Binance Signs Letter of Intent to Buy FTX

The day after Binance CEO Changpeng Zhao (“CZ”) announced that the exchange was liquidating its FTT holdings, he announced that Binance signed a letter of intent to acquire FTX.

This afternoon, FTX asked for our help. There is a significant liquidity crunch. To protect users, we signed a non-binding LOI, intending to fully acquire https://t.co/BGtFlCmLXB and help cover the liquidity crunch. We will be conducting a full DD in the coming days.
— CZ 🔶 BNB (@cz_binance) November 8, 2022

Letters of intent are not binding contracts. However, they are often a first step in a merger or acquisition.

Binance had been an early investor in FTX. It sold its stake for $2.1 billion in BUSD and FTX’s native FTT tokens.

1) Hey all: I have a few announcements to make.

Things have come full circle, and https://t.co/DWPOotRHcX’s first, and last, investors are the same: we have come to an agreement on a strategic transaction with Binance for https://t.co/DWPOotRHcX (pending DD etc.).
— SBF (@SBF_FTX) November 8, 2022

CZ said it would normally hold the tokens, but he did not like some “recent revelations” revolving around Sam Bankman-Fried, FTX, and Alameda Research.

The revelations could have included ties between Alameda Research and FTX that were greater than simply having Sam Bankman-Fried (SBF) as the founder and CEO of both. Part of the innuendo included the idea that Alameda Research and FTX were caught in a flywheel scheme in which FTX could send FTT to Alameda Research and Alameda Research could send U.S. Dollar-backed stablecoins back to FTX. This theory was supported by Alameda Research having billions of dollars in FTT and FTT collateral on its books in June 2022.

Alameda Research also received $36.7 billion in USDT from Tether for unknown reasons, most of which it sent to FTX. It could easily be an undisclosed loan, considering that Tether and Bitfinex have a history of obfuscating their close relationship, liabilities, and assets.

Changpeng Zhao had said that he did not intend to get into a fight with Sam Bankman-Fried. However, CZ seemed to resent recent comments from Bankman-Fried in which he seemed to push for regulations that could be harmful to his companies’ competitors.

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

We typically hold tokens for the long term. And we have held on to this token for this long. We stay transparent with our actions. 4/4
— CZ 🔶 BNB (@cz_binance) November 6, 2022

A “Whale Alert” had popped up saying that just short of 23 million FTT tokens had moved from an unknown address to a Binance address. CZ confirmed that the unknown address belonged to Binance.

Yes, this is part of it. https://t.co/TnMSqRTutr
— CZ 🔶 BNB (@cz_binance) November 6, 2022

Sam Bankman-Fried May Have to Slow Down

Sam Bankman-Fried previously seemed be on a tear despite this year’s lackluster crypto markets. He made bids to acquire assets from the now-bankrupt Celsius Network and Voyager Digital.

In August 2021, it acquired LedgerX. In May, FTX was in talks to acquire WeBull, Apex, and Public.com. In September, SBF boasted that FTX had $1 billion to spend on acquisitions. SBF owned a 7.6% stake in the trading app Robinhood (yes, the same Robinhood that WallStreetBets used to frustrate institutional short sellers with GameStop and AMC pumps early last year).

Now FTX is facing a liquidity crunch with so many people trying to withdraw their funds. Some customers complained that their funds were stuck on “Pending” for hours.

CZ said the deal included helping FTX deal with the liquidity issues. He also warned that FTT was likely to remain volatile. Last week, FTT was trading as high as $26.36. Today, it plummeted to under $5 before beginning to rebound a little bit.

Sam Bankman-Fried had offered to buy as many FTT tokens as Binance was selling for $22 apiece in an obvious attempt to keep it from plummeting too far, only for CZ to reject that offer.

FTX became an important part of Sam Bankman-Fried’s empire. Both CZ’s and SBF’s team will be doing due diligence on the deal. It will also have to get past government agencies responsible for enforcing anti-trust laws – a possible challenge, considering that FTX and Binance are two of the biggest digital asset exchanges. CZ acknowledged that the situation was “highly dynamic.”

He also suggested that Binance’s acquisition of FTX was by no means a done deal: “Binance has the discretion to pull out from the deal at any time.”

Binance’s deal to acquire FTX has gotten as far as a letter of intent. While there is still a lot of work to do in the background, it could combine two of the biggest exchanges in the digital asset industry.