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Binance CEO Changpeng \u201cCZ\u201d Zhao has shared his take on “two big lessons” to be learned from the FTX saga, saying cryptocurrency firms shouldn\u2019t use their own tokens as collateral and should also keep \u201clarge reserves.\u201d<\/p>\n
In a Nov. 8 tweet, Zhao laid out two learnings after the significant \u201cliquidity crunch\u201d at FTX which has ultimately resulted in a non-binding letter of intent from Binance to acquire the struggling exchange<\/a>.<\/p>\n Two big lessons: <\/p>\n 1: Never use a token you created as collateral. <\/p>\n 2: Don\u2019t borrow if you run a crypto business. Don’t use capital “efficiently”. Have a large reserve.<\/p>\n Binance has never used BNB for collateral, and we have never taken on debt.<\/p>\n Stay #SAFU<\/a>.<\/p>\n \u2014 CZ Binance (@cz_binance) November 8, 2022<\/a><\/p><\/blockquote>\n Zhao shared that his first lesson is to ensure a firm’s collateral should not consist of a token that it has created, and claims his exchange\u2019s token \u2014 Binance Coin (BNB<\/a>) \u2014 has never been used as collateral for its services.<\/p>\n FTX\u2019s liquidity issues appeared to have come after a Nov. 6\u00a0tweet<\/a> from Zhao saying Binance would be liquidating its holdings<\/a> of FTX token (FTT<\/a>) following \u201crecent revelations\u201d related to reported ties between FTX and the trading firm Alameda Research showing the firm had significant FTT holdings.<\/p>\n While Binance does not currently disclose proof of what reserves it uses as collateral, Zhao mentioned in a Nov. 8\u00a0tweet<\/a> that in an effort to be fully transparent Binance will soon provide proof of reserves, adding: <\/p>\n \u201cBanks run on fractional reserves. Crypto exchanges should not.\u201d<\/p><\/blockquote>\n Zhao\u2019s second lesson from the downfall of FTX is that crypto businesses shouldn’t be borrowing, and instead should opt to maintain large reserves \u2014 which could be in reference to FTX users complaining of sluggish withdrawals<\/a> on Nov. 7, sparking rumors the exchange didn’t have enough to cover user funds.<\/p>\n Related: <\/strong>Bitcoin price hits 2-week lows as FTX \u2018bank run\u2019 drains BTC reserves<\/em><\/strong><\/a><\/p>\n Zhao’s tweet confirming Binance’s FTT holdings liquidation ended up triggering what some called a \u201cbank-run\u201d on the exchange, with analytics platform CryptoQuant data revealing that FTX\u2019s Bitcoin (BTC<\/a>) balance had fallen by 19,956<\/a> on Nov. 7 alone. <\/p>\n At the time of writing, FTT is down 75% in the last 24 hours, with the last price around $5.70 at the time of writing compared to its opening price of $22.14.<\/p>\n<\/div>\n\n