Binance Plans to Liquidate FTT Tokens

Binance CEO Changpeng Zhao (“CZ”) announced plans to liquidate Binance’s FTT holdings. He cited “recent revelations that have come to light.” The “revelations” likely involve FTX, which created FTT as a utility token that holders can use for discounts on FTX’s exchange fees or collateral for advanced trading options.

As part of Binance’s exit from FTX equity last year, Binance received roughly $2.1 billion USD equivalent in cash (BUSD and FTT). Due to recent revelations that have came to light, we have decided to liquidate any remaining FTT on our books. 1/4
— CZ 🔶 BNB (@cz_binance) November 6, 2022

He expects the exchange’s sales of FTT tokens to take a few months as it considers market conditions. Binance had received $2.1 billion in FTT and BUSD when it sold its equity stake in FTX. CZ said he would normally prefer to just hold the coins, but apparently couldn’t justify it this time.

Not locked. We usually just hold. It removes any doubt that we would attack a “competitor”. Not financially sensible. We want the industry to grow together. But there is a limit to hold, lol.
— CZ 🔶 BNB (@cz_binance) November 6, 2022

FTT predictably dropped in value when CZ made the announcement. FTX founder and CEO Sam Bankman-Fried says FTX will buy as many FTT tokens as Binance sells — likely a move to protect FTT’s market value.

What were the revelations, anyway?

Of course, the news sparked speculation about what the “revelations” might have been. Social media lit up with suggestions to withdraw holdings and rumors that FTX and Alameda Research — both founded and led by Sam Bankman-Fried — had gotten stuck in a flywheel scheme.

FTX could mint new FTT and send it to Alameda Research. Then Alameda Research could borrow USD-based stablecoins using the FTT as collateral and send the stablecoins back to FTX. The scheme could involve a fair amount of accounting trickery to make it look like FTX and Alameda Research hold $8 billion in FTT tokens. FTT’s market cap is currently hovering at just under $3 billion when calculated for the circulating supply. The fully dilated market cap is just under $8 billion, but not all of that is going to be in the hands of FTX or Alameda Research.

Coindesk confirmed that Alameda Research’s financials included $14.6 billion in assets and $8 billion in liabilities in June 2022. Its ledger includes $3.66 billion in “unlocked” FTT and $2.16 billion in FTT collateral. Besides FTX and Alameda Research being headed by the same person, Alameda Research seems to be highly financially dependent on FTX’s performance.

Sam Bankman-Fried countered some of the rumors by saying FTX’s finances were highly audited — which could have been interepreted as an indirect swipe at Tether/Bitfinex, which has only produced attestations that amount to “snapshots” of how much money is in their bank accounts at a specific moment in time.

2) A bunch of unfounded rumors have been circulating. You can see https://t.co/EBmqPhqCBl.

FTX keeps audited financials etc. And, though it slows us down sometimes on product, we're highly regulated.
— SBF (@SBF_FTX) November 6, 2022

Alameda Research received $36.7 billion in Tether (USDT) and relayed $30.1 billion of it to FTX. Protos did not specify exactly why Alameda Research and FTX would have gotten so much USDT. However, those billions of dollars’ worth of Tether holdings may mean that Alameda Research’s and FTX’s senior staff know when to keep their mouths shut — at least until it can be liquidated. If Sam Bankman-Fried takes swipes at Tether, it would likely be a really oblique comment that implies that, unlike some other organizations who shall remain unnamed, FTX is fully audited.

Bankman-Fried said FTX already processed billions of dollars in deposits and withdrawals and FTX would still be there when the rumors “blow over.” However, someone spotted several complaints of delayed withdrawals on FTX’s Telegram channel. FTX’s Telegram channel managers would only say that they were working on processing the transactions and suggested trying to withdraw a different asset if they got an error. (Many of the complaints did mention trying to withdraw BTC or ETH, which can get bad network congestion sometimes.)

Even with FTX’s and Sam Bankman-Fried’s attempts at reassurance, it was worrying enough that “Not your keys, not your coin” might have been in the back of the minds of several long-time crypto users. The situation could cause an effective “bank run” on FTX if people get the impression that it can’t even handle withdrawals in a timely manner.

Another thing to remember is that the FDIC made FTX stop claiming that it had a deposit insurance policy. The FDIC and the Federal Reserve Board issued a similar warning to Voyager Digital — unfortunately after Voyager Digital had aready filed for bankruptcy.

Funds on platforms like FTX or Voyager Digital often aren’t insured by the FDIC. If they go bankrupt, you might be able to get some of your money back if you go on record as a creditor, but that can take years. The FDIC won’t help you.

Binance would certainly have its fingers on the pulse when it comes to the crypto industry. CZ claims that the sale of its FTT tokens isn’t meant to be an attack on a competitor. Binance just couldn’t justify holding its FTT tokens any longer due to unspecific but certainly rumor-inducing “recent revelations.”