Zhao said in a memo to employees seen by the Financial Times that the bailout, which cemented Binance’s position as the world’s largest cryptocurrency exchange, was not a “victory.” “Regulators will scrutinize exchanges even more. Licenses around the world will be more difficult to obtain,” Zhao wrote to staff early Wednesday. The message also set the pace for the deal he agreed with counterpart Sam Bankman-Fried to prevent the total collapse of FTX, which had been valued at $32 billion earlier this year. Binance declined to comment on the internal memo. The two men shocked the crypto industry when they announced on Tuesday that Binance had agreed to rescue FTX after a surge in customer withdrawals triggered a liquidity crisis. The problems at FTX accelerated after Zhao said over the weekend his company planned to sell its own FTX digital token worth more than $500 million, a sum that brought down its average daily trading total. “We didn’t plan this or anything related to it,” Zhao said. “It was less than 24 hours ago that SBF called me. And before that, I had very little knowledge of the internal state of affairs in FTX. I could do some mental calculations with our income to guess theirs, but it would never be very accurate,” Zhao said. “I was surprised when he wanted to talk. My first reaction was, he wants to do an OTC deal. . . But here we are,” he added. Zhao said he instructed Binance to stop sales of FTT, a token issued by FTX, after a call with Bankman-Fried on Tuesday. Zhao said due diligence on the FTX deal is ongoing and has publicly indicated he could pull out of the deal. In a tweet earlier Wednesday he hinted at his views on what went wrong at FTX. “Never use a token you created as collateral. . . Don’t borrow if you have a crypto business. Don’t use the capital ‘effectively’. You have a large stock,” Zhao tweeted. In the wake of FTX’s near-failure, Binance and other larger exchanges have pledged to publish more proof that they keep their customers’ funds in safe reserves that are readily available to cover withdrawals. “We need to significantly increase our transparency, proof of reserves, insurance funds, etc. There is much more to come in this area. We have a lot of hard work ahead of us. Not to mention wildly fluctuating prices,” he wrote to staff. The head of Binance also acknowledged that the acquisition of FTX, creating by far the largest crypto exchange in the world, will paint a target on the company’s back. “People now think we’re the biggest and they’re going to attack us more,” he said.
