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Binance to Acquire FTX in a ‘Full Acquisition’ Deal

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In a seemingly surprising turn of events, Binance CEO Changpeng Zhao (popularly called CZ) announced that Binance has signed a non-binding letter of intent (LOI) intended to fully acquire competitor crypto exchange FTX. He said Binance would be conducting full due diligence (DD) in the coming days.

Sam Bankman-Fried (also known by the initials SBF), the CEO of FTX, also tweeted in affirmation. In his tweet, he stated that they have come to an agreement on a strategic transaction with Binance for FTX.com, pending DD. The value of the deal is yet to be disclosed.

There have been ongoing exchanges of a public spat between the Binance and FTX CEOs on Twitter; the spat escalated earlier this week. On Sunday, CZ announced that Binance will liquidate all its 23 million FTT, FTX’s native token, worth about $529 million as of the time the announcement was made. Binance acquired the 23 million FTT as part of its exit from FTX equity last year. CZ said the decision was due to recent revelations that came to light.

The Intro to FTX’s Woes

CoinDesk released a recent report that revealed assets to liability mismatch on Alameda Research’s balance sheet. Alameda is a quantitative (quant) trading firm founded by Sam Bankman-Fried in 2017; he remained the CEO of Alameda until October 2021 when he handed over the control of the firm to two deputies. According to a private document CoinDesk had reviewed, Alameda had $14.6 billion of assets as of June 30; much of the assets were, however, FTT tokens, while a large majority of the remaining assets were in Solana tokens (SOL). This led to revelations that Alameda’s financial foundation is largely based upon a token created by its sister company instead of an independently-issued currency like fiat or a stablecoin reserve.

SBF’s Initial Denial of Illiquidity

Following the reports of insolvency at FTX, Sam Bankman-Fried immediately denied the rumors. He made a tweet intended to clear the air about the situation. In his tweet, he claimed a competitor was trying to attack the company with rumors. SBF said FTX was fine and assets were fine.

SBF also responded to the tweet in which Changpeng Zhao announced Binance’s intention to liquidate all of its FTT holdings; In response, SBF said, “if you’re looking to minimize the market impact on your FTT sales, Alameda will happily buy it all from you today at $22.”

SBF went on a tweeting rampage reassuring the crypto community that everything was fine with SBF and Alameda. In a now-deleted tweet, he reiterated, “FTX has enough to cover all client holdings. We don’t invest client assets (even in treasuries). We have been processing all withdrawals, and will continue to be…” 

Most of the tweets SBF made at the beginning of the fiasco are now deleted.

SBF’s Short-Lived Cover-Up

Despite SBF's reassuring tweets, the behind-the-scenes of the real situation at FTX were revealed in the shortest timeframe imaginable. Since Monday, users of the exchange complained about the inability to withdraw funds; initiated withdrawals were marked as “pending.”

Users took to Twitter to vent their worry and displeasure at the developments; the Twitter hashtag #ftxwithdrawal was soon created. The FTX “withdrawal stampede” brought up the still-fresh-on-the-mind memories of a similar incident at Celsius earlier this year. In June, cryptocurrency lending firm Celsius halted withdrawals citing extreme market conditions; then it asked its users to give it more time to stabilize liquidity.

The FTX and Alameda events have had an impact on the market this past week; FTT was the worst-performing crypto asset. The confirmation, on Tuesday, that one of the biggest cryptocurrency exchanges had become insolvent and needed to be acquired by a competing exchange further sent the crypto market into a frenzy.

A Call For Clear Rules

The latest faceoff between the two crypto giants and their CEOs has again drawn the attention of authorities who had long sought the regulation of crypto and crypto exchanges. US Senator Cynthia Lummis, a Republican Senator from Wyoming, is one of the top US politicians who have been at the forefront of establishing a crypto regulatory framework. In her released statement related to the FTX – Binance event, she said, “The recent events that have transpired between FTX and Binance are the clearest example yet of why we need clear rules of the road for digital asset exchanges in the United States.” Sen. Lummis continued, “Market manipulation, lending activity, and whether customer funds and assets are appropriately safeguarded are just a few of many issues my colleagues and I need to consider in the coming days. Transparent and fair exchange regulation, which is provided for in the Lummis-Gillibrand Responsible Financial Innovation Act, is essential to ensuring customers are protected while still promoting responsible innovation.”

It's Just a ‘Game,' According to Crypto Conspiracy Theorists

Some “keen eyes” on Crypto Twitter have pointed out that the whole back-and-forth between SBF and CZ might have been staged, and there is more to the story than meets the eye. Their theory is based on “analysis” that points to the Binance hack in October in which an attacker stole about $580 million worth of BNB, and now Binance made plans to liquidate about that same amount worth of FTT tokens.

In one of CZ's replies to a Twitter user who asked if CZ planned on taking Alameda up on the offer to close the position Over-The-Counter at $22 (referring to SBF's tweet in which he told CZ Alameda would gladly buy the FTT holding at $22), CZ made a snarky remark in which he said: “They [Alameda] have or will buy $580 million worth of BNB?” In a follow-up question, CZ quickly and brilliantly downplayed the earlier-made remark with another witty reply.

The full details of the acquisition have not been disclosed yet. If the acquisition deal goes through, Binance's acquisition of FTX will make Binance somewhat of a crypto oligopoly. For the crypto industry to thrive and become a disruptor of the financial system, real transparency is needed from the big players in the industry.

Mandela has been a cryptocurrency enthusiast since 2017. He loves coding and writing about emerging technologies. He has an in-depth understanding of distributed ledger technology and the Web3 technology stack. He enjoys researching new cryptocurrency projects.