Binance, the biggest cryptocurrency exchange in the world, was going to rescue FTX. Then it backed out of the agreement.
During May’s $2 trillion cryptocurrency market crisis, FTX, a cryptocurrency corporation, provided financial lifelines to many failing businesses.
However, FTX needed a lifeline this week, and competitor Binance seemed to be on the verge of providing one. But then Binance changed its mind and said it was abandoning the acquisition plan.
What exactly are FTX and Binance?
Both FTX and Binance let users to buy and sell cryptocurrencies in exchange for fiat cash or other cryptocurrencies, and vice versa. According to CoinMarketCap, a statistics tracker in the cryptocurrency business, the two exchanges handle the vast bulk of global crypto trading.
Sam Bankman-Fried manages the operations of FTX, one of the biggest exchanges in the world. It has invested millions in pushing U.S. lawmakers for crypto-friendly legislation.
Changpeng Zhao, a millionaire, runs the biggest exchange, Binance. The corporation has being investigated for possible violations of law due to the fact that it has no central office and operates mostly in countries other than the United States. If you’re looking for an early investment in FTX, look no further than Binance.
Both enterprises have relied on high-risk trading options that are illegal in the United States. Both Binance and FTX provide U.S.-based subsidiaries, Binance.us and FTX.us, that operate independently of their parent firms in order to meet the requirements of American law.
There has been a rise in governmental interest in the crypto sector on Capitol Hill and throughout the world. The 45-year-old Mr. Zhao and the 30-year-old Mr. Bankman-Fried have openly spat over the issue of whether or not to regulate cryptocurrencies.
In what ways did FTX fail?
Traders on FTX utilize the native cryptocurrency token, FTT, for a variety of purposes. Mr. Zhao resold his FTX shares to Mr. Bankman-Fried last year, and Mr. Bankman-Fried partly compensated for them with FTT tokens.
On November 2nd, crypto news outlet CoinDesk reported on a document that claimed to suggest that Mr. Bankman-Alameda Fried’s Research hedge fund possessed a high number of FTT tokens. Although FTX and Alameda operate under different names, it was suggested in the research that the two companies shared significant financial resources.
As of the 6th of November, Binance has said that it will be liquidating its FTT tokens “due to recent developments.” As a result, the value of FTT plunged, and investors fled the FTX cryptocurrency in droves, fearing that it, too, would go the way of so many other struggling digital currency startups.
There were withdrawal demands totaling almost $6 billion, sending FTX into a frenzy over the course of three days. It looked to hit a liquidity constraint, where there wasn’t enough money to meet demand.
Tell me more about Binance’s intervention.
Binance announced on Tuesday that it has struck a deal to purchase FTX. In spite of this, Mr. Zhao said in the announcement, “Binance has the discretion to withdraw out of the contract at any moment.”
Mr. Bankman-Fried, in a simultaneous release, said the transaction would safeguard clients and provide FTX time to complete withdrawal processes. He added, “we are in the best of hands,” to try to calm fears of a Binance-FTX spat.
Is there a specific reason why the agreement between Binance and FTX broke down?
Binance said on Wednesday that it has decided against purchasing FTX “as a consequence of corporate due diligence.” There were references to probes by regulators and allegations of improper handling of money.
Binance stated in a statement, “Every time a significant player in an industry collapses, retail customers will suffer.” As time goes on, we expect the free market to filter out anomalies that abuse user money, as we have seen the crypto ecosystem become more robust over the last several years.
FTX and Tron, a blockchain platform, announced on Thursday that they had achieved a deal to allow token swaps between the two platforms.
How come the bitcoin market has been impacted by the FTX situation?
Cryptocurrency businesses have been fighting for a long time to win over authorities, investors, and regular consumers. The market has been shaken by the decline of FTX, which was more steady than other exchanges, and Binance’s decision to withdraw.
Since Tuesday, the price of FTT has dropped by around 80%. Some of the most valuable tokens, like Bitcoin and Ether, have seen their values plummet by almost 20% since Tuesday.