Binance CEO Changpeng Zhao has shared his thoughts on the “two big lessons” to be drawn from the FTX saga, stating that cryptocurrency firms should not use their own tokens as collateral and should maintain “large reserves,” Cointelegraph noted.
In a tweet, Zhao outlined two lessons learned following the significant “liquidity crunch” at FTX, which resulted in Binance’s non-binding letter of intent to acquire the struggling exchange.
Zhao’s tweet confirming Binance’s FTT holdings liquidation triggered a “bank-run” on the exchange, with analytics platform CryptoQuant data revealing that FTX’s Bitcoin balance fell by 19,956 on November 7 alone. FTT is down 75% in the last 24 hours at the time of writing, with the last price around $5.70 compared to its opening price of $22.14, Cointelegraph further noted.
While Binance does not currently disclose the reserves that it uses as collateral, Zhao stated in a tweet that in order to be fully transparent, Binance will soon provide proof of reserves, adding, “Banks run on fractional reserves.” Crypto exchanges should not be allowed.”
Zhao’s second takeaway from FTX’s demise is that crypto businesses should avoid borrowing and instead keep large reserves — which could be in reference to FTX users complaining about slow withdrawals on Nov. 7, sparking rumours the exchange didn’t have enough to cover user funds.
(With insights from Cointelegraph)