KEY POINTS
- Ellison, the prosecution’s star-witness, said CZ’s tweet may have played a part in the collapse of FTX
- However, she said it was not the major reason behind the crash
- Ellison testified that Alameda had borrowed $10 billion from FTX but “couldn’t repay” it
Former Alameda Research CEO Caroline Ellison said a tweet made by Binance CEO Changpeng Zhao (CZ) may have “contributed” to the downfall of FTX, the crypto derivatives exchange platform that was worth billions of dollars in its heyday.
The 28-year-old Stanford University alumnae, who is the federal prosecution’s star witness against Sam Bankman-Fried, has revealed a lot of interesting and controversial details about SBF, FTX and the now-defunct crypto hedge fund when she took the stand.
On Wednesday, the former Alameda Research CEO said CZ’s social media activity, particularly his tweet days before FTX filed for bankruptcy, may have played a part in the collapse of the billion-dollar crypto empire in November 2022.
In a tweet on Nov. 6, 2022, CZ announced Binance would liquidate its FTX token (FTT) holdings, citing “recent revelations that have come to light.”
“As part of Binance’s exit from FTX equity last year, Binance received roughly $2.1 billion USD equivalent in cash (BUSD and FTT). Due to recent revelations that have come to light, we have decided to liquidate any remaining FTT on our books,” the tweet read.
As part of Binance’s exit from FTX equity last year, Binance received roughly $2.1 billion USD equivalent in cash (BUSD and FTT). Due to recent revelations that have came to light, we have decided to liquidate any remaining FTT on our books. 1/4
— CZ 🔶 Binance (@cz_binance) November 6, 2022
When Binance liquidated its FTT holdings, it encouraged retail investors to follow suit and withdraw their funds from FTX.
What happened next was a run on FTX, which led the platform to pause its withdrawals and eventually file for Chapter 11 bankruptcy protection.
While Ellison said CZ’s tweet may have played a part in the FTX collapse, she underlined that the major reason behind the crash was the $10 billion hole caused by a loan, which Alameda Research “couldn’t repay.”
Bankman-Fried had also blamed CZ for the FTX crash, describing it as “an extreme, quick, targeted crash precipitated by the CEO of Binance that made Alameda insolvent.” He claimed CZ had orchestrated an “extremely effective months-long PR campaign against FTX.”
In a Substack newsletter in January, the 31-year-old MIT graduate, who is on trial for fraud, said, “[N]o funds were stolen. Alameda lost money due to a market crash it was not adequately hedged for – as Three Arrows and others have this year. And FTX was impacted, as Voyager and others were earlier.”
Bankman-Fried also said at the time that he has “a lot more to say – about why Alameda failed to hedge, what happened with FTX US, what led to the Chapter 11 process, S&C, and more. But at least this is a start.”
