Daily Briefing: Blood in the Water

On top of the midterm elections and forthcoming CPI numbers on Thursday, the crypto world is contending with additional drama this week in the form of two industry titans butting heads in a way that puts the whole space on edge.

Clash of the Titans

Binance CEO Chanpeng “CZ” Zhao made waves on Sunday by announcing on Twitter that the exchange would liquidate any FTT (FTX’s native token) it held as a result of “recent revelations.” While he didn’t elaborate on what those revelations might be, the rampant speculation is that the culprit may well be a leaked balance sheet from Alameda Research, which has deep (though frankly unclear) ties to FTX.

FTX is the world’s second-largest crypto exchange, lagging only behind Binance. In a year that saw several exchanges face liquidity crises or even collapse altogether, these two powerhouses have weathered the storm by staying relatively smart—they are typically able to maintain high liquidity from the sheer size of their userbases and appear to share a disinclination to overleverage themselves, à la Celsius or Three Arrows Capital.

However, Alameda’s leaked balance sheet (which, it is important to note, may not give a complete picture of the company’s finances) demonstrated that a fairly significant portion of Alameda’s $7.4 billion in assets consists of illiquid FTT and Solana-based tokens. SBF’s history of support for Solana renders the finding somewhat unsurprising, but Solana’s poor performance over 2022 has brought virtually all of its ecosystem’s tokens down with it.

Therefore, at least one of Sam’s companies could be in real trouble if any mass-withdrawal events were to occur. Furthermore, Alameda’s close ties to FTX may be contributing to financial difficulties for the exchange as well—Twitter personality 0xSisyphus pointed out
earlier today that, for some reason, FTX has withdrawn 1,985 ETH (about $3 million) from Gearbox Protocol. Normally that might not draw any attention, but given that Gearbox is set to end its withdrawal fee next week, it does lead one to wonder why the company would sink more than 30 grand into fees that it would not have had to pay if it had just waited a few more days. 

Still, SBF insists that FTX is fine—that “assets are fine.” Alameda CEO Caroline Ellison countered CZ’s initial tweet yesterday by offering to buy all of Binance’s FTT over-the-counter for $22 a token. In his typically opaque way, CZ seemed to be considering the deal earlier this afternoon, but it’s difficult to assess which way his firm will go; meanwhile, FTT’s price still sits just a few cents above $22.

Whether or not the Alameda/FTX powerhouse is actually fine, however, remains to be seen. If either were to run into insolvencies, it would be a pretty substantial black eye for Bankman-Fried, who has maintained a fairly positive public image to this point. But as we all know, things can change on a dime in this space; how FTX and Alameda handle the next few days could tell us a lot about their future in the industry.

Disclosure: At the time of writing, the author of this piece owned BTC, ETH, BNB, SOL, and several other digital assets.