A questionable balance sheet at Alameda Research, the crypto trading house of billionaire Sam Bankman Fried, caused bitcoin and other cryptocurrencies to plunge in Asia on Tuesday. As investors pulled assets from FTX, the exchange Bankman-Fried also runs, its native token FTT plummeted by as much as 32%.
Turbulence in crypto markets was triggered by rival Zhao “CZ” Changpeng’s decision to sell $530 million of FTT coins, a move that brought back memories of TerraUSD’s collapse in May. The upheaval then gave way to months of unusual stability in cryptocurrencies, which ended this week.
Twitter Fight to Bank Run & Merger, How Binance Acquired FTX?
Binance and FTX, the two largest offshore cryptocurrency exchanges are merging, after a week of public squabbling between Binance’s chief executive, Changpeng Zhao, and FTX’s boss, Sam Bankman-Fried, triggered a bank run at the latter’s exchange and an embarrassing forced sale on Tuesday.
“This afternoon, FTX asked for our help,” tweeted Zhao. “There is a significant liquidity crunch. To protect users, we signed a non-binding [letter of intent], intending to fully acquire FTX.com.”
The news was confirmed in a tweet by Bankman-Fried. He said: “Things have come full circle, and FTX.com’s first, and last, investors are the same: we have come to an agreement on a strategic transaction with Binance for FTX.com (pending DD etc).”
The deal will see FTX being “fully acquired” by Binance, in return for covering the cash crunch at the embattled exchange. Further terms were not disclosed by either party.
Both Binance.US and FTX.US, the associated American regulated exchanges of the two companies, will remain independent.
Bankman-Fried is a major donor to the US Democratic party, and FTX was a top-20 contributor to Joe Biden’s presidential campaign, giving over $5m. Bankman-Fried is reported to have donated about $40m this year in the run-up to today’s midterm elections.
The two chief executives are among the most prominent players in the industry, known by their initials – CZ and SBF – and each capable of moving markets with just a tweet. They have worked together in the past, with Binance investing in FTX at the exchange’s inception.
But on Sunday, CZ posted a short thread explaining that, “due to recent revelations that have come to light”, the company would be selling roughly $2bn-worth of FTT crypto tokens that FTX had created years before and issued to investors.
Binance’s decision to sell the tokens prompted an immediate response, with users of FTX rushing to withdraw their funds from the exchange. On Monday, SBF hit back at CZ, posting: “A competitor is trying to go after us with false rumors. FTX is fine. Assets are fine. FTX has enough to cover all client holdings … I’d love it, [CZ], if we could work together for the ecosystem.”
CZ feigned ignorance, saying he had written the thread “in 5 mins … Little did I know it was going to be ‘the straw that broke the camel’s back’. My tweets were simple. There were questions about a large ($580m) FTT deposit to Binance, and we were transparent about the fact that we are closing our FTT position.”
In the meantime, the withdrawals continued, until on Tuesday morning, FTX stopped processing customer requests to take their money out. Blockchain records show a four-hour gap during which only a particular type of crypto asset, called an ERC-20 token, was recorded leaving the exchange’s digital coffers. At 4pm, SBF conceded defeat.
“Our teams are working on clearing out the withdrawal backlog as is,” he wrote, after announcing the sale of FTX. “This will clear out liquidity crunches; all assets will be covered 1:1. This is one of the main reasons we’ve asked Binance to come in. It may take a bit to settle etc. – we apologize for that. But the important thing is that customers are protected.
“A huge thank you to CZ, Binance, and all of our supporters. This is a user-centric development that benefits the entire industry … I know that there have been rumors in media of conflict between our two exchanges, however Binance has shown time and again that they are committed to a more decentralized global economy while working to improve industry relations with regulators. We are in the best of hands.”
Alameda Research FTX Crypto Holdings In Leaked Balance Sheet
Although CZ did not specify the allegations, his post came just days after a pseudonymous crypto researcher, Dirty Bubble Media, had accused another of SBF’s companies, Alameda Research, of insolvency: Alameda held a significant chunk of its own assets in FTT. “It’s almost as if SBF found a way to hack the financial system, printing billions of dollars out of thin air against which he was able to borrow massive sums from unknown counterparties,” the post said.
On November 2nd, Coindesk reported that they had obtained a copy of the hedge fund’s Q2 balance sheet. According to their reporting, the company’s balance sheet is comprised of:
- Total assets: $14.6 billion. This is comprised of $5.8 billion FTT token, $1.2 billion Solana token (SOL), $3.37 billion in unidentified “crypto held,” $2 billion in “investments in equity securities.” This leaves roughly $2.2 billion in assets. According to our sources, hundreds of millions of dollars of the remaining assets are comprised by Alameda’s holdings of the Serum (SRM), Oxygen (OXY), MAPS, and FIDA tokens, all of which are from other SBF projects. According to this balance sheet, Alameda only had $134 million in cash on hand in June 2022.
- Total liabilities: $8 billion, of which $7.4 billion is “loans,” with another $292 million worth of FTT token owed. The remainder is unidentified by the Coindesk article.
This purported leak of Alameda’s financials demonstrates that the firm’s largest asset is its holdings of “FTX Token (FTT),” issued by none other than SBF’s FTX Exchange. The FTT token on Alameda’s balance sheet is roughly 1/3 of their total assets and equal to 88% of Alameda’s net equity. In other words, the firm’s largest asset is a crypto token issued by SBF’s other company, with a very significant portion of their assets in tokens issued by other related parties.
It’s almost as if SBF found a way to hack the financial system, printing billions of dollars out of thin air against which he was able to borrow massive sums from unknown counterparties. Almost as if he discovered a financial perpetual motion machine…
A flywheel, perhaps?
Nexo On FTX/FTT Debacle
In a tweet on Tuesday, Nexo clarified that it has $0 net exposure to FTX/Alameda. And as a conservative institution with stringent risk controls Nexo has safeguarded all funds by withdrawing its entire balances from the exchange over the past few days, as evidenced by on-chain data:
Nexo spokesperson further added that it has a small loan to Alameda (<0.5% оf our assets), fully collateralized by digital assets that were sold in full by Nexo team two days ago, resulting in 100% principal recovery and $0 losses for the company.
To reassure its customers Nexo further added that it is the only lender that never restricted withdrawals, didn’t need financial help and had $0 exposure to:
- UST/Luna
- Three Arrows Capital
- Celsius, Babel, Hodlnaut, etc.
- Struggling crypto miners
Nexo’s partnership with PCAOB-certified auditor and leading US accounting firm Armanino LLP offers a real-time audit of Nexo’s custodial assets, showing that their assets (of which $NEXO tokens are <10%) exceed customer liabilities.
If you’re looking for the best all-in-one platform to buy & sell crypto, to borrow against it, to earn with peace of mind or spend with the efficiency of our pioneering partnership with Mastercard, Nexo is the right place for your crypto.
Author
Chris Munch is a professional cryptocurrency and blockchain writer with a background in software businesses, and has been involved in marketing within the cryptocurrency space. With a passion for innovation, Chris brings a unique and insightful perspective to the world of crypto and blockchain. Chris has a deep understanding of the economic, psychological, marketing and financial forces that drive the crypto market, and has made a number of accurate calls of major shifts in market trends. He is constantly researching and studying the latest trends and technologies, ensuring that he is always up-to-date on the latest developments in the industry. Chris’ writing is characterized by his ability to explain complex concepts in a clear and concise manner, making it accessible to a wide audience of readers.
