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Downfall of FTX: How Rivalry Between Crypto Titans Spelled Disaster
Witnesses in Sam Bankman-Fried’s (SBF) fraud trial have shed new light on his intense rivalry with Binance CEO Changpeng Zhao (CZ). Witnesses have painted a picture of a relationship that started well but turned sour as FTX grew in prominence.
The new revelations surfaced after star witnesses Gary Wang, Nishad Singh, and Caroline Ellison completed their testimonies in a New York court over the past week. Information from the three points to a friendly relationship between the crypto titans that devolved into a power struggle before FTX’s collapse.
How Crypto Kings Fell Out
The first of Bankman-Fried’s inner circle to take the stand, Ellison said one of SBF’s intentions was “getting regulators to crack down on Binance.” SBF later accused Binance of a coordinated attack while trying to rescue the company in 2022, according to court documents.
“Over the past few months, Binance has been engaging in a PR campaign against us… They leaked a balance sheet… [and] blogged about it.”
The business feud that ended when FTX filed for bankruptcy in November 2022 started positively when Binance chose to invest in FTX. At the time, Zhao was quoted as saying,
“Sam’s a genius, let’s fund him, he can cover markets we can’t and take risks we don’t want to take.”
But as FTX’s position became more dominant, SBF allegedly started using his growing influence to turn regulators against Binance. The move appeared to anger Zhao, who tweeted, without any reference to SBF:
“We won’t support people who lobby against other industry players behind their backs.”
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Later that day, Binance sold FTT, FTX’s native token, which it paid Binance in exchange for Binance’s earlier equity investment. The sale coincided with the release of a leaked balance sheet that revealed the outsized role FTT played in the health of the FTX empire.
Market panic saw FTT slide to almost nothing and exposed FTX’s lack of liquidity as customers rushed to withdraw their assets.
CZ’s Tweet Caused FTX Downfall: Ellison
CZ has denied orchestrating the takedown of FTX, arguing that a company cannot collapse because of a tweet. In a 2022 interview at the Milken Institute, CZ said SBF should not have tweeted but rather focused on fixing FTX’s financial problems.
“I think only a psychopath can write that tweet. When he tweets about a sparring partner and when his house is burning, he’s losing focus,” said Zhao.
However, the issue of who leaked the balance sheet that preceded CZ’s FTT tweet remains an open question. Ellison testified that Zhao’s tweet intended to hurt Alameda and FTX more than sell FTT.
Zhao also appeared irritated when speaking about SBF’s lobbying in an interview with Vanity Fair.
“It’s just not a smart thing to do, to bad-mouth anybody. Especially a bigger competitor.”
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