Binance CEO Changpeng Zhao, in his newly released book “Freedom of Money,” uncovers startling revelations regarding the abrupt downfall of crypto exchange FTX in November 2022. Delving into conversations with FTX founder Sam Bankman-Fried, Zhao illustrates a crucial episode when Bankman-Fried unexpectedly sought a multibillion-dollar lifeline for his beleaguered empire. Zhao’s account provides rare insights into the turmoil that gripped the cryptocurrency world during that period.
What Sparked Binance’s Brief Consideration of FTX?
Amidst a worsening liquidity crisis, Bankman-Fried reached out to Zhao, proposing substantial financial backing. Zhao, although involved in discussions, clarified he was reluctant to acquire FTX, mainly to mitigate broader market disruptions. An initial non-binding agreement was crafted, allowing Binance to analyze FTX’s fiscal status without binding commitments to purchase.
Alameda Research’s Role: Could It Have Been a Catalyst?
The situation escalated when Caroline Ellison of Alameda Research, an affiliate of FTX, publicly proposed purchasing Binance’s sizable FTT holdings at $22 apiece. Zhao explained that such disclosures inadvertently signaled the market about the token’s standing, triggering investor actions and harming FTT’s valuation.
In the wake of Ellison’s disclosure, FTT’s value plummeted, sliding from $15 to a devastating $5 within hours. The panic catalyzed a staggering $6 billion in withdrawals from FTX over three days, plunging the platform deeper into crisis. Zhao’s memoir elaborates on these critical events, which he describes in vivid detail.
Zhao offers insights into an exclusive group initiated by ex-FTX staffer Zane Tackett post-the Terra/LUNA debacle. This circle, comprising Zhao, Coinbase’s Brian Armstrong, and Kraken’s Jesse Powell, operated amidst regulatory scrutiny. Yet, Zhao asserts there was no clandestine market maneuvering, maintaining transparency with authorities.
By November 9, Binance formally renounced intentions to pursue FTX acquisition. The financial loss from Binance’s FTT holdings mirrored earlier setbacks during the Luna crisis when Binance incurred substantial damages.
Following the fiasco, Binance itself witnessed significant withdrawals. On December 14, the platform saw $7 billion leave in a day. Zhao recounted that he remained composed, even as he dined with friends that evening.
According to Zhao, “All user assets stayed backed by reserves. Withdrawn funds soon returned, and deposits reached even higher than previous levels within a month.”
The incident underscores the high stakes and intricate dynamics in the cryptocurrency realm, serving as a case study in crisis management and market stability.
