Most of you will have noticed the collapse of crypto-asset prices over the last few days in the wake of a liquidity crunch at the FTX exchange. For those who haven’t been following the story, here’s a timeline:
- On November 2, 2022, CoinDesk revealed its forensic analysis on the relationship between FTX and hedge fund/trading firm Alameda, which was founded by FTX CEO Sam Bankman-Fried. Binance helped incubate FTX, which has become its biggest competitor. Binance exited its equity position in 2021, receiving $2.1 billion, split between the BUSD stablecoin and FTT. Alameda’s $14.6 billion of assets are 40% FTT, and there is minimal information about Alameda’s $8 billion of liabilities. The analysis also questions around conflicts of interest as Alameda was said to be funneling most of its trades through FTX to bootstrap the exchange’s liquidity. [Read more at CoinDesk]
- On November 6, as a result of these revelations, Binance announced that it was going to dump its FTT holdings, after which FTX saw around $6 billion of withdrawals, according to a message to staff sent by Bankman-Fried that was seen by Reuters.
- On November 8, FTX paused all withdrawals on the Ethereum, Solana, and Tron blockchains, according analysis done by The Block.
- Later on November 8, Binance announced that it had “signed a non-binding letter of intent, intending to fully acquire FTX [for an undisclosed amount] and help cover the liquidity crunch,” adding that it will be conducting full due diligence, and the firm has the discretion to pull out from the deal at any time.
This is the very high level version of the story. For more of the gory details I recommend that you read Amy Castor’s more granular timeline of events.
Binance Proof-of-Reserve pledge gains support following FTX crisis
On November 8, 2022, Binance announced that it will soon start a Merkle tree-based Proof-of-Reserves audit system to provide full transparency. OKX also plans to follow suit, saying that they consider it to be an “important step” in establishing a “baseline trust” in the industry. A Proof-of-Reserve audit is typically conducted by an independent third party to ensure the custodian’s assets are owned as claimed. Kraken implemented its “advanced cryptographic accounting procedure” to allow users to verify their token balances in February 2022. [Read more at Coin Telegraph]
Kiffmeister’s Global Central Bank Digital Currency Monthly Monitor
Just a reminder that I produce a monthly digest of central bank digital currency (CBDC) developments exclusively for the official sector. So for any of you out there who work for a central bank, ministry of finance or international financial institution who would like to receive it by email on the first business day of every month, please DM me on LinkedIn or email me at chronicles@kiffmeister.com.
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