Binance to buy FTX.com—Is Sam Bankman-Fried finished?

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It’s official: Binance has made an offer to buy FTX.com for an undisclosed sum, and after some due diligence checks, it will officially own one of its biggest exchange competitors.

Both Changpeng Zhao and Sam Bankman-Fried tweeted the news Tuesday, detailing how FTX reached out to Binance for help during a liquidity crisis. Unmentioned was the fact that Zhao likely caused that crisis when he announced Binance would sell $2.1 billion worth of FTT due to “revelations that have come to light” over the weekend.

After transferring approximately $600 million worth of the token to the Binance exchange and announcing the liquidation, FTT plummeted, bouncing briefly when the acquisition by Binance was announced before crashing further. Zhao told speculators he expects FTT to be highly volatile in the coming days.

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 🔶 BNB (@cz_binance) November 8, 2022

The rapid rise and fall of Sam Bankman-Fried

Just a few years ago, the name Sam Bankman-Fried was unknown to virtually anyone, even within the digital currency industry. Yet, today, almost everyone knows who he is. He’s been touted as somewhat of a wonderboy, although at CoinGeek, we never bought his squeaky-clean image.

‘SBF,’ as his followers and admirers affectionately know him, came out of nowhere and built FTX into a digital empire, at one point taking a sizable stake in Robinhood and revealing plans to create advanced tools to revolutionize stock trading.

Now, those dreams lie in tatters as Bankman-Fried hands over FTX.com to his rival. While Binance was the first investor in FTX, Bankman-Fried had grown jittery about his ties to Zhao’s opaque empire, ultimately leading to Binance divesting for $2.1 billion in stablecoin BUSD and the native FTX token FTT.

It seems that Zhao waited in the long grass to exact his revenge, selling a mass quantity of FTT at a moment of weakness for FTX, leading to the firms’ liquidity issues and his consolidation of power.

What about Alameda Research?

Questions remain about Bankman-Fried’s other company, Alameda Research, and whether or not it is financially solvent.

It’s unclear precisely what the “revelations that have come to light” Zhao was talking about are, but rumors soon began regarding both companies. Should Alameda go under, it could be an era-defining moment for the digital currency industry. The firm is one of the recipients of Tether, which could have unknown knock-on effects for the stablecoin issuer.

Alameda is one of the biggest market makers in the digital currency industry. If it is facing similar liquidity issues, speculators should be concerned about being able to buy or sell any and all tokens at anything like current prices.

Holding digital tokens is an insane risk with no protections

If this story can teach us anything, it’s that speculating on tokens within the digital currency industry is an extremely risky business.

To think that Zhao was sitting on such a huge quantity of a token and was able to crash it so quickly, almost bankrupting a rival exchange that serves people from all over the world in the process, is eye-opening. This takeover will only amplify the U.S. government’s focus on CZ and the Binance organization, especially since Binance and all its subsidiaries and executives are operating what would be called a partnership under U.S. law and one that touches U.S. jurisdiction—making them all subject to U.S. law.

Liquidating our FTT is just post-exit risk management, learning from LUNA. We gave support before, but we won't pretend to make love after divorce. We are not against anyone. But we won't support people who lobby against other industry players behind their backs. Onwards.

— CZ 🔶 BNB (@cz_binance) November 6, 2022

How many other massive caches of tokens sit in the hands of ruthless players waiting to crash them for their own gain? While business is business, and there’s nothing wrong with competition, this whole episode reveals that a handful of big names have almost unchecked power in an unregulated industry where they can do what they wish.

Of course, if people used digital currencies as intended—as peer-to-peer electronic cash—there’d be no particular risk associated with holding them. Since that warning seems to fall on deaf ears, expect much more blood in the streets, burnt fingers, and ruthless takedowns soon as the pirates attack each others’ ships in a bid for ultimate control.

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups—from BitMEX to Binance, Bitcoin.com, Blockstream, ShapeShift, Coinbase, Ripple, 
Ethereum, FTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.