After FTX's liquidity crunch, Binance's CEO shares two key lessons

Key points: 

• CZ shares his take on "two big lessons" from the FTX saga.
• The first lesson was to ensure that the company’s collateral should not contain the tokens it created, claiming that his exchange’s token — BNB — was never used as collateral for its services.
• Zhao's second lesson from FTX's collapse is that instead of borrowing money, crypto companies have to hold large reserves. 

Binance CEO Changpeng Zhao shares his take on "two big lessons" from the FTX saga, saying that cryptocurrency companies should not use their own tokens as collateral and also hold "large reserves" ".

In a Nov. 8 tweet, Zhao made two main points in the wake of FTX's severe "liquidity crunch" that eventually led Binance to sign a non-binding letter of intent to acquire the troubled exchange.

Two big lessons:

1: Never use a token you created as collateral.

2: Don’t borrow if you run a crypto business. Don't use capital "efficiently". Have a large reserve.

Binance has never used BNB for collateral, and we have never taken on debt.

Stay #SAFU.

— CZ Binance (@cz_binance) November 8, 2022

Zhao shared that his first lesson was to ensure that the company’s collateral should not contain the tokens it created, claiming that his exchange’s token — BNB — was never used as collateral for its services.

FTX's liquidity issues appear to have emerged in a Nov. 6 tweet from Zhao, which claimed that "recent revelations" related to reports between FTX and trading firm Alameda Research showed the company had large FTT inventories. After that, Binance will liquidate its holdings of FTX tokens.

In a Nov. 8 tweet, Zhao made two main points in the wake of FTX's severe "liquidity crunch" that eventually led Binance to sign a non-binding letter of intent to acquire the troubled exchange.

While Binance does not currently disclose the proof of reserves it uses as collateral, Zhao mentioned in a Nov. 8 tweet that Binance will soon provide proof of reserves in an effort to be fully transparent, adding:

“Banks run on fractional reserves. Crypto exchanges should not.”

Zhao's second lesson from FTX's collapse is that instead of borrowing money, crypto companies have to hold large reserves -- a possible reference to FTX users complaining about slow withdrawals on Nov. 7, sparking concerns that the exchange didn't have enough funds to cover user rumors. funds.

Zhao’s tweet confirmed the liquidation of FTT assets on Binance, which eventually triggered a so-called “bank run” on the exchange, with data from analytics platform CryptoQuant showing that on November 7 alone, FTX’s Bitcoin balance fell by 19,956.

At the time of writing, FTT is down 75% in the past 24 hours, last at around $5.70 at the time of writing, compared to its opening price at $22.14.