Is This Another Terra-Style Collapse? Binance – FTX Drama Summary

    FTX’s native token FTT experienced a volatile weekend as Binance dumped all of its FTT holdings “Due to recent revelations that have come to light,” CEO Changpeng Zhao (CZ) confirmed.

    FTT has dropped 15% since Nov 5 and hit the local bottom for Nov. 6 at $21.42 before recovering to current levels. FTX uses FTT as collateral for several loans leading to the fears of another major crypto crisis if FTX receives a large margin call.

    Binance to sell off all FTT holdings

    Rumors of CZ’s involvement started to spreading on Sunday, November 6, when FTX’s native token plummeted. There are concerns that the recession could trigger the liquidation of FTX, leading to a second Terra Luna crisis.

    At the time of this writing, Terra’s LUNA price is down nearly 5% and trading at $2.30. At its peak and before the fork, Terra’s native token price peaked nearly $120.

    LUNA price chart (Source: TradingView)

    Most of FTX’s crypto assets are tied to FTT tokens with a value of $14 billion. Thus, a 15% price drop will reduce the value of FTX holdings by about $2.1 billion before the token starts to recover.

    The amount of FTT held by Binance is the asset received when the exchange withdraws capital from FTX. While the news may cause FTT price to drop, CZ has stated that he intends to liquidate the tokens in a way that “minimizes market impact.”

    CZ also denied that the move was an act of aggression towards the competitor, he explained:

    “Binance always encourages collaboration between industry players. Regarding any speculation as to whether this is a move against a competitor, it is not. Our industry is in its nascency and every time a project publicly fails it hurts every user and every platform.”

    Is FTX about to be insolvent?

    The rumors also mentioned the default of Alameda Research, the company behind FTX CEO Sam Bankman-Fried’s empire. An article dated Nov. 4 said that “FTT Token Is Another Stupid Flywheel” similar to Celsius’s CEL.

    The similarities between the two tokens are highlighted in the report, as well as on-chain data revealed that “FTT ownership is highly concentrated, with 93% of the total tokens held by only 10 addresses.”

    The volatility has been mapped out by CryptoCred, who gave the FTT weekly price action: 

    Earlier, there is report showed that Alameda Research’s borrowing position is relatively risky as they has been mortgaging a lot of FTT to borrow money in FTX.

    The community is concerned that if Alameda Research is liquidated, it will have a strong impact on the FTT price, not to mention that the FTT price is below the important support area of ​​$24-26. In the past time, Sam FTX has also shilled FTT several times with an expected price of $35 on Twitter.

    Sam Bankman-Fried (SBF) retweeted a post by Caroline Ellison, current CEO of Alameda Research, as she tries to control the damage surrounding speculation. Ellison confirmed that the group of assets over $10 billion has not been included in the recently leaked numbers.

    Aside from the retweets, SBF is publicly unworried about volatility, as his posts on November 6 focused on FTX features rather than insolvency concerns. 

    Ellison directly responded to CZ on Twitter, saying that Alameda would “happily buy it all from you today at $22” to minimize market impact, as the Binance CEO claimed is his goal. The FTT price immediately recovered to nearly $23 thanks to the above post.

    FTX price action follow the Twitter posts on November 6th

    Billionaire Sam Bankman-Fried’s empire is divided into 2 main parts: the FTX exchange and the investment fund Alameda Research. Both are industry giants and are confirmed by Bankman-Fried as two completely separate businesses.

    Alameda Research’s assets as of June 30 are worth approximately $14.6 billion. However, the majority of them are FTX tokens FTT. Of which, Alameda holds $3.6 billion in unlocked FTT. In addition. The third-largest entry on the assets side is $2.16 billion pile of “FTT collateral.” Of Alameda’s $8 billion in debt obligations, as much as $292 million is “locked FTT.”

    Despite that, the crypto community focused on the issue throughout November 6 when Bitcoin Maxi of Swan Bitcoin questioned whether SBF has “$580M lying around” to buy back the tokens.

    Earlier on the evening of Nov. 6, CZ confirmed that a transaction from an unknown wallet to Binance carrying 30 million FTT worth approximately $584.8 million was “part of” Binance’s FTT liquidation.

    On November 7, CEO Sam Bankman-Fried of FTX officially spoke out about the entire drama. The CEO avoided talking directly about the tension between FTX and Binance, instead introducing the newly updated email or phone number transfer feature. However, Sam FTX still reminded CZ that:

    In response, Binance CEO Changpeng Zhao revealed more reasons for liquidating the FTT investment, implicitly accusing FTX of playing bad games in the crypto industry..

    Users Withdrawal from FTX Soaring

    Last night, according to Cryptoquant, the stablecoin on the FTX exchange is currently at ATL due to a massive withdrawal, falling from nearly $800 million to $51 million. Interestingly, stablecoin withdrawal have started not in the past few days, but over the past 2 weeks, pointing out that many big players probably knew about the issue before it went public.

    Source: Cryptoquant

    According to Nansen, in the past 7 days, the CEX exchange with the most stablecoin deposits as well as the most withdrawals was Binance. There is a high possibility of many users transferring funds from FTX to Binance. But strangely, FTX US still has the third largest net deposit, just behind Binance and Uniswap. It is possible that FUD is only affecting FTX, not FTX US.

    Source: Cryptoquant

    In addition, yesterday, ETH withdrawal also reached the ATH in the FTX exchange’s trading history.

    Source: Cryptoquant

    Back to FTT, the amount of FTT loaded on CEX also reached ATH. Currently, there are 60% of the FTT compared to the total circulation on the exchange. 

    Meanwhile, Sam Bankman-Fried tweeted that the exchange’s situation is fine and has successfully processed billions of USD of deposits and withdrawals in the past hours. He also thanked the users who still support and accompany the exchange. 

    After the whole drama, the price of Binance’s native token, BNB, has also dropped from a local high of $360 and is currently trading at $339 at press time.

    BNB price chart (Source: TradingView)

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