Binance CEO Changpeng “CZ” Zhao declined to pay former FTX CEO Sam Bankman-Fried $40 million in March 2019 to create a crypto futures exchange, according to Michael Lewis’ book “Going Infinite.”
The idea of a futures-only exchange was a departure from Binance’s model at the time, as it was still just a spot crypto exchange. After mulling it over, Zhao turned down Bankman-Fried’s $40 million offer, choosing instead to develop a futures exchange in-house.
Bankman-Fried went on to create the now-infamous FTX exchange in May 2019, which subsequently collapsed into bankruptcy in November 2022 and is now at the center of Bankman-Fried’s criminal trial which began in New York yesterday.
Zhao’s decision struck Bankman-Fried as an “ordinary and vaguely disappointing thing to do,” Lewis wrote. “He’s kind of a douche but not worse than a douche,” Bankman-Fried said. “He should be a great character but he’s not.”
Unlike traditional spot exchanges, futures exchanges allow traders to trade crypto using only a portion of their collateral.
Binance did not respond to a request for comment from The Block.
Pitching a crypto futures exchange
The idea of creating a crypto exchange had been weighing on Bankman-Fried’s mind as an “obvious opportunity” as a “money machine.” However, he didn’t know how to get started, engage with ordinary people and attract customers, Lewis wrote. He was unknown in the crypto space at the time.
He’d already tried it in 2018 too, tasking Alameda Research friend Gary Wang — who went on to co-found FTX with Bankman-Fried and become its CTO — with creating a bitcoin exchange called CryptonBTC. They launched the platform with no idea how to promote it, and no one showed up to trade on it.
So Bankman-Fried and a small team then began to pitch existing crypto exchanges on creating a futures platform, with Alameda providing the technology and existing exchanges supplying the customers. The most likely buyer in Bankman-Fried’s mind? Changpeng Zhao, Lewis wrote.
Zhao was wary of what Bankman-Fried was proposing as if a futures trade went bad quickly, it could wipe out the collateral posted and leave the exchange on the hook for losses, Lewis noted. But Bankman-Fried’s proposed design would monitor trades by the second and liquidate positions as soon as they went into the red.
Bankman-Fried first met Zhao the previous year, then sponsored a Binance conference in early 2019 for $150,000. Zhao “rewarded” Bankman-Fried by appearing on stage with him — something Sam said gave them legitimacy in crypto, according to Lewis, but didn’t give him a good feel for Zhao. “CZ sort of just says things,” Bankman-Fried said. “They aren’t dumb. They aren’t smart. I didn’t have much of a sense of him until he had to make decisions.”
Enter the FTT token
Bankman-Fried remained determined to bring his vision to life — a simply designed crypto futures exchange suitable for retail and professional traders alike. “We were going to build a product that is better than any product out there,” he said. “If it works it is worth billions of dollars, but I thought there was a better than fifty percent chance it wouldn’t work.”
Bankman-Fried brought in crypto people like Ryan Salame and Zane Tackett to handle the things he didn’t know how to do — like marketing. But he also needed money to get it going, so Bankman-Fried introduced the FTX token (FTT), a digital asset that indirectly promised holders a share of FTX’s annual revenues through a token buyback and burn mechanism — a move that theoretically raised the value of the remaining tokens. It was a tactic that Binance had been doing successfully.
Despite regulatory challenges in the U.S., out of thin air, FTX minted 350 million FTT tokens aimed at international investors in May 2019. Some tokens were offered at five cents to FTX employees and ten cents to “important crypto people, like Zhao,” Lewis noted. Zhao turned this offer down too, as did most FTX employees, Lewis said — except Salame. But there was outside interest at 20 to 70 cents — a figure Bankman-Fried later regretted as being too cheap, according to Lewis. By the time it was listed on FTX and offered to the general public in the July, FTT opened at $1 and traded up to $1.50, Lewis wrote.
Just before the listing, Bankman-Fried bumped into Zhao at a crypto conference in Taipei, receiving a warm embrace. “This was the first time CZ seemed more interested in me than I was in him,” Bankman-Fried said. Three weeks later, Zhao called Bankman-Fried and offered to buy a 20% stake in FTX for $80 million.
Disclaimer: The former CEO and majority shareholder of The Block has disclosed a series of loans from former FTX and Alameda founder Sam Bankman-Fried.
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