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CZ Cranks Up Pressure on FTX With Massive Token Sale

Binance Plans to Liquidate FTT Stake After Report Raises Questions About Symbiosis of FTX and Alameda

CZ Cranks Up Pressure on FTX With Massive Token Sale

In a major development for FTX, Binance, a rival cryptocurrency exchange, is planning to dump FTT tokens on the market, according to CEO Changpeng Zhou. 

FTT is a token issued by FTX. On Nov. 6, CZ tweeted that Binance will liquidate all FTT from its books, citing “recent revelations” as the catalyst. Binance was an investor in FTX and CZ said that the firm made $2.1B from its equity and received the funds in BUSD and FTT.

Offload

He said Binance will try to make minimal impact in the markets while it offloads its FTT and added the sale will take “a few months” to complete. 

The news comes as FTX, the leading cryptocurrency derivatives exchange founded by Sam Bankman-Fried, and Alamada Research, its sister company and a prop trading firm, have come under scrutiny.  

Following a report published by CoinDesk last week, investors are raising uncomfortable questions about the two firms’ interdependent relationship, their transparency, and their funding practices. 

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What happens to FTX and Alameda matters — FTX does about $8.5B in trading volume daily, according to CoinGecko, and Alameda manages about $1B in digital assets. Moreover, Sam Bankman-Fried has become a self-styled ambassador for the crypto industry and sought to curry influence with leaders in Washington D.C. and Wall Street. 

On Nov. 2, CoinDesk reported that a “private financial document” showed FTT accounted for $5.8B or 40% of Alameda’s $14.6B balance sheet as of June 30. The publication said this meant Alameda appeared to be dependent on a coin its sister company invented, rather than independent assets such as Bitcoin or the U.S. dollar.

Too Big

FTT’s circulating supply was valued at $3.3B on that date, according to CoinMarketCap, meaning that more than a third of Alameda’s assets were tied to a position that may be too big to sell without crashing the market. 

CoinDesk reported that $2.16B of its FTT tokens were earmarked as collateral, presumably for some of the $7.4B worth of loans on its balance sheet. With FTX holding more FTT than it could liquidate on the open market, the data suggests Alameda may not be able to service its debts. 

Bankman-Fried, responded on Sunday that unfounded rumors about the firms’ financials were circulating on social media. “We’ve already processed billions of dollars of deposits/withdrawals today,” he said on Twitter.

Aside from that, Bankman-Fried did not respond with much detail. “A huge thank you to… those who stay level-headed during crazy times. We deeply appreciate it.” he said.

Moreover, Caroline Ellison, the CEO of Alameda responded to the speculation by tweeting that the balance sheet in question only represents a subset of the firm’s corporate entities. She said Alameda owns more than $10B worth of assets that aren’t reflected in the document that Coindesk obtained.

“Given the tightening in the crypto credit space this year we’ve returned most of our loans by now,” she added.

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Reserves

But many investors are not convinced by assurances that all is well at Alameda and FTX, with blockchain sleuths reporting the exchange’s reserves have quickly plummeted. 

Adam Cochran of Synthetix tweeted that FTX’s hot wallet had dropped to just $90 worth of USDC before being refilled on Nov. 7, with their secondary wallet also holding only $800 at the time. A hot wallet is a primary wallet used by exchanges to fulfill customers’ withdrawal requests.

Cochran also spotted millions worth of dollars arriving in FTX’s hot wallet from addresses, including an account with USDC issuer, Circle, and what appeared to be one of Binance’s hot wallets. The data suggests that a significant share of FTX’s assets could be tied up on other centralized platforms.

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“Even if they’ve got the capital, why is money to fund withdrawals coming in from other exchanges and fund wallets?” Cochran said. “At the very least, exchanges should maintain a list of their hot wallets and cold wallets so we can check that they have sufficient reserves… This case makes clear we need better transparency.”

The CoinDesk report also highlighted the symbiosis between FTX and Alameda. Skeptical investors have long had reservations about the transparency of this relationship and the flow of assets between their balance sheets. 

The fear is that Bankman-Fried and his executives control an enormous share of FTT’s supply.

According to data from CryptoQuant, FTX’s stablecoin reserves are at an annual low of $51M after sinking 93% in two weeks.

FTX’s stablecoin reserves. Source: CryptoQuant

Ellison offered for Alameda to buy Binance’s FTT tokens for $22 each. FTT last changed hands for $22.23, according to CoinGecko.

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