Crypto exchange wars: Binance vs. FTX

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(Kitco News) – It’s been a tough year for billion-dollar crypto companies as Sam Bankman-Fried’s (SBF) FTX exchange now finds itself in the hot seat with crypto sleuths investigating its books for hints of insolvency.

The issue started a week ago when several researchers started looking deeper into SBF’s finances, specifically his trading firm Alameda Research, only to determine that a funding risk was present due to the overrepresentation of the FTT Token (FTT) on its balance sheet.

As of June 30, Alameda Research reported a balance sheet of $14.66 billion, with FTT the largest holding company with $5.8 billion, making up 88% of its net equity. However, as researcher Cory Klippsten noted, “the net equity in the Alameda business is actually FTX’s own centrally controlled and printed-out-of-thin-air token.”

This revelation triggered flashbacks for many crypto traders of the collapse of Terra/Luna, Three Arrows Capital, Fidelity, and Celsius earlier in the year, who then proceeded to dump FTT tokens as well as any other projects associated with SBF and the FTX cryptocurrency exchange .

Recently, SBF made positive comments about a current Digital Commodities Consumer Protection Act (DCCPA) draft bill making its way through congress, and many in the crypto ecosystem took issue with his support due to perceived deficiencies on heavy-handed regulations outlined in the bill.

Then on Sunday, Changpeng Zhao (CZ), the CEO of cryptocurrency exchanger Binance, tweeted that his firm would sell its FTT holdings “due to recent revelations” about the FTX exchange token.

As part of Binance’s exit from FTX equity last year, Binance received roughly $2.1 billion USD equivalent in cash (BUSD and FTT). Due to recent revelations that have come to light, we have decided to liquidate any remaining FTT on our books. 1/4

— CZ?? Binance (@cz_binance) November 6, 2022

Alameda CEO Caroline Ellison tweeted that the company was willing to buy Binance’s FTT tokens for $22 each, to which CZ replied “I think we will stay in the free market.”

The Binance CEO said the exchange would try to sell the tokens “in a way that minimizes market impact,” and expects that it could “take a few months to complete” due to market conditions and limited liquidity.

Since the tweet by CZ was posted, the price of FTT has fallen 37.7% from a high of $23.42 to a low of $14.65 on Tuesday morning.

For his part, SBF has been attempting to calm the ecosystem and reassure everyone that FTX and Alameda are well-funded and not currently at risk of insolvency.

1) A competitor is trying to go after us with false rumors.

FTX is fine. Assets are fine.

Details:

— SBF (@SBF_FTX) November 7, 2022

“It’s [FTX] heavily regulated, even when that slows us down. We have GAAP audits, with > $1b excess cash. We have a long history of safeguarding client assets, and that remains true today,” the exchange CEO said.

Rumors that FTX had put a halt to withdrawals have further exacerbated the fear spreading across the ecosystem, which has led many to panic sell their assets, sparking a market-wide downturn. SBF has since reassured investors that everything was operating smoothly.

Data from the crypto analytics firm Nansen shows that more than $451 million worth of stablecoins has been withdrawn from FTX in the last seven days.

Update: Following the original posting of this story, Binance CEO CZ posted the following tweet indicating that the exchange has signed an agreement with FTX to fully acquire http://FTX.com and help cover an ongoing liquidity crunch.

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

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