In its current form, Binance is Not Fine. Binance, the largest cryptocurrency exchange by trading volume, invested in FTX’s series A in 2019, when Sam Bankman-Fried (SBF) was at his height, and FTX was rising. SBF bought out its portion of the deal for $2.1 billion last year, allowing it to withdraw from the deal entirely.
Binance CEO Changpeng “CZ” Zhao has stated that the company has received $2.1 billion in BUSD, BNB, FTT, and IOUs. He revealed that $580 million in FTT was sitting in Binance’s accounts after the finalised deal, although FTT is now substantially less valued than an IOU.
Talking live on @CNBC, @cz_binance :
> Reiterates no amount of withdrawals can cause issues for @binance
> This is majorly different than fractional reserve banking, Binance holds assets 1:1.
> Confirms $USDC issue was from the bank-conversion channel and work hours👇 pic.twitter.com/RQTCPQXbsg— CryptoPotato Official (@Crypto_Potato) December 15, 2022
The fact that his liquidation of that FTT was the first domino in this debacle doesn’t inspire much faith in Binance’s ability to run an exchange efficiently.
In any event, CZ should prioritise recovering every penny of the $2.1 billion since it may be returned to the government. FTX’s dealings with third parties could be seen as fraudulent conveyances in the context of the bankruptcy proceedings.
This indicates that it is now a potential target of the bankruptcy court, which requires Binance to repay the $2.1 billion in U.S. dollars, regardless of whether FTT, IOUs, or magic dust initially transferred them.
For real, CZ embodied the above image as he fumbled his way to a weak financial position in response to CNBC’s Becky Quick’s direct question about whether Binance could cough over such a significant amount. Remember how, in the aftermath of FTX’s demise last month, Binance published evidence of reserves to soothe the market?
The accounting company helping with that, Mazars Group, pulled the plug on the project by removing the webpage that included the exchange’s evidence of obligations, essentially ending the collaboration. If Binance were to hire a Big Four accounting firm, the problem would disappear immediately.
However, CZ responded that Binance had not been audited by one of those organisations since they do not work with or understand cryptocurrency exchanges. Without any trace of sarcasm, he then added that everything is pretty transparent in the crypto space.
Binance had seen billions in net withdrawals as scepticism grew. While the exchange doesn’t appear to have stalled or had any trouble processing them, doubts about the company’s financial stability grow.
CZ’s only reaction to the community’s concerns has been further warning signs: evasive comments full of vague promises about complete audits without deadlines and verbal assurances that the firm is strong without any particular and verifiable proof to verify the statements.
One major worry is that even if Binance is adequately collateralized, that could swiftly change if there was a bank run or if one of its significant reserve holdings ran into problems.
Everything is going smoothly, typical for cryptocurrency exchanges, until something goes wrong. If Binance can give evidence of reserves and present thoroughly audited financials, and if the stablecoins in its resources maintain their peg, everything should be good.
These “ifs” get greater for Binance every day without concrete, observable progress in fixing all its problems. Until then, things will not be OK and getting worse.