FTX, the third-largest crypto exchange, crumbled and filed for bankruptcy last week, throwing the market into confusion.
Changpeng “CZ” Zhao, CEO of Binance, the largest crypto exchange, stated Monday in a Twitter Space. “Short-term, it hurts. I think it’s healthy for the industry long-term.
Photo Credit: Binance
Zhao said “there will be suffering” because many individuals lost money recently and still have money in FTX. He suggested market circumstances will improve.
“The industry won’t disappear, and the other strong players are now stronger,” he said.
Binance, Crypto.com, KuCoin, and OKX indicated last week they would provide proof of reserves to reassure users and investors after the FTX crisis. Zhao tweeted last week, “All crypto exchanges should use Merkle-tree proof-of-reserves.”
Proof of reserves (POR) is a third-party audit showing that a custodian retains the assets it claims to own for its clients.
Sergey Nazarov, the co-founder of Chainlink, told TechCrunch on Friday that these exchanges join Gemini, BitGo, and Paxos, which have employed PoR for years to prove billions in worth.
“We’re increasing openness, security, and communications with regulators worldwide,” Zhao said. I think the industry will be more robust in five years.
Binance signed an LTO to purchase FTX six days ago. Binance pulled out after analyzing FTX’s structure and books.
Binance owned equity in FTX but sold it in 2021 for $2.1 billion in Binance USD stablecoin and FTT. Binance is liquidating its FTT holdings to “minimize market damage,” Zhao tweeted on November 6.
Binance’s intention to not affect the token’s price had no effect as events unfolded. CoinMarketCap statistics reveal FTT dropped 94% to $1.35 from $23.1 last week. Zhao mentioned during Space that they sold a small amount of FTT but still had a considerable bag.
“I apologize for whistleblowing or popping the bubble, but I didn’t expect my tweet last week would trigger so much change,” Zhao added. “I don’t want to take too much credit for the Tweet, to be honest. I regret any disruption.”
The sooner a crypto flaw is revealed, the better. Zhao:
“Putting off addressing the problem is definitely worse,” Zhao said. “We’ll aim to strike a balance between whistleblowing, generating panic and dropping prices, etc., and building a healthy business and removing bad actors.”
Zhao said Binance would collaborate with other exchanges and industry participants. He tweeted this morning about an industry recovery fund to “prevent additional cascading FTX consequences.”
Four to five undisclosed funds want to invest, Zhao said. When it happens, names will be released.
“We’re also aiming to build a global crypto industry association to communicate with regulators and share best practices,” Zhao said. The association would promote PoR and transparency and serve as a communication hub for policy, thought leadership, etc.
Multiple regulators requested this, Zhao said. Binance will not run the association; a third-party company that has managed similar groups will.
“The industry is booming. We have some negatives, but many positives,” said Zhao. “I’m optimistic about our industry’s future.”
On Monday, almost 40,000 individuals visited Binance’s Twitter Space. That’s the largest Twitter Spaces I’ve ever seen (apart from Musk’s recent free-for-all with advertisers) and shows the crypto community’s hunger for answers and transparency.
Binance and other industry participants are taking steps to move forward, but the FTX scenario will have cascading repercussions for months as retail and institutional players strive to recover.
Will these words of comfort help and last?
