The largest crypto exchange by volume (Binance) and the third largest crypto exchange by volume (FTX) have faced each other in recent days according to Binance CEO Changpeng “CZ” Zhao tweeted that its exchange would slowly drain billions of its holdings in FTX’s native token, FTT, “due to recent revelations that have come to light.”
But first, let’s take a few steps back.
Concerns over FTX’s liquidity grew after a Thursday report by CoinDesk on the balance sheet of Alameda Research, a crypto trading firm once run by FTX CEO Sam Bankman-Fried. According to CoinDesk, as of June 30, Alameda holds $14.6 billion in assets with $8 billion in liabilities.
The report revealed that Alameda’s top net worth was about $3.66 billion in unlocked FTT and $2.16 billion in “FTT collateral.” (FTT is the token behind FTX.) This means that the total $5.82 billion in FTT that Alameda owns represents 193% of the total known FTT market cap, which is about $3 billion according to CoinMarketCap data -dollars.
“The problem is that Alameda can’t sell even small amounts of their FTT holdings without heavily impacting the price,” Marcus Sotiriou, an analyst at publicly traded digital asset broker GlobalBlock, said in a note. “Data from CryptoQuant […] tells us that there are only around 200-300 active addresses trading the FTT token, which is very small compared to many other large caps. Therefore, large sell orders would crash the FTT price as they are illiquid.”