Regarding the comparison between FTX (FTT) and Binance (BNB), I have written two articles in the past. The first one, "Talking about FTT and BNB", was written last year when FTT exploded and FTX was at its peak, and the market praised it. The second one, "Xiabi Observation: Talking about FTX and Binance again", was written in July of this year. This article is just a conclusion, and I will not talk about this topic anymore.

I thought Binance (bnb) would win, but I didn’t think it would win in this way, nor did I think it would be the situation it is today. FTX suddenly sold itself. It is better to say that FTX was defeated by itself and was backlashed by the market rather than being defeated by Binance.

Why did FTX lose?

A week ago on Twitter, a crypto analyst revealed that the balance sheet of Alameda, an investment institution under SBF, had problems. Simply put, it was insolvent. The liabilities were loans denominated in US dollars, while the assets were mainly altcoins that SBF highly controlled, not as good as FTT, Sol, etc. Considering the instability of altcoins, theoretically it was already insolvent. Subsequently, SBF explained and denied on Twitter, saying that there were more assets that were not included in the balance sheet.

The news of insolvency caused some users to worry and started withdrawing their coins. Yesterday evening, FTX exchange announced that it would suspend withdrawals because it did not have enough assets. Then, SBF tweeted that FTX had encountered a major crisis and had asked Binance (CZ) for help. Binance was considering investing in and fully acquiring FTX.

Here is some additional information. What is the relationship between SBF, Alameda and FTX? SBF (explosive head) is the founder of Alameda and FTX. Alameda is an institution focusing on crypto asset investment, including but not limited to secondary market transactions, primary market investment, and deep participation in the Defi market; FTX is an exchange created by SBF.

As early as the second half of 2020 and 2021, high-level DeFi players discovered that Alameda had a huge amount of funds participating in DeFi mining. Because of the large amount of funds, after Alameda participated, the originally lucrative mines became less profitable for ordinary community players. Some people questioned where Alameda got the huge funds? They suspected that they used the user reserve funds of the FTX exchange. After all, the two institutions have the same boss, and the boss himself is a trader. However, since FTX's data is not public, this doubt cannot be confirmed. This incident shows that this is true.

At present, FTX's operating model is more like a bank model than an exchange model. It keeps a portion of the funds deposited by users in the exchange as daily reserve funds, and uses the rest for capital operations, including but not limited to other exchanges' financial management, speculation, primary market investment, and on-chain Defi mining.

This operation of FTX is strictly illegal and is equivalent to misappropriation of customer funds. FTX is an exchange, not a lending platform like Voyager, Celsius, and Blockfi. Users deposit money in the exchange for trading, not for financial management. It is possible to withdraw money at any time. As an exchange, it must have sufficient funds to ensure that users can withdraw money at any time, even in extreme cases.

When the market environment is good, the banking model has low risk and can bring huge returns due to the leverage effect. However, once the market turns bad, or a huge position goes bankrupt (such as Luna), it will cause huge losses, which will directly cause losses to users (users who cannot withdraw their money).

As the saying goes, profit and loss come from the same source. Running an exchange is not like running a bank. The core competitiveness of an exchange is to provide a good trading experience and help users keep an eye on their wallets. It is not to invest everywhere with users' funds. Have you ever heard of the New York Stock Exchange, Hong Kong Stock Exchange or Shanghai Stock Exchange investing everywhere with users' money (and with leverage)?

In comparison, why is Binance more stable and capable of playing the role of the ultimate savior?

The answer to this question is very simple, and it can be found in my first article "Talking about FTT and BNB". The genes and values ​​of the two companies are different. Binance founder CZ is from IT and has faith in the crypto world (he sold his only house to buy BTC in the early days). He has a strong product gene and geek spirit, so Binance studies all day long how to make good exchange products, how to serve more user groups, and how to lower the threshold and broaden the boundaries of crypto finance. The foundation of the survival of the exchange is security and transparency. Binance has a full set of security strategies and private key management mechanisms. All large user funds are managed in cold wallets. In order to prevent possible future situations similar to hacker theft of coins, the SAFU fund was established, and part of the profit was allocated to the SAFU fund, which is used to compensate users in advance after risks occur to avoid user losses. Transaction fees are the long-term profit source of the exchange. Although limited, limited ones can last for a long time. Therefore, Binance has developed all the way, and the overall feeling is very stable.

SBF is an elite from Wall Street, an arbitrage trading expert, and a trader by nature, good at finding trading opportunities in the market. SBF has a very good financial sense, and his first pot of gold came from the arbitrage of Bitcoin between different exchanges in 2017. SBF's genes are the way of playing on Wall Street, lending, leverage, arbitrage, and hedging. For the exchanges opened by themselves, it is a shame for the trading elites to see a huge amount of user deposited funds lying in their wallets, so it is easy to understand why SBF took the user's funds to personally participate in the Soha and Defi. For the exchange boss to personally participate in the event, it is a double-edged sword. If played well, it can hurt the enemy, but if played badly, it is easy to hurt oneself. Now he has hurt himself.

What will the future hold?

Yesterday, CZ expressed on Twitter that he intends to acquire the FTX exchange in full, but this is only a preliminary, non-binding intention after a comprehensive assessment of the risk position.

Will Binance acquire it? In fact, Binance does not need to do so for its own benefit. It is in the best interest of Binance to wait for FTX to go bankrupt naturally. Moreover, according to my observation, most of FTX's users are actually Binance's users, and the user overlap is very high. FTX's products are not complementary to Binance's products or businesses. If Binance acquires it, it may be out of rescue for the entire industry, so that the collapse of FTX will have the least impact on the industry and users. If after evaluation, it is felt that the risk position is too high to be taken down, I believe Binance will also do some rescue work appropriately to reduce the impact of FTX on the entire industry.

Summarize:

Subjectively, I don’t want FTX to collapse. It’s always a good thing to give users in the market an additional exchange option. However, the market is like this, with its own development laws, which are often not based on people’s subjective wishes. Perhaps the collapse at this time may be larger than the future development, and the negative impact on the market and the industry will be smaller. The entire industry will also learn lessons from it and benefit from it.

Perhaps, the exchange industry itself has similar rules as the Internet industry, with the top 1 or 2 players occupying the vast majority of the market share, such as Google and Baidu in the search market; Tik Tok and Youtube in the video market; Apple and Android in the mobile phone market; Microsoft and Apple in the operating system market; Alibaba and JD in the domestic e-commerce market; WeChat and Weibo in the domestic social field. There is already Binance in the exchange, so who will be the second brother in the future development? Coinbase? Or OKX? Huobi? Or other dark horses that suddenly emerged.

The entire crypto-finance world is like the human immune system, which is always evolving iteratively. The evolution process is always accompanied by large fluctuations and pain, just like the human body needs to be infected with a virus so that the immune system can learn and recognize the virus and form immunity to the virus in the future. As long as it is a free market and free finance, the direction of market evolution will definitely get better and better. Those that do not conform to the long-term development of the market will naturally be cleared out. Long-term bullish on crypto-finance!