More revelations from the newly published Michael Lewis book ‘Going Infinite’ have claimed that Binance CEO Changpeng ‘CZ’ Zhao declined to pay former FTX CEO Sam Bankman-Fried (SBF) $40 million to create a crypto futures exchange.
CZ instead decided to develop an in-house futures exchange. According to the book, the idea of a futures-only exchange did not fit into Binance’s model at the time as it was still just a spot crypto exchange.
Futures exchanges allow traders to trade crypto using only a portion of their collateral unlike traditional spot exchanges. They are a much more flexible instrument as it allows one to earn even on the bearish market.
When Zhao turned down Bankman-Fried’s $40m offer, the FTX founder said: “He’s kind of a douche but not worse than a douche. He should be a great character but he’s not.”
Lewis wrote in his book that CZ’s decision struck SBF as an “ordinary and vaguely disappointing thing to do”. He then went on to create the now-defunct FTX exchange in May 2019, which became infamous for collapsing into bankruptcy in November 2022. The same is now at the centre of Bankman-Fried’s criminal trial which began in the US yesterday, 3 October.
Federal prosecutors have charged Bankman-Fried with orchestrating a vast scheme to siphon billions of dollars of FTX customer money into political contributions, real estate purchases, charitable donations and venture investments.
According to Lewis, Bankman-Fried’s interest in creating a crypto exchange was motivated by the “obvious opportunity” of being a “money machine”. As he was unknown to the crypto space back then, he couldn’t find a way to attract customers to such an exchange, nor did he know how to get on with the same.
Eventually, along with a small team, Bankman-Fried began to pitch existing crypto exchanges on creating a futures platform, with Alameda providing the technology and existing exchanges supplying the customers. Here, the most likely buyer in Bankman-Fried’s mind was Changpeng Zhao, wrote Lewis.
However, CZ was concerned about what Bankman-Fried was proposing. In case a futures trade went bad quickly, it could wipe out the collateral posted and leave the exchange on the hook for losses, Lewis noted.
As a part of his end goal to create a crypto futures exchange suitable for retail and professional traders alike, SBF introduced the FTX token ($FTT). It was marketed as a digital asset that indirectly promised holders a share of FTX’s annual revenues through a token buyback and burn mechanism, subsequently raising the value of the remaining tokens.
A total of 350 million $FTT tokens were minted in 2019 despite regulatory hurdles in the US. While some of them were offered at 5 cents to FTX employees and 10 cents to “important crypto people, like Zhao”, Lewis noted, CZ turned down this offer. A majority of the FTX employees did the same too.
Interestingly, CZ showed interest in the affair later when about three weeks after the listing, he called Bankman-Fried and offered to buy a 20% stake in FTX for $80m.