Now that Sam Bankman-Fried is under arrest the “cybernetic super-intelligence” — to borrow a phrase from Elon Musk — has found a new thing to be enraged about. Is the largest crypto exchange in the world going to suffer the same faith as FTX?
In this post, we’ll answer this question and take a look at the fear, uncertainty, and doubt (FUD) surrounding Binance.
We’ll take a look at the data and the rumors and conclude if the following headlines are “FUD” or “Facts”.
- Mass withdrawals may indicate a bank run
- Speculations about Binance’s Proof of Reserves Report
- An FTT clawback could be troubling
- Rumors of incoming criminal charges
- Other rumors
Mass withdrawals may indicate a bank run
Data from blockchain analytics platform Nansen shows that over one week from December 7 to December 13, users withdrew $8.78 billion and deposited $5.1 billion in Binance, leaving a net outflow of roughly $3.66 Billion. In comparison, during the same period, Coinbase saw a net outflow of roughly $574 million from its main exchange and $248 million from its Coinbase Custody service. Last Tuesday, Binance saw the highest daily withdrawals since June.
Founder Changpeng Zhao (CZ) calls it “business as usual”.
According to on-chain data, Binance held $69.5 Billion in crypto over a month ago, and it was at $54.7 Billion on December 17.
Binance currently (18–12–2022) have a standing value of + $56 Billion locked in their reserves. Therefore nothing is indicating that the exchange is heading towards a liquidity crisis soon. I cannot find any public data about their liabilities. CZ said in a recent interview with CNBC that they have “never taken loans from anyone and has not taken VC investments or returned VC funds as swaps or loans”.
Another thing to be aware of is that most of the total value locked in Binance reserve portfolio consists of BUSD, USDT, and BNB, while the share of BTC and ETH combined only accounts for roughly 24%. In the face of a possible future liquidity crunch, one could ask what would happen if the Bitcoin and Ethereum reserves ran dry. However, such a scenario is not imminent.
Conclusion: FUD
Speculations about Binance’s Proof of Reserves Report
The auditing firm Mazars Group recently made a report on Binance’s proof of reserves where they concluded its bitcoin reserves were overcollateralized. This Friday, Mazars Group deleted the proof of reserves report from their website and announced that they would pause their work with all crypto clients, including Binance, Crypto.com, and Kucoin. In a statement to CNBC, the Mazars Group cited “concerns regarding the way these reports are understood by the public” as the reason behind their decision.
First of all, we should note that Mazars Group removed the reports on behalf of all crypto exchanges, not just Binance. Likely because of the general climate around crypto at this time. Nothing in Mazars Group’s action or statement to CNBC indicates that the previous proof of reserves report was faulty. On the contrary, on-chain data indicates that the numbers add up. This is further attested to by the leading on-chain data analytics provider CryptoQuant.com
Conclusion: FUD
An FTT clawback could be troubling
Binance was an early investor in FTX. Last year FTX bought out Binance’s share in the company and Binance received roughly $2.1 billion in BUSD and FTT in connection with their exit. As CZ said in a recent interview with CNBC “the FTX tokens are now worthless”. Of the $2.1 billion FTX bought Binance out for, CZ said in the interview that only $580 Million of it is left on an account that they have never touched “and had actually forgotten about”.
The interviewer, Andrew Sorkin, pushed back and asked CZ if he was prepared to pay back the $2.1 billion if a bankruptcy judge or potentially others would seek an order to claw it back. CZ replied evasively that “we will leave that to the lawyers”.
Although CZ maintained in the interview that Binance is financially strong and holds customer assets 1:1, worries and concerns have bubbled on social media. People find it strange that Binance “had forgotten” about the $580 million from FTX and would rather hear a clear “yes” than “we will leave that to the lawyers” when CZ was asked about the potential of a clawback.
I honestly think that some people are reading too much into the interview, and once again, nothing indicates that CZ is lying.
Conclusion: FUD
Rumors of incoming criminal charges
The U.S. Department of Justice has led a criminal investigation concerning Binance’s compliance with anti-money laundering laws since 2018. Reuters reported on December 12 that some of the federal prosecutors involved in the case believe the evidence gathered so far justifies filing criminal charges against individual executives including CZ.
Binance was quick to reply to the accusations
‘So far, there is no evidence suggesting that the U.S. Department of Justice will file criminal charges against Binance, beyond speculations from anonymous sources.
Conclusion: FUD
Other Rumours
There are plenty of other rumors, speculations, and odd things about Binance people have noticed during the last week. For example:
- CZ is acting like Celsius CEO, Alex Mashinky
- At least 7 Binance executives have left the firm in seven days
- 12 hours waiting time to take coins off of the exchange
- Locking down accounts and artificially delaying withdrawals
But at the end of the week, there is no hard evidence to support that Binance is in trouble.
Conclusion: FUD
Overall Conclusion: FUD
The importance of self-custody has been emphasized on crypto Twitter and elsewhere after the fall of FTX. Plenty of FUD surrounding Binance has been circulating, but nothing has been proven. On the contrary, on-chain data suggests that Binance is indeed financially strong as CZ claims. Overall, it’s highly unlikely that Binance is going to be the next falling domino piece after FTX.
