Nov 9, 2022 - Economy & Business

A tentative crypto deal looks increasingly shaky

Illustration of two cubes, one of which absorbs the other.

Illustration: Brendan Lynch/Axios

The tentative deal announced via tweet between two crypto exchange giants FTX.com and Binance, looks increasingly shaky just 24 hours later.

Driving the news: Details around the letter-of-intent agreement are sparse to nonexistent, with Binance boss CZ repeatedly declaring his right to pull out at any time. FTX's native token, FTT, is still cratering Wednesday, despite CZ's own attempts to stop the bleeding, down more than 82% since the start of the week.

State of play: The last 72 hours of Twitter exchanges between the two once-billionaire CEOs — FTX's Sam Bankman-Fried's net worth is now estimated just under that — as well as their staff show there would be no love lost between them if the deal fell through.

Folks are starting to wonder if, after the dust settles, there will be an FTX.com left for Binance to buy.

  • CZ instructed Binance staff in an internal memo Wednesday not to trade FTT, saying that "FTX going down is not good for anyone in the industry."
  • It has only fallen further, trading around $3.91 late morning Wednesday.
  • And now a fresh report from CoinDesk, citing a person familiar with the matter, says Binance is highly unlikely to go through with it.

Why it matters: A bunch of investors could take a serious hit.

  • FTX.com, once a VC-darling, has struck some of the biggest of crypto fundraising rounds since 2012, according to data compiled by PitchBook, with the recent January raise pushing its valuation to $32 billion.
  • With each new round of fundraising, its list of backers grew longer.
  • Buy-ins came from BlackRock to Coinbase Ventures, Digital Currency Group to SoftBank Investment Advisers. There's Alan Howard. There's Gisele Bundchen (plus Tom Brady).
  • But first there was CZ, or as SBF put it, the "first, and last."

Here's a supercut of the two CEOs' relationship that starts at the top of the last bull cycle:

Equal partners (Dec. 20, 2019). Binance invested in FTX.com, receiving equity and pledging to be a long-term holder of FTT tokens.

  • In return, FTX.com, a fast-growing derivatives shop would help Binance build out liquidity and its institutional product offerings.

Just friends (July 20, 2021). Binance closed out its equity stake in FTX.com, with CZ telling Forbes it was "normal" and the two were "still friends."

  • FTX bought out Binance gladly, with plenty of new interested investors.

Between the lines: Binance and FTX.com had both grown up, and were increasingly in direct competition.

Tick-tock: Flash forward to the days before Tuesday's deal was struck.

  • Nov. 6, 2022; 10:47 AM. CZ said he would liquidate the remaining FTT tokens that he received as a part of the $2.1 billion equity buyout in 2021, referencing the leaked balance sheet of FTX's Alameda Research.
  • Nov. 6, 2022; 11:03 AM. Caroline Ellison, chief of Alameda offered to buy those tokens at $22, referencing CZ's intent to minimize market impact.
  • Nov. 6, 2022; 12:50 PM. SBF tweeted in a thread: "Make love (and blockchain), not war."
  • Nov. 6, 2022; 4:49 PM. CZ tweeted in what seemed a direct response to SBF's blast: "We gave support before, but we won't pretend to make love after divorce."
  • Nov. 7, 2022; 7:38 AM. SBF said in a now partially deleted thread: "A competitor is trying to go after us. FTX is fine. Assets are fine."
  • Nov. 7, 2022; 2:35 PM. CZ appears to rebuff Alameda's offer to buy FTT tokens, saying: "I think we will stay in the free market."

Skirmishes of note: Patrick Hillmann, Binance's chief of strategy and Zane Tackett, head of institutional sales at FTX.com, traded barbs, about their bosses':

  • Hillman posted a snapshot of SBF throwing shade at CZ's standing with regulators. Tackett responded to that with a linked third-party story posted on Binance that questioned Alameda's liquidity, saying it was "sensationalist."
  • FTX's Tackett also liked a tweet the morning of Nov. 8 from a social media handle that said: There are good people at FTX, but Sam was running a ponzi."

What's next: CZ's principles published in October appears to say it all:

  • Toxic relationships should be cast aside, deal-making should be direct and simple, and ethically dubious people, avoided at all costs.
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