Binance offers to buy FTX’s non-U.S. operations to fix ‘liquidity crunch’

Binance, the world’s largest cryptocurrency firm, has reached a deal with Sam Bankman-Fried’s FTX to buy the rival crypto exchange for an undisclosed amount.

Binance CEO Changpeng Zhao tweeted Tuesday morning that “there is a significant liquidity crunch” at FTX and that after FTX asked for Binance’s help, they “signed a non-binding LOI, intending to fully acquire http://FTX.com and help cover the liquidity crunch.”

Zhao added that Binance will be conducting full diligence in the coming days, and the firm has the discretion to pull out from the deal at any time.

Sam Bankman-Fried confirmed the agreement in a tweet this morning.

Binance and its founder, Changpeng Zhao, was one of FTX’s earliest investors. In a tweet, Bankman-Fried said that Binance would be FTX.com‘s “first, and last” investor.

The acquisition impacts only the non-US businesses, FTX.com. FTX.us will remain independent of Binance. The deal, according to Tweets from both Zhao and Bankman-Fried, rests on a non-binding letter of intent, pending full due diligence.

FTT, the token native to FTX, was sharply higher on the news. It is up more than 26% in the last 45 minutes. This comes after a major sell-off that began Monday evening amid concerns surrounding the solvency of both FTX and its sister trading firm, Alameda Research. Meanwhile, Binance’s native token BNB is up 20% over the same time period.

Binance’s Zhao said in a tweet that he expects FTT to be “highly volatile in the coming days as things develop.”

Earlier on Tuesday, FTX had halted withdrawals from its platform, after spooked investors attempted to pull their funds en masse. Investor confidence was shaken when Zhao tweeted over the weekend that the company would sell its holdings of FTT.

Zhao said in his tweet that Binance has about $2.1 billion worth of FTT and BUSD, the fiat-backed stablecoin issued by Binance and Paxos, combined.”Due to recent revelations that have came to light, we have decided to liquidate any remaining FTT on our books,” he said.

The revelation also sparked concern about Alameda Research, Sam Bankman-Fried’s trading firm and sister company to FTX. A report last week on the state of Alameda’s finances showed a large portion of its balance sheet is concentrated in FTT and its various activities leveraged using FTT as collateral. Alameda has disputed that claim, saying FTT represents only part of its total balance sheet.

“The Alameda hedge fund is tied to FTX through a ton of FTT tokens and the rumors started that if they are using all of these FTT tokens as collateral… there are two issues,” said Jeff Dorman, chief investment officer at Arca. “If the price of FTT goes way down then Alameda could face margin calls and all kinds of pressure; two is if FTX is the lender to Alameda then everyone’s going to be in trouble.”

“What could have been just an isolated issue at Alameda became a bank run,” he added. “Everybody started to pull their assets out of FTX and there’s this fear that FTX would be insolvent.”

— CNBC’s Kate Rooney and Tanaya Macheel contributed to this report.

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