Changpeng Zhao (CZ), the CEO of Binance, has shared his take on “two big lessons” to be learned from the FTX saga, saying cryptocurrency firms shouldn’t use their own tokens as collateral and should also keep “large reserves.”
It has been reported that CZ laid out two learnings after the significant “liquidity crunch” at FTX, which has ultimately resulted in a non-binding letter of intent from Binance to acquire the struggling exchange.
However, he shared that his first lesson is to ensure a firm’s collateral should not consist of a token that it has created and claims his exchange’s token, BNB, has never been used as collateral for its services.
The report said that FTX’s liquidity issues appeared to have come after a November 6 tweet from CZ saying Binance would be liquidating its holdings of FTX Token following “recent revelations” related to reported ties between FTX and the trading firm Alameda Research showing the firm had significant FTT holdings.
Thus, CZ said:
“Banks run on fractional reserves. Crypto exchanges should not.”