Recently, a black swan event has been staged in the Western crypto market. The incident has a huge impact, involving about 12 million people, and the market value of the related crypto market has evaporated by about 200 billion US dollars. This article will trace the history to restore the ins and outs of the entire event, and analyze the event from multiple perspectives to restore the wildness behind the crypto market.

Key people and information Changpeng Zhao (CZ) The CEO of Binance, the world's largest exchange in the crypto industry, in December 2021, CZ became the richest man in China with a worth of US$90 billion, and ranks among the top 10 richest people in the world. Sam Bankman-Fried (SBF) CEO of FTX, the world's second largest exchange in the crypto industry, in April 2021, SBF ranked 15th in the "2021 Hurun Global Self-Made U40 Rich List" with a fortune of US$10 billion. Background Information

1.FTX and Alameda are both SBF companies, Alameda is a market maker, and FTX is an exchange

2.FTX raises money by issuing FTT, Alameda "participated" in the financing and received a lot of FTT

3.Alameda is also in the investment business, and Alameda holds a large amount of non-performing assets in the crypto industry

4.Alameda will apply to FTX for lending business, and the collateral is Alameda's "non-performing assets"

5.The FTX exchange misappropriated about 4 billion US dollars of user funds, and currently has about 8 billion US dollars in debt

6.Binance has invested in FTX, holding about $500 million in FTX shares

7.Binance's refusal to provide asset information caused FTX to struggle to obtain a Gibraltar regulatory license

The beginning and end of the incident

Binance went overseas in 2017: Binance was established in China in 2017. CZ chose to go overseas to carry out encryption business in order to avoid supervision, and has now developed into the largest exchange in the world. In the same year, SBF founded Alameda, whose business is arbitrage trading of encrypted assets in Japan and the United States. After the arbitrage opportunities dried up, Alameda turned to the market maker business.

Binance invested in FTX in 2019: 2019 SBF founded FTX and obtained investment from Binance. Alameda provided liquidity services to FTX, and FTX helped the Binance ecosystem to build liquidity and institutional products. 2021 Binance Spinoff from FTX: When FTX applied for a license for a subsidiary in Gibraltar in May 2021, it was required to submit information about its major shareholders, but Binance rejected its request. In July, FTX announced the spin-off of Binance from FTX, and the relationship between SBF and Changpeng Zhao deteriorated. FTX becomes the second largest exchange in the world in 2022: In 2022, FTX has jumped to the second largest centralized exchange in terms of trading volume. But Binance is still ahead of FTX in terms of trading volume. For example, in the past 24 hours, Binance’s trading volume was $20 billion, while FTX’s was $2.6 billion.

2022 SBF Publishes Crypto Regulation Proposal: In October, SBF published a thread and blog post on proposed crypto regulation, and he immediately met with backlash from CZ and the entire crypto industry. In the process, the SBF went to war with CZ with this tweet, intended to mock CZ's lack of political resources.

November 2, 2022 Coindesk releases report on Alameda balance sheet: According to a private document, Alameda (FTX’s trading arm) has $14.6 billion in assets, but most of the assets on the balance sheet are held by their FTT composed of tokens. November 6, 2022 CZ announces that Binance will sell all of its FTT: Binance has received $1.6 billion in BUSD and $500 million in FTT as part of the 2019 Binance divestment. If this tweet from CZ triggers a massive sell-off, then FTT will go straight to bankruptcy.

11/7/2022 CZ, Caroline and SBF exchange: Following CZ's initial tweet, there has been a flurry of back-and-forth tweets between executives of the two companies. FTX CEO Caroline Ellison tweeted that she would buy all FTTs "off the counter" at $22 each to minimize market impact. But CZ refused and insisted on an open market sale. November 8, 2022 FTT plummeted by 90%: The price of FTT began to fall rapidly, from $22 to $3, and the total market value shrank by nearly 90%. Users have also started to withdraw crypto assets and fiat funds in large quantities from FTX. A run on FTT began, announcing a suspension of user withdrawals due to a liquidity gap of $6 billion in FTX. November 9, 2022 CZ announced that it intends to acquire FTX: CZ and SBF suddenly issued their own statements, saying that Binance is conducting due diligence on FTX, and will likely acquire FTX and assume all debts. As soon as this news came out, market sentiment improved, crypto assets including FTT stopped falling, and Binance's platform crypto asset BNB surged by 30%.

November 10, 2022 CZ said it will not acquire FTX: The reason why CZ refused to acquire FTX is currently unknown, but people familiar with the matter said that US regulators will block the sale of US entities to Binance, because Binance has several issues involving the Department of Justice and the US Public IRS investigation. Then the crypto market plummeted, the overall market value evaporated by 200 billion US dollars, and BTC fell by about 30%.

On November 11, 2022, the crypto market panic run: The black swan event caused users in the crypto industry to lose confidence, and a large number of cash runs occurred. In the past 24 hours, USDT company TEDA has processed about 700 million US dollars in exchange, as the most widely used stable currency. USDT and other stablecoins have a negative premium of about 2%, and the Curve platform (stablecoin exchange platform) has also seen a large number of withdrawals.

Event cause analysis

Product factor

The direct cause of this incident is caused by Defi products or the current financial structure of Defi. Currently, various exchanges have loan and wealth management products, and users can get as much as 8-10% current wealth management income by depositing stablecoins similar to USDT. For the traditional financial market, this kind of wealth management product has been regarded as "profiteering". Most of these wealth management products do not disclose the source of their income, and most of the disclosed ones are mainly based on borrowing, but the current interest rate in the Defi lending market is about 2-4%. , the pure lending business cannot pay the corresponding deposit interest, so most exchanges will use the corresponding funds for other businesses to obtain benefits, such as quantitative trading, market makers, venture capital, etc., so once the exchange occurs withdrawals A run, there will be systemic risks. In this incident, Alameda applied for a loan business to FTX, and the collateral was Alameda's "non-performing assets". Such "non-performing assets" generally cannot be used as collateral, but both Alameda and FTX are essentially SBF, which has become The SBF mentioned by CZ is suspected of misappropriating user assets.

Market factors

The capital market is a profit-seeking market. Although CZ is the earliest investor in FTX, with the expansion of FTX, the two sides have gradually become a competitive relationship. FTX has become the second largest exchange in the world in two years, which once made the public think FTX will become the largest crypto exchange. FTX has bank and brokerage licenses and supports direct withdrawal of US dollars, which Binance is currently unable to do. In addition, in terms of investment layout, FTX has invested in almost all fields of the crypto industry, but Binance is unable to do so for some reasons. These factors have become the core reason for Binance’s attack on FTX. According to relevant sources, the problem of FTX is a common phenomenon in the encryption industry, and there is no need for public crusade. FTX’s investment institutions are also aware of the debt situation, but CZ’s public revelations are malicious. The taste of competition, Binance quickly announced its own Merkle margin plan after FTX defected, which is also mocking.

Risk factor

It is rumored that Binance in this incident may have taken the opportunity to create panic to manipulate the crypto market because of its own systemic risks, so as to short the market and repay the debt. Previously, Binance had invested 500 million US dollars in Musk’s Twitter acquisition. If he misappropriated user assets during the period, he would have a reason to short the market to repay the debt (after shorting the market, you can buy more cryptocurrencies), because users in Binance’s Assets are crypto assets not US dollars. In addition, Binance also has its own current financial products, with an annualized return of 8%. Before this, it has been publicizing its financial status and margin status, and the information is not transparent. There is currently no evidence to prove the authenticity of this reason, but Binance also does not have any relevant financial licenses and has been in a non-regulated state.

Political Factors

SBF once broke the news that Binance provides services for Iranian users, which makes it difficult for Binance to embrace US supervision. In contrast, SBF is basically a frequent visitor to the US Congress. In October, it submitted a draft regulation of the encryption industry. The main reason for these green lights is that SBF is a cryptocurrency The largest donor in the field and the second largest donor to the Biden campaign, donating about $50 million (about $200 million in actual). This made CZ have to choose to embrace Musk and stand against the Trump team, which is why Musk did not accept SBF's Twitter investment application, but accepted CZ's participation. After Musk acquired Twitter, Trump’s account was immediately restored. The addition of CZ also allowed Twitter to transform the global “WeChat” war brigade layout. If Twitter opens encrypted payment, Trump, who is a Twitter madman Maybe get more funding.