CZ Cranks Up Pressure on FTX With Massive Token Sale

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Binance Plans to Liq­ui­date FTT Stake After Report Rais­es Ques­tions About Sym­bio­sis of FTX and Alameda

In a major devel­op­ment for FTX, Binance, a rival cryp­tocur­ren­cy exchange, is plan­ning to dump FTT tokens on the mar­ket, accord­ing to CEO Chang­peng Zhou. 

FTT is a token issued by FTX. On Nov. 6, CZ tweet­ed that Binance will liq­ui­date all FTT from its books, cit­ing “recent rev­e­la­tions” as the cat­a­lyst. Binance was an investor in FTX and CZ said that the firm made $2.1B from its equi­ty and received the funds in BUSD and FTT.

Offload

He said Binance will try to make min­i­mal impact in the mar­kets while it offloads its FTT and added the sale will take “a few months” to complete. 

The news comes as FTX, the lead­ing cryp­tocur­ren­cy deriv­a­tives exchange found­ed by Sam Bankman-Fried, and Ala­ma­da Research, its sis­ter com­pa­ny and a prop trad­ing firm, have come under scrutiny. 

Fol­low­ing a report pub­lished by Coin­Desk last week, investors are rais­ing uncom­fort­able ques­tions about the two firms’ inter­de­pen­dent rela­tion­ship, their trans­paren­cy, and their fund­ing practices. 

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What hap­pens to FTX and Alame­da mat­ters — FTX does about $8.5B in trad­ing vol­ume dai­ly, accord­ing to CoinGecko, and Alame­da man­ages about $1B in dig­i­tal assets. More­over, Sam Bankman-Fried has become a self-styled ambas­sador for the cryp­to indus­try and sought to cur­ry influ­ence with lead­ers in Wash­ing­ton D.C. and Wall Street. 

On Nov. 2, Coin­Desk report­ed that a “pri­vate finan­cial doc­u­ment” showed FTT account­ed for $5.8B or 40% of Alameda’s $14.6B bal­ance sheet as of June 30. The pub­li­ca­tion said this meant Alame­da appeared to be depen­dent on a coin its sis­ter com­pa­ny invent­ed, rather than inde­pen­dent assets such as Bit­coin or the U.S. dollar.

Too Big

FTT’s cir­cu­lat­ing sup­ply was val­ued at $3.3B on that date, accord­ing to Coin­Mar­ket­Cap, mean­ing that more than a third of Alameda’s assets were tied to a posi­tion that may be too big to sell with­out crash­ing the market. 

Coin­Desk report­ed that $2.16B of its FTT tokens were ear­marked as col­lat­er­al, pre­sum­ably for some of the $7.4B worth of loans on its bal­ance sheet. With FTX hold­ing more FTT than it could liq­ui­date on the open mar­ket, the data sug­gests Alame­da may not be able to ser­vice its debts. 

Bankman-Fried, respond­ed on Sun­day that unfound­ed rumors about the firms’ finan­cials were cir­cu­lat­ing on social media. “We’ve already processed bil­lions of dol­lars of deposits/withdrawals today,” he said on Twitter.

Aside from that, Bankman-Fried did not respond with much detail. “A huge thank you to… those who stay lev­el-head­ed dur­ing crazy times. We deeply appre­ci­ate it.” he said.

More­over, Car­o­line Elli­son, the CEO of Alame­da respond­ed to the spec­u­la­tion by tweet­ing that the bal­ance sheet in ques­tion only rep­re­sents a sub­set of the firm’s cor­po­rate enti­ties. She said Alame­da owns more than $10B worth of assets that aren’t reflect­ed in the doc­u­ment that Coin­desk obtained.

“Giv­en the tight­en­ing in the cryp­to cred­it space this year we’ve returned most of our loans by now,” she added.

Reserves

But many investors are not con­vinced by assur­ances that all is well at Alame­da and FTX, with blockchain sleuths report­ing the exchange’s reserves have quick­ly plummeted. 

Adam Cochran of Syn­thetix tweet­ed that FTX’s hot wal­let had dropped to just $90 worth of USDC before being refilled on Nov. 7, with their sec­ondary wal­let also hold­ing only $800 at the time. A hot wal­let is a pri­ma­ry wal­let used by exchanges to ful­fill cus­tomers’ with­draw­al requests.

Cochran also spot­ted mil­lions worth of dol­lars arriv­ing in FTX’s hot wal­let from address­es, includ­ing an account with USDC issuer, Cir­cle, and what appeared to be one of Binance’s hot wal­lets. The data sug­gests that a sig­nif­i­cant share of FTX’s assets could be tied up on oth­er cen­tral­ized platforms.

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“Even if they’ve got the cap­i­tal, why is mon­ey to fund with­drawals com­ing in from oth­er exchanges and fund wal­lets?” Cochran said. “At the very least, exchanges should main­tain a list of their hot wal­lets and cold wal­lets so we can check that they have suf­fi­cient reserves… This case makes clear we need bet­ter transparency.”

The Coin­Desk report also high­light­ed the sym­bio­sis between FTX and Alame­da. Skep­ti­cal investors have long had reser­va­tions about the trans­paren­cy of this rela­tion­ship and the flow of assets between their bal­ance sheets. 

The fear is that Bankman-Fried and his exec­u­tives con­trol an enor­mous share of FTT’s supply.

Accord­ing to data from Cryp­to­Quant, FTX’s sta­ble­coin reserves are at an annu­al low of $51M after sink­ing 93% in two weeks.

FTX’s sta­ble­coin reserves. Source: Cryp­to­Quant

Elli­son offered for Alame­da to buy Binance’s FTT tokens for $22 each. FTT last changed hands for $22.23, accord­ing to CoinGecko.



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