Crypto exchange FTX “backyard” Alameda leveraged FTT, triggering a crisis of confidence in both. At this time, another exchange, Binance, released to liquidate its holdings of FTT. Competitors’ “bottom draw” has put FTX into passivity. The clash between exchanges, the large fluctuation of a variety of crypto assets between the two parties, while investors suffered, the industry is worried that the industry will be affected.
When CoinDesk broke out Alameda Reseaech’s financial documents, an industry drama unfolded. On November 3, quantitative trading institution Alameda was exposed to hold more than $5 billion in FTX platform token FTT, and there is a high leverage in the current situation. Alameda was founded by Sam Bankman-Fried (flower name SBF), founder of crypto asset trading platform FTX.
Originally, the focus of skepticism was that the financial relationship between Alameda and FTX was not transparent enough, and the former would affect the operation of FTX for many users once it thundered. Three days later, the news that another trading platform, Binance, “will liquidate the remaining FTT on the books” completely triggered a market panic – for two days, FTT continued to decline, accumulating a decline of more than 35%.
FTX’s “backyard” Alameda caught fire, triggering a crisis of trust in the industry for the two companies, and Binance’s liquidation news was like a bottom draw, putting rival FTX in trouble: a large number of users began to withdraw from FTX, and the delay in withdrawal caused by the run has appeared, and Alameda urgently recharged FTX “blood transfusion”, aggravating the fear of thunderstorms.
3 years ago, FTX was founded with a focus on crypto asset derivatives trading, and Binance was its investor. At that time, an intimate photo of Binance founder Changpeng Zhao (flower name CZ) and SBF was widely circulated, and the two smiled and shook hands to commemorate the “marriage”. Since then, FTX has gradually risen to become a global comprehensive exchange, getting closer and closer to Binance’s format, and cooperation has become competition. In July 2021, CZ announced its exit from its FTX investment.
The two platforms broke up, their respective founders exchanged words several times on social networks, and the opposition became public. Today, Binance shows the “open gun”, and FTX is passive. BNB, FTT, SOL related to the two platforms have all experienced large fluctuations, the bear market of crypto assets has worsened, and the serial liquidation disaster caused by LUNA’s thunderstorm in the middle of the year has surfaced in front of investors.
When the two crypto giants Battle, the industry began to worry about the industry being affected, and users became “cannon fodder”.
Binance claims to liquidate FTT FTX in a run
According to private financial documents released by Coindesk, as of June 30, Alameda held $14.6 billion in assets, including $3.66 billion in “unlocked FTT” and $2.16 billion in “FTT collateral.” In addition, the institution has $8 billion in debt, including $292 million in “locked FTT” in addition to $7.4 billion in loans.
FTT is the platform token of crypto asset trading platform FTX, and Alameda’s leveraged FTT has once again pushed its opaque financial relationship with FTX to the forefront. Both companies were founded by SBF, and in 2017, he founded Alameda, a quantitative trading company for crypto assets, and two years later, FTX was founded.
The two companies are regarded as important “castles” of SBF’s crypto empire, however, the financial documents exposed set the gates on fire.
Adam Cochran, a partner at crypto investment firm Cinneamhain Ventures, suspects that Alameda borrowed assets from FTX or SBF himself, and “can’t understand who would lend Alameda $8 billion with FTT, SRM, SOL collateral.”
Twitter user 0 xLoki pointed out the dangers posed by Alameda’s balance sheet: a 50% drop in severe high leverage would push Alameda into insolvency if the market falls, while over-concentrated FTT poses a risk associated with supporting the DeFi and CeFi markets that use the asset as collateral.
Doubts raged for three days, and on November 6, the outside world finally waited for a response. Caroline Ellison, co-CEO of Alameda, posted that the balance sheet circulating online is incomplete, only a subset of the company’s entities, and “we have more than $10 billion in assets that are not reflected in the table.” He also said that Alameda has so far repaid most of its loans, given the tightening of the crypto credit space this year.
This “no picture, no truth” response only explains Alameda’s financial situation, and does not explain the source of FTT in the account, the latter question directly refers to the financial connection between the institution and FTX, which is related to whether SBF opens the front exchange FTX, and the back office uses Alameda to trade FTT.
When crypto investors focused on the two companies run by SBF, Binance’s founder, CZ, suddenly spoke up. CZ, a former FTX investor, said Binance received about $2.1 billion in the equivalent of BUSD and FTT last year as a result of exiting a portion of FTX’s stake. Due to the recent revelations, Binance decided to liquidate the remaining FTT on the books. As for how many FTTs there are, the same “no picture no truth”.
CZ indicates that all FTT on Binance’s books will be liquidated
One stone stirs up a thousand waves. Although CZ claims to liquidate FTT within a few months “to minimize market impact”, once such news is released, the impact cannot be “minimal” – FTT fell instantaneously, from $24.65 to $21.95, a short-term decline of 10.95%. As of 6 p.m. on November 7, FTT was trading at $22.7, a recovery from the low, but still at recent lows.
Binance released pressure on former partners and now competitors, but CZ explicitly denied that it was “targeting competitors”. Alameda’s co-CEO threw the stone: If Binance really wants to minimize market impact, we’re happy to buy all FTT from CZ for $22. In this regard, CZ did not publicly accept.
As events unfolded, more and more users began to withdraw assets from FTX. According to CryptoQuant, FTX’s USD stablecoin reserves collapsed from $900 million, and ETH withdrawals rose to an all-time high, averaging an average of about $4.8 million in ETH outflows per day. At the same time, Alameda and FTX are rapidly aggregating assets to meet massive payout demands. According to on-chain data analysis, Alameda transferred $257 million to FTX in 24 hours, and FTX transferred a large number of assets back to local from other exchanges.
The emergency blood transfusion was defeated by the sudden run, and on the afternoon of November 7, many users reported that FTX had a problem with delayed withdrawals. After all, the crash of the algorithmic stablecoin system LUNA led to the serial liquidation or even bankruptcy of many companies in the crypto industry just half a year ago, when some exchanges could not withdraw coins was the prelude to that crisis.
From complementarity to cooperation, from competition to opposition
The problem of Alameda’s heavy FTT has affected investors’ trust in it and FTX, and Binance has directly put the popular FTX into the risk of a run. When the already public confrontation between the two sides reappeared, a photo of CZ and SBF circulated on the Internet, and the two smiled and shook hands, commemorating the cooperation three years ago. That cooperation began with complementarity and ended with competition.
On December 20, 2019, Binance strategically invested in FTX. At that time, the newly established FTX entered the market with crypto financial derivatives such as futures contracts, and Binance, which had already made a global reputation, had realized the importance of derivatives. Having earned two years of fees from crypto asset spot trading, Binance is fed up with the low activity in a bear market environment, and although it has been launching a contract business for 3 months, it has been repeatedly criticized by users due to the “pin” problem, and the liquidity and depth of trading need to be improved.
FTX, which is not yet involved in spot trading, is complementary to Binance. In the war pitch news, FTX also said that it will provide liquidity for Binance’s over-the-counter (OTC) platform. Relying on Binance’s IP halo, FTX quickly opened its popularity, the core team of professional traders also handed over products with good experience, coupled with the low-fee operation idea, the derivatives platform rose rapidly, and in just 1 and a half years, the valuation rose from $100 million to $3.5 billion.
CZ and SBF had a close photo
However, this “capital marriage” came to an end in less than two years.
On July 21, 2021, CZ revealed that Binance gave up its equity interest in FTX. The specific reason, CZ did not disclose, only said that Binance completed the exit “within the normal investment cycle” under “good conditions”, and emphasized the “friend” relationship between the two parties. On the same day of the “peaceful breakup”, FTX officially announced that it had completed a $900 million Series B financing at a valuation of $18 billion.
In the case that many capitals are optimistic about FTX, early supporter Binance chose to withdraw, and the outside world has been thinking about it. “The valuation was not negotiated” and “Binance thinks FTX is too aggressive” gossip flying. The only fact these days is that FTX isn’t content to just be a supplement to Binance.
Two years after its establishment, FTX not only gradually surpassed BitMEX in the derivatives business, but also began to lay out spot trading and OTC business, transforming from a vertical derivatives trading platform to a comprehensive transaction. Coupled with the fact that SBF previously founded Alameda, the institution has a deep history of US dollar OTC, and FTX has been one of the largest offshore US dollar and Hong Kong dollar OTC deposits.
The $18 billion valuation makes FTX an upstart in the crypto asset exchange track, and the last famous “upstart” is Binance.
The two crypto brands are also quite similar in their ecological layout. In September 2020, Binance led the launch of the BNBChain (formerly known as BSC) public chain, extending its ecological tentacles to the decentralized world. In 2021, the Solana public chain, led by SBF, came to prominence. As blockchains compatible with the Ethereum network, Solana and BSC have also become competing chains.
There is nothing wrong with cooperation and healthy business competition, but later plots turn competition into opposition.
In July this year, crypto industry investment institution Three Arrows Capital thundered, and the lending platform Voyager went bankrupt. FTX announces a $100 million bailout to Three Arrows Capital. CZ tweeted that Three Arrows Capital owed Voyager hundreds of millions of dollars, causing creditors to go bankrupt, and Alameda borrowed $377 million from it after investing in Voyager, “Why did FTX not pay back the money to rescue the bankrupt Voyager, but ineffectively gave Three Arrows Capital $100 million to bail?”
The remarks took aim at FTX’s ambiguous financial relationship with Alameda. Soon, the founders of the two affiliates, SBF, responded that lending money to Alameda was Voyager’s day-to-day business, which was not the same as the emergency credit Alameda provided to Voyager in the event of a liquidity crisis. In response, SBF replied that CZ “does not understand the legal knowledge related to bankruptcy at all”.
This is the first time that Binance and FTX have torn their faces in public for a year after the “breakup” of Binance and FTX.
On August 25, the crypto KOL “FATMAN”, known for exposing various black materials, exposed a big melon, “After verification, FTX’s public relations company M Group Communications has signed up to publish negative media articles about FTX’s bidding platform Binance.” Hired journalists have access to ‘anti-binance contacts’ and even relevant ‘black book’ references for research.”
Although the above-mentioned PR company issued a document clarifying that “FATMAN’s tweet information is not true”, the opposition between Binance and FTX has become an open secret in the industry. Now, Binance plans to liquidate FTT in its hands, and “Big Brother” seems to no longer plan to make a fuss about public relations rhetoric.
Exchange Battle, investors are afraid of “cannon fodder”
The two major exchanges in the crypto world are pitted against each other, the most sensitive is the market, and the most panicked are investors.
In the three or four days of the fermentation of the event, the crypto asset market fell rapidly. As of 2 p.m. on November 8, BTC fell from $21,300 two days ago to $19,680, a drop of 7.6%; During the same period, ETH fell from $1640 to $1466, a drop of more than 10%.
Even more tragic are FTT and SOL position holders, due to the close association of these two tokens with FTX, out of concerns about the thunderstorm of the exchange and Binance’s smashing panic of trading, FTT fell further on November 8, falling to $15.85 at $22.7 the night before, and fell by 30% in less than 24 hours; Solana’s native token SOL continued to fall from a recent high of $38.79 to around $26, a drop of 32.97%.
Binance, which intends to beat FTX, did not make any good profits, and BNB, the underlying token of BNBChain in the ecosystem, fell from $350 to $320, a drop of 8.57%.
In the bear market environment of crypto assets, investors’ confidence in the market is fragile. Some users left a message on CZ and SBF’s social media, “I hope you will reconcile as soon as possible so that the industry will not be harmed more.”
Yang Mindao, founder of dForce, also suggested that the two sides shake hands and make peace, “Binance and FTX compete, reflecting two completely different paths and choices,” Yang Mindao explained, Binance takes the people’s line, the “people’s lever” is full, where there is demand, it will go; FTX is an elite route that started with a professional trader community, and the “political leverage” was later filled, and now SBF is one of the largest donors of both parties in the midterm elections in the United States. Binance has ten times more users and revenue than FTX, but FTX has more than 10 times more political influence in the U.S. than Binance. “The combination of the two is of course the best, there is no people, politics is also the source of no water, the two big guys had better shake hands and make peace, and jointly make the two streets into the right road, otherwise the whole industry will make a small fight in the alley, and the meaning will not be big.”
Currently, Binance and FTX rank first and second on exchanges
Indeed, if the strength of the exchange is judged by daily turnover, on CoinmarketCap, the crypto asset data website acquired by Binance, Binance ranks first and FTX ranks second. Data on November 8 showed that Binance’s 24-hour trading volume was $26.195 billion, and FTX’s 24-hour trading volume was $3.104 billion. On another third-party data site, CoinGecko, Binance still ranked first in 24-hour turnover, while FTX ranked fourth.
If FTX is considered a rival to Binance, the actual gap is actually very large. For SBF, FTX is profitable, but it is not the most valuable card in his hand, and when paired with a quantitative agency such as Alameda, everything may be different, especially when this institution is heavily invested in FTT.
Some users have called on SBF to make FTX and Alameda’s financial situation transparent as soon as possible to regain confidence. Indeed, the crisis of trust is the essence of the problem facing FTX. Whether early investor Binance still has FTT, and whether it will eventually sell FTT, the outside world is unknown, but the situation affecting the market has been formed, and in order to seize the initiative to deal with this crisis, FTX announced asset reserves and clarified its financial relationship with Alameda is the right way.
Crypto KOL “bitouq” said that if Alameda’s asset structure is really as reported by the media, in the case of a sharp decline in the market, there may indeed be insolvency, so early disclosure of assets and financial transparency may be the best way to sweep away the panic, “the market may tolerate the past, but cannot accept an uncertain future.”
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/ftx-backyard-fire-binance-bottom-draw/
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