CZ took down FTX, but blew up the real Lehman of the crypto world

22-11-09 12:27
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At 0am on November 9, SBF tweeted on its social media account:


"Hello, I have a few announcements to make.


Things have come full circle and we have entered into a strategic transaction agreement with FTX's first investor and last Binance (pending due diligence). Our team is working to clear the drawdown backlog as it stands, which will remove the liquidity crunch; All assets will be covered 1:1. This is one of the main reasons we asked Binance to join us. This may take some time to fully resolve and we apologise.


Thank you so much to CZ, Binance and all our supporters. This is a user-centric development that benefits the entire industry. CZ has done, and will continue to do, incredible work in building the global crypto ecosystem and creating a freer economic world. I know there have been rumors in the media about conflicts between our two trading platforms, but Binance has repeatedly demonstrated their commitment to a more decentralized global economy while working to improve their relationship with regulators. He's going to get everything right. (Please note that FTX.us and Binance.us, two independent companies, are not currently affected by this. FTX.us withdrawals are always available, assets fully support 1:1 coverage and are functioning normally.) "


Ten minutes later, CZ posted:


"This afternoon FTX approached us for help due to a severe liquidity crunch. In order to protect our customers, we have signed a non-binding letter of intent [Binance] to acquire [FTX] in its entirety. We will be conducting a full investigation of this matter in the coming days. This is a highly dynamic situation and we are evaluating it in real time. Binance has the right to exit the transaction at any time. We expect the price of FTT to fluctuate significantly in the coming days as events unfold."


In less than 48 hours, with one or two understatement tweets, an unprecedented showdown that had swayed billions of dollars and gripped the industry and beyond came to an abrupt end. After a year and a half, FTX has returned to Binance. After the announcement, FTT and BNB soared briefly, up by more than 40% at most within 15 minutes.


FTX and Binance have a long history of animosity. Since the two companies officially announced their separation in July 2021, there has been a lot of friction between them.The war between FTX and Binance escalated from back-and-forth to head-to-head"). From the launch of the leverage Token, to the acquisition battle of Voyager and other encryption institutions, and to CZ's response to its own identity and nationality not long ago, behind all these incidents alluded to the tug of war and confrontation between the two encryption giants. Today's head-on confrontation between Binance's acquisition of FTX and SBF's return to Zhao brings another "Lehman sectionals" to the crypto industry.



48 hours of shock


The incident began with a CoinDesk post on November 2. The paper is called"Divisions in Sam Bankman-Fried's Crypto Empire Blur on His Trading Titan Alameda's Balance Sheet", which revealed a private financial document pointing to the potential current liabilities of SBF's crypto trading giant Alameda Research.


The article points out that the majority of Alameda's balance sheet assets are FTX platform Token FTT. As of June 30, Alameda had assets of US $14.6 billion, of which the largest single asset was FTT worth US $3.66 billion. Other significant assets included SOL and Solana Eco Token worth US $3.37 billion. Liabilities were $8 billion, mainly $7.4 billion in loans.


As soon as the article was published, it continued to ferment in the community, and the FUD sentiment continued to accumulate. In the early morning of June 6, a Twitter user named Autism Capital posted that Binance, the "archenemy" of FTX, had transferred the remaining $23 million of FTT on its account to the trading platform. After the news again caused community reaction, FTT prices fell.



Alameda's CEO Caroline Ellison responded to the recent rumors on social media that Alameda/FTX may be insolvent by saying that the company's balance sheet only lists part of Alameda's assets. Alameda has more than $10 billion that it does not show on the balance sheet.


Caroline added that the Net Media balance sheet lists only a few of Alameda's largest long positions, but that Alameda clearly has other hedges. Given the tightening of the crypto credit space this year, Alameda has now repaid most of its loans. FTT prices recovered to near $24 after the tweet.



Shortly after, CZ wrote that Binance received about $2.1 billion in equivalent cash (made up of BUSD and FTT) after exiting FTX last year. As a result of the recent Revelations, Binance has decided to liquidate all remaining FTT on its books. Binance will try to do so ina way that minimizes market impact. The sell-off is expected to take several months to complete due to market conditions and limited liquidity. Binance always encourages collaboration among industry participants and the sell-off has nothing to do with "targeting competitors." After CZ's tweet, FTT prices quickly fell from near $24 to near $21.



Alameda CEO Caroline Ellison responded to the "Binance Clearance FTT" on social media, saying that if Binance founder CZ wanted to minimize the impact of the clearance on the secondary market, Alameda is now more than willing to pay $22. FTT rallied to $22 after the tweet.



In a single day, nearly $1 billion of assets have flowed out of FTX and Alameda's related wallet addresses, triggered by community messages and Binance's sale of FTT. SBF responded on the afternoon of the 8th, accusing a competitor of a deliberate smear and stressing the platform's ability to cover all its users' assets in an attempt to reassure the market and FTX users. However, SBF's response did not have much effect. There were still a large number of customers transferring funds out of the platform, and the stablecoins on FTX were rapidly depleted, even the stablecoins that had just entered the platform were almost immediately exhausted (Figure 2 and Figure 3).    



Now, FTX and Alameda not only have to pay out user withdrawals, but also have to deploy capital to defend the value of FTT, and Alameda's associated wallet addresses are frequently transferring assets from the major exchanges into FTX. CZ, meanwhile, threw fuel on the fire, responding to a tweet questioning Alameda's $22 buyback pledge with a shrug emoji. It also directly angered FTX Digital Marketplace. Ryan Salame, who tweeted a direct reference to CZ's tweet, expressed his displeasure with its selling of FTT in the open market.


 

As the panic mounted, speculators began piling in through the contract market. Within hours, the volume of FTTUSDT perpetual contracts on Binance surged from $20 million to near $40 million, and there was fierce competition for long and short contracts. Alameda tried to defend FTT, and the spread between FTX and Binance pushed the Token price to an all-time high. After a few seesawing rounds, FTT still fell below the $22 mark and all the way down to near $15.



As the two giants fought their way to the ground, many began to realize the potential implications of the duel to the death for the entire crypto industry. Xu Mingxing, founder of OKGroup, posted on social media on Tuesday afternoon: "If FTX unfortunately becomes another LUNA, then no one, including Binance, will benefit from this accident. Both customers and regulators will lose some confidence in the whole industry. I hope CZ can consider stopping the sale of FTT and come to a new agreement with SBF."



FTX suspended cash withdrawal requests on Ethereum, Solana and Tron on Monday evening. According to 0xscope, there has been no outflow of assets from FTX in the last two hours except for FTX sending 0.12 ETH to the charging address. Just one hour later, SBF and CZ announced Binance's acquisition of FTX.


The collapse of a collective euphoria


After the announcement of the acquisition, the tokens of the two trading platforms skyrocketed instantly, with FTT rising above $20 and BNB above $370. The community was even more lively, with memes flooding the screen, suddenly making CZ the "emperor of encryption".



But on this night of the blood moon, the universe apparently decided that the reversal was not enough. Within half an hour of the community's spiritual carnival, the FUD from the acquisition agreement itself and external oversight immediately returned fire.


According to media reports, SBF reached out to Wall Street and Silicon Valley billionaires for a $1 billion bailout before striking a deal with Binance. But by midday on Tuesday, FTX's shortfall had quickly risen to between $5 billion and $6 billion. There was a sudden realisation of the huge potential hole in the FTX. CZ later tweeted that all cryptocurrency trading platforms should make a Merkle tree reserve certificate. Banks operate on fractional reserves. This should not be the case with cryptocurrency trading platforms. Binance will soon begin certifying its reserves in full transparency.



Then the Binance deal for FTX caught the attention of antitrust regulators everywhere. According to the CoinDesk article, local regulators have the power to block a major merger if they fear it will limit free choice in the market, and there are strict laws against anti-competitive behavior.


Thibault Schrepel, an associate professor at the University of Amsterdam who specializes in blockchain and antitrust issues, tweeted: "Next time, check your tweet for antitrust compliance before Posting. At this stage, I wouldn't be surprised if CZ's tweet is found in an upcoming court filing/antitrust lawsuit." Schrepel argues that US law will apply because the deal affects FTX's entire company, including its US operations.


The deal must also be approved by antitrust authorities in jurisdictions such as the European Union, who also have the power to block mergers, according to reports. For larger deals, the commission can fine companies up to 10 per cent of turnover if they get approval "first." Meanwhile, Steven Adamske, a spokesman for the U.S. Commodity Futures Trading Commission, said it was monitoring developments at the FTX but that "no regulatory issues are clear at this time."


Suddenly, market sentiment took a 180 degree turn, turning sharply higher to sharply lower, and FTT went straight into liquidation mode, sending prices into single digits. BTC, ETH are not affected, smashed through the sideways price for several days. Even Web2 World's Robinhood was on the hook, falling 18.83 percent as SBF owns 56 million shares of Robinhood, making it the third-largest shareholder.



From the excitement of the crowd to the collapse of the market, it happened so fast that people didn't even have time to react to it. In the live Twitter Space, news broke that other major exchanges, such as KuCoin, were also unable to withdraw coins, and even the host was in a panic. In less than 30 minutes, FTX went from lucky man on bail to dead man on the wrong side of the mine. We have to lament that FTX is the real Lehman Brothers of this crypto cycle. I have to ask, what did CZ do?


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