda Research, which specialized in digital assets. In 2019, he established the FTX exchange. Bankman-Fried stopped overseeing Alameda’s daily operations, although the two organizations remained closely linked.<\/p>\n The narrative up until very recently was that FTX and Alameda were in reasonable condition. FTX was valued at $32 billion, its FTX US business, which is smaller and compliant with US laws and regulations, was valued at $8 billion, and Alameda had earned $1 billion in profits in a single year. Since then, everything have rapidly fallen apart.<\/p>\n FTX’s FTT digital coin was used to store a significant portion of Alameda’s $14.6 billion in assets, according to a leak<\/a> published by Ian Allison at CoinDesk on November 2.\u00a0 FTT token owners receive a discount on FTX trading fees in addition to other benefits. The tokens, however, were somewhat fictitious and their worth was generated from the belief that there was value, similar to many other crypto tokens. Nic Carter, partner at startup funding firm Castle Island Ventures, said that “they created this token out of thin air, gave it some value, and then Alameda utilized it as collateral.”<\/em><\/p>\n Tracy Alloway of Bloomberg gave the example of a Beanie Baby, which you might purchase for $5 and then sell for $20 after creating a price guide indicating his market value. In this instance, FTX was producing the Beanie Baby itself by giving away the FTT token and then purchasing a portion of the tokens for whatever price was desired. It was then able to claim that the token was worth that sum and do business with it, for as by utilizing it as loan collateral.<\/p>\n Questions regarding Alameda’s financial stability and worries that a decline in the token’s value could result in serious issues for the trading firm and FTX were raised in response to the CoinDesk breach and the news that it had such a large amount of money in FTT.<\/p>\n Zhao said on Twitter<\/a> a few days later, on November 6, that Binance will be selling its FTT assets, which it acquired after selling its position in FTX last year. (Binance invested in FTX, with Zhao reportedly purchasing a 20% share in the exchange not long after it opened.) He said that at the time, Binance received $2 billion in tokens, some of which were the FTX token, but that they were now dumping the FTT because of “recent discoveries that have come to light.”<\/p>\n As part of Binance\u2019s 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<\/p>\n — CZ \ud83d\udd36 BNB (@cz_binance) November 6, 2022<\/a><\/p><\/blockquote>\n\n