In March 2019, Binance CEO Changpeng Zhao, commonly known as CZ, faced a pivotal decision that would reverberate throughout the cryptocurrency industry. FTX’s former CEO, Sam Bankman-Fried, had approached CZ with a bold proposal; a $40 million investment to create a crypto futures exchange. However, CZ opted to chart a different course, declining the offer and choosing to build a futures exchange in-house.
At the time, Binance was primarily a spot crypto exchange, and Bankman-Fried’s concept of a futures-only exchange seemed radical. Undeterred by the rejection, Bankman-Fried forged ahead, establishing FTX in May 2019. This decision, which CZ viewed as “ordinary,” was the genesis of a rivalry that would shape the industry.
Unlike traditional spot exchanges, futures exchanges offer traders the ability to leverage their collateral, a feature that appealed to a growing segment of crypto enthusiasts. Bankman-Fried’s vision was to create a futures platform that was accessible to both retail and professional traders. However, gaining traction in the crypto world required more than just an idea; it required a solid strategy and capital.
FTX Token Emergence: Inspired by Binance’s BNB Success
Bankman-Fried had previously attempted to launch a crypto exchange in 2018 with little success. Learning from this experience, he sought a partnership with established exchanges. The most likely candidate for Bankman-Fried was CZ, whom he had met the previous year at a Binance-sponsored conference.
CZ remained cautious about the potential pitfalls of futures trading, which could lead to significant losses. Bankman-Fried, however, presented a unique approach with real-time monitoring and liquidation mechanisms to mitigate risk.
Undeterred by CZ’s initial reluctance, Bankman-Fried and his team continued to develop their vision. To fund FTX’s launch, they introduced the FTX token (FTT), which offered holders a share of FTX’s annual revenues. This strategy had been successfully employed by Binance with its BNB token.
Despite regulatory hurdles, FTX minted 350 million FTT tokens in May 2019, initially offering some at a mere five to ten cents to employees and key figures in the crypto space, including CZ, who declined the offer. However, outside investors showed interest, driving the price to $1.50 upon its public listing.
Three weeks after this listing, CZ extended an olive branch, offering to purchase a 20% stake in FTX for $80 million, signaling a change in their relationship dynamics. The decision to refuse Bankman-Fried’s offer had spurred competition and innovation in the crypto futures space.
In retrospect, CZ’s refusal to fund FTX marked a pivotal moment in crypto history, shaping the landscape and ultimately fueling the growth of multiple exchanges, each striving to provide unique solutions to the evolving demands of traders. As the crypto industry continues to evolve, this decision remains a testament to the ever-adapting nature of the space and the entrepreneurial spirit that drives it forward.