In a startling case of friction between two of the world’s biggest names in cryptocurrency, the world’s largest crypto exchange Binance has begun liquidating holdings of FTT, the native cryptocurrency of FTX, the world’s second-largest crypto exchange.
Binance head Changpeng ‘CZ’ Zhao cited recent revelations over Alameda Research’s balance sheet as the reason for exiting.
Alameda Research is a hedge fund that comprises the second half of FTX head Sam Bankman-Fried (aka SBF)’s multibillion-dollar crypto empire.
According to a CoinDesk investigation, Alameda Research’s balance sheet is stacked with some US$6bn in FTX Tokens (FTT).
“While there is nothing per se untoward or wrong about that, it shows Bankman-Fried’s trading giant Alameda rests on a foundation largely made up of a coin that a sister company invented, not an independent asset like a fiat currency or another crypto,” the report stated.
If the reporting on the leaked balance sheet is accurate, something doesn’t add up: It would make Alameda’s bag of FTX Tokens (FTT) greater than the token’s entire circulating market capitalisation (which is only US$3bn at the time of writing)!
Unsurprisingly, the fact that the majority of Alameda’s net equity consists of cryptocurrency that its sister company FTX minted, has proved controversial.
Alameda’s chief executive officer Caroline Ellison contended that the leaked balance sheet doesn’t give the full picture.
“That specific balance sheet is for a subset of our corporate entities, we have more than US$10bn of assets that aren’t reflected there,” Ellison Tweeted.
A few notes on the balance sheet info that has been circulating recently:But that statement is unlikely to assuage fears that one of the crypto sector’s most prominent investment firms has been propping its balance sheet up with crypto assets of dubious value from its sister company.- that specific balance sheet is for a subset of our corporate entities, we have > $10b of assets that aren’t reflected there
— Caroline (@carolinecapital) November 6, 2022
Regardless, Binance’s offload has already started.
Market tracker Whale Alert noted an FTT transfer worth approximately US$584mln to the Binance exchange, which CZ confirmed as part of the liquidation.
Yes, this is part of it. https://t.co/TnMSqRTutrCZ has not held back in his criticism of Alameda’s financial strategy, going as far as to draw parallels with the collapsed Terra LUNA cryptocurrency in an ongoing Twitter feud.— CZ ???? Binance (@cz_binance) November 6, 2022
The controversy is putting pressure on FTT’s market valuation, which has dipped over 11% in the past two days.
A bank run is now a possibility as large holders rush to exit their positions before fear spreads throughout the market.
Open interest on FTT futures has quadrupled, with many new positions likely to be short positions betting on a fall in the token’s price (though this has not been quantified).
FTT’s large spike (green, far right) in open interest, likely due to short positions – Source: coinglass.com
FTX customers have also started to withdraw large sums of stablecoins off the exchange; over US$450mln at the time of writing, according to Nansen data.
Coincidently, Binance’s US$500mln FTT exit (so far) was roughly equivalent to the US$500mln investment that the company invested in Elon Musk’s Twitter takeover.
Proactive has reached out to FTX and SBF for a comment.
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