Sam Bankman-Fried tried to disrupt the stablecoin and the larger crypto market last month to safeguard FTX, according to correspondence reviewed by The Wall Street Journal and others familiar with the issue.
Changpeng Zhao, CEO of Binance, addressed Bankman-Fried in a Signal group conversation on Nov. 10:
Stop trying to depeg stablecoins.
The conflict originated from transactions by Mr. Bankman-Fried’s business, Alameda Research, that Binance’s CEO and others thought might destabilize tether, a dollar-pegged stablecoin. A dip in tether’s price might have driven down other cryptocurrencies due to its prominence. Paolo Ardoino, CTO of Tether Holdings Ltd., Justin Sun, inventor of Tron, and Kraken co-founder Jesse Powell were all in the Signal group, according to persons familiar with the talks.
The clash reflects the crypto market’s nervousness as FTX fights for survival and investors fear contagion. It highlights the crypto market’s unusual business methods. Due to collusion and antitrust issues, such a chat group is inconceivable in conventional markets. Mr. Ardoino voiced fears on Nov. 10 that Alameda was attempting to drive down the price of tether and other cryptocurrencies.
Industry participants suspected Alameda was seeking to reduce its obligations, which are denominated in volatile tokens whose value would have fallen in a market crash. Tether fell more than 2 cents after Mr. Zhao’s warning. Mr. Bankman-Fried called prospective rescuers for financing to fund FTX’s multibillion-dollar deficit. A day ago, Binance cancelled a rescue package. 11/11 FTX and Alameda filed for bankruptcy.
Alameda borrowed more than 1 million tether from crypto loan site Aave on Nov. 10, including a 250,000-tether transaction that attracted traders’ attention online. The hedge firm swapped some tether for competitor stablecoin USDC, raising fears that Alameda was attempting to devalue tether. Stablecoins like tether are crucial to cryptocurrency trading in the last two years as traders prefer stablecoins over fluctuating digital tokens.
Mr. Bankman-Fried disputed that Alameda tried to knock tether off its peg. Bankman-Fried called the accusations “absurd.” He said that trades of that amount wouldn’t affect tether’s price. A source close to Alameda claimed the tether transactions were meant to settle holdings and repay loans.
Mr. Zhao argued that the concern wasn’t the quantity of the trades but rather the frequency, which might overwhelm market makers whose trading activity helps maintain tether at $1. If too many sell orders come in at once, market makers may struggle to purchase, causing a price decline.
Bankman-Fried and Zhao were lifelong opponents. Mr. Zhao’s November statement that Binance would sell its FTT assets released a flood of financial pressure on Mr. Bankman-Fried’s firms, which then came to collapse.