The list of FTX rescue candidates is shrinking by the hour

The list of FTX rescue candidates is shrinking by the hour

Although FTX CEO Sam Bankman-Fried said the exchange is in talks with “a number of players” to seek capital, it remains unclear who would be willing to jump into bed with the struggling exchange.

Binance CEO Changpeng Zhao announced his company's intention to acquire FTX on Tuesday. The exchange backed away from the plan on Wednesday, citing “recent news reports of mishandled customer funds and alleged investigations by U.S. authorities.”

Bankman-Fried tweeted on Thursday that FTX would spend the next week seeking liquidity, alluding to letters of intent and term sheets without providing further details.

An FTX spokesperson declined to comment.

Who could try to save FTX?

Reuters reported FTX is seeking to raise around $9.4 billion from investors. A source told Reuters that Bankman-Fried has held talks with Tron founder Justin Sun, crypto exchange OKX and stablecoin platform Tether.

Sun tweeted on Wednesday that he and his team were "putting together a solution," leading some to believe it could be a signal of a takeover attempt. Instead, FTX announced on Thursday that it had entered into an agreement with Tron that allows holders of TRX, BTT, JST, SUN and HT to swap assets from FTX – one-for-one – to external wallets.

“Tether has no plans to invest or borrow money from FTX/Alameda,” tweeted Paolo Ardoino, Tether’s chief technology officer.

Haider Rafique, chief marketing officer of OKX, said the exchange seized the first opportunity before FTX partnered with Binance.

“At this point we are just assessing the situation before considering any involvement from our side,” Rafique told Blockworks in an email. "One thing we would like to reassure the industry of is that we do not face similar risks as our business model is to monetize our technology, not our balance sheet. We hope the industry comes together to find a sensible solution here."

"People obviously need deep pockets to get the deal done, but also, what's the benefit for people to get the deal done?" said CK Zheng, co-founder and chief investment officer of crypto hedge fund ZX Squared Capital. “That is the question.”

Sam Dibble, a partner at law firm Baker Botts, told Blockworks that there aren't many players in the industry that have the size, capital or reputation to pull off a rescue.

He added that a bailout could more likely come from someone outside the industry who believes in Web3 and wants to get into the industry. Opportunities, Dibble said, include sovereign wealth funds or players outside the U.S. in ancillary industries such as energy, financial services or technology.

“These deals could be mergers or, more likely, capital injections in preferred stock or mezzanine debt,” Dibble said.

Where Coinbase is located

A less likely option for some sort of capital injection into FTX could be Coinbase, Dibble said.

“But as a listed company, they may not want to take the risk of having to disclose FTX liabilities,” he added. “Furthermore, their due diligence process would need to take longer than other players as they may face pro forma financial requirements when merging as a public company.”

said Coinbase CEO Brian Armstrong in a Bloomberg interview Tuesday that there are reasons why it wouldn't make sense for the exchange to acquire FTX and declined to provide details.

“We're in a position where we really just want to focus on developing our own products,” Armstrong said. "It could be a bad situation for the customers involved if this deal doesn't go through, so I have a lot of sympathy for that. But it's not something where we felt like we had the opportunity to come in and acquire something that would make sense for us or their customers."

Binance announced that it had abandoned its plan to purchase FTX the day after these comments.

A Coinbase spokesperson declined to comment on discussions with FTX.

A source told Blockworks that they believe FTX has no equity value for a new investor “as trust has been broken beyond repair.”

“Crazy things happen in crypto, so an industry player could emerge... to try to save the day, but not sure anyone can save the most fundamental problem, the loss of customer funds,” the source said. “If an acquirer cannot justify repaying all customer funds in full, customer anger simply shifts from FTX to whoever acquires the carcass.”

Is Binance’s involvement complete?

Dibble said there is still a possibility that Binance could come to the rescue as a source of new capital.

"However, that capital would be very expensive, and there is now a new pool of fresh blood in this relationship that could make it difficult for [Bankman-Fried] to swallow a low-ball offer from [Zhao] even if that was the lifeline that was offered," he said.

At Bankman-Fried Twitter thread He ended Thursday by saying he had more to say about what he called "a sparring partner."

“But you know, glass houses,” he added. "At the moment I can only say: Well played; you won."

A Binance spokesperson did not immediately respond to a request for comment.

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