A Twitter post by the chief executive of the world’s largest crypto exchange started a chain of events that resulted in a rival’s collapse. The chief executive of Binance, Changpeng Zhao, said that he did not expect the founder of rival FTX to phone him to tell that the company had become insolvent amid the rapid collapse of a $16 billion business which has played out in public in the last 10 days.
Nonetheless, Changpeng Zhao said on November 16, 2022, that the sector would weather this scandal. FTX chief executive Sam Bankman-Fried, who also had a hedge fund known as Alameda Research, lost his fortune within five days, bankrupting 130 affiliated firms along with the exchange.
At first, it seemed like Binance might step in and save FTX, but by November 10, a potential deal had collapsed amid fears about the extent of the issues at the exchange. Sam Bankman-Fried continues to discuss the FTX collapse on Twitter after stepping down as chief executive. The firm is now the subject of claims of fraud and many government probes.
All of that is playing out in real-time, thanks to blockchain technology and social media.
During the Abu Dhabi Finance Week, Changpeng Zhao discussed the Sequence of events that unfolded earlier this month after an article published by Coindesk triggered his decision to sell the FTT digital tokens native to the FTX exchange that Binance had been holding.
Zhao posted on Twitter that Binance had made the transaction, which was visible to the market, and explained his reasons why including the nature of Bankman-Fried’s antagonistic attitude to his rival’s firm. He said that he decided to tweet for the sake of ‘transparency’. Zhao commented:
“I wrote that tweet and went to meet my friends. I didn’t expect that Twitter was gonna blow up … it’s gonna cause a stir. I also did not expect a day later Sam would call me saying he is insolvent … it was just a very organic sequence of events.”
Following Zhao’s tweets, there was a run on FTX that made it collapse violently.
Despite the possible fallout from that, which might affect traditional financial institutions and has already resulted in several investigations being launched by authorities in the United States and the Bahamas, where FTX was based, Zhao is optimistic about the future of the crypto business.
“Crypto doesn’t need a savior… crypto will be fine. And I’m not the savior, even if there was one.”
Despite near-term volatility, in the long term the Sector would be secure, he stated, adding:
“We do try to do things to protect our users in the industry … crypto is very decentralized. Bitcoin is not going away, and Ethereum is not going away. And they’re still growing.”
Changpeng Zhao said that there was no magic formula to prevent a repeat of the FTX collapse, but it was about managing risk sensibly. He mentioned:
“FTX was run more like an exchange run by a hedge fund, essentially, the auxiliary part was really to facilitate the hedge fund for trading. Whereas we are an exchange, we don’t have a hedge fund. So, for us, the easiest way to avoid what happened … user assets, just keep their assets, to make sure that if a user has Bitcoin with them, just keep those Bitcoins for that user. That’s it. There’s no magic to it.”
On November 16, Binance stated that it had gotten enough permission from the Financial Services Regulatory Authority (FSRA) in the Abu Dhabi Global Market to offer custody services to professional clients.