In a Nov. 8 tweet, Zhao laid out two insights following significant “critical liquidity” in FTX that ultimately resulted in a non-binding letter of intent from Binance to acquire the troubled exchange. Two major courses: 1: Never use a token you created as collateral. 2: Don’t borrow if you have a crypto business. Don’t use the capital ‘effectively’. You have a large inventory. Binance has never used BNB as collateral and we have never taken on debt. Stay #SAFU. — CZ Binance (@cz_binance) November 8, 2022 Zhao shared that his first lesson is to ensure that a company’s collateral should not consist of a token it has created, and claims that its exchange token — Binance Coin (BNB) — has never been used as collateral for the its services. FTX’s liquidity issues appeared to arise after a Nov. 6 tweet from Zhao said Binance would liquidate its holdings in FTX tokens (FTT) following “recent revelations” related to reported relationships between FTX and the trading company Alameda Research which indicated that the company had significant FTT Holdings. While Binance does not currently disclose proof of reserves it uses as collateral, Zhao said in a tweet on November 8 that in an effort to be fully transparent Binance will soon provide proof of reserves, adding: “Banks operate on fractional reserves. Cryptocurrency exchanges should not.” Zhao’s second lesson from FTX’s fall is that crypto businesses should not borrow, and should instead choose to hold large reserves — which could refer to FTX users complaining about sluggish withdrawals on November 7 , sparking rumors that the exchange. there aren’t enough to cover users’ money. Zhao’s tweet confirming the liquidation of Binance’s FTT holdings ended up sparking what some called a “bank-run” on the stock market, with data from analytics platform CryptoQuant revealing that FTX’s remaining Bitcoin (BTC) had fallen by 19,956 only on November 7th. At the time of writing, FTT is down 75% in the last 24 hours, closing at around $5.70 at the time of writing compared to an opening price of $22.14.
