Changpeng Zhao, founder and CEO of Binance exchange, shared details about FTX’s collapse in November 2022 in his recently published book “Freedom of Money”. Zhao explained with surprising ease how FTX founder Sam Bankman-Fried asked him for a very large amount of money; He conveyed remarkable information about what happened at that time.
FTX’s sales initiative and Binance’s approach
When the FTX exchange faced a serious liquidity crisis in November 2022, Sam Bankman-Fried called Changpeng Zhao directly on the phone. Zhao stated that in this meeting, SBF very easily expressed its request for several billion dollars of support from him. However, Zhao stated that he had no interest in purchasing FTX at the time; He stated that he took the step with the idea that users and the industry may need to be protected.
During the said period, Binance signed a non-binding letter of intent stating that it could purchase FTX. Zhao emphasized that this step is only formal and does not contain any commitment. The Binance team chose this method to take a closer look at FTX’s financial situation.
Alameda’s move and the FTT crisis
The breaking point was when Caroline Ellison, CEO of Alameda Research, which is affiliated with FTX Group, made an open offer to the market to purchase FTT tokens held by Binance at $ 22. According to Zhao, with this move, Ellison gave an important clue to professional investors by clearly revealing the purchase price of FTT.
The market reacted quickly after Ellison’s announcement. The FTT price dropped to $15, $10, and then $5 in a very short time. As a result of the great panic, investors withdrew more than $6 billion in total from FTX in just three days.
In his book, Zhao also explained the Signal group called “Exchange Collaboration” for the first time. It was revealed that this group was founded by Zane Tackett, a former employee of FTX, after the Terra/LUNA crisis. Along with Zhao, members of the group included names such as Coinbase CEO Brian Armstrong and Kraken CEO Jesse Powell. This group has been put under scrutiny by the U.S. Department of Justice and the Securities and Exchange Commission. Regarding this review, Zhao noted that there was no coordinated market movement between exchanges.
Binance officially withdrew from the acquisition of FTX on November 9. While the value of FTTs held by Binance at that time decreased from 580 million dollars to almost zero, it is known that the company also suffered great losses in the LUNA incident it experienced six months ago.
After what happened, mass withdrawals came to the fore in Binance. On December 14, $7 billion outflow occurred from the platform in a single day. Zhao stated that he was at dinner with friends that evening and that he did not have any concerns.
Emphasizing that all user assets are kept in reserves, Zhao stated that both the outflows and the surplus returned to the stock market within a month.
