Binance Offers to Buy FTX’s Non-US Operations to Fix ‘Liquidity Crisis’

Binance enters into agreement to buy non-US entity of FTX

Binance, the world’s largest cryptocurrency firm, has reached an agreement with Sam Bankman-Fried’s FTX to buy the rival crypto exchange for an undisclosed amount, saving the company from a liquidity crisis.

Binance CEO Changpeng Zhao tweeted Tuesday morning that “there is a significant liquidity crunch” at FTX, and that after FTX asked for Binance’s help, the company “signed a non-binding” agreement with the intent “to fully acquire http://FTX.com and help cover the liquidity crunch.” “

Zhao added that Binance, which was originally based in China but now claims no official headquarters, will conduct due diligence in the coming days, and the company has estimated to withdraw from the agreement at any time.

Sam Bankman-Fried confirmed the deal in a tweet this morning.

The deal marks a catastrophic collapse for a company that earlier this year was valued by private investors at $32 billion with ambitions to acquire its way to becoming a crypto giant. Months before, venture firm Sequoia Capital and BlackRock backed FTX at a valuation of $25 billion. Forbes has pegged Bankman-Fried’s net worth at $17 billion, largely from his stake in FTX.

Bankman-Fried told CNBC in an interview over the summer that while FTX is not “immune” to the crypto downturn, the company was in a better position than its competitors because it had gained market share. He also said the company was more responsible in its growth than others in the industry.

“We employed a lot less than most places did, but we also kept our costs under control,” Bankman-Fried said.

FTX still has $1 billion to deploy, says CEO Sam Bankman-Fried

Binance and its founder, Changpeng Zhao, were among FTX’s earliest investors. In a tweet, Bankman-Fried said Binance would be FTX.com’s “first and last” investor.

The acquisition affects only the non-US companies, FTX.com. FTX.us remains independent of Binance. However, according to a 2021 audit, the American part of FTX only accounted for 5% of total revenue. FTX is based in the Bahamas, where Bankman-Fried resides.

According to tweets from both Zhao and Bankman-Fried, the agreement rests on a non-binding letter of intent pending full due diligence.

FTT, the token native to FTX, was significantly higher on the news. It rose by more than 26% after the deal. It comes after a major sell-off that began Monday night amid concerns about the solvency of both FTX and its sister trading firm, Alameda Research. Meanwhile, Binance’s native token BNB is up 20% over the same time period.

Binance’s Zhao said in a tweet that he expects FTT to be “highly volatile in the coming days as things evolve.”

Earlier on Tuesday, FTX had halted withdrawals from its platform after spooked investors tried to withdraw their funds. Investor confidence was shaken when Zhao tweeted at the weekend that the company would sell its holdings of FTT.

Zhao said in his tweet that Binance has about $2.1 billion worth of FTT and BUSD, the fiat-backed stablecoin issued by Binance and Paxos combined.

“Due to recent revelations that have come to light, we have decided to liquidate any remaining FTT on our books,” he said.

The disclosure also sparked concern for Alameda Research, Bankman-Fried’s trading firm and sister company to FTX. A report last week on the state of Alameda’s finances showed that a large portion of its balance sheet is concentrated in FTT, and its various activities are leveraged with FTT as collateral. Alameda has disputed that claim, saying the FTT represents only a portion of its overall balance sheet.

“The Alameda hedge fund is tied to FTX through a ton of FTT tokens, and the rumors started that if they use all those FTT tokens as collateral… there are two problems,” said Jeff Dorman, chief investment officer at Arca. “If the price of FTT goes down a lot, Alameda could face margin calls and all kinds of pressures; two, if FTX is a lender to Alameda, then everybody’s going to be in trouble.”

“What could have been just an isolated problem at Alameda became a bank run,” he added. “Everybody started pulling their assets out of FTX and there’s this fear that FTX would be insolvent.”

— CNBC’s Kate Rooney and Tanaya Machel the contribution to this report.

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