The precarious SBF, an unpredictable outcome

Author: Hu Tao, Chain Catcher

This may be the most dramatic event in the history of the cryptocurrency industry. Just a few months ago, FTX, known for its deep pockets and frequent bailouts of other companies, suddenly found itself in a liquidity crisis and on the brink of collapse, only to be swiftly acquired by a major competitor. The rapid turn of events is astonishing, and almost no one anticipated this outcome.

According to tweets from Zhao Changpeng and SBF, Binance plans to fully acquire FTX.com and help address the liquidity crunch. Both parties have signed a non-binding letter of intent, and Binance has the right to withdraw from the deal at any time. Meanwhile, SBF has rarely lowered his stance to express gratitude and praise for Zhao Changpeng, stating, "CZ has done and will continue to do incredible work in building a global crypto ecosystem and creating a freer economic world."

It can be said that Binance has achieved a thorough victory in the intense confrontations over the past few days. By acquiring its most threatening competitor, it has further consolidated and proven its industry position, with expected benefits in areas such as derivatives and compliance.

It is worth noting that both parties specifically used "FTX.com" in their tweets, which means that the transaction is limited to the FTX main exchange and does not include SBF's U.S. cryptocurrency exchange FTX US or the market-making firm Alameda Research. SBF still retains some leverage.

Nevertheless, this transaction is enough to set a historical record for merger and acquisition amounts in the cryptocurrency industry. In January of this year, FTX completed a $400 million financing at a valuation of $32 billion. However, as the cryptocurrency market turned bearish afterward, FTX's implied valuation has significantly declined. According to The Block, FTX was recently seeking to raise funds at a valuation of $10 billion to $20 billion.

In response, some industry insiders have suggested that the transaction price may be insignificant. "Considering the short time required to complete this transaction, Binance is likely to acquire FTX for a trivial amount and assume all of FTX's liabilities," tweeted Arthur, founder of DeFiance Capital.

Regardless, investors from FTX's previous funding rounds are bound to face substantial losses, including a list of renowned institutions such as Tiger Global, Paradigm, SoftBank Vision Fund, Temasek, and Sequoia Capital. Due to the suddenness of the event, these investment firms seem to have not yet been notified. Dan Primack, a business editor at the American business media Axios, stated on Twitter that FTX's investors have told him they have not received any notifications and that all the information they know comes from Twitter.

At the same time, the tweets from both parties and this acquisition transaction also confirm market speculation that FTX is facing a severe liquidity crisis, and it is more serious than most people anticipated; otherwise, SBF would not have handed FTX over so easily. This also implies that SBF seems not to have learned from the previous collapses of Three Arrows Capital and Voyager Digital due to excessive leverage. Continuous external investments, leveraged borrowing, and DeFi mining have led to a severe shrinkage of FTX's cash flow, ultimately resulting in a crisis following Zhao Changpeng's warning about FTT sell-offs.

"Therefore, SBF is actually no different from Su Zhu and Kyle L. Davies (note: the two co-founders of Three Arrows Capital). They are addicted to leverage; the more they take, the smarter they think they are!" said well-known Twitter KOL Ran Neuner.

If this transaction is successfully completed in the near future, FTX, as one of the most dynamic emerging players in recent years, may regretfully exit the competitive stage. However, this way of ending the predicament is at least much more dignified than the previous companies like Three Arrows Capital and Voyager, achieving a certain degree of financial exit while minimizing harm to users and the industry.

Of course, this transaction still carries uncertainties, such as whether regulatory agencies in various countries will allow or block this deal, and whether Binance will choose to withdraw from the transaction after understanding FTX's specific financial situation. As the situation develops, the derivative impacts of this acquisition may far exceed the acquisition itself.