After FTX, are Binance days numbered?
The poison of doubt is terrible in the crypto industry.
A month after the overnight demise of the crypto empire of 30-year-old Sam Bankman-Fried, another lord of the crypto space is now the subject of the wildest rumors about the possibility of payment of his crypto kingdom.
This is Changpeng Zhao, founder and CEO of Binance, the world’s largest cryptocurrency exchange by trading volume. Ironically, it was a tweet from Zhao that sparked the end of FTX and its sister company Alameda Research, the two crown jewels of the Bankman-Fried empire.
On November 6, Zhao announced in a Twitter post that his company had made the decision to sell $530 million worth of FTT, a cryptocurrency issued by FTX. Binance received the funds when the company sold its stake in FTX in 2021.
In his announcement, he added that the decision to liquidate FTT coins was due to recent revelations that appeared to be about Alameda. Accounting balance sheet.
FTX vs Binance
2, Coindesk stated that much of the balance sheet of Alameda Research, Bankman-Fried’s trading platform, consists of FTT tokens, the cryptocurrency issued by FTX. Obviously, if the token collapses, Alameda will be left with nothing. The disclosure surprised investors who thought the company had other assets.
The post caused the bank to withdraw, and five days later, FTX and Alameda filed for Chapter 11 bankruptcy.
Binance and Zhao “remove FTX from the business,” said Shark Tank star Kevin O’Leary, who served as an ambassador for FTX, told US senators on December 14.
But in the past few days, Binance has become the center of speculate itself, that the platform would not have enough reserves to survive on the bank.
Therefore, it is not surprising that many Binance customers have attempted to withdraw their funds, deposited on the platform as cryptocurrencies.
“Binance has had its highest daily withdrawals since June, with over $2 billion* in net withdrawals since December 12,” data research team Nansen said on December 13.
Reserved
But Nansen added that the platform has enough Liquidity to combat a massive exodus of property. The company has $62.6 billion in reserves, enough to meet customers’ withdrawal needs, Nansen estimates.
The problem is that it is difficult to really gauge the financial health of Binance, because there is no complete accounting of the company’s assets and liabilities.
This ambiguity, and a controversial decision by Binance, only fuels FUD, a crypto slang term referring to Fear of Uncertainty and Doubt. The platform halted USDC crypto-linked withdrawals on December 13, to facilitate the “token swap” of USDC stablecoins for its own BUSD stablecoins.
The company explained this as a measure of liquidity easing in anticipation of more withdrawals but for many crypto fans on social media it sucks, as FTX did the same. immediately before filing for bankruptcy.
“Everything seems to have settled down,” Zhao tweeted on Dec. 14. “Yesterday was not the highest withdrawal we handled, not even the top 5. We processed it. more during LUNA or FTX crashes. Now deposits are coming back. 🤷♂️💪”
The CEO reiterated that no amount of withdrawals can cause problems for Binance, in an interview with CNBC on Dec. 15. He added that the company holds the assets directly and claims states that Binance never uses customer funds.
“Binance doesn’t owe anyone anything,” Zhao said when asked about the company’s debts.
This did not stop rumors from continuing to spread on social media, one of the main channels of information for players in the crypto space.
As a result, BNB, the cryptocurrency issued by the Binance ecosystem, has been hit by FUD: The price of BNB is down nearly 14% in the past seven days, according to the data firm. CoinGecko. For comparison, the price of Bitcoin (BTC) fell 1.2% in the same period.
TheStreet has sent a series of questions to Binance that have not yet been answered.
Obscure
What has fueled and continues to cause suspicion around Binance is that the company is unregulated, unlike its rivals Coinbase. (COIN) – Get a free report and Kraken for example. All of this means that Binance is not obligated to reveal its account and can do what it wants. Customers and investors have to believe what the platform tells them. They have no way to verify.
The company also did not say where its headquarters is located. Founded in China, Binance left the country in 2017 before the country banned cryptocurrency trading.
An audit of the state of the company’s reserves took place over the weekend of December 11, to demonstrate that every customer’s dollar is secure. But in reality, this so-called transparency game has shown that assets are not fully collateralized and Binance has been very selective in its disclosure.
The so-called proof of reserve, which aims to re-establish consumer trust in the platform, was ridiculed on social media, forcing Binance to act defensively.
Another matter of concern is a Department of Justice (DoJ) investigation. can lead to money laundering against Binance and some of its top executives, including Zhao, Reuters recently reported.
The investigation began in 2018 and focused on Binance’s compliance with US anti-money laundering laws and sanctions. At the end of 2020, the DoJ asked Binance to submit internal documents regarding how the company ensures that users of its platform do not launder money.