How FTX’s Crashed, and CZ’s role in it

Binance and FTX, both cryptocurrency exchanges, have had a rocky relationship in the past. In 2019, Binance invested in FTX and took a “long-term position” in FTX’s token (FTT). However, in the summer of 2022, FTX founder Samuel Bankman-Fried began criticizing Binance and calling for regulatory investigation into the exchange. It is unclear whether this was due to genuine concerns or because Binance was a competitor to FTX. In November of that year, a leaked balance sheet showed that a significant portion of Alameda Research’s assets were held in FTT, raising questions about the solvency of Alameda and the financials of FTX. In response, Binance CEO Changpeng Zhao (CZ) announced that Binance would liquidate its remaining FTT and BUSD (Binance’s stablecoin). This caused a rush of withdrawals from FTX and a plummet in the value of FTT. Bankman-Fried attempted to find investors to cover the losses, but was unsuccessful. He then turned to Binance for a potential bailout, but the deal was nonbinding and Zhao later claimed that he did not like what he saw during due diligence. As a result, FTX and Alameda both filed for bankruptcy. FTX has frozen trading and customer assets and is facing investigations by the U.S. Attorney’s Office, the Securities and Exchange Commission, the Commodity Futures Trading Commission, and financial regulators in the Bahamas. Binance is now in a position to take over FTX’s customer base and may also potentially acquire Alameda.