(Kitco News) -
Binance CEO Changpeng Zhao has tried to maintain a low profile since pulling his exchange out of a deal to rescue FTX earlier this week. But when he finally broke his silence at the Indonesian Fintech Summit early on Friday, CZ offered a detailed timeline of the events that sparked the collapse of FTX, Alameda and the broader crypto market.
“The last three days was just a revelation of problems,” he said. “The problems were there way longer.”
Zhao believes the key event that triggered it all was the Coindesk article published on Nov. 2 which showed that the majority of equity in Alameda Research, the trading company also owned by FTX CEO Sam Bankman-Fried, was in FTX’s own FTT token rather than a fiat currency or another digital asset. This worried investors about the relationship between the two companies, but also about the value of FTT, FTX and Alameda.
“My team said ‘hey CZ, we still have a lot of FTT coins!’ Like, what?! ‘Should we sell it?’ Sure why not!”
The day after he had that conversation, Whale Alert reported a massive transaction of over $580 million in FTT transferred to Binance.com.
?? ?? ?? ?? ?? ?? ?? ?? ?? ?? 22,999,999 #FTT (584,818,174 USD) transferred from unknown wallet to #Binancehttps://t.co/Nm2jz9MKW0
— Whale Alert (@whale_alert) November 5, 2022
“My team’s like ‘CZ, this is our transfer!’ And I'm like, ‘are you sure?’ and he said yes he’s sure.”
Zhao saw that there was ongoing discussion happening in the community, and he and his team had to decide whether they should explain what had happened.
“I said yeah, we should be transparent about it. And he said ‘CZ, you should write a tweet,’ because our PR team doesn't really know how to write this particular one, it's quite sensitive.”
Zhao said he was just leaving to meet up with some friends ahead of their trip together to Indonesia. “I just wrote a tweet in a few minutes,” he said.
As part of Binance’s exit from FTX equity last year, Binance received roughly $2.1 billion USD equivalent in cash (BUSD and FTT). Due to recent revelations that have came to light, we have decided to liquidate any remaining FTT on our books. 1/4
— CZ ?? Binance (@cz_binance) November 6, 2022
“I wanted to explain how we had this much,” he said. “Like, we can't just have $580 million of FTT all of a sudden!” Zhao said that he wanted people to understand that they didn't buy their FTT stake on secondary markets, but received it from Binance’s equity exit from FTX in 2021.
“So I said that, and I didn't know my phone would blow up over the rest of the evening, and I also didn't know… I think the word that was used was ‘the straw that broke the camel's back.’ I thought it was just causing a lot of waves in the Twitter community.”
But the next day, he would discover that it was much, much bigger.
“24 hours later, Sam [Bankman-Fried] calls me and says ‘hey, CZ, can we talk?’” Zhao thought SBF would propose an OTC deal, enabling them to get all the negative comments out and restore confidence in the markets. “But he said ‘look, we have much bigger troubles.’”
“We don't want the users to be hurt,” Zhao responded. “We want to protect the users.”
CZ wouldn’t comment on specifics, but he made it clear that the deal was never attractive from a business perspective. “From a numbers front, from a financial perspective, it's a big hole,” he said. “From new users, FTX, we have very high overlap, we cover all the originals they cover, and then they have much fewer users than us. And then from a technology or product perspective, we have a much superior product, they don't have anything we don't have.”
But Zhao said at that stage, Binance was still willing to explore a possible deal for the sake of the users and to support the overall stability of crypto.
Then came revelations of FTX misappropriating user funds, and U.S. regulatory agency investigations.
“We're like ‘okay we can't touch that anymore!’” Zhao said. “And as soon as I understood we couldn't [do the deal], I said let's make that announcement as quickly as possible. If we're going to do a no we're going to do a quick no. That's one of my principles in business, so that we don't drag things on for a long time.”
The other reason Binance was in a hurry to announce the death of the FTX deal was to remove the lingering uncertainty that was plaguing markets.
“As you can see, when the deal was going on, not going on, crypto is dropping,” he said. “Uncertainty is actually worse than negative news!”
So they announced that there would be no Binance bailout for FTX…
As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of https://t.co/FQ3MIG381f.
— Binance (@binance) November 9, 2022
…and the rest is history.
“I tried to keep quiet as much as possible,” he said. “I didn't appear on any TV interviews, etc. But this was arranged weeks ago, so I still want to honor that commitment, so I flew here. And here we are.”
Perhaps most ominous for crypto, Zhao said he thinks conditions today mirror the early days of the 2008 economic crisis.
“I think that's probably an accurate analogy,” he said. “I think we've just seen another very big player go down. FTX is big, so with such a big player going down, it's devastating for the industry. Consumer confidence is shaken, and I think we've been set back a few years.”
Zhao also believes that regulators were overly focused on know-your-customer (KYC) and anti-money laundering (AML) before, but they will look much more closely at the exchanges themselves going forward, and that’s probably for the best.
“I've always been saying, look you've got to focus on the exchange operations, business models, proof of reserves, where are the user funds,” he said. “ We're in a new industry, there's a lot of risk, and we need to learn how to deal with those risks and how to build a much healthier industry.”
