Yesterday, while all eyes were (and are) on election results, a battle between two centralized cryptocurrency exchange owners suckerpunched the world of decentralized finance, destroying billions of dollars of market cap in the process.
The dispute pitted Sam Bankman-Fried (SBF), founder of trading firm Alameda Research and crypto exchange FTX, against rival crypto tycoon Changpeng Zhao (CZ), founder of Binance, the world’s largest exchange.
The aftermath of the altercation included SBF taking a $14 billion hit to his net worth (he has about a billion left) and Binance signing a nonbinding agreement to buy FTX (excluding its U.S. unit) to help cover a “liquidity crunch” caused by CZ and Binance. Collateral damage to the broader crypto markets from this 72-hour, $6 billion “run on the bank” has been brutal. Almost every cryptocurrency (including BTC and ETH) was hit hard.
To make matters worse, Binance eating FTX makes the world’s biggest centralized exchange even bigger. This may sound okay, but it’s kind of hard to call cryptocurrency “decentralized” as a fully centralized Binance/FTX becomes “the” dominant exchange by trading volume. However, CoinDesk reports that after just a half-day of due diligence, Binance may back out of the deal, and that it is unlikely that Coinbase or OKX would step in. I’m not sure about the consequences of letting FTX die, but we’ll know soon enough.
We must watch this closely. It’s the second major meltdown this year; remember what the Terra LUNA crash did to stablecoins and the broader crypto markets in May.
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