Binance and FTX Face Off—But Which Crypto Exchange Will Come Out On Top?

A spat between Changpeng Zhao and Sam Bankman-Fried might spark a crypto chilly battle between the area’s two largest exchanges. 

Binance Plans to Clear FTT Publicity

Battle is brewing between two of crypto’s largest whales.

Binance founder and CEO Changpeng “CZ” Zhao revealed Sunday his firm would liquidate its publicity to FTX’s FTT token, acquired as a part of Binance’s exit from FTX fairness final 12 months. 

On Twitter, Zhao teased that the liquidation was resulting from “current revelations,” and warranted his followers that eradicating Binance’s FTT token publicity was not completed as a transfer towards its competitor. Nonetheless, FTX CEO Sam Bankman-Fried didn’t see it that method. “A competitor is attempting to go after us with false rumors. FTX is okay. Belongings are fantastic,” he asserted, explaining his change didn’t make investments its shoppers’ belongings, that it had been processing all withdrawals, and that it will proceed to take action. 

Though the worth of FTT tokens held by Binance is unknown, the change acquired a complete of $2.1 billion in Binance USD (BUSD) and FTT from its FTX fairness exit final 12 months. Yesterday, Zhao confirmed {that a} 22.9 million FTT token transaction, valued at $584 million, was solely a part of the change’s complete FTT holdings. This alone is equal to 17.2% of the entire FTT in circulation. 

There are a number of doable the reason why Zhao determined to chop Binance’s FTT publicity. Most outstanding is the current revelation that FTX-affiliated buying and selling agency Alameda Analysis might be going through monetary problem, per a leaked stability sheet from CoinDesk. The doc confirmed that as of June 30, Alameda held greater than $14.6 billion in belongings towards $8 billion in liabilities. Nonetheless, as many of the agency’s belongings consisted of highly-illiquid tokens corresponding to FTT, SRM, MAPS, and OXY, it raised doubts as as to whether Alameda might repay its money owed. 

Moreover, onlookers corresponding to Soiled Bubble Media have alleged that the FTT token, which makes up a large chunk of each Alameda’s and FTX’s stability sheets, has a extremely inflated worth. They clarify that utilizing a flywheel scheme, Alameda and FTX have created the phantasm of demand, pumping up FTT’s worth and permitting each events to take out massive loans towards their FTT holdings. Nonetheless, now that Alameda Analysis seems to have run out of money, evidenced by the recently-leaked stability sheet, the FTT flywheel is coming below strain. 

In response to those accusations, Alameda Analysis CEO Caroline Ellison denied that her buying and selling agency was in such dire straits. On Twitter, she claimed that the leaked stability sheet was just for a subset of Alameda’s company entities, including that the agency held a further $10 billion price of belongings. 

Moreover, Ellison responded to Zhao’s intention to promote Binance’s FTT publicity by providing to purchase all his firm’s tokens at $22 apiece. This begs the query: Why doesn’t Alameda need FTT to fall beneath $22? Many have speculated that it’s as a result of a superb chunk of Alameda’s liabilities is collateralized towards FTT. The agency could begin to face margin calls on its loans if FTT drops a lot beneath $22. Alternatively, Ellison might have merely picked $22 for her buyout supply as a result of it’s what the token was buying and selling for close to the time of her tweet. 

Regardless, Zhao appears to consider that the chance of holding FTT now outweighs the potential rewards. Whether or not Zhao meant it to or not, his actions have been perceived by Bankman-Fried and the broader crypto neighborhood as Binance kicking FTX whereas it’s down. Whether or not or not these two crypto whales can put their variations apart and discover a decision to their present feud will possible influence the crypto area considerably going ahead. 

A Crypto Chilly Struggle

If Bankman-Fried and Zhao can not resolve their variations quickly, it might lead to a drawn-out battle between two of crypto’s largest exchanges. 

Zhao made it clear in his preliminary announcement that he desires to remove Binance’s FTT publicity in a method that “minimizes market influence.” If he really has no ulterior motive for his transfer, it will make sense to simply accept Ellison’s supply to purchase out his FTT place for $22 per token. Whether or not or not Zhao decides to promote FTT over-the-counter as a substitute of instantly onto the market will give a superb indication of his true intentions. 

Nonetheless, because the ball is properly and really in Zhao’s court docket, he has no obligation to simply accept probably the most favorable final result for Alameda and FTX. From the outset, Binance is undoubtedly in a stronger place—the change has probably the most liquid crypto markets on this planet in addition to probably the most customers. Regardless of previous controversies, Zhao’s public notion is a lot better than Bankman-Fried’s at present. Current discussions surrounding crypto regulation, together with a poor efficiency in a Bankless debate with ShapeShift CEO Erik Voorhees, have weighed on the FTX CEO’s picture. 

If Zhao did resolve to market promote Binance’s FTT, it will possible trigger some short-term volatility and pressure FTX or Alameda to repurchase the quantity to shore up the token’s worth. Nonetheless, with the present info at hand, it seems unlikely that this by itself would inflict critical harm. A much bigger concern for FTX is the market’s notion of such an occasion. If sufficient FTT holders and FTX prospects lose religion within the change and its token, it might trigger a financial institution run, leading to a way more dire scenario. 

Nonetheless, what FTX and its linked entities do have that Binance lacks is governmental and regulatory connections. Bankman-Fried has a a lot better relationship with regulators and U.S. authorities officers than Binance, beforehand offering testimony earlier than Congress and main efforts to draft crypto regulation in Washington, D.C. The FTX CEO has additionally painted himself as a unusual altruist who plans to donate the overwhelming majority of his wealth to charitable causes. This picture has performed properly with wealthy elites, incomes him a spot on a number of journal covers and even an viewers with the well-connected Invoice Clinton and Tony Blair at FTX’s Bahamas-based crypto convention earlier this 12 months. 

Conversely, Binance has struggled with regulators within the U.S. and overseas till not too long ago. All through 2021, the agency needed to take away merchandise from its change in a number of jurisdictions when it fell foul of native rules. In Malaysia, the federal government even ordered a complete Binance ban, telling the change to disable its web site within the nation. Elsewhere, the U.S. Division of Justice requested paperwork from Zhao and different Binance executives associated to the change’s anti-money laundering checks and communications dealing with compliance points. Earlier this 12 months, a Reuters report alleged Binance had allowed greater than $2.35 billion price of legal funds to course of via its change between 2017 and 2021. 

Though Zhao could have the higher hand in the meanwhile, Bankman-Fried’s connections might flip the tables if the present feud evolves right into a full-blown battle. Whereas each events have expressed a want to work collectively, whether or not they are going to be capable to put their variations apart for the sake of the broader crypto ecosystem just isn’t but clear. 

Editor’s be aware: A earlier model of this text incorrectly acknowledged that Alameda Analysis had $7.4 billion in liabilities. The piece has been up to date to notice that the agency actually had $8 billion in liabilities, per CoinDesk’s November 2 report. 

Disclosure: On the time of scripting this piece, the creator held FTT and several other different cryptocurrencies.