Sirwin
Sirwin

FTX Saga — An Overview of Binance’s Intentions and Justin Sun’s Decision


FTX, the once second-biggest crypto exchange in the world, is slowly but surely dying. Let’s see why and how.

No matter how hard SBF tried to keep both his companies alive, they weren’t able to outlive this bear market and the powerful competition on the market.

Let us dive into the Binance vs. FTX conflict, analyze a different point of view and see if Justin Sun will be able to save FTX. Let’s go!

Binance vs. FTX — An Overview

It all started with Alameda Research, a trading firm founded by Sam Bankman-Fried before FTX, and their messy balance sheet revealed by CoinDesk last month.

Alameda Research, apparently one of the biggest crypto firms in the world, had huge financial problems. Out of their ~$14B of assets, Using this metric, Alameda Research had $3.66 billion worth of unlocked FTT and an additional $2.16 billion in FTT collateral. As of June 30, a total of $5.82 billion in FTT tokens alone stood on its balance sheet. Keep in mind that the market capitalization of FTT was ~$4B at the time(now, it’s just $600M).

Add to that their crypto holdings which took a massive hit during the bear market. A big part of them were Solana-based tokens or even Solana. All of them got ~-90% during the bear market. The biggest part of their crypto holdings, however, consist of Serum(SRM), a token co-funded by SBF. Oh, and don’t forget the locked $SOL which is worth nothing when Alameda wants to cash out and pay the bills and loans.

Speaking of loans, Alameda had that too, something around ~$8B in liabilities. More than 50% of their total assets. That’s huge, a company with such a reputation, with such a market capitalization, mustn’t have such a messy financial sheet. It starts to look like SBF isn’t a genial CEO, just a trader who got really lucky.

It’s funny how SBF tried to assure the crypto world that his companies are strong and rich. By buying businesses and bailing out companies, it looked like they got plenty of free cash in their accounts. In reality, they just made their fall more painful and, possibly, quicker. It’s also funny how SBF made some advertisements for his FTT right before this news(yeah, not financial advice).

So, Alameda’s business is getting worse and worse, what’s FTX having to do with all this? The thing is, they’re kind of sister companies, and both have tremendous amounts of FTT they can’t cash out.

Interesting fact: on the 6th of November, FTX had only $2.2B worth of different coins on the Ethereum blockchain, out of which 50% were $FTT.

So, FTT here, FTT there, it really seems like the companies inflated their market caps just by using the price of the FTT available in circulation, not mentioning the fact that, in case they want to deploy all that FTT, the price is immediately going down.

Once Binance understood that CZ immediately announced that they are going to sell all their FTT in case it’ll go down as LUNA did. And the trick worked. Right after the announcement, the price went down ~25%. FTX customers freaked out and started cashing out all their holdings on FTX’s exchange.

The company quickly run out of stablecoins and halted withdrawals by 2–6 hours each. SBF was confident that the company will get through a massive liquidation of assets. It didn’t. Binance only had ~560M worth of FTT and used that as leverage to perform an aggressive takeover. Can you imagine what would’ve happened if Alameda and FTX would’ve cashed out their FTT holdings?

Not long after that, CZ and SBF come with an announcement on Twitter. Binance signed a binding LOI and intended to acquire FTX. Surprise surprise. With only a tweet and some FTT, CZ destroyed the second-biggest crypto exchange in the world and his direct competitor. Bravo.

But, was it pure business?

Did Politics Caused Binance’s Aggressive Actions?

Let us dive deeper and contemplate why Binance wanted to buy FTX. To kill competition? Maybe.

Once besties, SBF and CZ have grown apart politically and economically. They’re pushing different ideas, concepts and even legislative drafts in the Senate and House of Representatives. So, is this really a coincidence that CZ destroyed FTX right before we find out the winner of these midterm elections?

No, we don’t think it is. Sammy has lobbied for some really alarming rules that would make the decentralized world very much centralized. FTX has been spending millions of dollars to push a law through Congress that may force DeFi protocols to operate like centralized exchanges. SBF personally spent over $40M in these US midterm elections, paying for Democrats’ campaigns. He is the sixth-largest donor this year.

SBF, FTX and Alameda have repeatedly demonstrated that their sole purpose is to extract as much value as possible out of crypto with zero regard for its development. Very much like Mark Zuckerberg and all his Metaverse projects that fail consistently. All these donations could’ve resulted in much worse consequences for the crypto market than a simple crash caused by FTX being destroyed by competitors.

We all know that CZ is the ambassador of Decentralized Finance and the development of crypto. So he wouldn’t let SBF fund Congress into adopting anti-crypto laws and policies. Of course, there is no reason to believe that CZ didn’t just want to buy FTX and be practically ~70% of the CEX market. But, keep in mind the fact that we all understand, CZ especially, that his company will become a monopoly in this case. No good.

But, with yesterday’s midterm elections (the battle between Democrats and Republicans for seats in the Senate and House of Representatives in the US) that basically can decide the fate of crypto and many other industries, such an aggressive takeover might imply CZ’s decision to not let SBF do some more damage.

Oh, and don’t forget about Binance.US and FTX.US, two large entities that are directly affected by the US legislation on crypto. Therefore, CZ won’t leave FTX and SBF to lobby some shitty rules that might affect Binance.US in the future. Especially when Binance.US got +~60% of the crypto market in Q3. It’s nonsense.

So, CZ doesn’t really buy FTX, just destroys it, with a tweet. Now, SBF won’t have the money and the power to lobby legislation with his bankrupt companies. And the story with Binance ends here. The company and his CEO destroyed FTX, but didn’t buy it.

A new character enters the FTX saga.

Will Justin Sun Bail Out FTX?

After Binance’s announcement that it won’t buy FTX, Justin Sun entered the game, also on Twitter. The crypto billionaire stated the obvious fact that the fall of FTX will affect the crypto industry deeply and, in order to not let such a thing happen, he and his team are collaborating with FTX in order to find a solution. Just like Binance collaborated with FTX.

At first, Justin stated that he will stay behind all Tron token holders that might lose their assets in the liquidity crunch. Now, the billionaire wants to bail out the company and receive a good piece of the market for his crypto exchange, Huobi.

Nevertheless, rumours say that FTX needs ~$8B to not file for bankruptcy. Does Justin Sun have the cash to do such a stunt? He might, especially if he’ll be backed by some serious players in the crypto game. As of the 8th of November, Justin Sun has a lot more credibility than SBF. Don’t even know why.

To wrap things up, this FTX situation is very tricky. Although many will try to bail FTX out (it’s a huge company), it won’t be the same crypto exchange as before. Even though CZ stated that it isn’t a master plan of his, it’s very hard to believe. Metrics show that most of FTX’s traffic went directly to Binance. We’ll see what Justin Sun has to say about FTX. Maybe he’ll find a solution to this problem. Meanwhile, the whole crypto market is going down together with FTX.

How do you rate this article?

1


Satoshi Club
Satoshi Club

An educational group about crypto and blockchain technologies


Satoshi Club AMA Recaps
Satoshi Club AMA Recaps

A collection of AMAs with crypto teams

Send a $0.01 microtip in crypto to the author, and earn yourself as you read!

20% to author / 80% to me.
We pay the tips from our rewards pool.