Crazy is an understatement of what happened last week, and the story continues to develop into something bigger than just FTX. Formerly the second largest crypto exchange, FTX, collapsed a few days ago. Just to get everybody on board, Sam Bankman-Fried (SBF), CEO of FTX, and Changpeng Zhao (CZ), CEO of Binance, the first largest crypto exchange, well, they don’t like each other. That’s not an opinion, by the way; they squabble on Twitter — publicly.
A few days after SBF implied that CZ was banned from DC, a report was released by CoinDesk, leaking FTX’s financial balance sheet. This report exposed FTX’s liquidity problems. The issue is that despite having billions of dollars worth of assets, the funds are locked up in various token projects FTX was a part of — so they can’t access them immediately. Meaning, if people tried to withdraw their money all at the same time, FTX would not be able to cover this.
Following this report was CZ’s tweet saying that Binance “will liquidate any remaining FTT on our books.” FTT, by the way, is FTX’s native token. As expected, the thought of Binance dumping a few billion dollars worth of FTT caused waves of panic and, of course, will also cause the FTT price to take a nosedive.
With such uncertainty in the air, people started withdrawing their funds. Roughly $5 billion in withdrawals were made last Sunday, causing FTX to scramble for an emergency investment and freeze customer withdrawals. Even more, fears spread like wildfire with worries about FTX being the next Luna, Celsius, or other crypto projects that met their demise this year.
A Momentary Glimmer of Hope
Let’s segway to Alameda Research for a moment, as this name is a part of the story. As you may already know, Alameda Research was founded by SBF as well. The Wall Street Journal reported that “FTX lent billions of dollars worth of customer assets to fund risky bets by Alameda Research.” Users’ money deposited on the exchange, supposedly used for trading purposes, was given to its sister company, Alameda, so it could extend loans. This is what lit the fuse to its own implosion.
FTX turned to Binance for help. Yep, like they weren’t each other’s mortal nemesis. This looks reaallly bad — FTX must be badly short on cash for this to have happened. CZ tweeted that Binance signed a non-binding LOI to fully acquire FTX and protect users. For a moment there, things seemed like it was all gonna be alright… except one day later, Binance pulled out.
“In the beginning, our hope was to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to help,” Binance tweeted.
The Dramarama is Rippling Through the NFT Industry
Over the years, FTX and SBF have both been instrumental in gaining traction and visibility for Solana. Around 10% of Solana’s market cap is held by Alameda Research, resulting in speculation that the trading firm had sold off a significant portion of its SOL following Solana’s price drop.
The NFT world is primarily built on the backs of Ethereum and Solana. With ETH falling 23% and SOL 47.8% at the time of writing, the value of NFTs has also fallen dramatically. As the price of ETH drops and owners panic-sell their valuable NFTs, the Bored Ape Yacht Club sees its prices sink. BAYC is not the only project spiraling downwards; even trading volume on OpenSea and Magic Eden were also adversely affected.
What Now?
It is imperative in the NFT industry to remain level-headed despite shocking news and drastic price changes. It’s not the first time a crypto platform has burned the space, and likely not the last. The NFTs and crypto are inextricably linked, but Web3 will continue.
We often hear the phrase “not your keys, not your coin,” or any digital asset, for that matter. In our next article, we’ll talk about how to keep your assets safe. Stay tuned!
