The New York fraud trial of Sam Bankman-Fried has provided new insights into the abrupt collapse of the FTX cryptocurrency exchange, shedding light on the bitter rivalry between Bankman-Fried and Changpeng Zhao, CEO of rival exchange Binance.
A year ago, FTX and Binance were significant players in the cryptocurrency sector, collectively holding nearly 46% of the spot trading market share.
Crypto Titans in Clash
According to Fortune, both Bankman-Fried and Zhao were prominent figures in the industry, with Bankman-Fried gaining recognition for his efforts to promote digital assets through sponsorships and lobbying.
However, FTX's sudden collapse in November last year sent shockwaves through the crypto markets. Bankman-Fried now faces fraud charges, accused of embezzling billions of dollars from his customers.
Throughout the trial, prosecutors presented evidence, including private notes from Caroline Ellison, CEO of Bankman-Fried's trading firm Alameda Research. These notes revealed Bankman-Fried's concerns about getting regulators to take action against Binance.
The trial also disclosed how a leaked balance sheet in November 2022 exposed Alameda's risky reliance on FTT, a crypto token issued by FTX. A tweet from Zhao, stating that he would liquidate millions in FTT, triggered a chain reaction leading to the downfall of FTX.
Bankman-Fried, the CEO of FTX, as part of a fundraising campaign aimed at rescuing the company, serious allegations have been made against Zhao, the head of a rival exchange.
Based on these documents, Zhao is accused of managing a corporate raid to remove the competition. In a recent development, Bankman-Fried, a prominent figure in the cryptocurrency industry, has made serious allegations against Binance.
To Bankman-Fried, Binance has been involved in a public relations campaign to undermine FTX, a competing cryptocurrency platform. One of the claimed tactics employed by Binance includes leaking FTX's balance sheet to a crypto news outlet.
These accusations have raised concerns and sparked a new wave of discussions within the industry. The source of the leak had been a longstanding question in the crypto community. Bankman-Fried had previously hinted at Binance's involvement in attacks against his companies but had not made explicit public accusations.
The trial has unraveled the complex relationship between the two executives in the cryptocurrency market. Initially, Zhao, an early investor in FTX, was willing to collaborate with Bankman-Fried, recognizing his expertise in covering markets and taking risks that Binance avoided.
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FTX, Binance Ties
The relationship between Bankman-Fried and the individual in question turned sour due to Bankman-Fried's increasing political influence within the United States' cryptocurrency sector. Bankman-Fried's involvement included testifying before congressional committees, advocating for cryptocurrency legislation, and making political donations to support candidates.
Accodring to Financial Times, Zhao had his share of clashes with regulators worldwide, as they raised concerns about Binance's compliance and consumer protection. Bankman-Fried's rise as a crypto leader led to suspicions that he prioritized his company's interests over those of the broader crypto sector, including Binance.
Ellison's testimony revealed the extent of the deteriorating relationship between FTX and Binance. Bankman-Fried had hoped that a regulatory action against Binance would cause Binance customers to move to FTX, but this scenario did not materialize.
Former FTX executives speculate that Bankman-Fried's lobbying campaign against Binance triggered Zhao. In November 2022, Zhao tweeted that Binance would sell hundreds of millions of dollars worth of FTT, which it had received as payment when it sold its equity stake in FTX back to Bankman-Fried.
According to Ellison, Bankman-Fried viewed the decision to buy out Binance's $2 billion stake in FTX as essential to protect FTX from Binance's actions. Zhao's tweet on the same day contributed to a decline in the price of FTT and a surge in customer withdrawals from FTX.
This panic exposed a shortfall in FTX customer funds. After failing to secure capital to rescue FTX, Zhao agreed to buy the exchange but later backed out, claiming due diligence revealed mishandling of customer funds.
FTX subsequently filed for bankruptcy Changpeng Zhao has denied attacking FTX, stating, "A tweet can destroy no healthy business."
