Binance CEO Changpeng “CZ” Zhao made a pivotal decision in March 2019. He turned down a $40 million offer from former FTX CEO Sam Bankman-Fried to create a cryptocurrency futures exchange. At the time, Binance was primarily a spot crypto exchange, and the idea of a futures-only platform was a deviation from its existing model.
This decision and the subsequent events are chronicled in Michael Lewis’ book “Going Infinite,” which tells the story of FTX’s spectacular collapse and its enigmatic founder. Bankman-Fried, undeterred by the rejection, went on to establish the notorious FTX exchange in May 2019. He perceived Zhao’s decision as “ordinary and vaguely disappointing,” describing him as “kind of a douche but not worse than a douche.” Bankman-Fried believed that Zhao had the potential to be an intriguing character but fell short of expectations.
Starting FTX was not an easy task for Bankman-Fried. Despite seeing it as an “obvious opportunity” and a potential “money machine,” he faced challenges in attracting customers and establishing connections in the crypto space. He was relatively unknown at the time, which hindered his efforts.
In a previous attempt in 2018, Bankman-Fried collaborated with Alameda Research friend Gary Wang to launch a Bitcoin exchange called CryptonBTC. Unfortunately, the platform failed to gain traction due to a lack of promotion and user participation. Undeterred, Bankman-Fried and a small team began pitching the concept of a futures platform to existing crypto exchanges. Their proposal involved Alameda providing the technology while established exchanges would supply the customer base. Bankman-Fried believed that Binance’s CEO, Zhao, was the most likely buyer for their idea.
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However, Zhao had reservations about Bankman-Fried’s proposition. He was concerned that a futures trade gone wrong could result in significant losses for the exchange. To address this risk, Bankman-Fried’s proposed design involved closely monitoring trades and swiftly liquidating positions if they turned negative. Despite Zhao’s rejection, Bankman-Fried remained determined to bring his vision to life.
To secure funding for the project, Bankman-Fried introduced the FTX token (FTT). This token promised holders a share of FTX’s annual revenues through a token buyback and burn mechanism. In May 2019, FTX minted 350 million FTT tokens, targeting international investors. Although Zhao declined the offer, FTT garnered interest from external parties and eventually listed on FTX, opening at $1 and reaching $1.50.
Interestingly, just before the token was listed, Bankman-Fried encountered Zhao at a crypto conference in Taipei. Zhao displayed a heightened interest in Bankman-Fried, leading to a surprising turn of events. Three weeks later, Zhao contacted Bankman-Fried with an offer to purchase a 20% stake in FTX for $80 million.
Currently, a trial is underway for Sam Bankman-Fried, as reported by various news outlets. The jury selection process concluded recently, with a diverse group of individuals from various professional backgrounds chosen to serve. The trial is expected to last approximately six weeks, during which the prosecution will present its case against Bankman-Fried.
In conclusion, the decision by Binance CEO Changpeng Zhao to turn down Sam Bankman-Fried’s offer to create a cryptocurrency futures exchange led to the establishment of FTX. Bankman-Fried faced challenges in starting FTX but remained determined to bring his vision to life. The introduction of the FTT token allowed him to secure funding and eventually attract external interest. The ongoing trial surrounding Bankman-Fried adds another layer of intrigue to this evolving story.
