“Don’t Borrow if You Run a Crypto Business:” Binance CEO Shares After FTX Acquisition Announcement

• Changpeng “CZ” Zhao, CEO of Binance, has warned against borrowing to run a crypto business.
• Zhao claims that Binance has never used BNB as collateral or taken on debt.
• While Binance has not yet disclosed its collateral reserves, CZ indicated that it will do so soon, in a November 8th tweet.
• There have been numerous developments around popular crypto exchange FTX, its native token FTT, and Alameda Research in the past few days. 
• Zhao’s warning seems to be in reference to FTX users raising concerns about slow withdrawals on November 7th, leading to rumors the exchange was running low on funds.

Amidst the ensuing controversy surrounding FTX and Alameda Research, CEO of Binance Changpeng “CZ” Zhao, has warned against the use of borrowing to run a crypto business, in a Twitter post.

According to the CEO, Binance, one of the leading crypto exchanges, has never used BNB for collateral, or agreed to take on debt. These “lessons” come just hours after Zhao’s announcement of the company’s FTX purchase. 

Although Binance has not yet revealed its collateral reserves, Zhao reassured investors, in a tweet dated November 8th, that Binance intended to do so soon through Proof of Reserves.

The Genesis of the FTX Saga

Throughout the past few days, the crypto industry has been shaken by numerous developments involving popular crypto exchange FTX, its native token FTT, and Alameda Research, which was also founded by Sam Bankman-Fried. Notably, the issue’s genesis can be traced back to the reveal of an Alameda Research balance sheet, which indicated that the firm had billions of dollars of its assets tied up in the FTX token (FTT). 

Ironically, Alameda Research runs as a quantitative trading firm offering liquidity in digital assets markets.

Following the revelation, Zhao decided that Binance should liquidate the entirety of its FTX token holdings. According to the CEO, the exchange resolved to liquidate the tokens as part of its risk management measures.

CZ hinted that Binance has learned greatly from the disastrous events leading to LUNA’s collapse, and would always prefer to act proactively if he believed it could prevent the recurrence of such a devastating event for the crypto market. The liquidation, followed by outflows of user assets, has had a huge impact on the token’s value, which has since plunged by more than 75%.

Barely 24 hours after the announcement of the measures taken by Binance, FTX users began to complain about slow withdrawals on the exchange. Users on Reddit compared the situation ravaging FTX to when Celsius lenders had elected to pause withdrawals ahead of its timely demise. According to them, the crypto lender misled its users before its collapse. 

Meanwhile, the troubled FTX, in reaction, urged its users to remain calm, insisting that all operations was running as intended, and that node throughput was restricted to BTC withdrawals.

Zhao’s lecture on borrowing was apparently not aimed solely at crypto businesses, and seemed to be referencing FTX users that had raised the alarm about slow withdrawals on November 7th, leading to rumors that the exchange was short of funds.

On the Flipside

• Crypto influencer Dan Ashmore believes FTX could have avoided its insolvency risks if it had an on-chain Proof of Reserves, instead of favoring fractional reserves.

Why You Should Care

Now that Binance will be overseeing a large volume of the crypto funds that pass through the market, following its acquisition of FTX, it may look to enforce greater transparency upon rival exchanges, which could herald the start of a new era for decentralized finance.