Binance announced on Tuesday that it had signed a letter of intent to acquire its most formidable rival, FTX, providing a surprising twist to a days-long public feud between the world’s two largest crypto exchanges that has contributed to several token downfalls. digital Tuesday.
The deal follows the months-long clash between Binance founder Changpeng Zhao and FTX founder Sam Bankman-Fried on social media, which escalated earlier this week.
Zhao (pictured above) said Binance made the decision after three-year-old exchange FTX asked the crypto giant for help. “To protect users, we have signed a non-binding letter of intent, intending to fully acquire FTX and help cover the liquidity crisis. We will conduct a full DD in the coming days,” said he said in a tweet.
“Binance has the discretion to withdraw from the agreement at any time,” warned Zhao, better known as CZ. But “the important thing is that customers are protected,” said Bankman-Fried, or as many call it, SBF.
Binance, the world’s largest crypto exchange, was the first investor to back FTX, but as the fledgling company grew in popularity, the relationship between the two began to fade. The companies did not disclose financial terms of the deal, but it is likely not great / quite awful for FTX investors, which was valued at $32 billion in a funding round earlier this year.
Closing the deal could attract regulatory scrutiny.
The two billionaires have been hurling sarcastic remarks at each other for several months, but the relationship hit an all-time low earlier this week after Zhao said Binance was selling his holdings of FTT, the native token of the FTX exchange, which he had received. as part of a company exit last year.
Zhao said the company was liquidating its FTT holdings as part of “post-exit risk management,” giving some credence to a widely circulated rumor regarding the financial health of Alameda Research. Alameda and Bankman-Fried had previously refuted those concerns.
Bankman-Fried also founded the accessories trading and market-making company Alameda, which has at least some exposure to FTT tokens. The FTT token slid as low as $14.32 from $25.47 earlier on Tuesday as investors lost confidence, according to Binance’s trading view. (A few hours after the news broke, the token fell to $2.51 before recovering slightly.)
In a note to clients earlier Tuesday, research firm Bernstein suggested that FTX should consider shutting down Alameda due to perceived risks.
“Binance is the immediate trigger, but FTX should resolve its relationship with Alameda. FTX cannot continue its existing ownership structure with Alameda. FTX must fully protect itself and potentially shut down Alameda’s accessories trading business. If Alameda’s trading operations impact FTX customer trust (perception of Alameda’s trading against users on FTX and the state of Alameda’s finances), then there are more downsides to deal with Alameda than otherwise,” a Bernstein analyst wrote in the note.
Bankman-Fried on Tuesday sent a “huge thank you” to Zhao and Binance, adding that the deal was “a user-centric development that benefits the entire industry.”
“CZ has done, and will continue to do, incredible work building the global crypto ecosystem and creating a freer economic world,” Bankman-Fried said in a tweet.
FTX is working to eliminate the backlog of withdrawals, he said. “It will eliminate liquidity problems; all assets will be hedged 1:1. This is one of the main reasons we asked Binance to come. It may take a little time to set up, etc. – we apologize for that,” he said.
Binance is the most valuable crypto exchange in the world, estimated at over $300 billion. FTX was valued at $32 billion in its last funding round (a Series C) in January this year. The company counts Sequoia, BlackRock, Tiger Global, Paradigm, Thoma Bravo, SoftBank, Ribbit Capital, Insight Partners, Lightspeed Venture Partners, Altimeter Capital, Coinbase Ventures, Sino Global, Bond and Iconiq Growth among its long list of backers. FTX and its FTX US business have raised more than $2.2 billion across multiple funding rounds, according to Web3 Signals, a crypto trading book.
Tuesday’s announcement shocked the business world and even the crypto community, which has grown accustomed to upside-down developments this year. Bankman-Fried was hailed as a crypto savior earlier this year after buying a series of companies. FTX Ventures, the venture arm of the crypto exchange, is also a major investor in a slew of crypto startups, including Aptos Labs, Messari, Sky Mavis, LayerZero, YugaLabs, and 1inch Network, according to Web3 Signal.
Bankman-Fried tried to raise additional capital from investors before approaching Binance, according to a source familiar with the matter. Axios suggests that many existing investors are surprised by the move.
Dozens of businesses are suffering from this week’s event. Shares of Bankman-Fried-backed Robinhood fell nearly 20%, while crypto exchange Coinbase was down around 10% daily at press time.
In a statement after the Binance-FTX deal — and subsequent crypto price crash — Coinbase assured investors that it has no exposure to FTT tokens and “very little” exposure to FTX.
“Currently, we have $15 million in deposits on FTX to facilitate business operations and customer transactions,” Coinbase CFO Alesia Haas wrote in a blog post. “We have no exposure to Alameda Research and we have no loans to FTX. Second, as a publicly traded company in the United States, we have also built our business in a way that allows us to be transparent about our track record, the strength of our balance sheet, and to effectively and prudently manage risks to our customers and for ourselves.
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