Once called the “crypto Robin Hood” with “savior complex,” FTX’s Sam Bankman-Fried wanted to save victims of crypto Ponzi schemes. That is, until he inadvertently became one.
Call it a blessing in disguise, but the implosion of FTX due to liquidity crunches that can’t handle massive withdrawals seems to be the inspiration for fellow crypto exchange Binance’s new initiative.
Binance CEO Changpeng Zhao announced the crypto exchange’s intentions to form a fund to assist ventures experiencing a liquidity issue as the bankruptcy of rival FTX ripples across the sector.
Tentatively called the “industry recovery fund,” the initiative aims to “help projects who are otherwise strong, but in a liquidity crisis.”
This comes off the heels of FTX and its CEO Bankman-Fried filing for bankruptcy after failing to process customer withdrawals amid liquidity crunches and falling token prices.
Binance was set to extend “help” when Bankman-Fried sought it from Zhao, inking a non-binding deal for the China-based exchange to acquire FTX. But soon enough, Binance pulled out of the deal, leaving FTX to shop for investors which eventually led to bankruptcy.
The Binance chief’s announcement on the industry recovery fund shines a light on the pullout as the qualifier, “projects who are otherwise strong” speaks volumes on why Zhao is willing to bail out insolvent crypto firms–but not FTX.
In light of recent events and participants “cutting corners,” Zhao earlier on Monday asked for new, yet stable and clear laws for the industry.
“We’re in a new industry, we’ve seen in the past week, things go crazy in the industry,” Zhao said at a G20 summit in Bali. “We do need some regulations, we do need to do this properly, we do need to do this in a stable way.”
“The next Warren Buffett” to “crypto’s largest Ponzi scheme”
Bankman-Fried once had the goal of saving the crypto industry, as the space touts him as the genius who would be the “world’s first trillionaire.”
He’s graced the covers of Forbes and Fortune, with the latter asking, “THE NEXT WARREN BUFFETT?”, The Wall Street Journal reported on how he was spending $1 billion to save cryptocurrency, and Vox interviewed him about why he became a political megadonor mostly on Democrat campaigns.
Bloomberg featured him because of his claimed desire to give his money away, profiled as “he’s a kind of crypto Robin Hood, beating the rich at their own game to win money for capitalism’s losers,” and “he’s kind of like a strange sort of capitalist monk.”
“If these things are true, that he took customer’s money and moved it over to Alameda and used it for all these pet projects, it’s just gonna get worse and worse,” said former chief of SEC’s Office of Internet Enforcement, John Reed Stark.
The whole debacle started with a Dirty Bubble Media report claiming FTX’s sister hedge fund, Alameda Research, is insolvent and projected to suffer the same fate as that of the bankrupt Celsius Network. Most of its assets are tied to FTT and other tokens tied to Bankman-Fried.
“I mean look at what Sam was doing for all these years. I mean he’s, as far as we can tell, this thing may have been a Ponzi from the very beginning. Look at those, the thing you mentioned at the beginning, those documents where they were trying to raise 18% from people,” said Mike Burgersburg of Dirty Bubble Media in a The Deep Dive exclusive interview.
An Alameda Research pitch deck for raising money from investors back in 2018 showed a product that offered 15% returns with no lock-ups.
“Having that guy exposed as one of the biggest Ponzi schemers in history, that’s gonna, that’s gonna really tarnish whatever this industry was trying to develop in terms of a reputation. Like in terms of people that go down, he was probably the worst person to go down,” he added.
“So saying like nuclear or the Armageddon for crypto, we may have already started it,” Burgersburg warned.
The feud [kinda] continues
The withdrawals on FTX presumably spiked after Binance announced it would liquidate all its holdings in the exchange after “recent revelations.” This marked the start of the apparent crypto Twitter feud between Zhao and Bankman-Fried.
After much shade throwing and a shelved acquisition, Bankman-Fried finally admitted to the shambles that FTX is in–but not without referencing to his “sparring partner,” saying “well played, you won.”
Amid theories that Zhao “masterminded” the move to sink its competitor to bankruptcy, he clarified that Binance never shorted FTX’s token FTT and revealed that the exchange still has a “bag of [FTT] as [they] stopped selling FTT after SBF called [him].”
However, the feud gets another tinderbox after Zhao accused in a Twitter space AMA that FTX is connected to the article on Reuters about Binance accepting transactions in Iran despite US sanctions–which the chief executive has reportedly belied.
“We believe that the article is grossly inaccurate… We have got evidence that the information that was provided to Reuters to write [the] article came from a small exchange called Currency.com who was invested by FTX,” Zhao said. “We said before we don’t like industry players lobbying against other industry players and having news like that, that’s one case there.”
Reuters also reported in September 2022 that it was recently able to review a December 2020 written request from US Justice Department’s money laundering section that asked Binance to hand over records about its anti-money laundering checks and communications involving Zhao.
Information for this briefing was found via Reuters, The Vice, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.