Liquidity in FTX

Binance will establish a fund to aid cryptocurrency projects in the FTX liquidity crisis

‘Strong’ crypto enterprises that might be experiencing a liquidity shortage will be supported by an ‘industry recovery fund,’ according to Binance CEO Changpeng Zhao, who made the announcement on Monday. Zhao announced in a tweet that the fund will welcome businesses and executives to co-invest in it. Those who are interested can submit an application through Binance Labs. Zhao’s move follows the collapse of FTX, one of the biggest cryptocurrency exchanges in the world, which was run by its former CEO, Sam Bankman-Fried. After news broke that the exchange had utilized investor and consumer money to take out loans to invest in various economic sectors through its own token, FTT, the exchange’s value crashed last week. Due to a lack of liquidity in the market, the move resulted in the loss of billions of dollars.

In terms of the daily trading volume of cryptocurrencies, Binance is the largest cryptocurrency exchange in the world. It was established in 2017 and has Cayman Islands registration. Changpeng Zhao, a developer who had previously produced high-frequency trading software, launched Binance. Initially situated in China, Binance later relocated its headquarters there just before the country’s government started to regulate cryptocurrency trading.

The United States Department of Justice and Internal Revenue Service both opened investigations into Binance in 2021 over claims that it had engaged in money laundering and tax evasion. In June 2021, Binance must cease all regulated operations in the UK, according to a directive from the Financial Conduct Authority of the UK. Binance disclosed client information with the Russian authorities in 2021, including names and addresses.

Liquidity on any trading exchange refers to the availability of entities on it to support deals between users. Binance announced a non-binding letter of intent to give liquidity to FTX in an attempt to save the business shortly after FTX crashed. The agreement was subsequently canceled, though, and FTX has since declared bankruptcy. Additionally, Bankman-Fried and Binance CEO Zhao engaged in a verbal spat on Twitter over their respective endeavors for several weeks.

Popular, publicly traded crypto tokens have experienced huge price declines since the crash, pushing the industry’s total capitalization below $1 trillion after around two months of potential valuation recovery. From a high of $21,300 the previous week, Bitcoin (BTC) fell to below $15,800 last week, a decline of about 26%. The second-largest openly traded coin, ether (ETH), had a loss of more than 33% from its peak of about $1,650 to below $1,100.

BTC and ETH were trading at $1,256 and $16,806 at the time of publication, respectively, rising from their week-ago lows but remaining much below their highs. Sathvik Vishwanath, CEO of domestic cryptocurrency exchange Unocoin, stated to Mint last week that exchanges would continue to risk liquidity if they invested consumer funds in their commercial endeavors. “As an exchange, ventures should not invest any amount above what they gain through trade margins,” he advised. “This is true even during periods of poor liquidity and trading volumes that are currently being experienced by all cryptocurrency exchanges worldwide.”