Changpeng Zhao Turns Down Offer to Invest in FTX
In March 2019, Binance CEO Changpeng “CZ” Zhao declined an offer from former FTX CEO Sam Bankman-Fried to invest $40 million in creating a cryptocurrency futures exchange, according to Michael Lewis’ book “Going Infinite.” Instead, Binance decided to develop its own futures exchange.
The Birth of FTX
After being turned down by CZ, Bankman-Fried went on to establish FTX in May 2019. However, the exchange faced financial difficulties and filed for bankruptcy in November 2022, leading to the ongoing SBF trial.
Sam Bankman-Fried’s Vision for a Crypto Futures Exchange
Bankman-Fried recognized the potential of creating a cryptocurrency exchange but was unsure how to proceed. In 2018, he launched CryptonBTC without a clear strategy for promotion or customer acquisition. He proposed developing a futures platform for existing crypto exchanges, where Alameda would provide the technology and the exchanges would bring in customers.
CZ’s Reservations
CZ had reservations about this model as it could result in a complete loss of collateral for the exchange if there was an unfavorable trade. Bankman-Fried’s alternative design, which involved constant monitoring of trades and immediate liquidation of positions in case of losses, was more reassuring to CZ.
The Collaboration and FTT Token
Bankman-Fried collaborated with CZ and sponsored a Binance conference in early 2019. This led to Zhao appearing on stage with Bankman-Fried, adding legitimacy to their presence in the crypto space. To fund the project, Bankman-Fried introduced the FTX token (FTT) with a buyback and burn mechanism.
FTT Token Valuation
FTX generated 350 million FTT tokens in May 2019, despite facing regulatory hurdles. Some were offered to FTX employees and key figures in the crypto industry at low prices. Bankman-Fried later regretted undervaluing the tokens when they traded higher on FTX.
CZ’s Offer to Purchase a Stake in FTX
Shortly before the listing of FTT, Zhao contacted Bankman-Fried and offered to purchase a 20% stake in FTX for $80 million. This marked a shift in CZ’s interest towards Bankman-Fried and FTX.
Hot Take: Missed Opportunities and Ongoing Trial
The decision by CZ to turn down the offer from Bankman-Fried highlights missed opportunities for Binance in the futures exchange market. Meanwhile, the bankruptcy filing of FTX has led to an ongoing trial for SBF. These events serve as reminders of the risks and challenges faced in the crypto industry.
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