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On Friday, October 27, Sam Bankman-Fried testified before the US court while admitting to his mistakes but denying that he defrauded US customers. Interestingly, he also told the court that FTX was willing to sell itself to crypto giant Binance, during its initial days.
The FTX and Binance Saga
When Bankman-Fried collaborated with co-founder Gary Wang in 2019 to establish the now-defunct exchange in Hong Kong, he already had a clear vision for it. He aimed to focus on margin trading and provide customers with the opportunity to place substantial bets.
As per the court testimony, FTX believed back then that it should establish itself as a venue specialized for margin trading. This was one area where SBF believed that very few market players were addressing. Thus, during his testimony, he stated that an exchange like Binance would be interested in purchasing FTX.
FTX’s initial distinguishing feature, Bankman-Fried reminisced, was its advanced risk engine. In contrast to other exchanges of the era, FTX’s risk engine, which determined when traders’ positions would face liquidation, adopted a more holistic perspective of customers’ accounts.
Furthermore, Bankman-Fried highlighted that cross-margin trading played a significant role in FTX’s early appeal. Essentially, he explained, this feature enabled traders to utilize surplus margin from one trade to fulfill margin requirements for other trades.
Binance Backed Out of FTX Deal
Binance did express interest in acquiring FTX when the exchange faced difficulties in November last year. Nevertheless, the company eventually withdrew from the potential acquisition. CEO Changpeng Zhao explained, “The issues [with FTX] are beyond our control or ability to help.”
Despite this, Binance didn’t pursue an early acquisition of FTX. Instead, Bankman-Fried testified that they used an internal Binance team to enhance its own platform.
During the trial, when questioned by lead lawyer Mark Cohen about FTT, the exchange’s unsuccessful token, Bankman-Fried mentioned that Binance’s BNB token served as an inspiration. He also revealed that Binance had been FTX’s inaugural investor, providing the exchange with $80 million worth of BNB as seed funding.
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