In March 2019, Binance CEO Changpeng “CZ” Zhao declined a $40 million offer from former FTX CEO Sam Bankman-Fried to create a cryptocurrency futures exchange. At the time, Binance was primarily a spot crypto exchange and the concept of a futures-only platform deviated from its existing model. Despite this, Zhao made a deliberate decision to develop a futures exchange in-house.
According to Michael Lewis’ book “Going Infinite,” which explores the story of FTX’s collapse and the enigmatic founder at its center, Bankman-Fried was undeterred by the rejection. Shortly after, in May 2019, he established the notorious FTX exchange. The book reveals that Bankman-Fried perceived Zhao’s decision as “ordinary and vaguely disappointing,” and described him as “kind of a douche but not worse than a douche,” expressing his belief that Zhao had the potential to be an intriguing character but fell short of expectations.
The Journey Towards a Futures Exchange
Compared to traditional spot exchanges, futures exchanges allow traders to engage in cryptocurrency trading using only a portion of their collateral. Bankman-Fried had been contemplating the idea of creating a crypto exchange, viewing it as an “obvious opportunity” and a potential “money machine.” However, he faced challenges in getting started, attracting customers, and establishing connections in the crypto space due to his relative unknown status.
In 2018, Bankman-Fried collaborated with Alameda Research friend Gary Wang to launch a Bitcoin exchange called CryptonBTC, but the platform failed to gain traction due to a lack of promotion and user participation. Determined to bring his vision to life, Bankman-Fried and a small team began pitching the concept of a futures platform to existing crypto exchanges. Their proposal involved Alameda providing the technology while established exchanges would supply the customer base.
Zhao, being the CEO of Binance, was seen as the most likely buyer for their idea. However, he had concerns about the potential losses an incorrect futures trade could bring to the exchange. Bankman-Fried’s proposed design aimed to mitigate this risk by closely monitoring trades and swiftly liquidating positions if they turned negative.
FTT Token and FTX’s Success
Although Zhao rejected the offer, Bankman-Fried remained determined to create a user-friendly crypto futures exchange catering to both retail and professional traders. To secure funding, he introduced the FTX token (FTT), which promised holders a share of FTX’s annual revenues through a token buyback and burn mechanism. In May 2019, FTX minted 350 million FTT tokens, targeting international investors.
While Zhao declined, external parties showed interest in FTT, and the token eventually listed on FTX. It opened at $1 and reached $1.50. Interestingly, just before the token’s listing, Bankman-Fried encountered Zhao at a crypto conference in Taipei. Zhao displayed a heightened interest in Bankman-Fried, leading to him contacting Bankman-Fried three weeks later with an offer to purchase a 20% stake in FTX for $80 million.
In conclusion, although CZ Zhao turned down Sam Bankman-Fried’s offer to create a cryptocurrency futures exchange, it led to the establishment of the successful FTX exchange. This story showcases the dynamics and decisions made within the evolving crypto landscape.
