Changpeng Zhao – the CEO of the world’s leading cryptocurrency exchange Binance – outlined two vital lessons following the saga between his company and FTX.
In his view, crypto exchanges should not use their own tokens as collateral, and individuals should never borrow money to run a crypto enterprise.
- In a recent tweet, Binance’s executive argued that a company’s collateral should not consist of coins it has developed and launched. He is assured that his trading venue has never used BNB for that purpose.
- Zhao’s second “big” lesson is that people should not borrow funds to run a crypto business. He added that having a “large reserve” is a key factor when operating such an entity.
Two big lessons:
1: Never use a token you created as a collateral.
2: Don’t borrow if you run a crypto business. Don’t use capital “efficiently”. Have a large reserve.
Binance has never used BNB for collateral, and we have never taken on debt.
— CZ 🔶 Binance (@cz_binance) November 8, 2022
- CZ further believes all crypto exchanges should do “merkle-tree proof-of-reserves.” He said Binance will start doing that procedure soon, which could grant “full transparency.”
- FTX’s problems started at the beginning of the week when Binance vowed to liquidate all of its FTT holdings due to “recent revelations.” As a result, the token’s valuation headed south and is currently over 75% down compared to figures prior to the announcement.
- Sam Bankman-Fried (SBF) – CEO of FTX – said the price dump should not be a concern since the trading venue has sufficient funds to cover users’ holdings. “FTX is fine, assets are fine,” he claimed at first.
- In a sudden twist of events, SBF confirmed the rumors that Binance will acquire the troubled firm. CZ also explained that his organization will help FTX navigate its current “liquidity crunch.”
- The saga between the two leading entities and the crash of FTT have caused considerable panic in the industry and a broad market collapse. Bitcoin, for one, has lost over 10% of its valuation in the past two days, while the global market capitalization has dropped way below $1 trillion.