Over the past few days, two of the biggest cryptocurrency trading platforms, Binance and FTX, have been in a conflict that has affected the entire market as well as its staunch holders.

Most market participants and watchers don’t know that this conflict dates back to 2019, but it’s only now that it’s felt.

In the following lines, we will explain what happened, how it got here, and why it is an issue of high importance that should concern us all.

Binance and FTX: Emergence in the crypto market

Shortly after being founded by Changpeng Zhao in July 2017, Binance has become one of the largest, most used, and most popular platforms for trading and holding cryptocurrencies worldwide. Many other platforms, such as Coinbase or BitMEX tried to steal its crown, but their attempts proved to be in vain.

However, a fierce competitor was created in May 2019 when Sam Bankman-Fried founded FTX. It was clear to the entire industry that the team behind this platform was on another level in every way, so FTX rose spectacularly to the top of the platforms quickly.

Changpeng Zhao’s platform did not reach the top spot by luck or speculation. CZ Zhao is an extremely skilled developer and a smart leader who has only made the right moves all these years. Also based on his sharp skills, Zhao decided to invest in FTX in 2019 when it launched.

How did the conflict between Binance and FTX start?

As FTX continued to expand rapidly throughout the last Bull Market, CZ Zhao sensed a threat from the American platform. For this reason, in 2021, Binance decided to relinquish the role of investor in a $900 million fundraising round maintained by FTX. At the time, CZ Zhao said the move was part of their investment cycle, but now we know better how it went.

Fast forward to 2022 and FTX is now second in the top trading platforms, with Binance in the first place. Even though Binance remained the leader with at least triple the trading volume, the rise of FTX started to alarm CZ Zhao. However, there were other reasons why Zhao was worried…

It was no secret that Sam Bankman-Fried was very ambitious to rise to the top by gaining ground with the regulatory financial institutions (especially in the United States). Also public is the fact that Bankman was one of the biggest donors to the American political sectors (being the second biggest donor to Joe Biden’s campaign).

Sam Bankman’s tactic to push FTX over Binance

Sam Bankman understood from the beginning that he had to use US regulatory policies to defeat Binance.

This was also clear to CZ Zhao: because he was born in China, there was speculation on the internet about the involvement of the Chinese government in Binance. Because of this, tension arose in the crypto space between the United States and China, and Sam Bankman took advantage of this opportunity.

Changpeng Zhao decided not to give up without a fight, and recently an opportunity arose for him to strike back.

There were two major events in particular that allowed the Binance boss to attack FTX:

Even though the risks that Alameda Research possessed through their huge exposure to FTT were unknown at the time, Changpeng Zhao got the opportunity he had been waiting for and acted.

As part of the ceding of the investor seat that I mentioned in part one, Binance received $2.1 billion from FTX in 2021 in the form of FTT and BUSD…

CZ Zhao waited for the opportune moment

Along with the speculation on Twitter about the problems FTX is facing, a small so-called war has also started between the two CEOs of trading platforms Binance and FTX. Even though Sam Bankman-Fried tried to defend himself by accusing his opponents of spreading false rumors, it was CZ Zhao who had the last word.

Seeing the risk they ended up being exposed to, Caroline Ellison, CEO of Alameda Research, tweeted a message trying to buy OTC, (meaning off the market online) at $22, the FTT coins that Binance wanted to liquidate. Sam Bankman also asked other platforms to seek an amicable way, not conflict.

In any case, it was soon clear to everyone on Twitter that Changpeng Zhao did not want to make peace. He further fueled the market’s sense of fear by highlighting an on-chain transfer of FTT worth $584 million, posted by Whale Alert. CZ Zhao further compared FTX and FTT to LUNA and stated that he does not support market players who want to hurt him behind his back.

The Binance boss’ post further fueled the negative market sentiment surrounding FTX’s possible insolvency, as well as contributing to the association of FTX with an anti-crypto entity. Not only that, but the post, as well as the sold coins, had a major impact on the price of FTT, causing it to suffer a decline of over 80% in a single day.

What can happen next with FTX?

The brilliant strategy that CZ Zhao showed with this attack proves that the Binance boss knows very well the situation in which the crypto sphere is at the moment. After months of large firms and entities becoming insolvent (we’re talking about firms that were considered safe here) such as 3 Arrows Capital, Celsius, and Luna Foundation — crypto market participants are really affected, both financially, as well as psychically.

The most prudent move that small and large investors can make is to withdraw their funds from FTX, even if the platform is not truly insolvent. Ironically, an extremely high volume of withdrawals could prove the speculation.

Even if it turns out that FTX is not really insolvent, this attack has taken a major toll on them. The competition, especially Binance, stands to gain from these events.

What does the war between Binance and FTX mean for the crypto sphere?

The most obvious answer is that such a war could lead to insolvency for FTX. Also considering the current prices in the crypto market, the consequences could be catastrophic.

There is a good chance that FTX will come out on top, but we know for sure that the dice have been thrown between Binance and FTX. The end of this conflict is most likely far away, but the collateral impact it could create will affect all market participants.

Brief recap of the conflict between FTX and Binance:

Just as Binance Coin (BNB) is the currency of the Binance exchange, used to pay trading fees and to benefit from discounts and perks — we can also consider FTT to be the currency of FTX, minus the fact that the latter does not have the function of Smart Contracts.

Coming back: the fact that the FTT constituted such a broad position for the two entities (FTX and Alameda) became a major problem for two reasons:

FTX and Alameda Research tried to calm things down

After the story of Alameda’s disastrous balance sheet leaked online, many key people at the two companies tried to calm things down, including Caroline Ellison, CEO of Alameda Research. She said in a message posted on Twitter that the information circulating on the Internet did not fully present the full landscape and its details.

She was trying to suggest that the FTT is not that crucial to the whole story. The data, however, said otherwise.

On November 8, the price of the Solana coin was the first to suffer major declines. FTX was known to be one of the entities with the largest amount of SOL holdings, so this drop suggested: the exchange was selling other holdings to keep the FTT price above $22.

As FTX and Alameda began selling other coins to support the FTT rate, it soon became clear to everyone in the market that FTT did mean a lot to the two firms.

The original tweets, which I mentioned in the second part of the conflict, probably wouldn’t have led to such a sharp drop in price — but the biggest contributing factor was the fact that FTX users were they panicked and began massively withdrawing funds from the exchange. This led to a smaller and smaller balance sheet held by FTX until it collapsed completely.

Withdrawals of over $6 Billion from FTX in just 72 hours

Due to the panic induced among users, a vicious circle was created that led to the collapse of FTX and Alameda:

Ultimately, Alameda suffered a total balance sheet implosion. The price of FTT sank so much that their collateralized lending positions were liquidated. FTX tried in vain to raise funds to cover the hole created by Alameda Research because investors were reluctant and lost confidence.