FTX’s token collapses 80% due to liquidity issues, wiping out more than $2 billion in value

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FTT, the token that comes from crypto exchange FTX, lost most of its value after rival Binance, the world’s largest cryptocurrency firm, announced plans to acquire the company.

The coin traded around USD 22 on Monday and dropped below USD 5 in New York on Tuesday afternoon. The sale destroyed more than $2 billion in value in the span of 24 hours.

Binance CEO Changpeng Zhao, known as CZ, wrote in a tweet to his more than 7 million followers that he expects FTT to be “very volatile as things develop” in the coming days.

Cryptocurrencies as a class sank Tuesday, with bitcoin and ethereum both plummeting more than 10%. Shares of crypto exchange Coinbase also experienced a decline in the double-digit percentage, while Robin Hoodthat traders use to buy and sell crypto fell by about 19%.

“It’s probably the most dramatic deal I’ve ever seen in the history of the crypto industry,” said Nic Carter, a partner at Castle Island Ventures, which focuses on blockchain investments. “It basically consolidates the two largest offshore exchanges into one entity, an absolute coup for CZ and Binance – and a real disaster for FTX.”

The agreement between the two companies is non-binding and follows what FTX chief executive Sam Bankman-Fried called “liquidity crises” at his company, which was valued at $32 billion in a financing round earlier this year.

FTX-Binance Deal Is 'Most Dramatic' In Crypto History, Says Castle Island Ventures Founder

The acquisition only affects the non-US companies for FTX. The US division will remain independent from Binance. However, according to a 2021 audit, the U.S. portion of FTX accounted for just 5% of total revenue. FTX is based in the Bahamas, where Bankman-Fried lives.

Like many crypto companies, FTX created its own token called FTT that can be purchased as bitcoin, although it wasn’t as widely available. FTT owners were promised lower trading fees and the ability to earn interest and rewards such as waived blockchain fees. While investors can benefit when FTT and other currencies rise in value, they are largely unregulated and particularly prone to market declines.

In 2019, Binance announced a strategic investment in FTX, saying that as part of the deal, it had “taken a long-term position in the FTX Token (FTT) to enable sustainable growth of the FTX ecosystem.”

Due to Binance’s central position in crypto and its large ownership of FTT, the company mainly influenced FTX and the market view of the company. Investor confidence in FTX was shaken over the weekend when Zhao tweeted that Binance would sell its holdings to FTT.

Zhao said Binance had about $2.1 billion worth of FTT and BUSD, its own stablecoin.

“As a result of recent disclosures that have come to light, we have decided to liquidate all remaining FTT on our books,” he said.

FTT, which peaked at about $78 in September 2021, traded at nearly $25 the day before Zhao’s tweets. It dipped below $16 Monday, then fell off a cliff after the deal was announced Tuesday. According to CoinMarketCap, the value of FTT’s circulating offering is about $735 million, up from $2.9 billion on Monday.

Bankman-Fried said there had been about $6 billion in net withdrawals from FTX in the 72 hours leading up to Tuesday morning, according to Reuters. On an average day, net inflows run into the tens of millions of dollars.

“The fact that Sam was willing to make this deal suggests that FTX was badly damaged in terms of the run on the bench that began in the past 48 hours,” Carter said. “We don’t know exactly what the problem was, whether they were lending or gambling with user deposits.”

FTX did not respond to CNBC’s multiple requests for comment.

Earlier on Tuesday, FTX had halted withdrawals from its platform after fearful investors attempted to withdraw their funds — in a move similar to the collapse of other crypto firms this year, including Celsius, Voyager Digital and Three Arrows Capital.

News of FTT raised concerns about Alameda Research, Bankman-Fried’s trading company and sister company to FTX. A report last week on the state of Alameda’s finances showed that much of its balance sheet is concentrated in FTT and its various activities used the token as collateral. Alameda has disputed that claim, saying that FTT only represents a portion of its total balance sheet.

“If the price of FTT drops a lot, Alameda could face margin calls and all sorts of pressures,” said Jeff Dorman, chief investment officer at digital asset firm Arca. “If FTX is Alameda’s lender, everyone will be in trouble.”

— Kate Rooney and Tanaya Macheel of CNBC contributed to this report.

Binance Strikes Deal to Buy Non-US Unit of FTX





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