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

A spat between Changpeng Zhao and Sam Bankman-Fried may spark a crypto chilly struggle between the house’s two greatest exchanges. 

Binance Plans to Clear FTT Publicity

Battle is brewing between two of crypto’s greatest 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 attributable to “latest revelations,” and warranted his followers that eradicating Binance’s FTT token publicity was not performed as a transfer in opposition to its competitor. Nonetheless, FTX CEO Sam Bankman-Fried didn’t see it that means. “A competitor is making an attempt to go after us with false rumors. FTX is okay. Property are fantastic,” he asserted, explaining his alternate didn’t make investments its purchasers’ property, that it had been processing all withdrawals, and that it might proceed to take action. 

Though the worth of FTT tokens held by Binance is unknown, the alternate 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 alternate’s complete FTT holdings. This alone is equal to 17.2% of the overall FTT in circulation. 

There are a number of doable the explanation why Zhao determined to chop Binance’s FTT publicity. Most distinguished is the latest revelation that FTX-affiliated buying and selling agency Alameda Analysis may very well be going through monetary problem, per a leaked steadiness sheet from CoinDesk. The doc confirmed that as of June 30, Alameda held greater than $14.6 billion in property in opposition to $8 billion in liabilities. Nonetheless, as a lot of the agency’s property consisted of highly-illiquid tokens akin to FTT, SRM, MAPS, and OXY, it raised doubts as as to whether Alameda may repay its money owed. 

Moreover, onlookers akin to Soiled Bubble Media have alleged that the FTT token, which makes up a large chunk of each Alameda’s and FTX’s steadiness 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 giant loans in opposition to their FTT holdings. Nonetheless, now that Alameda Analysis seems to have run out of money, evidenced by the recently-leaked steadiness sheet, the FTT flywheel is coming underneath 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 steadiness sheet was just for a subset of Alameda’s company entities, including that the agency held a further $10 billion value of property. 

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 under $22? Many have speculated that it’s as a result of a superb chunk of Alameda’s liabilities is collateralized in opposition to FTT. The agency might begin to face margin calls on its loans if FTT drops a lot under $22. Then again, Ellison may 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 danger 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 group 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 seemingly influence the crypto house considerably going ahead. 

A Crypto Chilly Conflict

If Bankman-Fried and Zhao can’t resolve their variations quickly, it may end in a drawn-out battle between two of crypto’s greatest exchanges. 

Zhao made it clear in his preliminary announcement that he needs to remove Binance’s FTT publicity in a means that “minimizes market influence.” If he actually has no ulterior motive for his transfer, it might make sense to just 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 nicely and actually in Zhao’s court docket, he has no obligation to just accept essentially the most favorable final result for Alameda and FTX. From the outset, Binance is undoubtedly in a stronger place—the alternate has essentially the most liquid crypto markets on the planet in addition to essentially the most customers. Regardless of previous controversies, Zhao’s public notion is a lot better than Bankman-Fried’s at this time. Latest 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 might seemingly trigger some short-term volatility and power FTX or Alameda to repurchase the quantity to shore up the token’s worth. Nonetheless, with the present data at hand, it seems unlikely that this by itself would inflict severe harm. An even bigger concern for FTX is the market’s notion of such an occasion. If sufficient FTT holders and FTX clients lose religion within the alternate and its token, it may trigger a financial institution run, leading to a way more dire state of affairs. 

Nonetheless, what FTX and its related 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 nicely 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 lately. All through 2021, the agency needed to take away merchandise from its alternate in a number of jurisdictions when it fell foul of native laws. In Malaysia, the federal government even ordered a complete Binance ban, telling the alternate 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 alternate’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 value of legal funds to course of via its alternate between 2017 and 2021. 

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

Editor’s observe: 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 in reality had $8 billion in liabilities, per CoinDesk’s November 2 report. 

Disclosure: On the time of penning this piece, the creator held FTT and a number of other different cryptocurrencies.