Binance Pledges Up To $2 Billion To Bail Out Distressed Crypto Firms As FTX Contagion Spreads
Binance, the world’s largest cryptocurrency exchange headed by billionaire Changpeng Zhao, is committing up to $2 billion to help support crypto firms facing financial hardships following the bankruptcy of rival exchange FTX.
In a statement released late Thursday, Binance said it will set up a $1 billion recovery fund with an intention to ramp up the amount to $2 billion in the near future “if the need arises.” The exchange operator has received a total of about $50 million in an initial commitment from seven investment firms, including Hong Kong-headquartered Animoca Brands and Jump Crypto, the digital-asset arm of Chicago-based trading shop Jump Trading.
Its bailout plan comes as former billionaire Sam Bankman-Fried’s FTX is going through a bankruptcy proceeding, which has put a growing number of crypto companies that have had exposure to the trading platform and its related businesses on the brink of collapse. Among the companies are Genesis Global Capital, the crypto lending subsidiary of U.S. billionaire Barry Silbert’s Digital Currency Group, as well as Blockfi, the crypto lender that had received credit facilities from FTX.
Binance said it is looking to back companies and projects that “through no fault of their own, are facing significant, short term, financial difficulties.” The initiative, which will last for roughly six months, could involve instruments such as crypto tokens, fiat currencies, equity, debt or credit lines. It has so far received 150 applications from companies seeking help.
The implosion of Bankman-Fried’s crypto empire was triggered by a tweet posted by Zhao, the cofounder and CEO of Binance, which announced a planned sale of FTX’s crypto tokens. The tweet drew spotlight to a Coindesk report that raised concerns over FTX’s financial health. FTX has since then seen a bank run and descended into a liquidity crisis as Binance abandoned its deal to rescue the crypto exchange, citing due diligence, “latest news reports regarding mishandled customer funds and alleged U.S. agency investigations.”
The U.K.’s Parliamentary Treasury Committee last week asked Binance to explain the circumstances surrounding Zhao’s tweets and whether the company understood the potential consequences it might have, according to Bloomberg. The lawmakers, however, reportedly said the evidence Binance submitted was disappointing and unacceptable.