Binance liquidates their FTT holdings

With open interest more than doubling to $203 million with a -36% funding rate, traders are hedging their positions to the downside in correlation with CZ’s public statement.

Binance liquidates remaining FTT reserves

A recent Tweet by CEO of Binance, ChengPeng Zhao, has caused a massive spike in volume and volatility within the FTX's FTT token and triggered contagion amongst the greater cryptocurrency market. While the FTX CEO, Sam Bankman Fried, has recently taken heat amongst the crypto community due to his standing on crypto regulations, it’s the flurry of events between him and Zhao that have taken crypto by storm. On Sunday, Zhao wrote on Twitter -

Due to recent revelations that have came to light, we have decided to liquidate any remaining FTT on our books.”

Following Zhao’s Tweet, volatility spiked and the price of FTT plummeted by 15% to around $21.5 but rebounded shortly after.

Following Zhao’s Tweet, volatility spiked and the price of FTT plummeted by 15% to around $21.5 but rebounded shortly after.

To fully understand the complexity of CZ and SBF’s Twitter exchange, we need to look back several years to where this all started. In the year 2019, Binance announced a strategic investment in FTX as well as FTX’s native token, FTT. While FTX was merely a year old, it had quickly become one of the most popular exchanges for crypto derivatives and the two companies agreed to further develop the cryptocurrency ecosystem together. At the time of acquisition, FTX’s FTT token traded in a range of $1-$3 meaning that at its peak Binance was up 28-84 times on their FTT investment alone. While it is unknown exactly how much FTT Binance owns, Twitter user @DeFiSniper shared a transaction they found where $538m worth of FTT was sent to Binance just one day before Zhao’s Tweet.

Transfer $583M worth FTX Token

Although Zhao is yet to share exactly what he is referring to by saying “Due to recent revelations that have come to light”, many have speculated that this is due to a recently leaked Alameda balance sheet.

Alameda is another industry giant company under the hand of Sam Bankman Fried and acts as a trading arm for his crypto ventures. According to the private balance sheet that CoinDesk recently reviewed, Alameda had $14.6 billion worth of assets as of June 30th and much of it is in FTX’s FTT token. According to CoinDesk -

“That balance sheet is full of FTX - specifically, the FTT token issued by the exchange that grants holders a discount on trading fees on its marketplace. While there is nothing per se untoward or wrong about that, it shows Bankman-Fried’s trading giant Alameda rests on a foundation largely made up of a coin that a sister company invented, not an independent asset like a fiat currency or another crypto.”

According to FTX’s website, there are currently around 197 million FTT tokens in circulation worth around $5.1 billion, of which Almeda (Bankman Fried’s own company) owns $3.66B worth in unlocked tokens, and over $3 billion in locked/ staked tokens - a combined total of more than the tokens’ circulating market cap. Alongside Alameda’s massive FTT holdings, the document also showed they were borrowing millions of dollars against their FTT tokens, causing Twitter rumors that FTX had been loaning out their customer's funds to Alameda, and using its own FTT as collateral - essentially printing money.

What’s significant about Alameda’s portfolio isn’t how large it is, but how illiquid it is. When Zhao Tweeted about Binance liquidating their FTT holdings, a bank run triggered at FTX when customers rushed to pull their funds off the exchange. Simultaneously, the price of FTT rapidly dropped alongside Alameda’s reserve valuations, considering that FTT was the largest asset in its portfolio. As FTX reserves ran dry, they were forced to disable withdrawals on Tuesday causing greater chaos in the crypto markets and the price of FTT to drop even more. In short, consumer confidence in Bankman-Fried’s companies had begun to fall weeks prior to Zhao’s Tweet, however, the leaked Alameda balance sheet and Tweet from Zhao ‘exposing’ the topic was the straw that broke the camel's back. In what became a negative feedback loop, CZ caused investors to panic sell FTT, which then lowered the value of Alameda’s reserves while FTX customers were withdrawing funds at record-breaking amounts - a recipe that has few options to end in other than a disaster.