‘Crack down on Binance’: Sam Bankman-Fried trial illuminates crypto rivalry

Testimony and evidence presented in the New York fraud trial of Sam Bankman-Fried over the past week have shed fresh light on the sudden, chaotic demise of FTX, his crypto exchange.

Also revealed: new details of his fateful rivalry with Changpeng Zhao, chief executive of FTX competitor Binance.

FTX and Binance stood as pillars of the crypto sector a year ago, together holding roughly 46 per cent of spot trading market share at the time. Bankman-Fried and Zhao were among the best-known figures in the industry, with the former having particular success setting out his vision for digital assets via X, formerly known as Twitter, sponsorships and lobbying.

FTX then collapsed last November, sending shockwaves through crypto markets. Bankman-Fried now faces fraud charges alleging he stole billions of dollars of his customers’ money. He has pleaded not guilty and maintains his innocence.

At the trial, prosecutors showed private notes from Caroline Ellison, Bankman-Fried’s occasional girlfriend and the CEO of his trading firm Alameda Research. Under the heading “things Sam is freaking out about”, she wrote in autumn 2022 that Bankman-Fried’s priorities included “getting regulators to crack down on Binance”.

The jury heard how in November 2022 a leaked balance sheet revealed Alameda’s dangerous reliance on FTT — a crypto token issued by FTX — as an asset, and how a Twitter message from Zhao that he would liquidate millions in FTT set off a spiral that led to the destruction of Bankman-Fried’s empire.

In private documents prepared as part of a last-ditch fundraising drive to bail out FTX, Bankman-Fried drafted messages accusing Zhao of executing a stunning corporate raid to eliminate a rival exchange.

“Over the past few months, Binance has been engaging in a PR campaign against us . . . They leaked a balance sheet; blogged about it; fed it to Coindesk,” Bankman-Fried wrote, according to evidence presented in court. Coindesk is the crypto news outlet that published Alameda’s balance sheet.

The source of the leak has been one of the most-asked questions in crypto. Bankman-Fried has previously alluded to Binance attacking his companies, but stopped short of making an explicit public accusation.

The evidence introduced since the trial began this month traces the twists and turns of the relationship between the two high-profile executives in the $1.2tn cryptocurrency market, portraying Zhao first as an ally and investor, then a rival and finally a nemesis to Bankman-Fried.

As one of FTX’s earliest investors, Zhao’s Binance was at first willing to work with Bankman-Fried’s exchange. Zhao’s view was: “Sam’s a genius, let’s fund him, he can cover markets we can’t and take risks we don’t want to take,” according to a person familiar with Binance’s plans at the time.

But the relationship soured once Bankman-Fried started to become the most politically influential crypto executive in the US, testifying before congressional committees, publicly supporting crypto legislation and donating to candidates.

Zhao has spent years clashing with regulators around the world who took aim at his sprawling, headquarters-less exchange over concerns about compliance and consumer protection. Bankman-Fried’s rise to become a mainstream crypto leader brought with it a suspicion that he was lobbying for his company’s interests over those in the wider sector, including Binance.

“It wasn’t until Sam started lobbying against Binance and started getting significant traction that he had been seen to bite the hands that feed him,” the person familiar with Binance added. “He was no longer willing to kiss the ring of lord Zhao.”

Ellison’s testimony last week laid out the extent to which FTX’s relationship with Binance soured.

“[Bankman-Fried] said that if there was a regulatory action taken against Binance, that a lot of Binance customers might move to FTX and that he had been hoping this would happen for a while, and various regulators had been promising him that this would happen for a while, but it never happened,” she told the court.

Former FTX executives suspect this campaign provoked Zhao. The Binance boss alluded to it, without naming Bankman-Fried, in a Twitter message last November: “We won’t support people who lobby against other industry players behind their backs.”

The same day, November 6 2022, Zhao tweeted that Binance would sell several hundred million dollars worth of FTT, which Binance had accepted as payment when it sold its equity stake in FTX back to Bankman-Fried the year before.

Ellison said during her testimony Bankman-Fried described the decision to buy out Binance’s $2bn stake in FTX as “really important because if we didn’t buy it out . . . Binance would do things to mess with FTX”.

Zhao’s November tweet capitalised on anxiety in the crypto market sparked by the leaked balance sheet, leading to an inexorable slide in the price of FTT and a rush of customer withdrawals from FTX. The panic revealed a shortfall in FTX customer funds.

After Bankman-Fried was unable to raise capital to rescue the exchange, Zhao agreed to buy out FTX. But he backed out of the deal a day later, saying due diligence had revealed customer funds had been mishandled. FTX was left with little alternative but to file for bankruptcy.

Binance did not respond to a request for comment.

In her testimony, Ellison said Zhao’s “real aim . . . was not to sell his FTT, but was to hurt FTX and Alameda”.

Zhao has denied attacking FTX. Last December he wrote: “No healthy business can be destroyed by a tweet.”