Binance Mulls FTX White Knight Role—What Comes Next?

“This incident will set us back a bit, but then the industry will become healthier,” Binance CEO Changpeng “CZ” Zhao said in a CNBC interview today. 

Binance Weighs Rescue Plan

After lighting the fuse for a bank run that sent FTX into meltdown last week, “CZ” seems to have his sights set on playing white knight for the crypto industry. 

Binance’s U.S. arm is looking to relaunch a bid to acquire bankrupt lending firm Voyager Digital, CoinDesk reported Thursday citing a source familiar with the matter. Changpeng Zhao’s industry-leading giant had previously placed a bid in September but lost the auction to FTX. However, when FTX filed for Chapter 11 bankruptcy on November 11, Voyager said that it reopened bidding. Wave Financial is reportedly lining up to bid alongside Binance.US, having also lost out to FTX in the prior auction. 

Additionally, Zhao has expressed interest in acquiring the loan assets on Genesis’ balance sheet, Blockworks reported Wednesday citing unnamed sources. Genesis Trading delivered another blow to the already-crippled crypto industry Wednesday when it announced that its lending arm, Genesis Global Capital, had temporarily paused redemptions. Genesis is the industry’s largest lender, owned by parent company Digital Currency Group. Fears of further contagion have rippled through the industry following yesterday’s announcement due to the firm’s far-reaching activities with other major players across the sector. Genesis was also hard hit over the summer as Three Arrows Capital collapsed after taking a nine-figure hit on Terra’s downfall; court filings at the time revealed that Genesis had loaned $2.4 billion to the now-defunct hedge fund. It’s seeking $1.2 billion from Three Arrows in an ongoing case.  

Binance’s reported efforts to play white knight in the industry come as something of an ironic twist given FTX and Sam Bankman-Fried’s efforts to play the same role in the fallout from the Three Arrows liquidity crisis. As Three Arrows went bust and a series of lenders fell, FTX swooped in to acquire Voyager and BlockFi, another firm that’s now reportedly facing bankruptcy due to the industry’s latest crisis. Former FTX CEO Sam Bankman-Fried said that his firm could allocate up to $2 billion to bail out other firms and famously told Forbes that he thought many other crypto firms could be “secretly insolvent” as the dominoes started to fall in June.

The Path Forward

While the industry at large is still suffering from the impact of FTX’s blowup, Zhao has expressed confidence in a brighter future on several occasions over the past few days. On Monday, he confirmed that Ethereum creator Vitalik Buterin was building a “proof-of-reserves” protocol for crypto entities, with Binance set to act as the first tester. In an interview with CNBC’s Squawk Box today, he predicted that the FTX incident “will set us back a bit, but then the industry will become healthier.” He also downplayed the severity of the implosion, pointing out that FTX held roughly 3 to 5% of global market share until last week, with most of its trading volume coming from wealthy institutional investors. “[3 to 5% is] still a decent number, quite a lot of users got hurt. But it’s not 50% or something like that,” he said. Several of the industry’s top funds, including Galois Capital, Multicoin Capital, and Ikigai, have revealed that they had significant portions of their portfolios trapped on FTX, and it’s widely believed that other funds and projects could be suffering in silence. 

The FTX collapse has been compared to the 2014 blowup of Mt. Gox, once the top crypto exchange that accounted for around 70% of Bitcoin transactions until its fatal hack. Users who lost funds in that disaster are still waiting for compensation after years of delays to a lengthy court battle. It’s feared that FTX victims could have a similar wait ahead for their assets, if they receive anything at all. As FTX reportedly loaned almost $10 billion worth of client deposits to Bankman-Fried’s Alameda Research as the trading firm dealt with its own losses following Terra’s collapse, the funds have effectively vanished. And that’s bad news for FTX users who didn’t get out in time during last week’s bank run. 

Disclosure: At the time of writing, the author of this piece owned ETH and several other crypto assets.