Binance CEO Changpeng Zhao (known to many in the crypto community simply as CZ) posted a tweet on Sunday that has since rocked the entire market. The message was simple but mysterious: Binance received some concerning information about rival exchange FTX, and has decided to liquidate billions of dollars worth of $FTT (FTX's native token).
As of the time of writing, $FTT has plunged over 80% in value. That sudden plummet, along with other factors, has placed FTX (one of the largest Centralized Exchanges in the world) in a precarious financial situation that has left them vulnerable to a buyout by Binance.
It was considered an open secret in the crypto world that FTX and sister company Alameda Research were incestuously tied to each others' operations. Both entities, founded by "effective altruism" advocate Sam Bankman-Fried, were often accused by traders on CT (Crypto Twitter) of collusion, namely by Alameda (a quantitative crypto trading firm) front-running retail trades made on FTX.
Bankman-Fried and his highest-level employees, like Sam Trabucco and Caroline Ellison, were often derisively referred to as the "Alameda Cartel" by the crypto community, though there was no tangible proof of such unethical activities.
Tangible, however, was the disastrous state of Alameda Research's balance sheet, which was leaked on November 2nd. A significant bulk of their $14.6b asserts were none other than $FTT, a coin issued by sister company FTX.
The leak raised concerns and comparisons of Alameda to Celsius, a now-bankrupt crypto lending company, leading many to wonder if Alameda was insolvent. Because of the tangled and now verified nature of $FTT and Alameda, the crypto community began to speculate if FTX too, was insolvent.
Given all of this recent FTX/Alameda context, CZ's Sunday tweet spurred people to withdraw their funds from FTX en masse. Fears of a "bank run" felt palpable as FTX users were forced to wait hours to process small withdrawals. This morning, blockchain activity seemed to indicate that FTX had paused withdrawals altogether.
Bankman-Fried reportedly spent the days since Sunday looking for any form of financial lifeline, even selling off other assets to maintain the price of $FTT at $22, but seemed to have run out of all viable options by Tuesday afternoon. As withdrawal requests and public scrutiny increased, it seemed that the only thing Bankman-Fried could do was to ask CZ for help, which he did.
The Binance CEO agreed to help with FTX's liquidity crisis in the form of a buyout.
The story is still unfolding and collateral damage in the form of retail investors' losses is still being tallied. There are understandable concerns that this event between FTX and Binance will have a multitude of negative after-effects, such as the prolongment of the crypto winter, and increased regulation. Indeed, even with financial reassurance that Binance will shoulder FTX's illiquidity problem, market sentiment seems incredibly bearish.
What lessons can we, as an entire industry, learn from what's transpired in the last few days? For CZ, the lesson he wants to impart publicly seems simple enough: be transparent and avoid debt-backed assets.
"One of the tenets of crypto is trust minimization and the removal of excessive layers of human bureaucracy."
We couldn't agree more. For us at InfinitySwap, the lesson gained from the FTX debacle is clear, and the message we want to deliver is this: cryptocurrency is supposed to bring financial freedom and self-sovereignty to the individual. That is simply not possible when your funds are subject to the whims and manipulation of centralized entities like FTX. It is only with transparency (in both code and human operations) that we can build a truly democratic financial future for everyone.
The InfinitySwap mission has never changed since Day One, and we hope that this brief explanation of what's happened in recent days serves to remind you, as it did for us, how critical it is for individuals to have real control over their own assets.