On July 7, the crypto community was surprised to find that Changpeng Zhao (CZ), the founder of the crypto exchange Binance, and Sam Bankman-Fried (SBF), the founder of FTX, actually mocked each other on Twitter.
The direct cause was that CZ tweeted to ridicule SBF and questioned that FTX might be out of money. CZ said that 3AC owed Voyager hundreds of millions of dollars and caused Voyager to go bankrupt. Alameda (under FTX) invested in Voyager and borrowed 377 million dollars from Voyager. Why did FTX not pay back the money to rescue the bankrupt Voyager, but invalidly gave 3AC 1 Billion dollar bailout ?
Regarding the questioning, SBF mocked CZ for pretending to be in the rescue industry and not knowing the legal knowledge about bankruptcy.
Why are the founders of the world's two largest crypto exchanges mocking each other on Twitter? Why did Binance, which once made a strategic investment in FTX, start to get angry?
In fact, the relationship between Binance and FTX is very subtle, and its changes can be roughly divided into three stages:
1. The ally period of strategic cooperation
2. The period of breaking up when we are still friends 3. The period of friction between the two tigers
This article will analyze the relationship between Binance and FTX according to these three stages. Why did they go from allies to friends to conflicts? Where is the source of the conflict between Binance and FTX?
Honeymoon period: FTX market value increased 180 times in 2 years
FTX was launched in the second quarter of 2019. When it was established, the FTX team’s equity was valued at 100 million U.S. dollars, and the platform currency was valued at 100 million U.S. dollars. On December 20, 2019, Binance announced that it had made a strategic investment in FTX. That is to say, the valuation of FTX reached US$1 billion within half a year after its launch.
Binance stated that in addition to its equity investment in FTX, Binance also holds FTX tokens (FTT) for a long time to help the sustainable development of the FTX ecosystem and keep it on par with the development of the Binance ecosystem.
At that time , the derivatives market was firmly dominated by BitMex and OKEx.Binance, which started out as altcoin spot, has just launched contract business. Binance hopes to increase its ecological layout by investing in FTX and help Binance to catch up in the derivatives market. The two sides also spent a harmonious honeymoon period at this time.
FTX has also lived up to Binance’s expectations and shines in derivatives products and innovations. Under the user experience of extremely low handling fees, FTX has launched profitable products centered on spot, contracts, and leveraged tokens.
At the same time, FTX launched Move volatility products and alternative vix (volatility index) products to attract users in the circle by mapping traditional financial products; at the same time, it launched equity tokens, pre ipo products, and prediction market products. to attract outsiders.
Unlike Huobi, OKEx, Binance and other Chinese exchanges whose founders are technical backgrounds, the founders of FTX and most of the team members are Trader traders (SBF can’t even write code) .
The active and passive market-making and trading capabilities of the FTX team were a blow to the currency circle at that time. At that time, only a few teams such as BitMex had this professional Trader ability and background. This also supports FTX's financial product design, contract market liquidity cold start, platform currency and market value management project trading, OTC market making and other core businesses. It is the cornerstone and origin of FTX's success, and ushered in the second break out.
By December 2020, SBF revealed that the latest valuation of FTX has reached 3.5 billion U.S. dollars, and FTX's profit will reach 70 million U.S. dollars that year. In less than one and a half years since its establishment, its valuation has risen from US$100 million to US$3.5 billion.
In July 2021, FTX completed its Series B financing of US$900 million with US$18 billion. FTX’s valuation rose from US$100 million to US$18 billion in about two years after its establishment. And CZ also stated at that time that Binance had completely withdrawn from FTX’s equity investment, “Exit is part of the normal investment cycle, it was done under good conditions, and we are still friends.”
If it is calculated based on the valuation of Binance’s 1 billion U.S. dollars and the investment of 18 billion U.S. dollars, the return on Binance’s investment in FTX has reached ten times. To a certain extent, this can also confirm the statement that Binance invested in FTX and made about $1.6 billion.
Breakup period: we will still be friends in the future Strictly speaking, the breakup period between Binance and FTX cannot be counted as the end of the official announcement by both parties in July 2021. Before that, there were subtle changes and gaps.The reason for the change is that the business expansion of both parties has produced direct competition. On the one hand, Binance has started to "lightning expand" from an exchange that started with altcoins spot, and has become an exchange that integrates spot (mainstream + altcoins), Trade market making, and derivatives (positive and negative perpetual/delivery contracts + leveraged tokens + options), legal currency OTC, and ecological business (public chain + investment projects, etc.) On the other hand, FTX also relies on its professional Trade market-making ability to make huge profits, and gradually surpasses the BitMEX exchange in the derivatives business, and is also in the forefront in the spot and OTC business, and has a heavy position in the leading public chain Solana in the ecological business And extensively deployed a number of top DeFi projects,becoming the top exchange across CeFi-DeFi second only to Binance. Although there was no direct conflict between Binance and FTX during the period around July 2021, the businesses of the two parties have already highly overlapped and directly competed. In the second quarter of 2019, FTX was established as a derivatives exchange; in the third quarter of 2019, Binance Futures was launched, and since then, it has launched pros and cons perpetual/delivery contracts, options and other businesses. FTX (formerly known as Alameda) started as a US dollar OTC, and FTX has always been one of the largest offshore US dollar and Hong Kong dollar OTC deposit channels. Binance also launched OTC business in October 2019. Although it covers 170 countries and regions around the world, its main business is still RMB and offshore USD OTC deposits. In August 2019, FTX took the lead in launching leveraged tokens, and Binance also launched leveraged tokens in the following months. In April 2020, Binance announced the acquisition of cryptocurrency data site CoinMarketCap for US$400 million; in August of the same year, FTX announced the acquisition of encrypted asset management tool Blockfolio for US$150 million in cash. In September 2020, Binance announced the launch of the BSC public chain.Since then, BNB has risen by more than 30 times. In January 2021, FTX and its allies completed the off-site acquisition of nearly 80% of the total SOL tokens from most of Solana's SAFT investors, employees, service providers, communities, and foundations at a price dozens of times the private placement price. Coin, took the lead in the public chain Solana, and SOL continued to rise by more than 120 times in the following year. In July 2021, Binance and FTX ended their investment relationship and began to gradually enter a period of competition and friction. Changing Passers-by: The Period of Friction Between Two Tigers
On the one hand, the friction between Binance and FTX comes from the conflict in the market share of core businesses such as spot and derivatives; on the other hand, it comes from the competition for the ecological layout of the two parties since the outbreak of DeFi Summer in 2020; It comes from the strategic and cultural competition between the two. Obviously, the genes of Trader origin determine that SBF has a strong style of opening the situation by trading, and has a high degree of risk preference. Some commentators believe thatFTX is more like a large 3AC, operating funds with high leverage all the year round, and will make strategic choices with extremely high risks. CZ, who was born as a Chinese engineer, is well versed in human nature and has a high degree of risk preference, butBinance dares to compete and expand in non-compliance and casino methods instead of increasing leverage. This is also the business logic of most Chinese encryption projects. In terms of culture, SBF is a typical double personality of a schoolmaster + people-friendly. It can be said that it has a perfect personality that is sophisticated and does not do evil. It is a representative figure of the digital currency American dream. For example, in the face of the continuous private equity selling pressure and anxious market in the initial stage of SOL and FTT, SBF chose to withdraw all chips with a nearly gambling stud mentality, and always maintained a high degree of control, and finally formed a long-term stable upward trend independent of the market. When all investors make money, the price will be made higher. It is precisely because all early investors have made money that the "altruistic" persona advertised by SBF is still standing today. CZ is a typical entrepreneur + geek dual persona, with the boldness of Chinese descent who dares to think and act, and is a super upstart rich man who has risen from the encrypted world. For example, in the early days of BNB’s issuance, Binance conducted a lengthy cleanup of the early private placement chips, and BNB once broke. Many early investors and users were washed out, and Binance even had disputes with some early investors such as Red Shirt Capital, and recovered some of the chips of early investors. Later, Binance revised the white paper, and the burning of BNB was changed from secondary market repurchase to team repurchase. Later, the market value of BNB entered the top ten, but the early Binance and CZ have always left an overly shrewd impression of lack of contract spirit. As the No. 1 and No. 2 in the industry, Binance and FTX have launched an all-round competition in terms of business, ecology and even cultural strategies. However, with the development of the encryption industry to this day, both Binance and FTX have developed into a trend of "too big to fail", and CZ and SBF have also become very important leaders in the encryption industry. But no matter how you quarrel, there are only eternal interests. We believe that the encryption industry will continue to move forward driven by the common interests of all parties.
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