Binance to launch recovery fund after FTX collapse rocks sector

Binance is to launch an industry recovery fund, the cryptocurrency exchange said on Monday, as the sector looked to steady itself amid the fallout of FTX’s collapse.

Chief executive Changpeng Zhao - known as CZ in the industry - confirmed that "to reduce further cascading negative effects of FTX, Binance is forming an industry recovery fund, to help projects who are otherwise strong but in liquidity crisis".

He said more details would "come soon" but called on rivals to support the fund: "Also welcome other industry players with cash who wants to co-invest. Crypto is not going away. We are still here. Let’s rebuild."

Asked by a follower on Twitter if FTX would have qualified for support, he replied: "Liars or fraud never qualify as strong projects. This is for other projects in the ecosystem."

FTX and its sister trading firm Alameda Research filed for Chapter 11 bankruptcy protection last week after a surge in withdrawals caused a liquidity crisis and Binance - the world’s largest crypto exchange - walked away from a potential rescue deal.

FTX founder Sam Bankman-Fried tweeted on Friday: "I’m really sorry, again, that we ended up here. Hopefully things can find a way to recover. Hopefully this can bring some amount of transparency, trust and governance to them. Ultimately hopefully it can be better for customers."

He added he had been "shocked to see things unravel the way they did earlier this week".

The collapse of FTX has sent shockwaves through the sector and unnerved investors. Speaking at the G20 summit in Bali on Monday, Zhao called for increased "clarity of regulations" and said Binance would be "leading the way" in showing proof of reserves.

Smaller rivals have also moved to prove they hold sufficient reserves to match liabilities. Kris Marszalek, chief executive of smaller rival Crypto.com, insisted during a live 'ask me anything' session on YouTube on Monday that the company had a strong balance sheet with minimal exposure to FTX.

On Sunday, the Singapore-based exchange confirmed it had accidentally transferred $400m worth of ethereum to a rival last month because of "human error". It said all the funds had since been returned, but according to Financial News, spooked investors meant withdrawals spiked over the weekend.

Neil Wilson, chief market analyst at Markets.com, said: "FTX has gone and is taking many with it. It looks like many investors have money stranded on the exchange. Turns out playing with unregulated Ponzi schemes is not such a great idea after all.

"Bitcoin has come off its lows last week but it is still below $17,000, down around 20% over the last week, with ether in a similar position. FTX is by far and away not the only bad apple here."

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said: "For the latest crypto debacle, some blame the lack of regulation, others say that it’s just a financial fraud like any other. And some even compare it to Enron, one of the biggest accounting scandals in the history of modern finance.

"FTX held $900m in liquid assets the day before it went down, compared to $9bn in liabilities. This is something that could have never happened in a traditional, regulated financial institution.

"Although they are not regulated, and they don’t have to reveal their balance sheets, many crypto exchanges will have to give in and become more transparent.

"So we may not be done with the crypto exchanges accounting crisis just yet."