Binance boss Changpeng ‘CZ’ Zhao is using the highly public downfall of rival digital currency exchange FTX to paint his company as a force for good, despite all evidence to the contrary.
Since FTX boss Sam Bankman-Fried (SBF) dropped his Friday bombshell that the exchange and some 130 affiliated entities—including the U.S.-licensed FTX US exchange—had filed for Chapter 11 bankruptcy protection, CZ has been proposing solutions for minimizing the fallout from future episodes of this all too familiar crypto collapse.
On Sunday, CZ tweeted that Binance was “forming an industry recovery fund to help projects who are otherwise strong but in a liquidity crisis.” The intention behind this initiative was to “reduce further cascading negative effects of FTX.” CZ said Binance would “welcome other industry players with cash who wants [sic] to invest.”
That’s about the extent of the details CZ has provided on what appears to be an ‘I’ll buy equity in struggling projects for pennies on the dollar’ program. Justin Sun, the founder of the TRON network and a man who never passes up a shot at free publicity, immediately voiced his support for CZ’s initiative, much as Sun offered last week to do what he could to bail out FTX with billions he didn’t actually have.
It remains unclear how the decisions of this ‘industry’ fund will be made. CZ previously criticized SBF for propping up troubled ‘crypto’ projects that got caught in liquidity crunches that didn’t necessarily involve the kind of first-hand criminality that SBF is now believed to have orchestrated at both FTX and its (SBF-owned) market-maker Alameda Research.
But with FTX/SBF officially down for the count, CZ clearly smells an opportunity to shift the largely pejorative narrative that he and his company have painstakingly earned over the years. While lamenting how “painful” the process might prove, CZ nonetheless declared that the “crypto industry is getting cleaner,” with the public expected to infer that Binance is the detergent helping to wash away crypto’s reputational stains.
What ghosts visited you, Ebenezer?
Before his spectacular fall from grace, SBF had established a reputation as a figure imbued with noblesse oblige, willing to use his (supposed) enormous wealth to prevent ‘crypto’ project failures from negatively impacting end users. As we now know (and many have suspected for years), there was a more cynical calculation behind SBF’s actions, and he was less the ‘John Pierpont Morgan of crypto’ than its Bernard Lawrence Madoff.
Still, nature abhors a vacuum, and CZ appears intent on becoming the reassuring rock upon which crypto’s otherwise shaky foundation rests. This weekend saw him promise to “be more vocal about issues I see in the industry” in the hope that this will “reduce risk. Even if they are false alarms.” (“Yes, your honor, I realize we were watching an action movie, but I was worried that the fire from those explosions could incinerate everyone in that crowded theater. That’s why I yelled ‘fire.’ My bad.”)
CZ has called on all exchanges to publish their proof of reserves, encouraged Binance users to self-custody their assets, and urged them to avoid businesses that “survive by selling their own tokens.” That’s a bit rich, given that Binance’s BNB token is of the same ‘created from thin air’ variety as FTX’s FTT, the lack of confidence in which helped precipitate the latter exchange’s demise.
There are obvious benefits to being crypto’s positive public face, as SBF demonstrated during his roughly two years in the media spotlight. In addition to fawning media profiles, SBF was invited to congressional hearings and proposed regulatory guidelines (SBF’s campaign contributions certainly didn’t hinder this access).
But there are obvious impediments to CZ inheriting SBF’s mantle, primarily on the credibility front. SBF was able to pull the wool over peoples’ eyes because he’d yet to be outed as an inveterate liar, whereas nearly every CZ utterance could earn the Washington Post’s ‘bottomless Pinocchio’ rating.
Then there’s the small matter of the growing public perception that CZ shares some of the blame for FTX’s downfall. Obviously, the powder kegs piled high at FTX’s feet were bound to explode eventually, but the notion that CZ lit the fuse seems inescapable at this point.
On Monday, Daniel Trinder, Binance’s European head of government affairs, had to refute U.K. parliamentarians’ suspicions that Binance intentionally brought about FTX’s collapse. PA Media quoted Trinder saying it “certainly wasn’t the intent at all” to cause FTX’s demise by backing out of a proposed bailout after getting a look at FTX’s financial books. But not everyone is convinced.
Panic! at the Crypto
In its public statements, Binance made it clear that its offer to rescue FTX was subject to due diligence but what Trinder left out of his address to MPs was CZ’s public comments prior to that bailout offer. In response to a leaked Alameda asset sheet—the identity of the leaker remains a curiously unexplored mystery—CZ tweeted that Binance would be selling all the FTT on its balance sheet. The tokens, received via the 2021 forced buyout of Binance’s stake in FTX, were worth over $500 million at the time of CZ’s tweet.
While CZ insisted that this liquidation would be done over a period of several months “in a way that minimizes market impact,” he could have achieved much the same thing by simply unloading the tokens in drips and drabs on the QT. Unless, that is, sparking panic was the goal. The market, which initially offered a fairly muted reaction to the publication of the Alameda asset sheet, immediately soured on FTT following CZ’s tweet.
Adding weight to this panic theory is the fact that CZ appeared to ignore a public offer from Alameda CEO Caroline Ellison to buy all of Binance’s FTT at $22 apiece. It’s unclear where the secretly insolvent Alameda would have found the cash to make this deal had CZ accepted, but it didn’t matter because CZ offered only crickets in response.
So, despite his consumer-focused rhetoric, CZ rejected an offer that would have spared consumer pain (at least, in the short term). But CZ was also hurting his own company by passing up a chance to unload these soon to be worthless tokens. CZ later confirmed that Binance “stopped selling FTT after SBF called me” in pursuit of a bailout.
Which begs the question, why would anyone refuse the opportunity to realize close to full value of an unwanted asset while also sparing customers more financial pain, unless there was a far greater prize on the line, one worth paying half a billion dollars to achieve?
Crypto’s Inspector Clouseau
CZ claimed that “we would have sold [our FTT] long ago” had he known the truly precarious state of FTX’s finances. But given that CZ was invested in FTX out of the gate and until last year held an over one-fifth stake in the rival exchange, how was he so ignorant of what FTX was up to from the start? (It’s like CZ’s auditioning for the role of Captain Reynaud in a Casablanca reboot by practicing his ‘I’m shocked – shocked! – to find gambling going on’ routine.)
During a Twitter Space ‘Ask Me Anything’ (AMA) event on Monday, CZ acknowledged that VC investors “including us … made a mistake” by not asking enough questions into how FTX was making all its money. That said, CZ offloaded responsibility by saying SBF “lied to his employees, his users, his shareholders, regulators all around the world and all the users. So yes, he should take most of the blame.”
By that standard, the many, many untruths that CZ has uttered to dodge regulatory probes and the laws of many lands while simultaneously proclaiming Binance’s resolute commitment to compliance means that CZ should shoulder most of the blame when his luck finally runs out. Which, given the recent Reuters revelations regarding the scale of Binance’s role in helping Iranian traders dodge economic sanctions, shouldn’t be long now.
Pants on fire
It seems obvious now that SBF was so convinced of his own specialness that he believed any and all actions he chose to embark upon were justified and above reproach. CZ appears equally delusional regarding how he’s perceived outside the cozy confines of cryptoville.
In April 2019, CZ angrily declared that Binance would delist Bitcoin SV (BSV)—then a top-five token—in solidarity with a Norwegian Twitter troll who got hit with a lawsuit after talking trash about Dr. Craig Wright, a major BSV proponent.
CZ would have us believe that he found a common cause with a Norwegian BTC maximalist who routinely trashes tokens such as Binance’s BNB—and anything else listed on Binance that isn’t BTC—as ‘shitcoins.’ In fact, less than a year before Binance delisted BSV, the troll accused CZ of “shilling shitcoins at the UN.”
During Monday’s AMA, CZ said Binance was “not trying to be like a hedge fund shop. We make money through trading fees.” Hence the antagonism toward BSV, which emphasizes utility over reckless speculation, and thus threatens the sorry state of affairs currently promoted by exchanges such as Binance.
As CZ stated on Monday, “if a bad actor just wants to be a bad actor, you can’t prevent it.” Perhaps not, but you can minimize the damage an actor can cause by pointing out just how bad of an actor they really are.
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