The intriguing world of cryptocurrencies often presents a nuanced tale, marked by audacious trading risks and groundbreaking initiatives. One such intriguing incident revolves around Binance, a leading crypto exchange, and its decision to decline an investment support of $40 million for a futures exchange platform proposed by former FTX CEO, Sam Bankman Fried.
Set against the backdrop of an ambitious cryptocurrency futures trading platform, the episode took place in March 2019. The narratives revealed in Michael Lewis’ book “Going Infinite” maintain that Fried had envisioned a “zero-risk” futures exchange, with a fail-safe against bad trades of disproportionate collateral-proportional leverages. His idea was to create a system that tracks a trader’s actions and, in case the trader’s positions exceed the collateral, automatically liquidates their positions. Such a system could counteract the possible volatile swings in crypto prices and safeguard the exchange from bad debts.
On one hand, FTX, under the guidance of Fried, was looking to cater to institutional investors who have different risk tolerance thresholds compared to retail customers. On the other hand, Binance had a different agenda, more rooted into serving retail customers. Consequently, Changpeng Zhao, the CEO of Binance, after weighing his options, decided to turn down the investment request from FTX, and instead focused on developing a proprietary futures platform.
The refusal by Binance ruffled feathers with Fried, who reportedly labeled Zhao a “douche” for his decision. Post the refusal, FTX took the initiative to launch their futures exchange platform independently in 2019, albeit uncertain about its future success.
Their business paths intersected again in 2021 when FTX, facing a liquidity crisis, reached out to Binance for a potential buyout proposition. Once again, Zhao declined, claiming the platform was beyond salvageable.
The book revelations surface amidst the ongoing court proceedings against Fried, who’s facing charges of fraud and money laundering in relation to the collapse of FTX exchange. The apprehension around the rightness of regulations and safety come to light with these unfolding events.
In retrospect, one might view Binance‘s decision as an astute move, given the mix of regulatory complexities, trading risks, and market volatility. As the cryptocurrency industry takes giant strides and interplays with big institutional and retail investors, important lessons learned from the past could be instrumental in shaping a secure future for the sector.
Source: Cointelegraph
