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Following FTX’s liquidity crisis, the CEO of Binance offers “two significant lessons.”
According to Binance CEO Changpeng “CZ” Zhao, there are “two important lessons” to be gained from the FTX tragedy, namely the advice to avoid using one’s own tokens as collateral and to maintain “huge reserves.” Zhao provided two takeaways from the substantial “liquidity constraint” at FTX in a tweet on November 8 that led to Binance’s non-binding letter of interest to buy the struggling exchange. Two important lessons are – never put your own token up as collateral and avoid borrowing if you run a crypto firm. Don’t spend money “efficiently” and possess a sizable reserve. Binance has never put BNB up as security. Zhao said that his exchange’s token has never been used as collateral for its services and stated that his first lesson is to make sure that a firm’s collateral does not consist of a token that it has produced.
After Zhao tweeted on November 6 that Binance would be selling its FTX Token holdings because of “new findings” regarding FTX’s alleged connections to the trading firm Alameda Research, which revealed the company had sizable FTT holdings, it appears that FTX’s liquidity troubles followed. Although Zhao stated in a tweet on November 8 that Binance would soon offer proof of reserves in an effort to be completely transparent, adding that “banks run on fractional reserves,” Binance does not yet disclose proof of the reserves it utilizes as collateral. Cryptocurrency exchanges shouldn’t.
Shiba Inu whales have moved approximately 1.5 trillion SHIB in total over the last 24 hours in a number of lump sum transfers of this meme coin. Most of it was transferred away from the FTX exchange. The asset’s price has dropped by about 8% over the last day, according to current data. Before withdrawals were restricted, 1 trillion SHIB was transferred from FTX. Three transactions involving Shiba Inu were made via anonymous wallets, according to data published by Etherscan. A staggering number of 794 billion meme coins was carried by these transactions, which totaled 502,385,000,000, 183,243,945,997, and 108,280,591,660 meme coins. In Fiat, this is equivalent to $8,741,940. From a wallet on the FTX exchange, 502.3 billion SHIB was transferred to the address. There are currently a staggering 1,002,404,900 Shiba Inus in this wallet. Details of the wallet reveal that all of these meme coins were taken from FTX in two lump sums of 500 billion each, suggesting that the owner is concerned about the exchange and the assets it is holding on behalf of its customers. The fact that FTX recently restricted withdrawals to $1,000 may be an indication that the exchange has run into financial trouble. From Coinbase, 183,243,945,997 SHIB were sent to an anonymous wallet. According to data from Etherscan, 108,280,591,660 Shiba Inus were transferred from one anonymous wallet to another.
Zhao’s second takeaway from the collapse of FTX is that cryptocurrency businesses should avoid borrowing and instead choose to keep sizable reserves. This may be a reference to FTX users who on November 7 complained about sluggish withdrawals, which sparked rumors the exchange didn’t have enough to cover user funds. Zhao’s tweet affirming Binance’s liquidation of its FTT holdings ultimately led to what some have referred to as a “bank-run” on the exchange, with analytics firm CryptoQuant data showing that FTX’s Bitcoin balance had dropped by 19,956 just on November 7. FTT’s price has dropped by 75% in the past day as of this writing, from its opening price of $22.14 to roughly $5.70 at this time.