How Binance's plan to buy FTX unfolded in a matter of days
By Hannah Lang - Yesterday
Illustration shows Binance and FTX logos© Thomson Reuters
(Reuters) - Crypto exchange Binance signed a nonbinding agreement on Tuesday to acquire rival crypto exchange FTX, in a dramatic move that capped off a series of back-and-forth salvos between the CEOs of both companies.
Here are the key developments in the longstanding relationship between Binance and FTX:
* December 2019: Binance invested an undisclosed amount in FTX, which was then a derivatives exchange, CoinDesk reported. Binance also purchased long positions in FTT, FTX's native crypto token.
* July 2021: Binance announced that it was selling its stake in FTX, Fortune reported. As part of that exit, Binance received the equivalent of $2.1 billion in Binance's stablecoin and FTT, according to Binance CEO Changpeng Zhao.
* Nov. 2: Crypto news website CoinDesk reported on a leaked balance sheet from Alameda Research, FTX CEO Sam Bankman-Fried's crypto trading firm, which maintains close ties with FTX.
* According to CoinDesk's report, $3.66 billion of Alameda's $14.6 billion in assets are held in “unlocked” FTT. Reuters was unable to independently verify the accuracy of the report or the origin of the leaked balance sheet. Still, investors quickly noticed that Alameda’s finances appeared to be heavily dependent on FTT, and FTT’s value was in turn heavily dependent on purchases from FTX, the token’s largest buyer.
* Nov. 6, 9:32 a.m. ET: Alameda CEO Caroline Ellison said in a tweet that the "balance sheet info which has been circulating recently" showed only a subset of Alameda's corporate entities. The firm has more than $10 billion in assets that are not reflected in the CoinDesk report, she said.
* Nov. 6, 10:47 a.m. ET: Concern escalated on Sunday when Zhao tweeted that Binance would liquidate its holdings of FTT “due to recent revelations that have come to light,” although he did not specify which revelations he was referring to or how much of the token Binance held.
* Nov 7: In a series of tweets on Monday, Bankman-Fried asserted that “a competitor is trying to go after us with false rumors.”
“FTX is fine. Assets are fine,” he said.
He tagged Zhao in a later tweet, saying "I'd love it, @cz_binance, if we could work together for the ecosystem."
* Nov. 8: In the 72 hours leading up to Tuesday morning, FTX had seen around $6 billion of withdrawals, according to a message to staff sent by Bankman-Fried that was seen by Reuters. Also on Tuesday morning, Bankman-Fried wrote that withdrawals are effectively paused.
Shortly after 11 a.m. ET, Bankman-Fried tweeted that FTX had "come to an agreement on a strategic transaction with Binance for FTX.com," and that while teams were working on clearing the backlog of withdrawal requests, all assets would be covered 1:1.
Zhao tweeted that there is "a significant liquidity crunch" at FTX and, in order to protect users, Binance signed a nonbinding letter of intent to acquire FTX.com, which does not include FTX's U.S. entity.
(Reporting by Hannah Lang in Washington; Editing by Matthew Lewis)
Before deal with rival, FTX scoured Wall Street, Silicon Valley billionaires for $1 billion lifeline
Liz is Semafor’s Business & Finance Editor, joining us from The Wall Street Journal. Bradley is a Business & Finance reporter for Semafor, joining us from Business Insider. Louise is a Technology Reporter for Semafor, joining us from NBC News.
Sign up for Semafor Business to get scoops in your inbox twice a week.
Sign up for the Semafor Tech newsletter to get coverage of the industry’s biggest stories in your inbox twice a week.
THE SCOOPIn the hours before it secured rescue financing from its rival Binance, the crypto exchange FTX sought a bailout of more than $1 billion from Silicon Valley and Wall Street billionaires, people familiar with the matter told Semafor.
Deposits have poured out of FTX since Sunday, when Binance said it would dump hundreds of millions of dollars of FTT, a token FTX created that gives holders a discount on its trading fees. That forced the exchange to sell the assets backing that token to meet redemptions, which it was unable to meet Tuesday morning in a classic bank-like run, the people said.
FTX founder Sam Bankman-Fried — a billionaire himself on paper, at least until recently — tweeted Tuesday that the company had reached an agreement to sell FTX.com, its crypto exchange for non-U.S. residents, to Binance, the same crypto firm that sparked the panic in the first place.
Terms weren’t disclosed. Two of the people briefed on Bankman-Fried’s efforts said 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.
It appears to be a classic liquidity crunch, when a bank or brokerage can’t sell securities quickly enough to satisfy redemptions or meet regulatory requirements. A similar dynamic forced Robinhood, the online brokerage, to seek emergency funding from existing investors, and was the root of the 2008 financial crisis.
Bankman-Fried (who is an investor in Semafor) said the deal does not involve FTX.US or Binance.US, which are separate entities. He didn’t return requests for comment and a spokesman for FTX declined to comment beyond Bankman-Fried’s tweets.
Binance CEO Changpeng Zhao tweeted that his firm would now start examining FTX's books, adding that he can pull out of the deal "at any time."
The deal has had ripple effects through the entire industry. Bitcoin and Ethereum have fallen by 9% and 12% as of Tuesday afternoon, respectively, and FTT’s market cap is less than half it was at the start of the week.
The Binance lifeline hasn’t slowed the token’s losses; FTT was down more than 50% in the hours since the deal’s announcement.
LIZ'S VIEWFirst, here’s how stablecoins like the ones FTX holds work. They are called that because their value is supposed to be pegged to a fiat currency, like the U.S. dollar. The simplest way for their backers to guarantee that is to keep the money that investors give them in cash.
But that doesn’t generate much profit, so most invest that money in other assets — ideally safe things like Treasury bonds and money-market funds — that give a small return without adding a ton of risk. When customers want to exchange their stablecoins for, say, dollars, the platform has to sell those assets for cash, easy enough in the case of Treasury bonds.
Sometimes, as in the case of Tether, they invest in riskier assets like commercial paper, which give them a higher return. Selling those assets in a pinch is harder, and leads to a huge financial hole. Tether said in October it has cut all of its commercial paper holdings.
For the most part, crypto companies, which are lightly regulated, don’t have to tell investors where they’re investing their money, in the same way that a bank doesn’t have to tell you exactly what it’s doing with your deposits (though at a high level, bank balance sheets are publicly disclosed.)
Fast-forward to yesterday. “We don't invest client assets (even in treasuries),” Bankman-Fried tweeted. That suggests that those assets are sitting in cash and that when investors showed up and wanted money for their tokens, it should have been freely available. FTX’s scramble for cash suggests it wasn’t.
THE VIEW FROM THE BAHAMASLast year, amid growing scrutiny of the crypto industry around the world, Bankman-Fried announced that FTX was relocating its headquarters from Hong Kong to the Bahamas. The Caribbean nation has emerged as a hub for crypto, and in 2020, became one of the first countries to launch a central bank digital currency, dubbed the sand dollar.
FTX has promoted itself as a positive force in the Bahamas, announcing late last year that it had donated over $10 million to organizations throughout the country. In April, FTX broke ground on a $60 million complex that is expected to house its headquarters in the Bahamas, which is supposed to include two hotel towers, offices and an athletics center, according to The Nassau Guardian, a local newspaper.
FTX is also planning to host its second annual Crypto Bahamas conference at the Baha Mar resort in Nassau next April. It’s not yet clear how the event or FTX’s other investments in the Bahamas will be impacted by its deal with Binance.
CORRECTIONOnline brokerage Robinhood raised money from existing investors during a cash crunch in 2021. A previous version of the story misstated where it got its funding.
FTT is a native token of FTX, not a stablecoin. A previous version of the story misidentified FTT.
No comments:
Post a Comment