This week, I talk with Dom-Madori Davis about the coalition of VCs that are standing for reproductive rights. And Jacquelyn Melinek comes on to break down the FTX/Binance saga that’s unfolded over the past week (and that continues to develop). And as always, we break down the biggest stories in tech. Articles from the episode: Other news from the week:
A number of crypto exchanges are rushing to publish proof-of-reserves in a seeming attempt to reassure investors their funds are safe as fellow exchange FTX melts down. Proof-of-reserves (PoR) are independent audits by third parties that aim to provide transparency and evidence that a custodian holds the assets it claims to own on behalf of its clients. Auditors then aggregate balances into something called a Merkle tree, which entails all client balances. FTX exploded this week following a CoinDesk report that showed a June 30 balance sheet of its affiliate trading firm, Alameda Research, was largely made up of FTX’s native token, FTT. This all could have been avoided with PoR, Sergey Nazarov, co-founder of Chainlink, said to ZebethMedia. “There was a balance sheet issue and it became known to many depositors all at once,” Nazarov said. “And because it was a surprise, there was a bank run that led to insolvency.” But imagine if depositors knew what FTX and Alameda Research’s balance sheets were from the beginning.
FTX’s downfall will heighten the need for regulation but also pique long-term interest from venture capitalists looking to invest in decentralized finance (DeFi), according to Michael Anderson, co-founder of Framework Ventures. “It just seems obvious that DeFi is the only way that we can continue to do these types of financial services operations in the crypto ecosystem,” Anderson said to ZebethMedia. “It gives us hope and strengthens our resolve that the things we’re pushing for are the right things to be working on.” In April, Framework Ventures launched its third fund at $400 million, with about half of it earmarked for web3 gaming. Anywhere from half to 70% of pitches the firm gets are gaming-related companies, Anderson said. But the recent situation with FTX has the firm “doubling and tripling down on everything we believe in,” which includes DeFi and regulation of centralized finance (CeFi). And while some firms like Multicoin have seemingly lost capital stored on FTX’s crypto exchange, Vance Spencer, co-founder of Framework Ventures, said the firm had no exposure. “Regulation is not something we should be against or preventing,” Anderson said. “Sensible regulation makes sense and now that [former FTX CEO Sam Bankman-Fried] has been removed from the table, we can move forward and get more vocal about centralized finance versus DeFi and the pros and cons of each.”
The once-third-largest crypto exchange FTX has fallen from prestige in the past week and has now announced it filed for Chapter 11 bankruptcy in the U.S. FTX CEO and founder Sam Bankman-Fried has resigned from his role, and Enron turnaround veteran John J. Ray III has been appointed as the new CEO. About 130 additional affiliated companies — including FTX US and Alameda Research — have also begun the bankruptcy process, FTX said in a statement. The exchange’s Bahamian subsidiary, FTX Digital Markets, and its U.S. options platform LedgerX, alongside FTX Australia and FTX Express Pay are not included in the proceedings, it stated. “The immediate relief of Chapter 11 is appropriate to provide the FTX Group the opportunity to assess its situation and develop a process to maximize recoveries for stakeholders,” Ray said in a statement. This news comes after a week-long collapse of the FTX empire as the company attempted to keep itself afloat, seeking out acquisitions and fresh capital from market players. On Tuesday, the world’s largest crypto exchange Binance signed a letter of intent to acquire FTX. But just a bit over 24 hours later, Binance backed out of the plan after reviewing FTX’s structure and books. “Our hope was to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to help,” Binance said on Wednesday. “As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged U.S. agency investigations, we have decided that we will not pursue the potential acquisition of [FTX],” Binance said in a tweet. On Thursday, Bankman-Fried said in a series of tweets that FTX International was looking to raise liquidity and was in talks with a “number of players.” He added that any money raised and existing collateral “will go straight to users.” FTX has fallen from being the third largest crypto exchange to 62nd, according to CoinMarketCap data. FTX US division is 54th. The third largest crypto exchange is now Kraken, behind Coinbase and Binance. This story is developing and may be updated as new information arises.
Image Credits: ZebethMedia We had to talk about the news that rocked the crypto world this week in our Thursday episode: the Binance/FTX deal that never was. To begin, we gave you a rundown of WTF just happened with the beef between two of the largest crypto exchanges in the world and how Sam Bankman-Fried’s storied exchange fell so far so fast, bringing down investors, cryptocurrencies and other companies in the space tumbling down with it. Welcome to Chain Reaction, where we unpack and explain the latest in crypto news, drama and trends, breaking things down block by block for the crypto curious. You can listen to the episode below: Once we ran through the background behind the situation that’s been unfolding in real-time this week, we shared our thoughts on the massive implications this fiasco might have for the rest of the crypto industry, from venture capitalists and startups to regulation across the globe. It’s a fascinating backdrop for our conversation at our crypto event in Miami next week, where we’ll be chatting with Binance CEO Changpeng Zhao (CZ), the billionaire who is seen as the catalyst for FTX’s downfall. You can use the promo code REACT for 15% off a General Admission ticket to the event to hear from CZ and plenty of other crypto market players about what the future of this tumultuous industry might hold in the coming months. Chain Reaction comes out every Tuesday and Thursday at 12:00 p.m. PT, so be sure to subscribe to us on Apple Podcasts, Spotify or your favorite pod platform to keep up with the action.
Sam Bankman-Fried said on Thursday that he will be winding down his trading firm Alameda Research, and is attempting to raise liquidity for the troubled FTX International exchange, as he scrambles to keep the world’s second largest crypto exchange alive after a bailout deal with Binance failed earlier this week. Bankman-Fried said he is engaging with a “number of players” and discussions are at various stages including letter of intents and termsheets. He also said that FTX’s U.S. business is “fine” and “100% liquid.” The 30-year-old entrepreneur, hailed as a wunderkind, said he assumes all responsibility for the mess FTX’s at and any raise for FTX International unit will be first used to do right by the customers. (Developing story)
As the crypto market digests the past few days of chaos, venture capitalists see the moment as a warning, but also an opportunity for the growth of decentralization and maturation of the larger blockchain space. “As venture investors, we take a long-term view on the industry; despite the current market turmoil, we are actively assessing and investing in the right opportunities,” Marc Weinstein, founding partner of Mechanism Capital, said to ZebethMedia. “The premise of DeFi has, if anything, been strengthened by the collapse of centralized entities from opaque counterparty relationships.” Decentralized finance (DeFi) is often associated with trusting blockchain technology to execute services through smart contracts, while centralized finance (CeFi) usually refers to more traditional business models and involves having people manage funds and manually execute services. “Market sentiment is shaken, but committed VCs with experience from several crypto market cycles will continue to invest.” Marc Weinstein, founding partner of Mechanism Capital Historically, the venture market doesn’t get “too offended” by what transpires in secondary markets, David Gan, general partner at OP Crypto, said to ZebethMedia. Regardless, he said, the seeming death of FTX is saddening for everyone, “not just in the VC space, but across the board.” When there are massive crashes and burns, it speaks to what we’ve been seeing over the past decade: It’s the Wild West out there, Samantha Lewis, principal at Mercury, said to ZebethMedia. “When summarizing it all, I see it a continuation of the phase that started when winter hit and we saw Luna and all these crazy companies crash and burn like BlockFi, Celsius and now we have FTX,” Lewis said. “As an early-stage venture investor, it’s telling me the hype is now for sure gone. But that ushers in the maturation of the space that a lot of us have been craving for a really long time.”
The world’s largest crypto exchange by volume, Binance, said it would walk away from a deal with the third largest crypto exchange by volume, FTX. On Tuesday, Binance signed a letter of intent to purchase its troubled competitor, FTX, in what appeared to be a potential bailout of the latter amid a liquidity crunch. But just a bit over 24 hours later, that plan crumbled. Binance backed out after reviewing the company’s structure and books, it said in a statement to the Wall Street Journal. “Our hope was to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to help,” Binance said. “As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged U.S. agency investigations, we have decided that we will not pursue the potential acquisition of [FTX],” Binance said in a tweet. “Every time a major player in an industry fails, retail consumers will suffer,” Binance continued. “We have seen over the last several years that the crypto ecosystem is becoming more resilient and we believe in time that outliers that misuse user funds will be weeded out by the free market.” Binance and FTX did not immediately respond to ZebethMedia requests for comment. Earlier today, sources familiar with the matter told CoinDesk that FTX’s loan commitments raised concerns among Binance’s top brass. The report follows Binance CEO Changpeng Zhao tweeting that FTX “going down is not good for anyone in the industry.” This is a developing story and may be updated if new information arises.
Crypto exchange Binance, the largest in the world by volume, signed a letter of intent Tuesday to purchase its troubled competitor, FTX, in what appears to be a potential bailout of the latter amid a liquidity crunch. But after less than a day of due diligence, Binance appears highly unlikely to go forward with the deal, sources told Coindesk. Specifically, FTX’s loan commitments raised concerns among Binance’s top brass, Coindesk reported. The report comes shortly after Binance’s chief executive, Changpeng Zhao, tweeted that FTX “going down is not good for anyone in the industry,” and the ongoing episode has “severely shaken” the confidence of consumers. FTX, helmed by billionaire Sam Bankman-Fried, found itself in trouble this week after reports revealed that the exchange was unusually intertwined with its sister entity, Alameda Research, which held large amounts of the exchange’s native FTT token. In the 72 hours leading up to Tuesday morning’s deal announcement from Binance and FTX, the latter exchange saw some $6 billion in withdrawals from its platform stoked by investor fears over its financial health. And it is embroiled in a reported months-long probe by U.S. regulators over potentially mishandling customer funds that came to light on Wednesday. Zhao and Bankman-Fried had clashed for months on social media over regulatory issues and other points of conflict before they both announced the potential deal. Their tension came to a head earlier this week after Zhao Tweeted that Binance would be liquidating its holdings of FTT, which it acquired through its participation as an early backer of FTX, as a “post-exit risk management” measure. It appeared tensions had cooled on Tuesday as Bankman-Fried called Zhao, asking the Chinese-Canadian fellow billionaire to rescue his exchange by purchasing its non-U.S. operations. Bankman-Fried offered a “huge thanks” to Zhao and Binance in a string of Tweets following that call, noting that the deal was “a user-centric development that benefits the entire industry.” Binance wasn’t Bankman-Fried’s first call, though. A spokesperson for crypto exchange OKX told Reuters on Wednesday that Bankman-Fried had approached OKX Monday morning about a potential deal, which OKX says it declined out of concerns over industry consolidation.
Crypto trading behemoth FTX fell from grace this week after the exchange experienced a liquidity crunch and agreed to give its rival, Binance, the option to purchase the company’s non-U.S. operations in what appears to be a bailout. Now, U.S. regulators are looking into whether FTX potentially mishandled customer funds on its platform, sources told Bloomberg. In addition to the liquidity crisis itself, the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) are investigating FTX’s relationship with its sister entity Alameda Research as well as with FTX US. The investigations, which haven’t been publicly disclosed, began “months ago as a probe into FTX US and its crypto-lending activities,” Bloomberg reported. Alameda Research, a crypto trading firm run by FTX chief Sam Bankman-Fried, was caught in the eye of the storm this week when its leaked balance sheet financials revealed unusually close ties with FTX through the exchange’s native FTT token. Changpeng Zhao, Binance’s chief executive, sent shockwaves through the cryptoverse when he Tweeted that his firm, an early investor in FTX and a large holder of its tokens, would be liquidating its position in FTT. Since that series of Tweets, FTT holders have been selling off their tokens in droves. Zhao claims Bankman-Fried then called him, asking Binance to rescue the troubled exchange. Binance and FTX both revealed yesterday that the former had signed a non-binding letter of intent that gives it the option to purchase FTX pending due diligence. At this point, it is unclear whether the deal will go through because of alleged concerns that have arisen during the diligence process.
