Massive Crypto Exchange FTX Faces ‘Significant Liquidity Crunch’, Will Sell to Binance

FTX.com, the second-largest cryptocurrency exchange in the world, announced a surprise tentative sale to its first-place competition Binance on Tuesday in order to solve a "significant liquidity crunch," which is an industry term for not having enough money on hand to conduct business normally. 

FTX CEO Sam Bankman-Fried and Binance CEO Changpeng Zhao are two crypto-billionaires with a history. Binance was an early investor in FTX, but the relationship has grown rockier as Bankman-Fried's exchange and his personal political clout in the U.S. via donations have grown. FTX also bought the naming rights to the former American Airlines Arena in Miami, now the FTX Arena. Both exchanges are primarily for non-US investors, with FTX being headquartered in Hong Kong before moving to the Bahamas. Binance started in China and is registered in the Cayman Islands, with offices located around the world.

FTX has surpassed Coinbase at times this year to become the second-biggest crypto exchange behind Binance, which is a global juggernaut that sees more than five times the combined trading volume of FTX and Coinbase every day. Binance exited its equity position in FTX in 2021, which many saw as a permanent break between the two entities and the crypto-billionaires at the helm. 

Things changed further this week with reports that the books of Bankman-Fried's sister trading firm Alameda Research were chock-full of FTX's own token, FTT. Zhao announced on Sunday that Binance would sell all of the FTT tokens it got from exiting FTX, while Bankman-Fried attempted to inspire calm, tweeting, "FTX is fine. Assets are fine." Things escalated further on Tuesday with reports that withdrawals on FTX were paused for hours in the morning without a notification from the exchange. 

In an announcement that took everyone by surprise on Tuesday, both Bankman-Fried and Zhao announced that Binance had made a non-binding agreement to purchase FTX.com for an undisclosed amount, pending due diligence checks. 

"Things have come full circle, and FTX.com’s first, and last, investors are the same: we have come to an agreement on a strategic transaction with Binance for FTX.com (pending DD etc.)," Bankman-Fried tweeted. 

"Our teams are working on clearing out the withdrawal backlog as is," he continued. "This will clear out liquidity crunches; all assets will be covered 1:1. This is one of the main reasons we’ve asked Binance to come in. It may take a bit to settle etc.—we apologize for that."

Zhao's announcement was more explicit, saying FTX had reached out for "help" and reiterated that FTX was facing a "significant" liquidity crunch. 

"This afternoon, FTX asked for our help. There is a significant liquidity crunch," Zhao tweeted. "To protect users, we signed a non-binding LOI, intending to fully acquire FTX.com and help cover the liquidity crunch. We will be conducting a full DD in the coming days."

FTX.com is the global interface for the exchange, but there is also a sister company for US-based customers called FTX.us that is not part of the sale, Bankman-Fried clarified. Binance also runs a US-facing exchange called Binance.us as a separate company. 

"FTX.us’s withdrawals are and have been live, is fully backed 1:1, and operating normally," he tweeted.