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What the hell just happened in crypto? A Q&A in plain English about Binance’s takedown of FTX

Crypto people have seen things. They’ve seen massive hacks and mind-boggling swindles and stunning success stories. But never have they seen a day like Tuesday, when the world’s biggest crypto exchange carried out the corporate equivalent of murder on its closest competitor.

If you’re not steeped in crypto and are wondering what everyone else is talking about, here’s a basic guide to the insanity surrounding Binance and FTX—and why it matters.

What exactly happened?

Binance is a giant offshore crypto exchange run by a wily Chinese-Canadian billionaire known as CZ. Binance has been on top for a while, but, in recent years, an upstart competitor called FTX began to nip at its heels. FTX was founded by a young American with wild hair known as SBF (initials are a thing in crypto).

Last weekend, CZ began complaining about SBF’s lobbying tactics and then used Binance’s might in the market to destroy his competitor.

Whoa, so how exactly did CZ do that?

The two of them used to be pals, you see, and this included CZ investing in SBF’s new cryptocurrency exchange. In time, CZ decided he didn’t want to own it anymore, and, when he sold his stake in FTX, he took payment in a crypto token called FTT. Those tokens are used by customers on the FTX exchange to obtain trading discounts, but, unlike Bitcoin, are not especially liquid.

In hindsight, this was a foolish arrangement by SBF because it resulted in CZ owning a huge amount of FTT tokens, thus giving him power over FTX. It’s as if Pepsi gave Coca-Cola a big chunk of shares that Coke could sell off any time it wanted. And that’s what happened: CZ got mad at SBF and flooded the market with loads of FTT tokens.

This was devastating because SBF also owns a trading fund that has a whole lot of FTT tokens on its balance sheet. When the price of FTT tokens began to crater, SBF tried to defend its value by selling other assets in order to buy up the FTT tokens flooding the market—but it didn’t work, and, as the value of FTT tanked, SBF discovered his liabilities began to exceed his assets. By Tuesday, his companies were facing…

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