Before signing a tentative takeover deal with competitor Binance, the FTX platform reportedly first called for help from several Silicon Valley and Wall Street billionaires, but was unsuccessful. This is approximately 5 to 6 billion dollars which had to be found before the end of the day on Tuesday October 8th.
FTX calls for help from Wall Street
After the fall of Terra (LUNA), the bankruptcy of Celsius as well as that of Three Arrows Capital (3AC), and while a semblance of a bullish recovery finally appeared on the horizon, the year 2022 reminds us that the worst can always happen. Tuesday, October 8 will undeniably mark our ecosystemin a context of a race for regulation.
While FTX was experiencing a major liquidity crisis, exacerbated by announcements from Changpeng Zhao (CEO of Binance), the platform finally announced the total suspension of withdrawals for its users. In the process, we learned that CZ would have reached an agreement with Sam Bankman-Fried (CEO of FTX) for a takeover of FTX by Binance.
In the hours leading up to obtaining ” saving » of this agreement, our colleagues from Semafor revealed that FTX called for help from Silicon Valley and Wall Street billionaires. According to their information, the platform was seeking to obtain over a billion dollars.
It would even seem that over the course of the day and the fall in the price of FTT (the token of the FTX platform), the hole in the cash has widened, until reaching 5 to 6 billion dollars.
The repercussions have obviously been devastating for the cryptocurrency market. The FTT closed the day with a drop of 76% and a price around 6 dollars, while it was trading at 22 dollars at its opening. In parallel, Bitcoin (BTC) fell by 9% and Ether (ETH) by 15% on Tuesday.
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FTX in liquidity crisis
What FTX is currently facing is a classic liquidity crisiswhen a financial institution cannot sell its assets quickly enough to meet investors’ demands for withdrawals or credits from lenders.
However, according to information from the co-founder of Huobi, it seems that FTX has withdrawn over $6 billion market for several weeks. However, the pressure imposed by Changpeng Zhao’s statements accelerated events.
A situation that arises mismanagement by FTX and which could have been avoided, as Changpeng Zhao did not fail to recall on Twitter. According to him, two lessons must be drawn from this case: ” notNever use a token you created as collateral » (ie the FTT) and “never borrow when running a crypto business” :
Two big lessons:
1: Never use a token you created as collateral.
2: Don’t borrow if you run a crypto business. Don’t use capital “efficiently”. Have a large reserve.
Binance has never used BNB for collateral, and we have never taken on debt.
Stay #SAFU.🙏
— CZ 🔶 Binance (@cz_binance) November 8, 2022
The question that now arises is: what about venture capital companies and investment funds who granted loans to Alameda Research ? Indeed, the two entities are closely linked by their founder, Sam Bankman-Fried, but even more so since the merger of the FTX Ventures branch and Alameda Research in August 2022.
A huge risk weighs on the assets used by Alameda as collateral to take out loans from venture capital firms. Indeed, in the event of insolvency, they could be liquidated by lenders to repay their loans. In addition to the FTT, it also seems that the Solana (SOL) is concerned.
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Lilian Aliaga
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