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Home » Binance Is Taking Over FTX After Liquidity Crunch

Binance Is Taking Over FTX After Liquidity Crunch

Binance

Binance and FTX were known as formidable rivals for a good long time now. But on Tuesday Binance announced the Takeover of the FTX company and that they have signed a letter of intent to merge. This social media battle between these two has led to a price drop for many coins instantly. 

Binance

According to Binance founder Changpeng Zhao, Binance came to the conclusion after the three-year-old exchange FTX approached the crypto titan for advice, “We signed a non-binding LOI with the intention of fully acquiring FTX and assisting with the liquidity crunch in order to protect users. In the upcoming days, we will be performing a comprehensive DD, he tweeted.

Binance is free to terminate the agreement at any time, Zhao said. But according to Sam Bankman, the creator of FTX, “the key thing is that customers are protected.”

Binance

The companies haven’t published the deal’s financial details yet, but it is believed that this wasn’t all that horrible for FTX investors considering that the company was valued at $32 billion earlier this year during a financing round.

How did all this start?

On November 6th, in response to “recent facts that came to light,” specifically a CoinDesk article that FTX was experiencing a liquidity problem, Binance CEO Changpeng Zhao sold around $529 million of FTX’s native coin. Sam Bankman-Fried, the CEO of FTX, then claimed that Binance had been spreading “false stories” about his company while claiming that everything was “great.”

According to the data, FTX might have been in an exceptionally severe shape. CryptoQuant mentioned FTX’s net crypto asset holdings fell by 83 percent in just the last few days during a conversation with TechCrunch.

FTX apparently had to introduce stablecoin liquidity (crypto pegged to an external value) to process the moves through the markets or other exchanges as a result of making withdrawals so challenging. In the last two weeks, the company’s stablecoin reserve has decreased by 93%, and associated withdrawals had almost reached zero.

Binance

Zhao confirmed the notion that the company was selling off its FTT assets as “post-exit risk management” and gave some validity to Alameda Research’s precarious financial situation. Alameda and Bankman-Fried had previously disproved these worries.

Alameda is a prop trading and market-making company that at least has some exposure to the FTT tokens was also launched by Bankman-Fried. According to Binance’s trading perspective, the FTT token dropped 88% from $25.47 (Rs.2069.97)earlier on Tuesday to as low as $14.32 (Rs. 1001.26) as investors lost hope.

(The token fell to as low as $2.51(Rs. 203.99) hours after the news surfaced before making a small comeback). Not only this but the fall has created a huge impact on the whole crypto market as Bitcoin has fallen 16% whereas BNB is in a dump of 24%. This was a little shocking as when the announcement of taking over was announced initially a good hike in the prices but that was short-lived and gave a good example of crypto volatility. 

People’s opinion of Binance Takeover FTX

Research company Bernstein proposed that FTX shut down Alameda because of the anticipated risks in a report to clients earlier on Tuesday. Ryan Browne tweeted about the situation: – 

“So just to be clear… Binance’s CEO raises doubts over the financial health of Alameda/FTX, thus causing investor panic around FTX leading a ton of investors to move their funds out, only to then… buy the company outright??”

Sam took the Twitter platform to thank Binance for its help and also gave a clarification on the rivalry between the two companies. In his tweet he mentioned that: – 

Binance

According to him, FTX is striving to eliminate the backlog of withdrawals. “This will resolve liquidity issues; a 1:1 coverage of all assets will result. One of the key reasons we invited Binance is because of this. We regret that it might take some time for everything to settle, etc.,” he stated.

Before approaching Binance, Bankman-Fried reportedly made an effort to gather more money from investors, according to a source with knowledge of the situation. 

According to Web3 Signals, a cryptocurrency DealBook, FTX and its FTX US subsidiary raised more than $2.2 billion over the course of numerous investment rounds.

For more content related to cryptocurrency, check-out Suncrypto Academy.

 

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