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When it rains, it pours ☔️ On top of that, if you’re in the US it’s midterms so go out and vote!
I’m not one to focus on crypto in my pieces, but the past 24+ hours have been eventful to say the least. Here’s a TLDR as the situation continues to unfold. I’m intentionally simplifying this for comprehendibility.
First of all, Binance and FTX are exchanges (centralized ones to be specific). Binance is the largest by volume, ~10x larger than second place. FTX is normally second on the list, but there’s been increased activity across the board.
Coindesk, a crypto focused publication, released an article last week detailing Alameda Research’s balance sheet. Who’s Alameda Research? FTX’s sister company also owned by Sam Bankman-Fried (SBF).
FTX is the exchange that allows for crypto trading, while Alameda Research makes trades in the market. The companies are functionally separate, but ‘blood relatives’ through their owner SBF.
In the article, Coindesk revealed that a significant portion of Alameda’s balance sheet included FTT, FTX’s token. Holder’s of FTT receive benefits like reduced trading fees on the FTX exchange.
So where does Binance come in? Binance was an early investor of FTX back in 2019 and held ~$2.1 billion in FTT as a result.
Due to recent events and growing reality that Binance and FTX were on a collision course to become serious competitor (and some founder drama), Binance announced they would sell their FTT stake.
This created an accelerating death spiral as Alameda used their balance sheet to prop up the price of FTT as Binance sold their stake.
FTX was relatively quiet about this situation, though they did tweet out a meme to instill confidence, unsuccessfully.
This will become a crypto meme for years to come
Eventually, Alameda Research ran out of dry powder as selling pressure continued. FTX users started withdrawing their funds and selling their FTT, accelerating selling pressure.
By the morning, FTX made a huge announcement — They were going to be acquired by Binance, confirming rumors of liquidity issues due to the dropping price of FTT.
1) Hey all: I have a few announcements to make. Things have come full circle, and FTX.com’s first, and last, investors are the same: we have come to an agreement on a strategic transaction with Binance for FTX.com (pending DD etc.).
CZ (CEO of Binance) confirmed minutes later.
This afternoon, FTX asked for our help. There is a significant liquidity crunch. To protect users, we signed a non-binding LOI, intending to fully acquire FTX.com and help cover the liquidity crunch. We will be conducting a full DD in the coming days.
Bonus points for Binance for including the ability to pull out from the deal at any time. Game, Set, Match.
If you’ve watched Game of Thrones, this is a Red Wedding type of moment (chills went down my spine while typing this 😨).
I won’t overlay SBF and CZ’s faces. Too soon.
This story doesn’t end here, which is why this move impacts the broader crypto markets. Binance is acquiring FTX, not Alameda Research. Alameda Research has spent their capital to shore up FTT and making deals with other lenders with FTT as collateral.
If FTT price goes down, FTX and Alameda aren’t the only ones impacted. The lenders are as well as well as anyone exposed to FTT.
So what? We now start to see ripple effects across the whole crypto ecosystem with broad selloffs.
So there you have it, the saga is still continuing, but expect this to be headlines for the rest of the week and beyond as more details emerge. This situation looks similar to what happened with Luna/Terra and Celsius back in May and June respectively.
Known unknowns
Will Binance follow through with their acquisition of FTX, or will they find more skeletons in the closet and back out, causing more disruption in the market?
How bad will the collateral damage be? Who else has skeletons in the closet that will be revealed due to second order effects?
Will Alameda Research end in insolvency?
Regulators are watching closely
There is now another case study regulators will reference for their argument to provide stronger protections for consumers.
Bitcoin Magazine @BitcoinMagazine
BREAKING: 🇺🇸 U.S. CFTC is monitoring Binance's acquisition of FTX, spokesperson tells Reuters
IMO at this point, consumer protections are needed at least to some degree.
Other figures are coming out of the woodwork
Some notorious names from what seems to be ages ago are joining in on the conversation:
Su Zhu (of 3 Arrows Capital, a now bankrupt crypto hedge fund from event back in May and June) tweeted for the first time in over 3 months. Maybe it’s a greeting to new friends who may become bankrupt in the near future?
On top of that, Cobie, a notable crypto influencer held a Twitch Stream and look who joined as a special guest, Do Kwon of Luna/Terra fame?!
Shortly after, Martin Shrekli (of Pharma Bro notoriety) joins in:
I guess drama brings everyone together 🤷🏻♂️
If you want to learn more about the context and background of the situation, check out these Twitter threads by Alex Valaitis and hodlKRYPTONITE.
I guess the one silver lining of all this is ETH is very close to becoming deflationary due to all the action in the market, thanks to the Merge a couple months ago.
As mentioned above, there are many implications from a financial, ecosystem and regulatory POV.
And if you’re building in Web3, you may be shielded from a lot of the chaos.
However public perception is important when we think about mainstream adoption from a retail, business, or institutional level. Crypto as a word will continue to have a bad taste in people’s mouths with news headlines highlighting bankruptcy, bad actors, and drama.
Web3 is a beautiful thing and hopefully will enhance and transform industries for the better. There is also baggage like what is going on today. As we think through how we bring the next waves of adoption to millions and billions, we need to keep this in mind.
Phew! Onto a lighter topic.
As I’ve been involved in various Web3 communities, I’ve come across community-led initiatives that are inspiring and fun. I’ve written about the importance of a strong community and how they can support and scale business functions.
So what are some examples of this I’ve seen in the wild?
JUMP is a Web3 marketing community, with almost 2,000 members that are actively involved or entering Web3. I hold this JUMP close to my heart as I’ve made friends both online and IRL.
As the community has grown, a core group of contributors have emerged helping the team to facilitate events, set up committees for larger initiatives, and create content.
Jason Keath, an active member of the JUMP community had the great idea of creating a PFP collection that members could rock. And from there, the Swoopahs collection was born.
There’s a few notable points about the project and its relationship with the JUMP community:
Swoopahs had the blessing from the JUMP team: This isn’t a haphazard effort by a community member. Jeff (JUMP founder) actively supports the project because of the collaborative process the project had with the original community.
Mutually aligned incentives: 10% of Swoopah sales go to the JUMP treasury — A win for Swoopahs is a win for JUMP.
Swoopahs complements JUMP artistically: The name and creative direction of JUMP is a nod to Jeff’s background as a professional skydiver (he’s ‘jumped’ thousands of times!). The name and creative direction of Swoopahs is a nod to JUMP and Jeff.
Co-creation with the community: This initiative was led by Jason, and brought to the finish line by the community. How did the name ‘Swoopahs’ come about?
Though not a small undertaking, this is what strong communities are able to do. They take an idea and take it further.
I look forward to seeing how Swoopahs becomes a strong sub-community within and alongside JUMP and strengthens the JUMP community as a whole.
If you want to learn more about the story of Swoopahs, check out Jason’s piece here.
Though less exciting than a PFP collection, one common and important community-led initiative is through newsletters. This is a great way for community members to catch up on the latest news regardless of how active they are.
We see this across many strong communities, each with their own take on these newsletters:
NounsDAO Newsletter: Led by maty.eth, this newsletter keeps all NounsDAO members informed of all the initiatives and active proposals within the Nouns community.
They sent out an update earlier today looking to reward creators who’ve attempted to make Nouns go viral on social media.
TGID (Thank God It’s Doodles): Led by Doodlifts (I met him yesterday, he’s awesome!), this is a weekly newsletter that compiles news from the Doodles ecosystem and highlights community thoughts and perspectives. On top of that, the newsletter design complements the Doodle’s colorful and friendly vibes.
Rug Radio Rag: Led by Branigan and Maxand98, this publication is independent from Rug Radio and focuses on providing objective updates about Rug Radio. On the note of being independent, they walk the talk.
Their most recent edition of the newsletter outlined why they were voting no on a specific community proposal. I appreciate the balance between keeping the community updated while sharing thoughtful takes.
Community-led initiatives are powerful flywheel effects for multiple reasons:
This encourages the community to get involved, increasing retention and empowering the community to have ownership on top of the NFTs or tokens they might hold. JPEGs and tokens are the ‘talk’, active involvement and contribution are the ‘walk’.
Teams are able to delegate projects to community members. This doesn’t mean asking the community to do work that you wouldn’t want to do. Rather there might be community members that are skilled and willing to help with specific projects. The balance here is providing resources and support (if appropriate), but in a way where you maintain independence for the community member to do their thing. Sorta like people management 😉
Many of these efforts are voluntary. Rewarding good community behavior (via perks like prioritized access to an event activation or a second gen mint) can become another way to encourage other community members to contribute in meaningful ways. Balancing the expectation of reward will be key is this is employed.
As I like to say, give your community an inch and they’ll give back a mile. You’d be pleasantly surprised with what might happen!
See you tomorrow folks.
Collect this post as an NFT.
