Post Menu and Details.
- The Massive FTT Transfer on Binance
- FTX Scam?
- What FTX's collapse means for investors
- What the future of FTT holds
- The Infinite Money Glitch of FTX and FTT Tokens
- The Mystery Behind FTX's Liquidity Crunch
- Three theories about why it happened
- FTX vs Binance: A Clash of Strategies
- The evolution of the free market in Bitcoin and crypto
Reading time: ~8 minutes
This story has the perfect trifecta of everything we’re not supposed to discuss money, politics and religion because crypto is not even money. At this point, it’s a religion.
So this story is between two of the world’s biggest crypto exchanges, FTX and Binance. Now Binance was the world’s biggest crypto exchange last year. They traded over seven trillion dollars worth of volume on their platform. To get an idea of just how significant that number is, that represents more than half of the value exchanged in all of the cryptos in all of last year.
Now FTX, by comparison, which billionaire Sam Bankman Fried created, was the fastest-growing crypto exchange. They helped bail out companies like BlockFi and Voyager this year and spent insane amounts on Partnerships with Steph Curry and Tom Brady. They did a Super Bowl commercial with Larry David, and they own the FTX arena in Miami. These guys are huge competitors of each other, but in a crazy turn of events, this week’s Binance saved FTX from total collapse.
The Massive FTT Transfer on Binance
Here’s how it happened on November 6th. The owner of Binance CZ tweeted to the world that as part of their Equity exit from FTX, they were paid roughly 2.1 billion dollars in a combination of BUSD, which is a stablecoin owned by Binance and FTT, which is a token owned by FTX. And that due to a recent discovery, they were going to sell their whole share of FTT tokens.
Then on November 5th, someone noticed a massive transfer of 23 million FTT tokens inside of Binance worth roughly 585 million dollars. CZ later confirmed that it was him transferring this money because he was planning to eventually sell it because he learned a lot from the collapse of Terra Luna. He wanted to avoid that potentially happening to Binance or being involved with anyone that might be at risk. This, of course, sent the price of FTT tokens greater.
Now Sam responded to Binance by saying that Allah did research which is a sister company of FTX would gladly buy up each and every single FTT token and that their balance sheet was perfectly fine. Of course, the next day, things took a crazy turn. This all got started when a document was shared on Coindesk about Alameda research’s balance sheet. And just so you understand, Alameda Research FTX and Sam Bankman Fried are one and even the same. Though they’re different entities, they all belong to the same person. That document revealed that Alameda Research had roughly 14.6 billion dollars on their balance sheet as of June 30th this year.
Now that’s a lot, but it was also revealed that most of their assets were held in their own token FTT that they magically printed out of that 14.6 billion. Roughly 8 billion dollars was an FTT. Now by that point, before this whole collapse, the market cap of FTT was a little over 2 billion dollars.
This just means that even if FTX wanted to liquidate its assets. They wouldn’t be able to get anywhere near the value they claimed they had on their balance sheet.t that’s when things started to go south and when everyone started to withdraw their money out of FTX.
What FTX’s collapse means for investors
That’s when FTX started to see a liquidity Crunch, and by Tuesday, things got so bad that Binance put out a Loi, a letter of intent to unofficially buy FTX and to bail them out of trouble. CZ then tweeted that the lessons he’s learned are to never use your own token as collateral, to never borrow money if you’re in a crypto business and to always have massive reserves. But in the meantime, everyone is wondering why things got so bad.
What the future of FTT holds
Please understand that none of this is confirmed as 100 facts .this is just a working theory of how it could have allegedly happened, and it goes something like this. This is the famous infinite money glitch where a company creates a hypothetical token called FTT. They could then magically print this magic money out of nowhere.
Give it artificial value by giving it a use case and a utility, buying up a majority of its Supply, and then burning the rest to increase its value. After this token gets valuable, they could then hypothetically and allegedly send these tokens to their sister company Alameda. Research, where they could then show on their balance sheet potential actual profits and actual value where they would then leverage that balance sheet and borrow against it, and they, would borrow other assets, other stablecoins, Bitcoin, Ethereum, whatever it is.
The Infinite Money Glitch of FTX and FTT Tokens
After borrowing these assets, they could then send all of those cryptos back to FTX, and by doing this, you have created the infinite money glitch where you could print as much money as you want. This could help explain how the value of FTT’s tokens hugely affected FTX’s ability to liquidate because this strategy works until it doesn’t.
If there’s a run on the bank and everyone gets scared and tries to withdraw all of their money all at once, then it’s time to pay up because when people sell, they also have to convert their stablecoins and their assets, like FTT tokens, into actual money. But if that platform doesn’t have the money to pay people, it has to liquidate its own assets, which in this case, are magically printed FTT tokens.
But if those FTT tokens can’t be liquidated because they’re not really worth anything, then you’re not really holding anything of real value, and this is made especially worse if those customer deposits were lent out to other institutions.
The Mystery Behind FTX’s Liquidity Crunch
Now, this is still a little confusing to me because it doesn’t help explain how a company as big as FTX, worth roughly 32 billion dollars, could collapse almost overnight just because a competitor threatened to sell 600 million dollars worth of assets. So here’s a better explanation: imagine that I print 32 playing cards and then sell one for a billion dollars. Well, now my market cap shows I’m worth 32 billion dollars, but that’s just the market assuming that I could sell another card for another billion dollars. But once the market finds out I’ve printed most of these cards, most of my net worth is inside of these cards, and there are no buyers to buy my cards. I’m not really worth 32 billion dollars now.
I’m not saying that this is exactly what happened. This theory could help explain what allegedly happened and how FTX got itself into a liquidity crunch where Binance had to save them. But for now, there are just a bunch of questions like now that FTX is going to be bailed out, who’s gonna bail out Voyager and is it still going to be the FDX Arena or the Binance arena? Let me share with you some theories and give you my personal thoughts.
Three theories about why it happened
Why all of this started to happen because Finance saw a competitor, they saw FTX grow as fast as they did. They saw some cracks, and they took advantage now. This could be true, but I personally don’t think this is the correct theory because anything that hurts FTX would equally hurt Binance, and I think everyone has a vested interest in making sure that crypto grows together as a whole.
Now, the second theory about why this might have happened is a little more interesting because it involves something that no one wants to talk about: politics. It’s no secret that Sam Bankman Fried has donated over 40 million dollars to political campaigns for both Democrats and Republicans this year alone. Sam also put out a framework that the crypto industry didn’t support Binance really didn’t like the framework because they accused them of working behind their backs with Regulators.
That would really ultimately harm crypto by increasing censorship, decreasing decentralization destroying the value of the web three while eliminating the US from participating in the markets. So from that point on, this Theory suggests that both SBF and FTX became competitors in the entire crypto space because the crypto space doesn’t really agree with FTX’s approach of working with The Regulators.
Now Theory number three is that Alameda Research in FTX was insolvent, which we now know to be technically true. So with all that said, here are my overall personal thoughts. I see this from two points of view. Binance, for example, has taken a solid stance on decentralization. They don’t really seem like the kind of company to me to work within the confines of the traditional banking system, and it makes perfect sense why.
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FTX vs Binance: A Clash of Strategies
Because Bitcoin and crypto were created to be permissionless decentralized, and without any kind of oversight from an authoritative entity like a government, it makes sense why Binance chose this path. Why is Defy taking this path? I like this strategy, and I’ll explain why in a second, but then there’s another strategy with FTX, which is also interesting because it’s focused on decentralization. They want to work with Regulators to get oversight, and it strategically puts themselves at the Forefront of the US market. And I like this strategy as well because I think it’s the fastest way to make Bitcoin safer, and the safer people feel the deal is the way we get the approval for the Bitcoin spawn ETF., which would send the price of Bitcoin much much higher.
That’s all a great thing too. But I can see how these strategies conflict with each other because to the lobby or get the spoils and not necessarily to the competitor, which makes sense why we’re seeing all of this competition. But in the end, here’s what I think will happen we’re gonna see two different opinions diverge even more.
The evolution of the free market in Bitcoin and crypto
The first opinion is going to be that it’s okay to work with Regulators to make Bitcoin and crypto safer. Safer means better right? But that means taking a lot longer because we’re trying to appeal to someone else, and that’s someone else’s the government. Which doesn’t really align with what Bitcoin was supposed to be.
The second opinion is to allow the free market to do its thing like what D5 is doing. Let it develop itself because that would create the ultimate product because it is a self-evolving system. We’re seeing this with Binance .we’re seeing proof of reserves as the next step to protect customer funds. This system will naturally want to evolve and develop itself into a better one. But the problem with this approach is that each and every step of the evolutionary process is extremely painful. In 2017, for example, we saw the creation and collapse of ICOs. In 2021 the creation and collapse of NFTs .in 2022, the collapse of 3ac Terra Luna Voyager Celsius FTX. were the market figuring out what works and what does not.
It’ll continue to make a better product .but the downside is that more and more people have to lose more and more money. Now on the flip side of the token, though, we have government compliance. This makes Bitcoin safer, but the downside of safety is government compliance. So both paths have merit. I think they’ll continue kicking, fighting, and screaming at each other, trying to prove which one is better.
But in the end, the consumer wins that’s because the more choices consumers have, the better off we are .and in the background, Bitcoin will continue to evolve and improve itself, and even though the actors might change, the story never will. The story of financial Independence and freedom and how Bitcoin helped get us there. And when it’s ready, it won’t need to ask anyone’s permission in the same way that the internet took over the world without asking for permission. It just became the better, faster way of doing things, and we all started using it. That’s how I see crypto evolving.
Thank you for reading!