The third biggest crypto exchange, FTX faces a liquidity crisis, likely to be sold to rival Binance
Cryptocurrency exchange FTX faced a heavy liquidity crunch on Tuesday as its investors looked to withdraw their cryptocurrency holdings amidst fears of plunging crypto prices. Help from an unlikely source, its rival Binance, which has now signed a non-binding agreement to acquire the ailing crypto exchange, the Financial Times reported.
In addition to making cryptocurrency accessible to all, FTX is also known for some of its moves outside the crypto world. Last year, the exchange signed a 19-year deal to see Miami Heat Arena rebranded as FTX Arena.
Additionally, the founder CEO, Sam Bankman-Fried, who had overnight shot to fame and riches and believed in effective altruism, had plans to give away 99 percent of his wealth, something that very few tech billionaires do. Bankman-Fried's heart might be in the right place, but his business acumen failed him as his crypto exchange company, founded in 2019, came crashing down.
The savior of the cryptoverse goes down
Cryptocurrencies made remarkable progress in the years of the pandemic, with valuations of the alternate currencies reaching all-time highs. As the world economy slowly made it to its feet, cryptocurrencies soon lost favor, and businesses surrounding them also began losing ground.
In June this year, FTX rescued crypto lender BlockFi, which needed a bailout of $250 million. Later, FTX also loaned out another $485 million in cash and bitcoin to crypto broker Voyager Digital, the FT report said. Bankman-Fried had earned the reputation of being the savior in the digital world, and his company's rapid rise meant that even Goldman Sachs was not out of their reach, Bankman-Fried said in 2021.
Unlike other crypto companies worrying about their survivability during these tough economic times, FTX's demise came very rapidly.
When conspirator turned rescuer
The problems at FTX reportedly peaked over the weekend as rival Binance announced that it was offloading FTX's token FTT. Binance and FTX were the world's top two largest crypto exchanges, and the former said it was concerned about the latter's financial stability.
Although Bankman-Fried tried to assuage investors that FTX and its finances were fine and the rumors were false and a conspiracy by a rival to go after them, withdrawal requests continued to surge at the crypto exchange, plunging it into financial difficulties.
On Tuesday, Changpeng "CZ" Zhao, the founder of Binance, tweeted,
This afternoon, FTX asked for our help. There is a significant liquidity crunch. To protect users, we signed a non-binding LOI, intending to fully acquire https://t.co/BGtFlCmLXB and help cover the liquidity crunch. We will be conducting a full DD in the coming days.— CZ 🔶 Binance (@cz_binance) November 8, 2022
Following this announcement, Bankman-Fried confirmed the arrangement on Twitter and heaped praises on CZ and how he was doing "an incredible job" of building out the global cryptosystem.
Zhao also confirmed that Binance retains the option of pulling out of the deal at any time but seeing the deal through would put the company and Zhao in a commanding position, as the biggest players in cryptocurrencies in the world.
Bankman-Fried's worth dipped from $16 billion to nearly zero in just one day. He continues to retain his holdings in other companies such as FTX.US, another cryptocurrency exchange owned by him but not part of the Binance deal, in Voyager Digital and the trading app, Robinhood, Business Insider said in its report.
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