Never a dull day in crypto; Binance to acquire FTX

Crypto almost blew up overnight (again).

One tweet yesterday sent shockwaves through the industry. The founder of the world’s largest crypto exchange, Binance, said he’s in the process of buying the second-largest, FTX.

While it all seemed to happen overnight, the tension has been there for years…

To understand the full story, we go back to the early days. Our two main characters are Binance founder Changpeng Zhao (a.k.a. CZ) and FTX founder Sam Bankman-Fried (a.k.a. SBF).

Part 1: The fallout of FTX and Binance’s relationship

1/ Binance (founded in 2017) was an early investor in FTX (founded in 2019).

2/ FTX grew really fast and Binance (~10x bigger than FTX today) began to see it as a threat.

3/ In 2021, Binance sold its FTX shares back to FTX but retained a $2B stake in $FTT (FTX’s tokens).

4/ SBF leveraged US politics and CZ/Binance’s Chinese roots. SBF began wooing over US regulators — becoming the #2 donor for Biden’s campaign.

5/ In October of 2022, SBF proposed a regulatory framework for crypto. People didn’t like it, and there was a heavy backlash.

Part 2: CZ finds the perfect opening

6/ Last week, CoinDesk released a report detailing that Alameda (SBF’s other company) holds ~40% of its assets in  $FTT.

7/ CZ saw the perfect opening. SBF’s two firms were so entangled that one could take the other down.

8/ On Monday, CZ said he would sell his remaining $FTT tokens and compared FTX to the fallen Terra/Luna.

9/ Mission accomplished. This announcement made investors panic and led to mass withdrawals from FTX. Investors are also dumping $FTT tokens… a scene that eerily looks like $LUNA.

10/ FTX paused withdrawals yesterday (big 🚩) after $6B was withdrawn within 72 hours.

The story doesn’t end here. Suddenly, SBF tweeted out that they “have come to an agreement on a strategic transaction with Binance for FTX.com (pending DD etc.).”

Then Binance said they signed a non-binding LOI to fully acquire FTX.com. There’s no final deal yet, and like any good cliffhanger, anything could happen.

CZ just outmaneuvered SBF.