Category: FTX

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Binance Crypto Exchange Crypto News FTX Kraken

Binance Releases Proof of Reserve System – Kraken CEO Unsatisfied

In the wake of the collapse of FTX, cryptocurrency exchanges are rushing to convince customers that they’re safe and not likely to suddenly collapse — at least not in the next few weeks. Recently large exchanges like Crypto.com and Kraken have released proof of their reserves, and now Binance is following suit. 

Last Friday, Binance announced its new proof of reserve system, which allows customers to verify that their funds have been included in the proof of reserves report by querying data in a Merkle tree. Binance claims this proves that customer funds are held on a full-reserve basis.

However, Binance’s new system has been met with criticism by the CEO of rival crypto exchange Kraken, Jesse Powell.

Powell referred to the system as “hand wavey bullshit” that provides nothing more than a cryptographic hash of an entry in a spreadsheet, which does nothing to show that Binance holds more assets than it owes.

Powell’s Criticism Explained

Powell said a meaningful proof of reserve audit must include all client liabilities with negative balances excluded, user-verifiable cryptographic proof that all accounts have been included in the audit, and cryptographic signatures verifying the exchange’s control over the wallets containing the assets.

Without this information, Powell said proofs of reserve such as those released by Binance are “worthless” and tell users nothing of value about an exchange’s financial position.

Powell’s Kraken exchange has implemented a similar Merkle tree-based proof of reserve system that he claims is more rigorous than that offered by Binance. However Kraken does acknowledge its system has some shortcomings of its own. 

Crypto Journalists Cop It

Binance wasn’t the only target in Powell’s sights: he also took aim at crypto journalists for failing to understand the flaws in Binance’s system.

Previously, Powell had criticised the Binance-owned crypto tracking website, CoinMarketCap, for its implementation of its new proof of reserves feature, which he says simply includes a list of wallets and does nothing to clarify if an exchange has more assets than liabilities. 

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Crypto Exchange Crypto News FTX Regulation

Top Crypto Data Platform CoinMarketCap Launches Proof of Reserve Tracker

A new feature released by leading crypto price-tracking site CoinMarketCap reveals more data about crypto exchanges’ reserves — the assets that enable a company to cover potential withdrawals by customers.

With the contagion of FTX’s highly damaging collapse continuing to spread, and Proof-of-Reserves being touted as a needed failsafe against future incidents, the website’s move to give people information about crypto exchanges has been welcomed by many. 

According to CoinMarketCap, its new ‘Proof of Reserves’ feature “provides transparency to cryptocurrency reserves through a verifiable auditing practice.” The data seems to be drawn from audited proof of reserves information that the exchanges themselves have made public — with these sources aggregated by CoinMarketCap for the convenience of its visitors. For instance, it lists as a source this tweet from Crypto.com:

“More and more cryptocurrency exchanges have begun revealing their proof-of-reserves in the wake of the recent industry disquiet, and we believe in the importance of giving CMC users all of the information possible about each exchange, project and token.”

CoinMarketCap statement about its Proof of Reserves data

What information can you now get?

By exploring the web pages dedicated to each exchange featured on CoinMarketCap, users can now view details including:

  • The total assets held by the exchange
  • Public wallet address ownership
  • The balance, price and value of the public wallets.

A true sense of a company’s solvency is typically derived from the difference between its total assets and its total liabilities. Obviously, CoinMarketCap doesn’t have access to every company’s full balance sheet, and this feature at least gives investors some indication of an exchange’s ability to meet its financial obligations. 

Capital Adequacy and Audits on the Agenda for Australian Regulators

Safe-keeping crypto investor funds by licensing exchanges and custody arrangements are being considered by the Australian Government, which recently hinted it would prioritise legislation in 2023 in response to the FTX collapse.

The recently finalised Senate Select Committee report into digital asset regulation recommended establishing a market licensing regime for exchanges, and stressed: “The key requirements of a new DCE Market Licence category should include, at a minimum, requirements relating to capital adequacy, auditing and responsible person tests.” 

CEO of digital asset mining company Mawson Infrastructure Group, James Manning is quoted in the report airing his concerns about the current lack of compliance standards: “There’s no audit obligation. As you pointed out, there’s no capital adequacy obligation. There’s no one verifying this, yet some of these exchanges are holding billions of dollars of assets.”

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Banking Crypto News FTX Markets

Crypto Lender Genesis Warns Potential Bankruptcy

The fallout from the FTX fiasco could also topple crypto brokerage Genesis, which has warned customers it may need to file for bankruptcy unless it can urgently secure additional funding, according to reports published by Bloomberg and the Australian Financial Review.

An unidentified person cited in reports claims Genesis has been in talks with companies including crypto exchange Binance, in an attempt to raise US$1 billion in new capital for its lending arm, but with no success so far. 

While FTX and its disgraced CEO Sam Bankman-Fried had a broad footprint of associated ventures, Genesis’ troubles seem to have arisen as a consequence of the overall market turmoil caused by the exchange’s collapse.

Bankruptcy Warning Lending Liquidity Issues  

Genesis offers digital asset trading, derivatives, lending and custody services and posted third-quarter results in 2022 showing it had US$2.8 billion in total active loans. 

On November 16, Genesis tweeted it was temporarily suspending redemptions and new loans for its lending business because FTX’s collapse and reduced market confidence had led to “…abnormal withdrawal requests which have exceeded our current liquidity.” 

Genesis had previously clarified that while it had around US$175 million in locked funds in its FTX trading account, “our operating capital and net positions in FTX are not material to our business.” Upon halting loans it reiterated that its spot and derivatives trading and custody businesses remained operational.

It said at the time it was working on a plan for its lending arm, including sourcing new liquidity:

It’s clear those efforts have not paid off yet. While it seems there’s no immediate plan to file for bankruptcy, Genesis’ shaky position has further destabilised crypto markets — Bitcoin’s price dipped briefly immediately following the news.

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Crypto News Crypto.com FTX Shiba Inu

A Preview of Crypto.com’s Reserves Reveals 20% in SHIB Tokens

In the fallout of the swift and shocking collapse of FTX last week, rival exchange Crypto.com chose to share their cryptocurrency reserves publicly in an effort to shore up customer confidence. 

However, this attempt to ease customer concerns backfired when it was revealed just over 20 percent of Crypto.com’s reserves, valued at close to US$500 million, are held in the meme-coin Shiba Inu (SHIB).

This means that Crypto.com holds more SHIB than Ethereum (ETH) and USD Coin (USDC) — in fact, the only cryptocurrency the exchange holds more of than SHIB is Bitcoin (BTC).

What Exactly Does This Mean?

Initially many in the crypto community incorrectly believed that Crypto.com’s large holdings of SHIB were part of an irresponsible meme-coin heavy investment strategy. 

It’s since been clarified that the exchange holds so much SHIB because its customers have purchased a lot of the token, the exchange holds 1:1 reserves of customer assets — as a Crypto.com spokesperson explained:

“The reason our Proof of Reserves include Shiba is because we hold customers’ balances 1:1. Thus, our Proof of Reserves are dictated by our customer holdings.”

Crypto.com spokesperson

Crypto.com Sent 320,000 ETH To Wrong Address

In another concerning piece of news, a Twitter user named @jconorgrogan unearthed a transfer of 320,000 ETH from Crypto.com to a wallet on rival exchange Gate.io.

This transfer, representing over 80 percent of Crypto.com’s ETH holdings, occurred on October 21 but it wasn’t until @jconorgrogan noticed it and tweeted that the wider crypto community became aware of it.

Crypto.com says that the transfer was an error, claiming the ETH was accidentally sent to a whitelisted account under its control on Gate.io instead of being transferred to a new cold storage wallet. 

Since the accidental transfer occurred, 285,000 ETH have been confirmed to have been returned to Crypto.com, while the remaining 35,000 have been sent to a different address whose ownership is yet to be confirmed.

Crypto.com CEO Kris Marszalek says the incident has been resolved and claims new processes have now been put in place to avoid a recurrence:

Fear Triggers Flight to Safety, CRO Dump

This string of bad news has sparked fear among Crypto.com customers, prompting many to move their assets off the exchange and sell their holdings of CRO, Crypto.com’s exchange token. As a result, Crypto.com’s reserves have fallen significantly over the past few days, from close to US$3 billion to just over US$2 billion. 

Similarly, the price of CRO has dropped precipitously in the past few days — at the time of writing data from CoinGecko showed it was down over 50 percent since Wednesday, changing hands at US$0.05

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Crypto News FTX Justin Sun

FTX CEO Sam Bankman-Fried Apologises in a Flurry of Tweets

Sam Bankman-Fried, CEO of FTX, took to Twitter on Thursday 10 November to offer an apology to his customers following FTX’s breathtakingly fast collapse this week. SBF didn’t mince words in his apology, saying “I’m sorry. That’s the biggest thing. I fucked up, and should have done better.”

The apology comes as SBF scrambles to raise funds to “do right by users” and ensure they don’t lose assets they had stored on FTX. According to SBF, FTX is currently in talks with numerous parties to access liquidity, which he claims will go “straight to users”.

SBF Updates Community On FTX Situation

In his Twitter thread, SBF also outlined how exactly it all came to this — essentially he says he made two crucial mistakes that led to FTX’s collapse. 

Firstly, due to poor internal processes, he drastically underestimated users’ margin, and secondly, he massively overestimated FTX’s USD liquidity. These two mistakes, in the context of an enormous bank run, meant the exchange simply did not have access to the liquidity required to cover all the customer withdrawals.

SBF says FTX has now entered into LOIs (letters of intent) with numerous parties and is hopeful of getting access to enough liquidity to cover all customer withdrawals. 

Going forward, SBF says his trading firm Alameda Research will be “winding down”, while also denying the firm is doing any of the “weird things” that have been speculated on Twitter and in the media.

Here Comes the Sun, Justin Sun

In a somewhat surprising turn of events, the founder of the Tron (TRX) blockchain Justin Sun (who himself is far from scandal-free) has swooped in to help by promising holders of Tron-related tokens stuck on FTX — including TRX, SUN, JST, BTT and HT — that they’ll be able to redeem them 1:1 even if withdrawals from FTX itself fail.

The result of this ‘Tron Ark’ as Sun calls it, is that many FTX users have flocked to Tron tokens in hopes of salvaging something from the exchange’s collapse. In turn, this has seen the value of these tokens on FTX soar to many times their value on other exchanges. For example, Tron’s native token TRX spiked to as high as US$2.50 on FTX, while it remained at around US$0.5 on other exchanges.

Investigations Into FTX Collapse Underway

According to a report published in the Wall Street Journal on Thursday, for months the SEC has been quietly investigating FTX.us, the US-only part of FTX’s business, but this investigation has now been expanded to look at the collapse of FTX’s international operations.

The US Department of Justice has apparently also opened an investigation into FTX — this will be a troubling development for SBF as the DOJ prosecutes criminal cases such as fraud, whereas the SEC is responsible for civil cases in which investor protection laws have been violated.

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Binance Crypto News FTX

Binance Opts Not To Purchase FTX, Citing Significant Concerns Raised During Due Diligence

Binance, the world’s largest cryptocurrency exchange, has walked away from a deal to purchase cash-strapped rival FTX just one day after signing a non-binding letter of intent to acquire the stricken exchange.

The about-face came after Binance conducted its initial due diligence of FTX’s financial position and business practices, which sparked significant concerns. Binance CEO Changpeng Zhao, commonly referred to as CZ, retweeted a tweet from the Binance account on Wednesday declaring the deal was off:

“As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of FTX.com”  

Binance

CZ Publicly Releases Letter to Binance Staff

Earlier on Wednesday CZ had tweeted an internal letter sent to Binance employees updating them on the FTX situation. In the letter CZ told his staff the due diligence for the deal was ongoing and they must not trade any FTT, presumably to avoid running afoul of regulators.

CZ also stressed in the letter that he had not masterminded FTX’s collapse, as some had speculated:

“We did not master plan this or anything related to it. It was less than 24 hrs ago that SBF called me. And before that, I had very little knowledge of the internal state of things at FTX.” 

Changpeng Zhao, Binance CEO

He went on to insist the collapse of one of Binance’s largest rivals should not be viewed as a win, and that it would have ongoing harmful consequences for investors and for the entire crypto space:

“FTX going down is not good for anyone in the industry. Do not view it as a “win for us”. User confidence is severely shaken. Regulations will scrutinize exchanges even more. Licenses around the globe will be harder to get.”

Changpeng Zhao, Binance CEO

Market Tanks In Reaction

The market’s reaction to the news that Binance would not be acquiring FTX has been swift and negative, with prices down virtually across the board. Unsurprisingly, the biggest losers have been those cryptocurrencies most closely linked to FTX. 

At the time of writing, data from CoinGecko showed FTT was down almost 90 percent since Tuesday, changing hands at US$2.47, down from US$22. Solana (SOL), which was heavily backed by FTX, was also hit hard, dropping around 51 percent since Wednesday.

Other major cryptocurrencies have also dropped considerably, with Bitcoin (BTC) down over 20 percent since Wednesday and Ethereum (ETH) down over 25 percent.

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Binance Crypto News FTX

Binance to Acquire FTX Following “Significant Liquidity Crunch”

Following days of rumours, heavyweight Twitter spats, and a frenzied bank run, Binance CEO Changpeng Zhao (CZ) has confirmed his exchange will fully acquire Sam Bankman-Fried’s (SBF) FTX exchange, pending proper due diligence. If this deal goes ahead as planned, it would see the two largest crypto exchanges in the world merge into a single entity.

CZ tweeted Tuesday that FTX had reached out to request help from Binance following what he described as “a significant liquidity crunch” triggered by a rush of customers withdrawing their funds from FTX. 

CZ agreed to offer assistance and stated: “to protect users, we signed a non-binding LOI (letter of intent), intending to fully acquire FTX.com.”

SBF Confirms Forced Sale

In a Twitter thread of his own, SBF confirmed the news and said the Binance takeover would ensure customers assets are protected.

Despite the tense exchanges between SBF and CZ over the past few days, SBF went out of his way to thank CZ for his help and praised him for the work he has done to grow the crypto industry.

SBF also clarified that Binance.us and FTX.us would be unaffected by this deal, noting that FTX.us continue to operate as normal.

How Did This Happen?

Somewhat ironically, FTX’s troubles really began on Sunday when CZ tweeted that Binance would be unloading its holdings of FTX’s exchange token FTT, valued at around US$580 million, due to what he described as “recent revelations”. Those revelations referred to reports casting doubt on the financial security of SBF’s trading company, Alameda Research — suggesting FTX itself may be in financial peril.

Unsurprisingly, these tweets spooked a crypto market still very much shaken by the numerous high profile collapses in the past few months, leading to a bank run on FTX.

SBF hit back, accusing a “competitor” of trying to topple FTX with false rumours of financial problems. Customers however, preferring to be safe than sorry, continued to withdraw their assets from FTX up until Tuesday morning when the exchange suspended withdrawals, before announcing later that day that it would be acquired by Binance.

Both CZ and SBF insist all customer funds will be safe under the new deal with SBF tweeting, “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. But the important thing is that customers are protected.”

This episode demonstrates just how volatile and unpredictable the crypto market currently is. Mere weeks ago SBF was flying high as one of the world’s youngest billionaires — appearing on the cover of Fortune magazine and donating millions to political parties, now his empire lies in ruins, destroyed in the space of just a few days.

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Binance Crypto News FTX Markets

Binance to Liquidate FTX Token Holdings Following a Balance Sheet Report on FTX’s Sister Company

Speculation about the financial position of the Sam Bankman-Fried backed companies FTX and Alameda Research has led to Binance dumping its FTT and shaken the value of the crypto tokens. 

On November 7, Binance CEO Changpeng “CZ” Zhao tweeted that the company would liquidate the FTT it holds “due to recent revelations that have came to light…” and would aim to avoid impacting the market.

Those “revelations” arise from a recent report by CoinDesk that raised concerns about the ties between Sam Bankman-Fried’s two companies and how Alameda Research’s financials indicate its biggest asset is unlocked FTT.

FTX Financial Concerns “Unfounded”: SBF 

CEO of trading firm Alameda Research, Caroline Ellison, claimed on Twitter that the balance sheet that sparked the concern was incomplete and did not reflect more than $10 billion of assets held by the company. 

FTX founder and CEO of crypto exchange FTX, Sam Bankman-Fried took to Twitter to thank supporters and especially “those who stay level headed during crazy times” in light of what he describes as the “unfounded rumours” circulating. 

In his tweet about liquidating Binance’s FTT tokens, CZ Zhao said Binance encouraged industry collaboration and had no intent to hurt users or other platforms, stating: “Regarding any speculation as to whether this is a move against a competitor, it is not.”

The taint of scandal has already had an impact, with FTT down more than 12 percent in the past seven days, currently trading at $22.35. Many social media users are wary of the token’s collapse.

Bankman-Fried said the exchange would keep going:

“And in the end you should do what you want, and trade where you want.  We’re grateful to those who stay; and when this blows over we’ll welcome everyone else back.”

Sam Bankman-Fried, FTX CEO
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Banking FTX Investing Markets

FTX Finalises Deal with BlockFi, Option to Buy for Up to $240 Million

Embattled crypto lender BlockFi has signed a deal with FTX US, the American arm of Sam Bankman-Fried’s crypto exchange, which will see FTX increase its credit facility to BlockFi with an option for FTX to acquire the struggling lender.

In an extensive Twitter thread, BlockFi co-founder Zac Prince explained the deal was valued at up to US$680 million, including a US$400 million revolving credit facility and the option for FTX to acquire BlockFi for up to US$240 million. According to Prince, as of July 2 the deal was still subject to shareholder approval.

BlockFi Hits Choppy Financial Waters 

BlockFi started to experience financial strain following the May collapse of the Terra blockchain and the subsequent bankruptcy of the highly LUNA-exposed Three Arrows Capital, to whom BlockFi had made sizeable loans.

These events – combined with the recent aversion to centralised lenders sparked by Celsius’ liquidity crisis, and the general market decline – have tested BlockFi’s resilience and forced the lender to shed around 20 percent of its workforce, approximately 170 employees.

In June, FTX extended a US$250 million line of credit to BlockFi to help the lender secure client funds. With this new deal, the credit facility has been extended to US$400 million.

According to Prince, BlockFi has not yet had to draw on the available credit, and the CEO insists the lender is still financially strong despite securing an increased line of credit and agreeing to a sale price far lower than its most recent valuation of US$1 billion:

We have not drawn on this credit facility to date and have continued to operate all our products and services normally. In fact, we raised interest rates, effective today. 

Zac Prince, co-founder and CEO, BlockFi

Deal Protects Client Funds

Prince said the deal was primarily about ensuring BlockFi could protect client funds and that FTX was the ideal partner as it shares the same client-first values:

“As a matter of principle, we fundamentally believe in protecting client funds,” Prince tweeted. “Not only because it’s absolutely the right thing to do, but this also benefits the ongoing health and adoption of crypto financial services worldwide. Therefore, it was important to add capital to our balance sheet to bolster liquidity and protect client funds.”

We were presented with various unattractive options where client funds would take a haircut or be behind a lender in the capital stack … Ultimately, we found a great partner in @FTX_US, who shares our commitment to clients. This represents the best path forward for all @BlockFi stakeholders and the crypto ecosystem as a whole.

Zac Prince, co-founder and CEO, BlockFi

According to Prince, the terms of the deal make repayments to FTX subordinate to protecting client funds, which means if the worst were to happen, and BlockFi couldn’t pay all its bills, priority would be given to cashing out clients.

Not Everyone Is Convinced

BlockFi’s claims of financial strength have been widely questioned on Twitter, with many users wondering why a company in a supposedly strong position would seek an increased line of credit and accept an option to acquire it for a fraction of its valuation:

Categories
Crypto Exchange FTX Markets Terra Tether

FTX Founder ‘SBF’ Warns Some Crypto Exchanges Are ‘Already Insolvent’

One of the richest men in crypto, 30-year-old FTX founder and CEO Sam Bankman-Fried (also known as SBF), has warned that some “third-tier” crypto exchanges are already secretly insolvent.

Among his recent comments to Forbes, SBF declined to name which exchanges he believes are currently broke. However, his warning comes as the fallout from the May collapse of the Terra blockchain continues to wreak havoc across the crypto market, with the highly Terra LUNA-exposed Singapore-based venture capital firm Three Arrows Capital (3AC) recently announcing it’s nearing insolvency.

SBF Bails Out Struggling Firms

As a result of 3AC’s insolvency issues, fellow crypto-focused firms BlockFi and Voyager Capital – which had each given 3AC sizeable loans – also found themselves in treacherous financial waters. 

Fortunately for these firms, SBF swooped in, through his exchange FTX and trading firm Alameda Capital, to provide US$250 million in credit to prop them up and protect their customers’ funds.

Speaking to Forbes about the credit infusion SBF said, “ … You know, we’re willing to do a somewhat bad deal here, if that’s what it takes to sort of stabilise things and protect customers.” 

Of course, stabilising the crypto market and seeing it grow is also very much in SBF’s interest – his US$20.5 billion fortune is closely tied to the performance of the crypto market.

It has also recently emerged that SBF may be looking to go beyond simply providing credit to BlockFi, with reports suggesting he is now in talks to acquire the New York-based firm.

SBF Expects to See Numerous Exchanges Fail

Despite his willingness to prop up some ailing crypto firms, SBF doesn’t anticipate this generosity being applied indiscriminately across the industry. Talking to Forbes, SBF said there were companies throughout the crypto industry that were beyond saving:

There are companies that are basically too far gone and it’s not practical to backstop them for reasons like a substantial hole in the balance sheet, regulatory issues, or that there is not much of a business left to be saved. 

Sam Bankman-Fried, founder, FTX 

Tether Won’t Collapse

One much-maligned digital asset SBF has no fears for is crypto’s largest stablecoin, Tether (USDT). While many consider the collapse of the US$70 billion stablecoin is inevitable due to its reportedly less than ideal collateral situation, SBF claims there’s no reason to worry, saying: “I think that the really bearish views on Tether are wrong … I don’t think there is any evidence to support them.”

In other SBF news, the crypto magnate declared on a podcast last month that he was willing to donate up to US$1 billion to the US Democratic Party to keep Donald Trump from returning to the White House.