Last week, a survey conducted by the media specializing in cryptos, corner desk revealed a big anomaly in the finances of Alameda Research, the trading company of Sam Bankman-Fried, the founder of the FTX exchange. According to the investigation report, Alameda’s balance sheet is dominated by FTTs, the token native of FTX. This, the article continues, poses insolvency issues for FTX. In a panic, several FTT holders, including Binance, liquidated their positions in the crypto. Investors flocked to FTX to withdraw their holdings. As a result, the value of FTT, fell by more than 60% in less than 48 h. The pressure on FTX has led to the collapse of the ecosystem. CZ, the boss of Binance, who played a key role in this case, learned two main lessons.
Mantras that explain the strength of Binance’s finances?
After the FTX takeover announcement, Binance boss Changpeng Zhao lavished of them advice to crypto exchanges. First, he recommends that they never use their tokens natives as guarantee. In the case of Alameda, this was the case. The balance sheet of the crypto exchange, as revealed, showed that almost half of the holdings were FTT. Since Alameda controlled approximately 60% of FTT’s supply, it is impossible for it and FTX to liquidate them to meet disbursements such as prepayment of loans.
Until the article was published, Binance was like the crutch of Alameda and Sam Bankman-Fried’s empire. The downfall of his empire was accelerated by the announcement of the CZ exchange to liquidate its positions on FTT.
The second lesson, according to CZ, is that one should not never borrow when running a crypto business. He continues this by indicating that one should not “use capital efficiently”. And to add “that it is rather necessary to have a significant reserve”. Analysis of Alameda’s balance sheet shows that the company is heavily dependent on debt. She used FTTs to secure loans. It also has insufficient reserves to deal with certain situations such as FUD.
CZ clarified that his crypto exchange has never used its native token, BNB to raise money. He added that “All crypto exchanges should demonstrate merkle-tree reserves. Banks operate with fractional reserves. Crypto exchanges shouldn’t do this”. Finally, he announced that Binance will soon provide proof of its reserves, in full transparency.
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