Binance Chief Says FTX’s Near Collapse Has “Seriously” Eroded Trust in the Crypto Industry

FTX’s near-collapse has “severely shaken” confidence in the crypto industry and will trigger further scrutiny from regulators, Binance chief Changpeng Zhao said, a day after he orchestrated the bailout. stock market rival.

Zhao said in a memo to employees seen by the Financial Times that the bailout, which cemented Binance’s position as the world’s largest crypto trading venue, was not “a victory.”

“Regulators will scrutinize exchanges even more. Licenses worldwide will be more difficult to obtain,” Zhao wrote to staff early Wednesday.

The post also laid out the speed of the deal he struck with counterpart Sam Bankman-Fried to prevent the total collapse of FTX, which was valued at $32 billion earlier this year. Binance declined to comment on the internal memo.

The pair shocked the crypto industry when they announced on Tuesday that Binance had agreed to bail out FTX after a surge in client withdrawals triggered a liquidity crunch.

The problems at FTX accelerated after Zhao said over the weekend that his company planned to sell more than $500 million of FTX’s own digital token, a sum that eclipsed its average daily transaction total.

“We didn’t plan this or anything related to it,” Zhao said.

“It’s been less than 24 hours since SBF called me. And before that, I had very little knowledge of the internal state of things at FTX. I could do some mental math with our earnings to guess theirs, but this would never be very accurate,” Zhao said.

“I was surprised when he wanted to talk. My first reaction was, he wants to do an OTC deal. . . But here we are,” he added.

Zhao said he ordered Binance to halt sales of FTT, an FTX-issued token, after a call with Bankman-Fried on Tuesday.

Zhao said due diligence on the deal with FTX was ongoing and publicly stated that he could always walk away from the deal. In a tweet earlier on Wednesday, he hinted at his take on what was wrong with FTX.

“Never use a token you created as collateral… Don’t borrow if you run a crypto business. Don’t use capital ‘efficiently’. Have a large reserve,” Zhao tweeted.

Following the near failure of FTX, Binance and other larger exchanges pledged to release more evidence that they hold client funds in secure reserves that are readily available to meet withdrawals.

“We need to dramatically increase our transparency, proof of reserves, insurance funds, etc. Much more to come in this area. We have a lot of hard work ahead of us. Not to mention prices swinging wildly,” he said. – he writes to the staff.

The Binance chief also acknowledged that a takeover of FTX, creating by far the largest crypto exchange in the world, would paint a target on the company’s back.

“People now think we are the biggest and will attack us more,” he said.

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