FTX Alert: 10 Things to Know as Binance Offers to Buy Sam Bankman-Fried’s FTX thumbnail

FTX Alert: 10 Things to Know as Binance Offers to Buy Sam Bankman-Fried’s FTX

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The Binance logo on a smartphone with a neon chart in the background.

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Binance (BNB-USD) CEO Changpeng Zhao shocked the crypto world today after he announced through Twitter that his company has signed a non-binding letter of intent (LOI) to acquire Sam Bankman-Fried’s rival exchange, FTX. Zhao said the LOI was crafted in order to protect users from a “liquidity crunch.” The Binance CEO also added that his company will continue to do its due diligence on the deal and that it could pull out at any time. The financial terms of the transaction have not been immediately disclosed.

Last week, FTX was pushed into the spotlight after a CoinDesk report noted that much of Alameda Research’s assets were comprised of FTX Token (FTT-USD), the native token of FTX. Run by CEO Caroline Ellison, Alameda Research is a sister company of FTX. As a result of the news, investors became concerned that the large amount of illiquid FTT could cause Alameda to become insolvent.

Swan Bitcoin CEO Cory Klippsten was concerned as well. Per CoinDesk, Klippsten remarked:

“It’s fascinating to see that the majority of the net equity in the Alameda business is actually FTX’s own centrally controlled and printed-out-of-thin-air token.”

Now, it appears that FTX is not as stable as management has previously portrayed. Let’s take a look at 10 things for investors to know about the Binance-FTX offer.

10 Things to Know as Binance Offers to Buy Sam Bankman-Fried’s FTX

  1. The FTT token is down more than 70% today.
  2. FTX experienced over $450 million of stablecoin outflows following the CoinDesk report.
  3. Zhao warned that FTT would continue to face volatility as Binance conducts due diligence on FTX.
  4. Binance was an early investor in FTX and received the equivalent of $2.1 billion for its exit.
  5. Zhao recently announced that he would liquidate Binance’s FTT stake due to “recent revelations that have came to light.”
  6. On-chain data shows that Zhao has not yet liquidated his stake. However, Zhao confirmed that Binance had transferred $584 million worth of FTT from an unknown wallet to Binance.
  7. Bankman-Fried characterized the potential acquisition as a “user-centric development that benefits the entire industry.”
  8. Furthermore, the acquisition only includes FTX’s non-U.S. businesses and will not affect FTX.US.
  9. Alameda had assets under management of $14.6 billion as of June 30. Some $3.66 billion was allocated to “unlocked FTT” while $2.16 billion was allocated to “FTT collateral.”
  10. Other assets held included $292 million of unlocked Solana (SOL-USD) and $863 million of locked SOL.

On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Eddie Pan specializes in institutional investments and insider activity. He writes for InvestorPlace’s Today’s Market team, which centers on the latest news involving popular stocks.