What happens to Binance?

You too have probably noticed a recent increase in worrisome headlines featuring Binance. From crypto editions to the likes of the Wall Street Journal, journalists speak about:
📌 potential criminal charges against the exchange and CZ personally,
📌 questionable Proof of Reserves,
📌 users massively withdrawing funds from the exchange.

Instead of panicking, let’s see what’s happening with Binance, in facts.

⚖️ DOJ investigation

Binance US has been under investigation by the Department of Justice since 2018 for alleged money laundering and evading sanctions. As reported by Reuters, the officials would be ready to press charges, but Binance is supposedly trying to sway them to a plea deal, arguing that crypto markets would not take a prosecution well.

The exchange is indeed rumoured to have had legal troubles in the past, but it made a lot of compliance efforts in 2022, obtaining licenses in 6 countries and strengthening its US legal team with five ex-officials from the IRS Cyber Crime Unit.

❓ How bad is it? A conviction in the US would shake Binance’s leading position in the crypto world but won’t endanger users’ funds.

💰 Proof of Reserves

After the FTX crash, CZ was one of the main instigators of a generalized “ProofofReserves” – a tool that allows users to verify if their balance on the exchange is backed by real assets. However, as soon as Binance released its own version, it provoked a wave of criticism.
The CEO of Kraken (which had a PoR long before the FTX fall), noted that Binance’s PoR lacked a crucial detail – an audited statement of liabilities. Without it a PoR becomes a simple statement of assets and cannot ensure that an exchange has more crypto in custody than it owes to clients.

A former SEC regulator John Reed Stark has alleged that Binance’s report “doesn’t address the effectiveness of internal financial controls” and wondered why Binance had chosen an audit firm Mazars over a Big Four firm.

❓ How bad is it? We can only speculate about the state of Binance’s affairs, but an insufficient PoR is a red flag. If Binance falters, the crypto space will be badly hurt, and we do hope that the empire CZ has built, together with his $1 bn insirance fund, will help the exchange to stay afloat no matter what.

💸 Withdrawals

An on-chain analytics firm Nansen registered a spike in crypto withdrawals from Binance, marking an impressive $1.9 bn in 24 hours and over $3.6 bn in 7 days – and this is only for $ETH and ERC-20 tokens (which represent 63% of the overall portfolio).
This decreased Binance’s funds from $64 bn to $60 bn.

CZ called it a “stress-test, which helps to build the credibility for exchanges that passes the test”, adding that “things seem to have stabilised” afterwards.

❓ How bad is it? A 5% outflow from an exchange is not catastrophic. However, we would like to remind you that there’s no place more secure for your crypto than a non-custodial wallet, preferably a cold one ❄️

Stay safe ☔