Crypto chess – checkmate for FTX

The biggest cryptocurrency exchange in the world, Binance, has pulled out of its buyout of FTX, its largest competitor, after corporate due diligence.

The “Prince of Risk” Sam Bankman has lost quite a big bet here.

This story singles out some of the worst characteristics of the crypto market:

  1. Interconnectedness and the systemic danger it brings: FTX and Alameda’s dangerous interconnection, with FTX creating FTT tokens out of thin air which enriched Alameda’s balance sheet.
  2. Strong concentration and the outsized control of whales: Binance owning a sizable stake in its competitor’s native token.
  3. Wild and risky practices of a still emerging and largely unregulated sector: FTX using customer funds to lend them out.

In a nutshell, a chain of events has materialized the risk of a bank run for FTX, and one of Binance’s main competitors is eliminatied.

This has only been possible thanks to some questionable practices by FTX, more details of which will no doubt come to light in the coming weeks.

Here is a breakdown of the timeline so far 👇

  • Binance was one of the early investors in FTX and used to hold a large stake of equity in the exchange.
  • FTX grew massively and the competition started. Binance then decided to sell its $2B stake, a large part of this buyout is carried out in FTX native token FTT.
  • Binance is the world’s most valuable crypto exchange, estimated to be worth over $300B. FTX was valued at $32B in its most recent funding round (a Series C) in January this year. The firm counts some of the most notable world investors such as Sequoia, BlackRock, Tiger Global, and Paradigm. FTX and its FTX US business raised over $2.2B in funding overall.
  • Tension grows between Binance and FTX on their different stance on crypto regulation, and Binance announces it is gonna dump its $600M of FTT tokens.
  • FTT token is highly illiquid, with not much circulating, so this dump triggers panic and the price drops 15-20% overnight.
  • Enter Alameda Research, the hedge fund/market maker of FTX founder Sam Bankman. In such a situation Alameda would be expected to buy FTT from the market and bring reassurances, but this does not happen. In fact, Alameda has $12B in assets and $7B in liabilities, but half of its assets are in FTT. So basically it is in deep trouble.
  • The spooked market triggers $1B in withdrawals from FTX, fearing a collapse on the style of Celsius, Blockfi, Voyager, Luna.
  • FTX suffers a liquidity crunch and pauses withdrawals.
  • FTX is virtually bankrupt. Binance offers to buy FTX, then has a quick due diligence and walks away.


  • FTX is dead, and Binance remains king. Sequoia marked its investment value to $0.
  •  The broader crypto sector loses another tranche of credibility, which will create huge headwinds in consumers’ and institutions’ trust, and on regulation.


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