Due to a "liquidity shortage," Binance will buy rival FTX.

 Due to a "liquidity shortage," Binance will buy rival FTX.

Following a public fight between the two biggest cryptocurrency exchanges in the world on Tuesday that caused several digital tokens to fall, Binance said on Wednesday that it had signed a letter of intent to buy FTX. The deal's worth was kept a secret by the firms because it is non-binding and still undergoing due diligence. 

The agreement follows a months-long social media spat between Binance CEO Changpeng Zhao and FTX founder Sam Bankman-Fried that reached a boiling point earlier this week.

Zhao (seen above) claimed that Binance made the choice after FTX enlisted the assistance of the crypto behemoth. "We signed a non-binding LOI with the intention of fully acquiring FTX and assisting with the liquidity crunch in order to protect users. In the upcoming days, we will be performing a comprehensive DD, he tweeted. 

The first investor in FTX was Binance, the biggest cryptocurrency exchange in the world, but as the younger company gained more and more traction, their partnership began to deteriorate.

The two billionaires have been exchanging sarcastic comments for a while now, but earlier this week Zhao announced that Binance was selling its holding of FTT, the native token of FTX exchange, which it had acquired as part of an exit from the company last year. This brought the relationship to an all-time low. 

Zhao confirmed a claim that the company was selling off its FTT assets as "post-exit risk management," lending some validity to Alameda Research's precarious financial situation.

Alameda, a market maker and prop trading company formed by Bankman-Fried, has some exposure to the FTT tokens. According to Binance's trading perspective, the FTT token dropped from $25.47 earlier on Tuesday to as low as $14.32 as investors lost hope. Research company Bernstein proposed that FTX shut down Alameda because to the anticipated risks in a report to clients earlier on Tuesday.

"Binance is the immediate catalyst, but FTX ought to mend fences with Alameda. With Alameda, FTX is unable to maintain its current ownership structure. The Alameda prop trading company needs to be potentially closed down and FTX needs to entirely ring-fence itself. There is more risk to operating Alameda than there would be otherwise if Alameda's trading operations have an adverse effect on FTX's customer confidence (perception of Alameda trading against users on FTX and Alameda's financial situation). 

The deal was "a user-centric development that benefits the entire industry," Bankman-Fried said in a tweet on Tuesday, adding that he wanted to express his "great appreciation" to Zhao and Binance.

Bankman-Fried wrote in a tweet, "CZ has done, and will continue to do, a great job of growing out the global crypto ecosystem, and creating a freer economic world." 

According to him, FTX is striving to eliminate the backlog of withdrawals. "This will resolve liquidity issues; a 1:1 coverage of all assets will result. One of the main reasons we invited Binance in is because of this. We regret that it might take some time for everything to settle, etc.," he stated. 

Many cryptocurrencies reacted favorably to the news.

The most valuable cryptocurrency exchange in the world is Binance, with a value of nearly $300 billion. In its most recent investment round (a Series C) in January of this year, FTX was valued at $32 billion. The company's long list of investors includes Sequoia, BlackRock, Tiger Global, Paradigm, Thoma Bravo, SoftBank, Ribbit Capital, Insight Partners, Lightspeed Venture Partners, Altimeter Capital, Coinbase Ventures, Sino Global, BOND, and Iconiq Growth. According to Web3 Signals, a cryptocurrency dealbook, FTX and its FTX US subsidiary raised more than $2.2 billion over the course of numerous investment rounds.

The business community was stunned by Tuesday's announcement, as was the cryptocurrency community, which has become accustomed to unpredictable events this year. After purchasing a number of businesses early this year, Bankman-Fried was hailed as the crypto industry's salvation. According to Web3 Signal, FTX Ventures, the ventures division of the cryptocurrency exchange, is a significant investor in many crypto businesses, including Aptos Labs, Messari, Sky Mavis, LayerZero, YugaLabs, and 1inch Network. 

Before approaching Binance, Bankman-Fried reportedly made an effort to gather more money from investors, according to a source with knowledge of the situation. According to Axios, the decision has startled several current investors.

Article Credit: TechCrunch

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