FTX’s token FTT crashes 80% on liquidity concerns following the Binance deal, wiping out $2 billion

Less than 24 hours after Binance announced it has reached a non-binding agreement to buy crypto exchange FTX, FTT, the token native to FTX, lost most of its value and fell as low as $3.1 on Tuesday from its $22 price on Monday, wiping out more than $2 billion in a day.

Following the crash, Binance CEO Changpeng Zhao, who also goes by the name CZ, told his more than 7 million followers that due to the “highly dynamic situation,” Binance “has the discretion to pull out from the deal at any time” and he expects “FTT to be highly volatile in the coming days as things develop.”

“There is a lot to cover and will take some time. This is a highly dynamic situation, and we are assessing the situation in real time. Binance has the discretion to pull out from the deal at any time. We expect FTT to be highly volatile in the coming days as things develop,” CZ tweeted.

https://twitter.com/cz_binance/status/1590013615897477121

FTT is a native utility token used on FTX, a global centralized exchange for crypto derivatives. The terms “FTX” and “FTT” are sometimes used interchangeably. Often described as the “backbone” of the FTX exchange, FTT provides its holders access to the FTX trading platform’s features, services, and FTX ecosystem.

Founded by Sam Bankman-Fried, the demise of FTX started over the weekend after Binance CEO CZ tweeted that his exchange would reduce its exposure to FTX and slowly withdraw billions of its holdings in FTX’s native token, FTT, “due to recent revelations that have come to light.”

A few hours later, investors panicked and started to take their tokens off FTX just as Binance dumps its FTT. According to data from Nansen, mass withdrawals from FTX have accelerated, as investors’ weekly stablecoin outflows from FTX reached a whopping $451 million.

The earlier speculations that FTX is on the verge of insolvency turned out to be true although FTX CEO Sam Bankman-Fried denied the rumor when he said early Monday morning that “FTX is fine. Assets are fine.”

According to a report from CoinDesk, Alameda holds $14.6 billion in assets plus $8 billion in liabilities as of June 30. That’s not all. CoinDesk also found that Alameda’s largest asset was about $3.66 billion of “unlocked FTT” and $2.16 billion of “FTT collateral.” This implies that the $5.82 billion in total FTT that Alameda owns is equal to 193% of the total known market cap of FTT, which is about $3 billion, according to data from CoinMarketCap.

“It’s probably the most dramatic deal I’ve ever seen in the history of the crypto industry,” said Nic Carter, a partner at Castle Island Ventures, which focuses on blockchain investments. “It consolidates basically the two largest offshore exchanges into one entity, an absolute coup for CZ and Binance — and really a disaster for FTX.”

FTX was founded in 2019 by 29-year-old MIT graduate Sam Bankman-Fried and his co-founder Gary Wang. The Bahamas-based crypto exchange FTX offers derivatives products like futures and options as well as spot trading. Once an unknown startup, FTX has become a key player in the crypto space, rivaling the likes of Coinbase and Binance.

Once admired as the king of crypto, Bankman-Fried has now lost most of his fortune. He is currently worth about $855 million, down significantly from his previous net worth of $25 billion.

FTT token is currently trading at $4.41 as of the time of writing, according to CoinMarketCap.