- Binance signed a non-binding Letter of Intent with FTX on Wednesday, ending the liquidity crunch.
- Binance CEO CZ also stated the crypto exchange would share its Merkle-tree Proof of Reserves soon.
- Over $6 billion worth of liquidity has been removed from the market by FTX, warranting attention to asset safety.
Binance and FTX have been making headlines for the last week following the Alameda controversy. In the same duration, FTX's native token FTT's market value plunged significantly, leading the entire crypto market into a collapse. But the same has now seemingly come to an end.
Binance steps up to rescue FTX
In the early hours of Wednesday, Binance's CEO Changpeng Zhao (CZ) announced that the world's biggest cryptocurrency exchange had fully acquired FTX. Signing a non-binding Letter of Intent, Binance stated that it would be helping FTX to cover the liquidity crunch that began right after Tuesday's bank run.
Even though Binance has seemingly taken control of the situation at the moment, it has the option to back out of the deal at any time if it wishes to. FTX's head Sam Bankman-Fried (SBF), also commented on the same, thanking CZ and Binance while also reassuring the exchange's users. SBF confirmed that the withdrawal backlogs on the exchange would be cleared out soon with Binance's help.
This development led to CZ initiating an important discussion about crypto exchanges' standing and protection from a similar incident. The Binance head stated that while banks can operate on fractional reserves, crypto exchanges should not.
In line with the same, he suggested all exchanges should conduct and share a Merkle-tree proof of Reserves (POF). This would reassure investors that their crypto holdings are safe and sound while also ensuring transparency in the market.
CZ confirmed that Binance would start on its POF soon, and many other exchanges followed this with their announcements. OKX tweeted that the exchange would publish its POF within the next 30 days, calling it "an important step to establish a baseline trust in the industry".
It's critical for all major crypto venues to publicly share their auditable merkle tree proof-of-reserves or POF.— OKX (@okx) November 8, 2022
We plan to publish ours in the coming weeks (within 30 days). This is an important step to establish a baseline trust in the industry.
More to come...
Gate.io, Huobi and Poloneix, which have already been doing so, also supported CZ's suggestion, reaffirming with their POFs.
Before the acquisition
Although the FTX FUD came to an end, it came at a cost. As per Huboi's co-founder, Du Jun, FTX has withdrawn more than $6 billion in the last few days. He added,
"The lending institutions that provide credit to Alameda and the centralized platforms that have been withdrawn by FTX are at risk. Users need to pay attention to asset safety."
But according to the head of Research and Development at CoinMetrics, the entire situation could have been the result of FTX's attempt at bailing out Alameda in the second quarter. According to him, more than 173 million FTT worth over $4 billion was suddenly moved on-chain.
2/ That day, September 28, over 8.6 Billion USD worth of FTT was moved on-chain.— Lucas Nuzzi (@LucasNuzzi) November 8, 2022
That was by far the largest daily move of FTT in the token's existence and one of the largest ERC20 daily moves we ever recorded at Coin Metrics. pic.twitter.com/GnUO1ZcCB7
This transfer of assets originated from FTT ICO's 2019 contract and was sent to Alameda Research. Soon after, the same balance was sent back to FTX, implying Alameda auto-vested the FTT tokens. Lucas inferred,
"-Alameda blew up in Q2 along with 3AC+ others.
- It ONLY survived because it was able to secure funding from FTX using as "collateral" the 172M FTT that was guaranteed to vest 4 months later."
He further suggested that Binance, knowing about this, might have leveraged FTX's position by deliberately tanking FTT's market to force a liquidity crunch. This well-timed move, intentional or otherwise, has resulted in Binance eliminating its competition.
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