A liquidity crunch is a company’s probable worst scenario. This week, FTX has been in this situation. While it signals higher risk in the crypto market, that’s not the end of it. Here’s what’s happened to FTX recently.

FTX is one of the largest exchanges by volumes traded. It is based in the Bahamas, and incorporated in Antigua and Barbuda. FTX serves over a million customers through its exchange. The FTX token labeled FTT is trading at $5.03. This is a 71% price drop compared to its price a week ago, at a high of $25. This price drop would be considered normal since it’s a bear market. However, when the CEO, Sam Bankman-Fried indicated that they needed help from Binance, there was more to that price drop.

For a company serving over a million customers, a strong token price, and a large market share, liquidity shouldn’t be a problem. FTX had been on a winning streak despite the bear market for most of 2022. They had extended bailouts for BlockFi at $240 million in the wake of the Luna crash aftermath. They were going to rescue Voyager and Celsius. Conversely, the Alameda CEO resigned during what seemed to be unprecedented strength. Alameda is FTX’s trading firm, while FTX is the exchange. Sam Bankman-Fried owns both.

Alameda, in June 2022 had $14.6 billion in assets. A closer look showed that most of its holding was in unlocked FTT, at $3.66 billion. Furthermore, there was $2.16 billion of FTT collateral. With $7.4 billion of liabilities in loans, rumors of insolvency started to float around. Trying to understand the strength of its position didn’t speak confidence for investors. Whereas the expectation would be that Alameda would have a diverse trading portfolio, it didn’t.

After questions about FTx’s position and security got to a certain threshold, things got tougher. Alameda CEO Sam Trabucco resigned. FTX President Brett Harrison also resigned. News of legal trouble came to the fore. A Texas securities probe questioned whether FTX should buy Voyager. Sam Bankman-Fried had supported political campaigns, donating up to $50 million to political parties. More rumors of insolvency came out. The fear, uncertainty, and doubt went up. People didn’t want a repeat of Luna. Binance then transferred $584 million of FTT to its exchange on November 5th.

Binance revealed that they were liquidating their FTT position, based on lessons from Luna.

Following fears of further dips, people rushed to withdraw their FTX holdings. These withdrawals kept taking longer and eventually froze. In what’s otherwise a death spiral for many companies, Binance held talks with Sam Bankman-Fried to mitigate those risks. Amid plans to fully acquire FTX, CZ, the Binance CEO has shown immense support for the global crypto community.

In a bid to follow a user-centric guide, the FTX acquisition shows an industry coming of age. Such an intervention shows that customer protection is a critical priority for exchanges. In previous bear markets, exchange hacks or problems were sure signs of loss for customers. Bitfinex and Mt. Gox among others were unable to recover from major hacks. Now, it’s a different dawn. Customer protection and investor confidence are at the fore of the crisis. Withdrawals would be restored as the merge takes effect.

It’ll be interesting to follow the impact of this decision on the crypto market.