Binance CEO Changpeng Zhao (CZ) and FTX CEO Sam Bankman-Fried (SBF), two of the most powerful men in the crypto industry, have been going toe to toe with each other on Twitter. But this fight is much bigger than both of them, as FUDs and controversies surrounding SBF and FTX could potentially impact the crypto industry. In this article, we will break down the core timeline of the feud and explain how its outcome could affect every investor in the crypto space.
For the latest update. Check out our latest video- IT’S OVER: Binance to Acquire FTX
Alameda Research Reportedly Insolvent
The current drama surrounding CZ and SBF began when the balance sheet of Alameda Research, the sister quantitative trading firm of FTX, was leaked. According to a private document CoinDesk reviewed, out of $14.6 billion in total assets of Alameda, $3.66 billion is in FTT, FTX’s native token, and $2.16 billion in FTT collateral. Other significant assets also include $3.37 billion of crypto tokens connected to SBF in one form or another including Solana (SOL), Serum (SRM), and more.
This is a big red flag as it indicates that the majority of Alameda’s net equity is FTX’s own centrally controlled token printed out of thin air, making it completely illiquid. Let’s look at it this way: the current market cap of FTT is $2.3 billion and Alameda’s numbers show an excess of nearly 200% of the total circulating supply of FTT. This means that Alameda’s assets cannot be sold without severely impacting the market.
Many crypto experts drew parallels from Celsius Network’s collapse as Alameda is following the same model, leading to widespread rumors of Alameda going insolvent.
CEO of Alameda Research Caroline Ellison asserted on Twitter that the balance sheet only reflects a few of their biggest long positions, and the company actually has over $10 billion in assets that are not included in the balance sheet. However, this does not address the issue that Alameda is holding $5 billion worth of “magic money” reported on their balance sheet.
Binance Liquidates Its Entire FTT Holdings
Shortly after the leak, CZ posted a Twitter thread announcing Binance’s full exit from its FTT holdings. But they will do so in a way that minimizes market impact, selling it on the open market at monthly intervals. CZ fired shots at SBF stating that liquidating their FTT is a post-exit risk management, learning from the Terra Luna collapse. This implicated that FTX could potentially repeat history, heading into a death spiral if a bank run were to happen.
Shortly after, Ellison responded to CZ that Alameda was willing to buy all of Binance’s FTT holdings at $22. Several members of the crypto community believed that the response seemed desperate and was a buyback red flag. CZ eventually declined the bid, and further added that he will not support “people who lobby against other industry players behind their backs.” This is in reference to SBF allegedly supporting the DCCPA draft bill last month that could pose significant threats to DeFi.
If SBF’s alleged political stance is the match and Alameda’s balance sheet is gasoline, then CZ liquidating its entire FTT holdings is striking the match.
This series of events sparked a lot of FUD in the crypto community, resulting in staggering outflows as people were rushing to withdraw funds from FTX, with stablecoin outflows from FTX reaching $451 million according to Nansen data. Reports also show a 4-8 hour delay and increased fees in FTX withdrawals, upsetting many FTX users. At the time of writing, FTT token has dropped 39% from its weekly high.
Sam Bankman-Fried’s Response to Insolvency Rumors
SBF recently issued a response (update: Tweet deleted) assuring people that FTX and its assets are fine. He explains that FTX has enough capital to cover all client holdings and is processing all withdrawals. In response to the cause of the overall situation, SBF stated that a competitor is targeting them with false rumors, throwing shade at CZ. Ironically, at the end of SBF’s Twitter thread, he calls for collaboration with CZ for the ecosystem.
Though as calm as SBF is handling the situation, it does not address the issue that Alameda is holding $5 billion worth of FTT tokens printed out of thin air, the very same model that led to the collapse of Celsius. It is impossible to sell an illiquid asset without severely impacting the market. But at the end of the day, FTX is a highly reputable organization with a lot of resources and manpower.
Larry Cermak, Vice President of Research at The Block, believes that FTX and Alameda has the size to weather through the storm, and that FTX going insolvent is near 0%. He also mentioned however that it is clear there are liquidity issues with FTX currently. Other crypto experts also agreed but also advised investors to treat the situation with caution.
SBF vs CZ: Who won the war?
CZ emerges as the clear winner in the war between SBF vs CZ. SBF indirectly admitted defeat on 9th November 2022 when he announced that he agreed to a “strategic transaction with Binance for FTX.com”. This, agreement, however, fell through as detailed in our article- Binance will NOT acquire FTX: What is next?
The SBF vs CZ war finally ended with CZ coming out victorious on 11th November 2022, when SBF announced he had filed FTX, FTX US, and Alameda for voluntary Chapter 11 bankruptcy in the US.
Now with FTX exchange out of the picture, CZ’s Binance exchange comes out top. Binance now has the highest 24-hour trading volume and page visits out of all the centralized cryptocurrency exchanges according to CoinGecko.
