In particular, here’s another hypothesis for why Binance withdrew:
By ditching the deal, Binance had also avoided the regulatory scrutiny that would likely have accompanied the takeover, which Zhao had flagged as a likelihood in a memo to employees that he posted on Twitter.
Financial regulators around the world have issued warnings about Binance for operating without a license or violating money laundering laws. The U.S. Justice Department is investigating Binance for possible money laundering and criminal sanctions violations. Reuters reported last month that Binance had helped Iranian firms trade $8 billion since 2018 despite U.S. sanctions, part of a series of articles this year by the news agency on the exchange’s financial crime compliance.
How did Binance have such leverage over FTX?
When FTX in May 2021 applied for a license in Gibraltar for a subsidiary, it had to submit information about its major shareholders, but Binance stonewalled FTX’s requests for help, according to messages and emails between the exchanges seen by Reuters.
Between May and July, FTX lawyers and advisors wrote to Binance at least 20 times for details on Zhao’s sources of wealth, banking relationships, and ownership of Binance, the messages show.
In June 2021, however, an FTX lawyer told Binance’s chief financial officer that Binance wasn’t “engaging with us properly” and they risked “severely disrupting an important project for us.” A Binance legal officer responded to FTX to say she was trying to get a response from Zhao’s personal assistant, but the requested information was “too general” and they may not provide everything.
By July of that year, Bankman-Fried had tired of waiting. He bought back Zhao’s stake in FTX for about $2 billion, the person with direct knowledge of the deal said. Two months later, with Binance no longer involved, Gibraltar’s regulator granted FTX a license.
That sum was paid to Binance, in part, in FTX’s own coin, FTT, Zhao said last Sunday—a holding he would later order Binance to sell, precipitating the crisis at FTX.
Looks like it was a massive strategic error accepting Binance as an investor in the first place (they were the no.1 exchange, so had incentive to derail any smaller exchange; derailing is made easier by being an insider via investment!). And then a massive tactical error paying Binance back in FTT! (And this is not to mention the (likely) massive error of engaging in “fractional reserve banking” with a crypto exchange..)
They may not have had better alternatives at the time. But yeah, then rather accept slower growth or give up – except if you’ve got an extreme upside-focused mentality that isn’t worried about negative consequences.
This is interesting: https://www.reuters.com/technology/exclusive-behind-ftxs-fall-battling-billionaires-failed-bid-save-crypto-2022-11-10/
In particular, here’s another hypothesis for why Binance withdrew:
How did Binance have such leverage over FTX?
Looks like it was a massive strategic error accepting Binance as an investor in the first place (they were the no.1 exchange, so had incentive to derail any smaller exchange; derailing is made easier by being an insider via investment!). And then a massive tactical error paying Binance back in FTT! (And this is not to mention the (likely) massive error of engaging in “fractional reserve banking” with a crypto exchange..)
They may not have had better alternatives at the time. But yeah, then rather accept slower growth or give up – except if you’ve got an extreme upside-focused mentality that isn’t worried about negative consequences.
I assume AI timelines also contribute to the rush