Cryptocurrency exchange FTX is on the brink of collapse after Binance pulled out of a rescue deal.
Valued at $32 billion by a $400 million Series C funding round earlier this year – which took its total funding to $2bn – it is now facing a shortfall of $8 billion due to withdrawal requests in recent days, according to the Wall Street Journal.
There have been reports of investors writing off the value of their stake in the company, which is in the top five global exchanges by volume. FTX is backed by world-leading VCs Temasek, BlackRock, Coinbase Ventures and Sequoia Capital.
Binance, the largest exchange by volume, had agreed a lightning-quick non-binding deal on Monday to bail out its rival’s non-US operations as it faced a ‘liquidity crunch’.
“As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of FTX.com,” read a statement from Binance.
“In the beginning, our hope was to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to help.”
The crisis was triggered by reports late last week that a notable portion of FTX’s sister investment fund Alameda Research’s balance sheet was made up largely of its native FTX Token (FTT) and Solana’s SOL token.
In a now-deleted Twitter thread, FTX CEO Sam Bankman-Fried blamed the early turbulence on Binance and its CEO Changpeng Zhao, who had revealed plans to liquidate any remaining FTT on Binance’s books – reported to be worth more than $500m.
“A competitor is trying to go after us with false rumors,” he tweeted at the time. “FTX is fine. Assets are fine. FTX has enough to cover all client holdings.
“We don’t invest client assets (even in treasuries)… we have a long history of safeguarding client assets, and that remains true today.
“I’d love it, @cz_binance, if we could work together for the ecosystem.”
FTT continued to plummet and non-fiat withdrawals outside the US were halted, despite FTX claiming just a day earlier that there was no risk of this happening.
The two exchanges’ US operations were to have remained separate, should the deal have gone through.
Having deleted the earlier thread, Bankman-Fried wrote another from a very different viewpoint when the deal was agreed. “A *huge* thank you to CZ, Binance, and all of our supporters. This is a user-centric development that benefits the entire industry.
“CZ has done, and will continue to do, an incredible job of building out the global crypto ecosystem, and creating a freer economic world.
“I know that there have been rumors in media of conflict between our two exchanges, however Binance has shown time and again that they are committed to a more decentralized global economy while working to improve industry relations with regulators. We are in the best of hands.
“Our teams are working on clearing out the withdrawal backlog as is. This will clear out liquidity crunches; all assets will be covered 1:1. This is one of the main reasons we’ve asked Binance to come in. It may take a bit to settle… we apologize for that… the important thing is that customers are protected.”
Since the deal fell through, he has not tweeted directly.
Binance’s statement continued: “Every time a major player in an industry fails, retail consumers will suffer. We have seen over the last several years that the crypto ecosystem is becoming more resilient and we believe in time that outliers that misuse user funds will be weeded out by the free market.
“As regulatory frameworks are developed and as the industry continues to evolve toward greater decentralization, the ecosystem will grow stronger.”
The cryptocurrency markets, already in a bear market, have fallen sharply in recent days: Bitcoin has lost 17% of its value in a week to below $17,000.
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