World's largest crypto exchange Binance to acquire rival FTX, cover liquidity crunch

By Prathiksha BU
November 09, 2022, Updated on : Wed Nov 09 2022 05:38:34 GMT+0000
World's largest crypto exchange Binance to acquire rival FTX, cover liquidity crunch
Binance CEO Changpeng Zhao says FTX has asked for help, which has led to a 'non-binding LOI, intending to fully acquire FTX.com and help cover the liquidity crunch'.
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In a surprising turn of events, Binance —the world’s largest crypto exchange by trading volume— on Tuesday signed a letter of intent to buy its competitor FTX, the third-largest exchange by trading volume.


Binance CEO Changpeng Zhao took to Twitter to confirm the deal. "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 FTX.com and help cover the liquidity crunch," he said.


In addition to this, Zhao said Binance will be conducting a full due diligence on FTX in the coming days. However, because the LOI is non-binding, industry experts believe Binance could withdraw from the deal at any time.

Recent developments

Earlier speculations hinted that FTX and its sister company, Alameda Research, were in the midst of a liquidity crisis. It was first reported on November 2, by CoinDesk.


On Monday, Binance announced its plans to liquidate its entire holdings of FTT tokens.


Zhao announced in a tweet that decision to liquidate FTT tokens was “post-exit risk management, learning from Luna”, a reference to the collapse of the Terra-LUNA stablecoin ecosystem that wiped almost $60 billion off the market.


Post the tweet, FTX experienced an increase in withdrawals on Sunday, as speculation mounted. However, Sam Bankman-Fried assured "assets are fine" and dismissed reports of liquidity issues as "false rumours".


On Tuesday, Bankman-Fried took to Twitter to confirm the deal. "We have come to an agreement on a strategic transaction with Binance for FTX.com," he said.

The aftermath

FTX’s token FTT plunged nearly 73% following the news and Bitcoin is also not doing well. BTC is down nearly 10% and Ether down to 16% in the last 24 hours.


FTT

As per CoinMarketCap data FTT is 73.25% down as of Wednesday 7:22 A.M (IST)

Since July, FTX was making headlines for grabbing deals and bailing out many bankrupt crypto lenders like Voyager, BlockFi, Robinhood, and others. Industry experts hailed Sam Bankman-Fried as a saviour of the industry, comparing him to JP Morgan and Warren Buffett.


In September, CNBC reported that FTX was in discussions with investors to raise $1 billion fresh capital at a valuation of $32 billion. Bankman-Fried was also featured in Forbes 400 list of richest Americans, amassing a net worth of $22.5 billion. He was featured alongside Jeff Bezos, Elon Musk , Mark Zuckerberg, Bill Gates, Larry Page, and others.


FTX was backed by Singapore’s Temasek, SoftBank’s Vision Fund 2 and Tiger Global and in January, the crypto exchange raised $400 million in a Series C round and was valued at $32 billion. However, post the news, Bloomberg Billionaires Index revealed that Sam Bankman Fried was on the brink of 94% wealth wipeout and his estimated net worth was now $991 million.


This news has also sparked a debate in the industry, with many wondering about the security of the sector.


Edited by Teja Lele

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