CZ: FTX Going Down is Not a “Win” for Binance

  • The CEO of Binance warned his staff that the FTX crisis was not good for anyone in the industry, and that regulators will likely “scrutinize exchanges even more” now.
  • Zhao also noted that the acquisition of FTX will attract more attention to Binance, and that the exchange needed to increase its “transparency, proof-of-reserves, insurance funds, etc.”
cz

Binance CEO Changpeng Zhao. CoinDesk

Binance CEO Changpeng “CZ” Zhao has warned that the potential acquisition of FTX was not a “win” for the exchange, and that the move will only attract further scrutiny from regulators around the world.

The comment was made in a letter to Binance staff, which Zhao released on Twitter on 9 November. In his letter, CZ noted that the FTX crisis was “not good for anyone in the industry” and that the near collapse of the exchange had “severely shaken” confidence in the crypto market. He also warned that regulators around the globe will likely “scrutinize exchanges even more”, and make licensing even harder to acquire. CZ wrote:

“People now think we are the biggest and will attack us more. But that’s OK, we are used to being open and leaning into headwinds. In fact, we embrace scrutiny. We must significantly increase our transparency, proof-of-reserves, insurance funds, etc.”

The staff note also clarified that Binance “did not master plan” the potential acquisition of FTX, and that CZ received Sam Bankman-Fried’s offer “less than 24 hrs ago”. Zhao also warned his employees that the due diligence process for the deal was still underway, and that they should refrain from trading the FTX Token (FTT) even if they have a bag. He noted that Binance had stopped selling its FTT tokens after the call with SBF was finished yesterday, and that “we need to hold ourselves to a higher standard than even in banks”.

The acquisition of FTX was proposed by SBF on 8 November, when he approached CZ for help in response to a significant liquidity crunch, and resulted in Binance signing a non-binding letter of intent to purchase the troubled exchange. Since then the price of FTX’s native token, FTT, has experienced significant volatility and has dropped from $19 on Tuesday to less than $3.5 today.

Bloomberg cited “people familiar with the matter” earlier today, who said the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have launched a probe into FTX’s liquidity crisis. The goal of the inquiry was to check how FTX handled client funds, and if there was any relationship between the exchange and its affiliate FTX.US.

Discussion
Related Coverage
Binance Launches Merkle Tree-Based Proof-of-Reserves System
  • Binance’s new proof-of-reserve system shows it has Bitcoin (BTC) balance of 582,485 tokens, while users have a net balance of 575,742 BTC.
  • The exchange also plans to involve a third-party auditor to verify its PoR system, as well as implement ZK-SNARKs to improve privacy.
November 25, 2022, 4:53 PM
binance

Shutterstock

Binance Launches $1B Industry Recovery Initiative With 7 Contributors
  • Binance has officially launched its $1 billion industry recovery fund, and said it is ready to set aside another $1 billion in the near future “if the need arises”.
  • Jump Crypto, Polygon Ventures, Aptos Labs, Animoca Brands, GSR, Kronos, and Brooker Group have all joined the fund with a combined contribution of $50 million.
OKX Launches Proof-of-Reserves Page and Self-Audit Tool
  • OKX has become one of the first crypto exchanges to release a Proof-of-Reserves page, giving users a greater visibility in its reserves and liabilities.
  • Customers can also verify that their assets are backed 1:1 on the platform, and that they have become a “leaf” in the Merkle tree data structure.