Read a passage to understand the context of the "Amazing Battle" in the coin circle

After Sequoia Capital and other investment companies announced to write down the value of FTX to zero, FTX, once the world's third largest cryptocurrency exchange, was only one step away from death. The cryptocurrency era of its founder SamBankman Fried (SBF) has passed, but the shock brought to the currency circle by the "sky shaking battle" between SBF and "China's richest man" Zhao Changpeng (CZ) is far from over

After Sequoia Capital and other investment companies announced to write down the value of FTX to zero, FTX, once the world's third largest cryptocurrency exchange, was only one step away from death. The cryptocurrency era of its founder SamBankman Fried (SBF) has passed, but the shock brought to the currency circle by the "sky shaking battle" between SBF and "China's richest man" Zhao Changpeng (CZ) is far from over.

On November 3, some media disclosed the "legalized" business relationship between the hedge fund Alameda Research and the FTX cryptocurrency trading platform founded by SBF. Zhao Changpeng, the CEO of Binance, who once invested in FTX, immediately said that he would sell more than 23 million FTX platform native tokens FTT, and the battle between SBF and Zhao Changpeng started.

In the past few days, SBF's strongest rival Zhao Changpeng has become his only lifeline, expressing his willingness to rescue FTX, but soon withdrew his acquisition intention. In this war, SBF suffered a disastrous defeat. As of 16:00 on November 10th, FTT had fallen by nearly 90% to $2.74 in the past 48 hours. Meanwhile, media reported that insiders revealed that SBF had told FTX's clients that if no one was willing to acquire, the company would need to file for bankruptcy.

It's all foam

SBF was once known as the "mother of the coin circle" and founded the FTX exchange in 2019. Prior to this, it had consistently ranked among the top three in the coin circle and rescued struggling companies such as BlockFi and Voyager in times of crisis. According to statistics, SBF's total assets were approximately $15.6 billion, but these assets went bankrupt overnight.

On Wednesday, November 3rd, a report released by CoinDesk, a cryptocurrency news website, stated that Alameda Research, a hedge fund also founded by SBF, has a balance sheet mainly composed of FTX issued token FTTs, holding approximately 140 million,70% of FTT's circulation of 200 million piecesAlameda has assets related to FTT of $5.8 billion, accounting for 88% of its net assets.This has raised concerns among investors about Alameda's operating conditions and the possibility of FTT facing a liquidity crisis.

As soon as the news came out, on November 5th, FTX's biggest competitor, Coin An, immediately commented on this matter. Co founder He Yi on Twitter ridiculed FTX's operations, stating:

Coin An does not provide unsecured loans, participate in transactions, buy companies blindly, or spend money recklessly to sponsor. 20% of FTX's equity has been sold, and we should act with our heads up and our heads down.

On November 6th, Alameda Research co CEO Caroline Ellison finally responded on Twitter that CoinDesk's disclosed balance sheet was only a portion of the company's assets, with over $10 billion of assets not reflected, and stated that most of the loans had been repaid.SBF also made a high-profile clarification that everything was operating normally.

Subsequently, a large number of FTTs appeared on the blockchain. Zhao Changpeng, the founder and CEO of Coin An, confirmed on Twitter that these FTTs are for sale by Coin An and expressed concern about the recurrence of Luna's "death vortex" and will sell all FTTs on the books, exceeding 23 million. A great war is imminent.

Heard CZ say that, in order to stabilize the market sentiment, Alameda immediately said that she was willing to spend $22/yuan to buy all FTTs of Yenan,But many people are skeptical about whether FTX can really provide $580 million to repurchase tokens, and the war has entered a state of intense heat.

Seeing the operation of Yen An, panic began to spread, and the voice that Alameda might be insolvency became louder and louder.

As the earliest and most important market maker of FTX, it was widely believed that FTX would prioritize providing order flow to Alameda, allowing the latter to trade earlier than other traders to earn higher profits. But CoinDesk's report made the market realize that the fundamental purpose of FTX's establishment was to raise a large amount of funds for Alameda:

AlamedaBy purchasing a large amount of FTT at a low price, pushing up its price in the market, and then using the high priced FTT as collateral to lend to FTX customers, we can double our trading profits with high leverage. Under the high leverage and huge fluctuations in the currency circle,Alameda's huge foam has been threatened with bankruptcy.

On November 8th, people began to withdraw funds from FTX, and almost no one deposited funds,FTX has encountered a run on approximately $6 billion

FTX immediately suspended all withdrawals on the Ethereum, Solana, and Tron blockchains on November 8th, and a storm arrived.

Faced with the precarious situation of Alameda and FTX, SBF had to send a distress signal to Coin An According to insiders, SBF contacted CZ due to the inability to quickly find supporters or sell other non current assets in the short term.

Just a few hours later,SBF stated on Twitter that FTX has reached an agreement on a strategic transaction with Coin An that requires due diligence.

Subsequently, Zhao Changpeng also confirmed on Twitter that he had signed with Coin AnNon binding letter of intent to acquire FTX He tweeted:

This afternoon, FTX turned to us for help. They have a large amount of liquidity runs, and in order to protect users, we intend to comprehensively acquire FTX to help resolve the liquidity crisis. We will conduct due diligence in the next few days.

Zhao Changpeng stated on his Twitter that the two major lessons of the FTX incident are:

1. Never use the tokens you create as collateral;

2. Do not borrow money to do coin circle business, do not blindly pursue the effective use of capital, and should retain a large amount of reserves.

In fact, before this war, SBF and CZ had already been at war for a long time. In recent months, both sides have been vying for market share and accusing each other of manipulating their business.

Therefore, some analysts pointed out that Zhao Changpeng was the trigger for this run, forcing SBF into a desperate situation and then purchasing at a low price. This behavior is exactly what SBF was accused of doing to the company he acquired at a low price in the past. There is a strong sense of 'karma'.

On November 10th, Zhao Changpeng denied the claim of "designing and framing" SBF in an email to employees, stating that he had little knowledge of FTX's situation before. He said:

We have not carefully planned anything related to it. Before SBF called me, I knew very little about the internal situation of FTX.

I can guess their revenue based on our revenue, but it won't be very accurate.

Coin An withdrew the 'life-saving straw'

Undoubtedly, this non binding letter of intent has left Zhao Changpeng with a way out for himself.

On November 9th, Coindesk quoted sources familiar with the matter as saying,Coin An is likely not to further advance its plan to acquire FTX After evaluating FTX's internal data and loan commitments, Coin An discovered issues and began to oppose the completion of the acquisition transaction.

Coindesk later explained in an article that the executives of Coinan quickly discovered that the gap between FTX's debt and assets could exceed $6 billion.

Shortly after, Coin An announced that it would abandon the acquisition of FTX. A spokesperson for Coin An stated that the issues with FTX are "beyond our control or assistance".

Zhao Changpeng then added a crying emoji on Twitter and said, "Sad day, we tried hard, but

Coin circle investors also summarized the plot of Coin An's rescue of FTX with a cartoon:

Some analysts have pointed out that by abandoning this transaction, Coin An has also avoided regulatory scrutiny that comes with the acquisition, but US antitrust enforcement agencies may insist on investigating this merger.

Seth Bloom, an antitrust expert at Bloom Strategic Council, stated in a media interview that if US antitrust enforcement agencies believe that this has had an adverse impact on US clients, they can file a lawsuit demanding a halt to the transaction.

How bad are FTX and Alameda now?

The media reported that according to insiders, SBF told FTX's clients that,He messed up everything, and now FTX faces a gap of up to $8 billionAn insider said:

FTX is attempting to raise rescue funds in the form of debt, equity, and a combination of both.

SBF told investors on a conference call that "he messed up" and would be "very grateful" if they could provide assistance.

Analysis suggests that Alameda may have been providing funding to FTT, but no one will lend money to Alameda, which is triggering a series of chain reactions. Analysis states:

Coin An may save FTX, but it will definitely not save Alameda. This means that every person who provides loans to Alameda will issue a series of margin calls, and if Alameda defaults, the lender is likely to only receive worthless FTT. There are already rumors that BlockFi has issued a 24-hour margin call to Alameda.

Accompanied by Alameda's bankruptcy, it will lead to the bankruptcy of companies that lend to Alameda, as well as problems for those attempting to fill balance sheet gaps. The collapse of FTX can be said to be a 'Lehman moment' in the currency market, which will undoubtedly result in a larger currency market earthquake than after Terra (Luna) fell into a 'death vortex'.

In January of this year, three funds, including Softbank Vision Fund, invested $400 million in FTX32 at a valuation of $2 billionThe "butterfly effect" of the FTX crash will even spread beyond the currency circle.

Sequoia Capital said in an email on November 9 that the company had written down the value of its FTX investment to zero. Sequoia Capital informed investors that the company invested about 214 million dollars in FTX's international and American businesses last year.

In addition to Sequoia Capital, BlackRock, Tiger Global, Softbank Group, Ontario Teachers' Retirement Fund, which ranks among the top five pension funds in Canada all the year round, well-known American football player Tom Brady and supermodel Gisele B ndchen have all invested in FTX, which may also suffer together this time.

The vibration of the coin circle

What does it mean to instantly turn FTX into nothing:The fragile ecosystem, the disappearance of centralized platforms, regulatory intervention, and a series of margin calls.

Some stock analysts suggest that the weakness of FTX may bring short-term benefits to trading platforms such as Coinbase, but FTX's troubles have raised concerns about the overall fragility of the industry, which may cause more harm than help.

Needham analyst John Todaro stated that although the FTX issue has brought new customers to Coinbase, retail investors "may consider transferring assets to private wallets while centralized trading issues persist".

Coinbase CEO Brian Armstrong stated in a media interview on Tuesday that if the transaction with Coin An fails, it means FTX customers will suffer a lot of losses, and emphasized that "this is not a good thing for anyone".

Zhao Changpeng also wrote in an email to employees on WednesdayThis is not a victory

With the disappearance of FTX, it also means to some extent that the centralized exchange has come to an end, but this has triggered a deeper understanding in the market of the currency circle that still existsConcerns about centralization issues

Although Coin An has always emphasized its "decentralization" transformation, in October, Coin An was attacked by hackers due to a "cross chain bridge" vulnerability, which raised doubts about centralization.

According to the announcement by Coin An, there were a total of 44 validators distributed in different time zones on the BNB smart chain at that time, of which 26 were active validators. Some analysts believe that due to the limited number of verification nodes, most of which are controlled by Coin Security. So,BNB smart chain belongs to a chain controlled by Coin Security, which is not decentralized enough

At the same time, regulations have begun to enter the cryptocurrency market. Some analysts have pointed out that cryptocurrencies will bid farewell to the era of wild and unregulated development, and asset management agencies in the industry will generally implement a strict risk control system and complete auditing.

The media quoted insiders as saying that several months ago, regulators began investigating the relationship between FTX, FTX.US, and Alameda Research.

In addition, financial regulatory agencies around the world have issued warnings regarding the unlicensed operation or violation of money laundering laws by Coin An. According to media reports on November 4th, Coin An has been investigated by the US Department of Justice for possible violations of anti money laundering regulations. This is one of a series of investigations targeting Coin An's financial regulatory compliance issues this year.

Zhao Changpeng emphasized in Wednesday's memorandum that regulatory agencies will scrutinize exchanges around the world more strictly and licenses will be more difficult to obtain. He said:

We must significantly improve transparency, reserve certificates, insurance funds, and more regulatory actions in this area in the future. There are many difficult tasks ahead of us.

JPMorgan Chase strategist Nikolaos Panigrtzoglou stated in a report on November 9th that the cryptocurrency market is facing weeks of deleveraging after the FTX thunderstorm. He stated in the report:

Under the interaction between FTX and its sisters hedge fund company Alameda Research and the entire cryptocurrency ecosystem, 'a series of margin calls' may occur.

This makes how to deleverage cryptocurrencies an urgent issue in the new stage. The presence of strong balance sheets in the currency circle and the ability to rescue those with low capital and high leverage is decreasing in the South.

Meanwhile, Panigrtzoglou predicts that Bitcoin will fall to a low of $13000 by next summer by calculating the production cost of Bitcoin.

As of press release, Bitcoin has stopped its four consecutive days of decline of nearly 16%, rising by over 5% to $16683.

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