Exchange Wars Turn Into Truce as Binance Acquires FTX.Com

Binance has signed a non-binding agreement to acquire FTX.com following a significant liquidity crunch at the Bahamas exchange.

According to Binance CEO Changpeng ‘CZ’ Zhao, Binance is monitoring the situation in real time and can pull out of the deal at its discretion.

CZ continued to say that their efforts were directed towards protecting users.

This afternoon, FTX asked for our help. There is a significant liquidity crunch. To protect users, we signed a non-binding LOI, intending to fully acquire https://t.co/BGtFlCmLXB and help cover the liquidity crunch. We will be conducting a full DD in the coming days.

— CZ 🔶 Binance (@cz_binance) November 8, 2022

The acquisition was implicitly confirmed by FTX CEO Sam Bankman-Fried, who said that the deal with Binance was subject to due diligence.

He also minimized media reports of a feud between himself and Zhao.

Earlier this week, rumors surfaced of a feud between Zhao and FTX CEO Sam Bankman-Fried. The Binance CEO alleged that most of Alameda Research’s holdings of FTT, FTX’s native token, were illiquid and announced that Binance would be liquidating any FTT on its books. Binance received FTT as part of its exit from holding FTX equity.

Alameda Balance sheet issues arise

A report surfaced on Nov. 2, 2022, revealing that Alameda Research’s balance sheet held $3.6 billion in “unlocked FTT,” and $2.6 billion in “FTT collateral.” FTT is FTX’s native token that grants holders discounts on trading fees. Its balance sheet also showed $8 billion in liabilities. 

This revelation sparked speculation on what could happen to Alameda if the price of FTT fell. Considering the close ties between FTX and Alameda, any risks to Alameda’s solvency could pose a direct threat to the health of FTX and its users. Alameda’s venture capital arm recently merged with FTX.

Soon after the report, both Binance and FTX customers began withdrawing FTT from FTX, causing a massive liquidity crunch. On Nov. 7, 2022, Sam Bankman-Fried denied that FTX had liquidity problems, slamming “a competitor” for creating FUD. 

However, FTX began experiencing distress soon after. The mass withdrawals of FTT created a transaction backlog, causing FTX to stop processing transactions at 6:37 a.m. ET on Nov. 8, 2022.

According to Bankman-Fried, FTX started clearing out the backlog around 12:03 p.m. ET. He assured users all redemptions would be honored with Binance’s help and lauded CZ for stepping in.

2) Our teams are working on clearing out the withdrawal backlog as is. This will clear out liquidity crunches; all assets will be covered 1:1. This is one of the main reasons we’ve asked Binance to come in. It may take a bit to settle etc. — we apologize for that.

— SBF (@SBF_FTX) November 8, 2022

He then reminded users that FTX.US was not affected by the liquidity crunch.

If the deal goes through, it could bring together two titans of the industry who have not always seen eye-to-eye. One crypto commentator believes that CZ disapproves of SBF’s rampant political lobbying, seeing it as detrimental to Binance’s operations. 

5/ Last week, FTX big wigs took aim at CZ over the ongoing lobbying. Clearly CZ isn’t impressed that the FTX guys are calling him out publicly. pic.twitter.com/0TSOKpKrRx

— tedtalksmacro (@tedtalksmacro) November 7, 2022

There are also rumors that FTX was responsible for the FUD surrounding a report that Binance processed transactions of sanctioned Iranian entities.

Following the news of the acquisition, FTT’s price became very volatile. 

At press time, FTT was trading at around $14.625, down over 30%. The price continues to fluctuate.

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