The recent FTX fiasco has taken the crypto markets by storm. This came as a much-unanticipated blow to a market already dealing with a bearish trend since the start of this year. As a result, most traders and investors have lost their faith in the industry, causing a cascading effect for every other crypto in the market.
However, the good news here is that this entire fiasco has taught some important lessons to stakeholders in the industry. This became evident when Changpeng Zhao, the CEO of Binance, announced that they would create an industry recovery fund for dealing with similar situations in the future.
But what is this entire initiative about? Continue reading as we get into the depth of the matter in our latest weblog.
What Triggered The Collapse of FTX?
Anyone with even the faintest idea of cryptocurrencies must have come across the name FTX in recent times. Being one of the largest crypto exchanges in the world, FTX had users hailing from all over the planet.
Since the start of 2022, FTX’s CEO Sam Bankman-Fried has been seen as a survivor in the crypto industry. Mr. Bankman-Fried took many initiatives to revive many crypto exchanges that went bankrupt following the bearish run in the market. As a result, many started to regard him as a savior of the crypto industry in this volatile environment.
But recent developments have thrown this reputation out of the window for Mr. Bankman Fried. It all started with a report from a renowned crypto publishing agency CoinDesk a couple of weeks earlier. The report showed a leaked balance sheet of Alameda Research, FTX’s sister company.
The balance sheet highlighted that Alameda Research relied heavily on the FTT tokens, FTX’s native currency. The primary concern here is the FTX company was taking many loans with Alameda Research as their collateral. So naturally, this created smoke grave liquidity concerns about the token.
Following this development, Binance, one of the largest investors in FTX, announced it would be liquidating all its FTT holdings. This announcement sent shockwaves across the crypto industry, sending traders and investors into a panic mode. Consequently, this was followed by a mass panic sell-off where everyone was trying to withdraw their funds from the FTX exchange.
Officials at FTX could have handled the situation better; instead, they stopped processing all withdrawals on the platform. Unfortunately, this only worsened the matter for everyone, with users trying desperately to withdraw their funds. However, FTX did not have the cash to process those withdrawal requests.
The Rise Of Binance As A Strong Ecosystem?
As all these events unfolded, Binance announced they would acquire FTX and help it float through this liquidity crunch. The CEOs of both exchanges took to Twitter to confirm this announcement and echo each other’s sentiment.
But this deal fell apart when Binance did its due diligence and discovered severe flaws in FTX’s books. Officials from Binance confirmed that the damage in these books is far beyond repair, and they could not help even if they wanted to. Ultimately, FTX had no choice but to file for bankruptcy a couple of days ago.
As of now, concerned authorities have launched an investigation to determine what exactly went wrong with FTX. However, some reports highlighted that Sam Bankman-Fried transferred funds worth $10 billion from FTX customer deposits to the Alameda Research hedge fund.
Many reports suggest most of the top officials in FTX and Alameda Research were aware of Bankman-Fried’s decision to move the fund. Some revelations suggest Bankman Fried and eight other people forming the core of FTX were living a lavish life in some expensive penthouse.
What Is The Industry Recovery Fund Initiative?
It is no secret that investors and traders are still dealing with the anxiety brought forward by the FTX collapse. Unfortunately, this phenomenon is also impacting many other cryptocurrencies in the industry. But on a positive note, Binance, the largest crypto exchange, announced its plan to create an industry recovery fund to reduce any further adverse cascading effects of FTX.
The CEO of Binance, Zhao, took to the microblogging website Twitter to reveal the new development this Monday. He further stated that this initiative would target projects that have solid ecosystems but has to deal with liquidity crunches. Additionally, he ensured that exchanges such as FTX that use fraudulent and dubious acts would not qualify for accessing the benefits of the Industry Recovery Fund.
This is a significant development in the crypto world since it will be very helpful in shoring up crypto projects exposed to the collapse of FTX. This fund will help them sustain prices and prevent them from falling below.
Who Will Be Joining Binance’s Latest Recovery Fund Initiative?
The collapse of FTX has impacted every crypto, no matter its size or potential. Hence it makes sense that prominent players in the industry join hands to counter these issues for good and create a safe environment for everyone.
Binance’s CEO stated this initiative is open to evert player in the industry with cash as long as they are willing to co-invest. Justin Sun is one of the very first people who have shown interest in participating in this initiative. Sun also stated that many other renowned crypto exchanges might be interested in participating in this initiative.
Some of these crypto companies, including names such as Poloniex, Tron DAO, and even Huobi Global, will join hands to navigate a way out of this crisis. Besides that, other notable stakeholders from the industry, including Simon Dixon, are also interested in joining this initiative for the greater good of stakeholders and the industry.
Will This Make Cryptos Safer?
Crypto is already very safe, all thanks to the potential of blockchain technology. However, the collapse in this market materializes only when intermediaries do something wrong. In this case, the default middleman was FTX.
However, with this new initiative from Binance, chances are high that it will create better opportunities for crypto projects with a liquidity crunch. As a result, this should create a safer and more secure environment for crypto stakeholders.
That said, the crypto market is always volatile, so only time can tell how effective or valuable this initiative will be.