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