On Wednesday, Binance (1) and FTX (2) signed a non-binding Letter of Intent, easing the liquidity crisis. Additionally, Binance CEO CZ said the cryptocurrency exchange would soon disclose its Merkle-tree Proof of Reserves.
Due to FTX's removal of almost $6 billion in liquidity from the market, asset safety must be considered. Since the Alameda dispute, Binance and FTX have been in the news often. In the same time frame, the market value of FTT, the native token of FTX, fell precipitously, causing the collapse of the whole cryptocurrency market. But it now appears that the same is over.
Binance intervenes to save FTX.
Wednesday morning, Binance CEO Changpeng Zhao (CZ) declared that FTX hashaden was entirely bought by the largest cryptocurrency exchange in the world. Binance said in a non-binding Letter of Intent that it will assist FTX in addressing the liquidity crisis that started as soon as Tuesday's bank run.
Even while Binance now seems to be in charge of the situation, it is always free to pull out of the agreement if it so chooses. Sam Bankman-Fried (SBF), the CEO of FTX, made a similar message, thanking CZ and Binance and assuring users of the exchange. SBF stated that Binance would assist in clearing the exchange's withdrawal backlogs quickly. Due to this event, CZ started a crucial conversation regarding the position and defense of cryptocurrency exchanges against a similar incident.
It's critical for all major crypto venues to publicly share their auditable merkle tree proof-of-reserves or POF.
— OKX (@okx) November 8, 2022
We plan to publish ours in the coming weeks (within 30 days). This is an important step to establish a baseline trust in the industry.
More to come...
According to the CEO of Binance, cryptocurrency exchanges shouldn't use fractional reserves bu,t banks may. He proposed that all exchanges undertake and distribute a Merkle-tree proof of Reserves by the same (POF). This would guarantee market transparency while reassuring investors that their cryptocurrency assets are secure. Many other exchanges made statements after CZ's confirmation that Binance will start on its POF soon. Described as "a vital move to create a baseline confidence in the sector," OKX tweeted that the exchange will publish its POF within the next 30 days. CZ's idea was backed by Gate.io, Huobi, and Poloneix, who had previously been doing so, and they confirmed it with their POFs.
2/ That day, September 28, over 8.6 Billion USD worth of FTT was moved on-chain.
— Lucas Nuzzi (@LucasNuzzi) November 8, 2022
That was by far the largest daily move of FTT in the token's existence and one of the largest ERC20 daily moves we ever recorded at Coin Metrics. pic.twitter.com/GnUO1ZcCB7
Before the purchase
The FTX FUD was finally put to rest, but not without a price. According to Du Jun, a co-founder of Huboi, FTX has taken out more than $6 billion during the past few days. Added, "Risky parties include the centralized platforms FTX withdrew and the lending banks giving Alameda loans. Users must be mindful of asset safety." However, the head of CoinMetrics' research and development department believes that FTX's failed attempt to save Alameda in the second quarter may be to blame for the entire predicament. He said that over 173 million FTT, totaling over $4 billion, were abruptly shifted on-chain.
