Throughout his testimony on Friday, Sam Bankman-Fried advised the court docket that he supposed to promote FTX to cryptocurrency alternate Binance when the agency was in its infancy.
As Bankman-Fried labored with FTX co-founder Gary Wang in 2019 to assemble the now-bankrupt alternate in Hong Kong, he mentioned he already knew he wished it to specialise in margin buying and selling and provide prospects the power to make outsized bets.
On the time, in accordance with his court docket testimony immediately, Bankman-Fried believed that FTX might set up itself as a venue that catered particularly to margin merchants, a specialty that was largely unaddressed throughout the alternate panorama again then. For that reason, he testified that he anticipated an alternate like Binance might grow to be taken with buying FTX.
Binance is at the moment the most important crypto alternate on this planet, having seen $4.6 billion value of quantity previously day, in accordance with CoinGecko.
Binance did specific curiosity in shopping for FTX, because the alternate crumbled final November. Nevertheless, the corporate backed out of a possible acquisition. As CEO Changpeng Zhao put it, “The problems [with FTX] are past our management or means to assist.”
Early on within the lifetime of FTX, Bankman-Fried mentioned “getting prospects” was a problem, but it surely unfold “by phrase of mouth” to the purpose the place it grew to become a viable enterprise. FTX noticed as a lot as $20 million value of income in 2019, Bankman-Fried mentioned. By 2021, he mentioned FTX was taking in $3 million in income per day.
One in every of FTX’s early promoting factors was its danger engine, Bankman-Fried recalled. In comparison with different exchanges on the time, FTX’s danger engine—which was accountable for deciding when merchants’ positions can be liquidated—took a extra complete view of shoppers’ accounts.
FTX’s founder mentioned he “didn’t write or learn” the alternate’s code because it was being constructed. Moderately, it was Wang who constructed the alternate line by line as Bankman-Fried gave enter on what the alternate ought to appear like from a philosophical perspective.
Bankman-Freid mentioned that cross-margin buying and selling was additionally a part of FTX’s principal enchantment when it was based. Basically, Bankman-Fried mentioned, the characteristic allowed merchants to make use of extra margin on one commerce to fulfill margin necessities on different trades.
Binance by no means made an early acquisition of FTX, nonetheless. And Bankman-Fried testified that an inside staff at Binance was used, as a substitute, to additional develop its personal platform.
When requested by lead lawyer Mark Cohen to explain FTT, the corporate’s failed alternate token, Bankman-Fried mentioned Binance’s BNB token was an inspiration. He additionally famous that Binance was FTX’s first investor, giving the alternate $80 million value of BNB as seed cash, he mentioned.
FTX filed for chapter final November after a steep drop in FTT sparked a deadly flurry of withdrawals. Because the alternate couldn’t fulfill prospects’ rush for the exit en masse, the alternate was compelled to confess it didn’t maintain 1:1 reserves of buyer property.
Whereas Binance was an early investor in FTX, Bankman-Fried’s firm had purchased out Binance’s stake by a $2.1 billion mixture of FTT and different property. FTT fell right into a tailspin final November when Binance moved to sell its holdings of the token.
Throughout testimony on Friday, Bankman-Fried mentioned that his firm’s objective with FTT was to “give accounts advantages in the event that they held it” and move alongside a number of the alternate’s success.
For instance, FTX had an initiative to make use of a portion of its revenue to purchase FTT every week, decreasing its provide by burning the tokens it acquired—much like a public firm shopping for again its shares, Bankman-Fried mentioned.
Edited by Ryan Ozawa.