Binance is outta the game: what now awaits FTX amidst the unprecedented crypto crisis?

It’s up to you to have a boat, if you want to stay afloat. This is exactly the situation one of the largest crypto exchanges, FTX, found itself in after facing a liquidity crisis (which is its fault alone). However, there was a chance for salvation through a takeover by another major player, Binance. Amid this news, the entire cryptocurrency market began to fall into the abyss. The prices of all the coins are rapidly going down. And now, after 24 hours of this shock, Binance has changed its mind.

The crypto mastodon reported that as a result of corporate due diligence, as well as recent news about the misuse of customer funds and alleged investigations by a U.S. agency, it was decided not to acquire.

The U.S. Securities and Exchange Commission (SEC) and other regulators are increasing scrutiny of the industry as concerns grow about how cryptocurrency platforms operate. 

The SEC is investigating FTX to determine whether the company misused customer funds, Bloomberg reported. According to The Wall Street Journal, the SEC has begun examining Coinbase Global and Binance.

And the Commodity Futures Trading Commission is also investigating the company and its relationship with related partner Alameda Research and FTX US.

How it all began?

The head of the exchange FTX, Sam Bankman-Fried, transferred at least $4 billion of FTX funds, which include funds from customers, to the company Alameda Research to support it after the losses from a number of deals, including the bankrupt Voyager Digital (although he assured the independence of both his projects from each other). It was disclosed by Reuters. Bankman-Fried is the founder of Alameda Research. According to rumors, he did not even inform investors about the transfer of funds.

On November 2, Coinbase published a report that revealed that Sam Bankman-Fried’s crypto exchange was facing a liquidity crisis. In response to the article, Binance CEO Changpeng Zhao announced that the company would sell FTT (FTX token) for about $529 million, after which the token fell from $25 to about $2.76. That is, by more than 90%.

Investors were afraid of a repeat of the Terra LUNA story and rushed to withdraw funds. In just three days, $6 billion was withdrawn. 

When these events coincided, it turned out that FTX did not have enough assets to cover its clients’ holdings. The exchange giant faced a shortfall of up to $8 billion.

The hole between Alameda Research’s assets and liabilities also became visible. According to preliminary estimates, $6 billion of the $14 billion in assets were backed by FTT tokens. And the latter, due to the mass withdrawal, have almost depreciated.

Like the Celsius and 3AC stories, the cryptocurrency market has faced mutual credit for projects.

What does this have to do with the USDC and Solana?

Alameda Research owns the largest amount of USDC stablecoin, worth about $81 million. The company recently received a USD 210 million transfer from Circle, shortly after FTX stopped withdrawing funds.

Then they sent a total of $131 million to Binance.

Global cryptocurrency exchange Crypto.com has suspended deposit and withdrawal of USDC and USDT Stablecoins in the Solana blockchain. Users can withdraw USDC and USDT using other supported networks, including Cronos and Ethereum. Starting Nov. 9, 2022, the fee for making deposits of USDC and USDT on the Solana network in the app and on the cryptocurrency exchange has been waived for two weeks.

Before that, Anatoly Yakovenko, co-founder of Solana, assured that Solana Labs has no assets on FTX.

The price of Solana tokens (SOL) has dropped 50% in the past few days as Alamada Research invested in the blockchain project. Meanwhile, the price of Tether stablecoin (USDT) fell 1.5% to 0.985 on Binance.

What’s going to happen to FTX now?

The founder of the cryptocurrency network Tron, Justin Sun, said that together with FTX is developing a solution to begin the way forward.

Another cryptocurrency exchange, OKX, reported that it was approached earlier this week by Bankman-Fried, who described a $7 billion liability that needed to be covered quickly.

Bloomberg reported that Bankman-Fried told investors that FTX was facing a deficit of up to $8 billion and that the company would have to file for bankruptcy if it did not receive additional financing.

But the chances of revival are still there, albeit small.