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Binance to set up fund to support crypto ventures in liquidity crunch

São Paulo, Brazil - Circa February 2022: Cryptocurrency golden coins in close up. Bitcoin, Ethereum, Binance. (iStock Editorial)Premium
São Paulo, Brazil - Circa February 2022: Cryptocurrency golden coins in close up. Bitcoin, Ethereum, Binance. (iStock Editorial)

Following the crash of FTX, Binance announced a non-binding letter of intent to provide liquidity to FTX in order to bail out the venture. However, the deal was subsequently cancelled, and FTX has filed for bankruptcy

Changpeng Zhao, chief executive of prominent global crypto exchange Binance, said on Monday that the firm would be setting up an ‘industry recovery fund’ to support ‘strong’ crypto ventures that may be under a liquidity crunch. In a tweet, Zhao stated that the fund would welcome companies and executives to co-invest in the fund, for which interested parties can apply through Binance Labs.

Zhao’s move comes in the wake of the crash of FTX, one of the world’s largest crypto exchanges helmed by its erstwhile chief executive, Sam Bankman-Fried. The exchange saw its valuation crash last week, after reports emerged that it used investor and customer funds to take loans to invest in various business areas through its proprietary token, FTT. The move saw billions of dollars being wiped out due to the lack of liquidity on the exchange.

In any trading exchange, liquidity refers to the availability of entities available on it to facilitate trades among users.

Shortly following the crash of FTX, Binance announced a non-binding letter of intent to provide liquidity to FTX in order to bail out the venture. However, the deal was subsequently cancelled, and FTX has filed for bankruptcy since then.

Binance chief Zhao, and Bankman-Fried, were also involved in a weeks-long war of words on Twitter over their ventures.

Since the crash, prominent, publicly traded crypto tokens have seen significant drops in their valuations — pulling the global crypto industry below $1 trillion in valuation after about two months of a potential revival in valuation. Bitcoin (BTC) dropped to below $15,800 last week from a high of $21,300 a week before — a drop of nearly 26%. Ether (ETH), the second largest publicly traded token, dropped below $1,100 from a high of nearly $1,650 — a drop of over 33%.

At the time of publishing, BTC and ETH were trading at $16,806 and $1,256 respectively — recovering from the lows of last week but still considerably lower than the highs of the previous weeks.

Last week, Sathvik Vishwanath, chief executive of homegrown crypto exchange Unocoin, told Mint that exchanges would continue to risk liquidity if they used customers’ money to invest in their business ventures. “As an exchange, ventures should not invest any amount beyond what they earn from trade margins — even through phases of low liquidity and trading volumes that all crypto exchanges in the world are seeing through this period," he said.

ABOUT THE AUTHOR

Shouvik Das

Shouvik Das is a science, space and technology reporter for Mint and TechCircle. In his previous stints, he worked at publications such as CNN-News18 and Outlook Business. He has also reported on consumer technology and the automobile sector.
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