Leading cryptocurrency exchange Binance has signed a letter of intent to acquire the fourth-largest cryptocurrency exchange by trading volume, FTX, in a deal that came after an insolvency crisis hit FTX in what has been deemed cryptos ‘Lehman Brothers’ moment.

After FTX’s liquidity crisis, Binance has committed to introducing “Merkle-tree proof of reserves” in the interest of “full transparency” in the cryptocurrency industry. In a tweet, Binance’s CEO said, “banks run on factional reserves. Crypto exchanges should not.”

The Treasury's Office of Foreign Asset Control (OFAC) has added a designation to Tornado Cash under an order on North Korea’s nuclear weapons program, in addition to the original August sanctions under an executive order on cybercrime.

Top stories in the Crypto Roundup today:

• Binance Signs a Letter of Intent to Acquire FTX
• Binance to Implement ‘Proof of Reserves’ After Run on FTX
• US Treasury Sanctions Link Tornado Cash to North Korean Nuclear Weapons Program
• FTX’s Stablecoin Reserves and Trading Volume

Binance Signs a Letter of Intent to Acquire FTX

Leading cryptocurrency exchange Binance has signed a letter of intent to acquire the fourth-largest cryptocurrency exchange by trading volume, FTX, in a deal that came after an insolvency crisis hit FTX in what has been deemed cryptos ‘Lehman Brothers’ moment.

The announcement started when the billionaire founder of FTX, Sam Bankman-Fried (SBF), stated Binance had “come to an agreement on a strategic transaction with Binance” for FTX. A few minutes later, Binance CEO Changpeng Zhao announced FTX asked Binance for help with a “significant liquidity crunch.”

As a result, CZ announced Binance signed a letter of intent to fully acquire FTX and cover the liquidity crunch “to protect users.” Data from CryptoCompare’s September 2022 Exchange Review shows that, in September, Binance traded $541 billion worth of spot crypto to secure its spot as the leading exchange, while FTX traded $51.8 billion.

Circle co-founder Jeremy Allaire likened FTX’s liquidity crisis to the Lehman Brothers’ collapse in 2008. Several cryptocurrency exchanges, including Coinbase and Kraken, have distanced themselves from FTX, clarifying they had no exposure to the exchange.

Coinbase’s CEO Brian Armstrong has revealed the exchange “had a number of conversations with people” over a potential deal with FTX, but said, “there’s reasons why that would not make sense and we’re not quite at liberty to share the details right now.”

Notably, FTX hit a valuation of $32 billion at the start of this year, backed by blue-chip investors, including BlackRock, Canada’s Ontario Teachers’ Pension Plan, and SoftBank.

Its troubles started earlier this week after Binance revealed it was offloading its holdings of FTX’s token, FTT, shortly after a leaked balance sheet raised concerns regarding the financial stability of Alameda Research, a quant trading firm associated with the exchange.

Binance to Implement ‘Proof of Reserves’ After Run on FTX

After FTX’s liquidity crisis, Binance has committed to introducing “Merkle-tree proof of reserves” in the interest of “full transparency” in the cryptocurrency industry. In a tweet, Binance’s CEO said “banks run on factional reserves. Crypto exchanges should not.”

Various community members agreed exchanges should have transparent proof of reserves. A Merkle tree is a data structure blockchains use to store transaction data, which means that proof of reserves using them implies a system that shows the exchange users’ crypto holdings are safe using information from the blockchain.

Jeremy Nau, Director of Digital Assets at Armanino, offered to implement a proof of reserves system on Binance’s behalf. The firm already offers a similar service to Kraken, which was the first crypto exchange to implement proof of reserves.

Kraken’s proof of reserves reveal the exchange possesses assets exceeding 100% of its liabilities.

US Treasury Sanctions Link Tornado Cash to North Korean Nuclear Weapons Program

The Treasury's Office of Foreign Asset Control (OFAC) has added a designation to Tornado Cash under an order on North Korea’s nuclear weapons program, in addition to the original August sanctions under an executive order on cybercrime.

In an announcement, the OFAC wrote:

"This action is part of the United States’ ongoing efforts to limit the DPRK’s ability to advance its unlawful weapons of mass destruction (WMD) and ballistic missile programs.”

The announcement entrenches OFAC’s treatment of Tornado Cash as a threat to national security.  It comes even as the crypto industry filed multiple lawsuits against it to roll back the original sanctions, arguing Tornado Cash is a decentralized smart contract and cannot be an “entity” as the terms of OFAC’s sanctioning authority lay out.

FTX’s Stablecoin Reserves and Trading Volume

FTX’s stablecoin reserves decline 59.3% over the past three days to the lowest level recorded since November 2021.

The exchange saw a 188% spike in daily trading volume since Binance tweeted the exchange would be liquidating its FTT holdings and concerns over the exchange’s insolvency grew.

State of the Crypto by Top Tier Exchange Volume

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