Binance chief Changpeng Zhao said a day after plotting a bailout of the cryptocurrency exchange’s rival, FTX’s near collapse had “severely shaken” confidence in the cryptocurrency industry and would spark stricter regulatory action. review.
In a memo to employees, which was seen by the Financial Times, Changpeng Zhao said the bailout cemented Binance’s position as the world’s largest cryptocurrency exchange, but it was not a “victory.”
“Regulators will scrutinize exchanges more strictly. Licenses around the world will be harder to obtain,” Changpeng Zhao wrote in a memo to employees earlier Wednesday.
The memo also revealed that he had struck a speedy deal with rival Sam Bankman-Fried to prevent FTX, which was valued at $32bn earlier this year, from collapsing completely. Binance declined to comment on the internal memo.
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The pair announced Tuesday that Binance had agreed to bail out FTX after a surge in customer withdrawals sparked a liquidity crisis. The news shocked the cryptocurrency industry.
Changpeng Zhao said over the weekend that his company plans to sell FTX’s own digital tokens, worth more than $500 million, a figure well above its average daily trading volume. FTX’s troubles have since intensified.
“We didn’t carefully plan this or anything related to it,” Zhao said.
“Less than 24 hours ago, SBF (Sam Bankman-Fried) called me. Before that, I didn’t know much about FTX’s internals. I could do some mental math based on our revenue. to guess their revenue, but it’s never going to be accurate,” said Changpeng Zhao.
“I was amazed when he wanted to talk in depth. My first reaction was to think he wanted to do an over-the-counter deal…and that’s where we are now,” he added.
Changpeng Zhao said he had ordered Binance to stop selling FTT, the token issued by FTX, after a phone call with Bankman-Fried on Tuesday.
Changpeng Zhao said that due diligence on the FTX transaction is underway. He has publicly stated that he can still walk away from the deal. Earlier Wednesday, he hinted at his thoughts on what went wrong with FTX on Twitter.
“Never use your own created tokens as collateral…If you run a cryptocurrency business, don’t borrow. Don’t use capital ‘efficiently’. Keep a large reserve,” Changpeng Zhao wrote on Twitter.
In the wake of FTX’s near collapse, Binance and other large exchanges have pledged to publish more evidence that they kept customer funds in safe reserves, ready to meet withdrawal requests.
“We have to significantly improve our transparency, proof of reserves, insurance funds, etc. There will be more action in this area. We have a lot of hard work ahead of us, not to mention wild price swings,” he wrote to The employee’s memo said.
The Binance chief also admitted that acquiring FTX, creating the world’s largest cryptocurrency exchange by far, would be tantamount to drawing a target on the company’s back.
“People think we are the biggest now and they will attack us more,” he said.
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