Bitten by a liquidity crunch, Sam Bankman-Fried's FTX reached out to Binance for help to protect users. And this led to Binance's acquisition of its most formidable rival FTX which left the crypto market stunned.
Changpeng Zhao (CZ), the founder of Binance, said it has signed a letter of intent to acquire FTX. The deal comes after months-long clash between CZ and Bankman-Fried on social media. The former took to Twitter to say that Binance signed a non-binding LOI, intending to fully acquire FTX.com and help cover the liquidity crunch.
CZ said there is a lot to cover and will take some time. "This is highly dynamic situation, and we are assessing the situation in real-time," he tweeted. "Binance has the discretion to pull out from the deal at any time. We expect FTT to be highly volatile in the coming days as things develop."
Bankman-Fried had initially tweeted in a form of announcement that "things have come full circle". "FTX.com's first, and last, investors are the same: we have come to an agreement on a strategic transaction with Binance for FTX.com."
It may seem that FTX succumbed to accelerating rivalry with CZ's Binance. The two platforms had initially been supportive of each other, wherein Binance was the first investor that backed FTX. But as the latter grew in popularity, its relationship with Binance became nasty. Bankman-Fried and CZ have been hurling remarks at each other for several months.
Binance had the last word when CZ said his company will sell about $530 million holdings of FTT, the native token of FTX. He reasoned his decision to recent revelations surrounding Alameda Research being comprised of the FTT token. CZ explained that Binance was liquidating its FTT holdings as a post-exit risk management. But following Zhao's announcement, FTT's price plunged deeply and traders rushed to withdraw funds from FTX.
Bankman-Fried established Alameda Research as a prop trading and market making firm which had some exposure to FTT tokens.
Sealing the Deal
With FTX drowning, Sam Bankman-Fried reached out to CZ for help. He acknowledged Zhao's gesture. "CZ has done, and will continue to do an incredible job of building out the global crypto ecosystem, and creating a freer economic world," Bankman-Fried tweeted.
He added that FTX is working on clearing the withdrawal backlog. "This will clear out liquidity crunches; all assets will be covered 1:1. This is one of the main reasons we've asked Binance to come in. It will take a bit to settle, we apologise for that."
Before asking Binance for help, Bankman-Fried had tried to raise additional capital from investors.