Entrepreneur Sam Bankman-Fried revealed during his recent court testimony his intention to sell FTX, the cryptocurrency exchange, to industry giant Binance during the early stages of the platform’s development. Sam Bankman-Fried, collaborating with FTX co-founder Gary Wang in 2019, aimed to establish the now-defunct exchange in Hong Kong. Their vision for FTX revolved around specializing in margin trading and offering customers the ability to place larger bets, targeting a niche largely unexplored in the exchange landscape at the time.
Sam Bankman-Fried said Binance showed interest in 2022
With this unique selling proposition in mind, Sam Bankman-Fried believed that Binance might be interested in acquiring FTX. Binance stands as the world’s largest cryptocurrency exchange, registering a substantial trading volume of $4.6 billion in the past day, according to analysis website CoinGecko. Sam Bankman-Fried attested that Binance did express interest in acquiring FTX when the exchange faced difficulties last November. However, Binance ultimately withdrew from the potential acquisition, citing issues beyond its capacity to assist.
In the early days of FTX, Bankman-Fried recounted the challenges in acquiring customers but noted its growth through word-of-mouth referrals, ultimately becoming a viable business. He mentioned that FTX generated approximately $20 million in revenue in 2019, which surged to a daily revenue intake of $3 million by 2021. The innovative risk engine was one of FTX’s early attractions, according to Sam Bankman-Fried. This risk engine, responsible for liquidating traders’ positions, offered a more comprehensive perspective on customers’ accounts compared to other exchanges at the time.
FTX woes and the fate of its FTT tokens
During the platform’s construction, Sam Bankman-Fried provided philosophical input on FTX’s design, while Wang handled the meticulous coding. Cross-margin trading, a feature allowing traders to use excess margin from one trade to fulfill requirements in other trades, was a key element of FTX’s appeal from its inception. Although Binance never executed an early acquisition of FTX, Sam Bankman-Fried disclosed that an internal team at Binance was tasked with further developing their platform instead.
Describing FTT, FTX’s unsuccessful exchange token, Sam Bankman-Fried pointed to Binance’s BNB token as a source of inspiration. He also mentioned Binance’s initial investment in FTX, contributing $80 million worth of BNB as seed funding. FTX faced bankruptcy in November after a significant decline in FTT led to a rush of withdrawals, exhausting the exchange’s reserves and rendering it unable to meet customers’ mass exit requests promptly. While Binance was an early investor in FTX, Sam Bankman-Fried’s company ultimately bought out Binance’s stake using a mix of FTT and other assets, totaling $2.1 billion. FTT’s value plummeted when Binance sold its holdings of the token.
Sam Bankman-Fried highlighted that FTX’s objective with FTT was to provide account benefits to token holders, aiming to share the exchange’s success with its users. FTX initiated a program using a portion of its income to buy back FTT tokens each week, reducing the token’s supply in a manner akin to a public company repurchasing its shares. The courtroom testimony shed light on FTX’s journey, from its early vision and challenges to its growth, culminating in the intricate dynamics of token management and the complexities of the crypto exchange industry.