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Well, after all the drama that has been unfolding over the last five days around Alameda Research, FTX has finally reached out to crypto exchange Binance for a buyout. Binance CEO Changpeng Zhao also confirmed the buyout with a tweet stating:
This afternoon, FTX asked for our help. There is a significant liquidity crunch. To protect users, we signed a non-binding LOI, intending to fully acquire FTX.com and help cover the liquidity crunch. We will be conducting a full DD in the coming days.
However, there’s been more to the FTX drama in the last few days, a lot more has been happening behind the scenes than what meets the eye. While FTX chief Sam Bankman-Fried claimed that this has been going well for the company, he was actually scouring $1 billion in fresh capital from Wall Street and billionaires in Silicon Valley.
This happened just hours before SBF’s rescue plea to Binance. People familiar with the matter told Semantor:
The firm was seeking more than $1 billion in financing before the Binance deal was sealed, with one adding that by midday Tuesday the hole appeared far deeper — closer to $5 billion to $6 billion.
This makes it clear that FTX was indeed facing a massive liquidity crunch despite SBF claiming otherwise. The deal has sent massive shock waves across the entire crypto space which has corrected by a whopping 10% in the last 24 hours. As a result, the entire crypto market has lost a staggering $100 billion in just the last 24 hours.
Alameda Research Collapsed in Q2 This Year
Lucan Nazi, head of R&D at CoinMetrics has published a detailed report explaining how Alameda Research was already in deep trouble during the second quarter of this year. As per Nuzzi, Alameda survived only because FTX was offering massive funds to them which ultimately came to haunt the crypto exchange.
He explains that a major rabbit hole appeared 40 days ago when a staggering 173 million FTT tokens worth a staggering 4 billion USD became active on-chain suddenly. On the same day, i.e. September 28, $8 billion worth of FTT moved on-chain. As per data on CoinMetrics, it was “the largest daily move of FTT in the token’s existence and one of the largest ERC20 daily moves”.
Interestingly, Nuzzi also found a transaction that interacted with a contract from the FTT tokens ICO back in 2019. He also added that the recipient of the $4 billion worth of FTT tokens was no one but Alameda Research. But we know for a fact that both – FTX and Alameda Research – are intrinsically connected. However, what followed was interesting! citing data from Etherscan, Nuzzi explains:
Alameda then sent that *entire* balance to the address of the deployer (creator) of the FTT ERC20, which is controlled by someone at FTX. In other words, Alameda auto-vested $4.19 billion dollars worth of FTT just to send it immediately back to FTX.
Nuzzi believes that Alameda blew up in Q2 itself with Three Arrows Capital (3AC) and others. It only survived since it was granted to receive the $4 billion collateral in FTX four months later. Nuzzi further explains:
Remember, the FTT ICO contract vests automatically. Had FTX let Alameda implode in May, their collapse would have ensured the subsequent liquidation of all FTT tokens vested in September. It would have been terrible for FTX, so they had to find a way to avoid this scenario.
Also, with Alameda helping Voyager digital with a bailout, it strengthened FTX’s image as a solvent platform and responsible platform. In reality, FTX was bailing out Alameda. This ultimately puts a major dent in FTX’s balance which has come to haunt it now.
FTX & Alameda Investors Express Concerns
Investors in FTX have expressed major concerns over the invested amount. As per the report from The Information, venture investors are worried about their investments getting completely wiped out.
Four backers of FTX told the publication that the fate of their equity stakes in FTX remains unknown. Besides, they are also trying to figure out what shall be the impact of the Binance deal on their investments.
Some venture capital firms and institutional investors have been worried that the value of their investments could potentially tank to zero. Much recently, crypto exchange FTX raised a staggering $2 billion in VC funding at a $32 billion valuation. Sequoia Capital and Paradigm are among the largest VC backers for FTX. However, FTX chief Sam Bankman-Fried recently wrote a letter to investors noting:
“Our first priority is to protect customers and the industry; we’ll soon be focusing on our second priority: our shareholders”.
However, there’s not enough clarity on how FTX seeks to protect its investors. Du Jun, co-founder of crypto exchange Huobi asked investors to protect their assets first. He said:
FTX has withdrawn more than 6 billion US dollars of liquidity from the market in the past week. Those lending institutions that provide credit to Alameda and the centralized platforms that have been withdrawn by FTX are at risk. Protect your assets and don’t pay for the mistakes of others.
The price of FTX Tokens (FTT) has collapsed by a staggering 75% in the last 24 hours falling under $5 as of press time. Nearly $2 billion in FTX’s market value has been eroded in the last 24 hours and $3 billion eroded over the last five days.
Binance Seeks to Bring Transparency
Binance said that learning from the recent episode, the crypto exchange will initiate further steps to maintain transparency with its users. Crypto exchange Binance will soon implement Proof-of-Reserves. These auditable merkle tree proof-of-reserves may become the standard for future exchanges to ensure 100% reserves.
Binance chief Changpeng Zhao also asked other crypto exchanges to implement Proof-of-Reserves at their end. Following this appeal, exchanges such as OKX, Bidget, Gate and Huobi said that they would publish their merkle tree reserve certificates to increase transparency.
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