In recent times, troubles have been consistently increasing for Binance, the world’s largest crypto exchange. The most recent activity includes a Reuters article that claims that the exchange played with users’ funds and the company’s revenue in 2020 and 2021.
According to Reuters claims, Binance used to co-mingle billions almost daily. The report also cited bank records which highlighted that on Feb. 10, 2021, Binance intertwined $20 million from its balance sheet with $15 million of users’ funds.
To this, Brad Jaffe, Binance’s Communications Vice President, called it a “conspiracy theory” and clarified that the accounts were used to facilitate user’s processes and that no mingling had been committed. He stated:
These accounts were not used to accept user deposits; they were used to facilitate user purchases. There was no commingling at any time because these are 100% corporate funds.
Jaffe added that the transfer of money from customers was to facilitate the purchase of the exchange’s dollar-linked stablecoin, BUSD. He called it a process similar to making a purchase from an e-commerce site. Quoting him:
When users sent money to the account, they were not depositing funds but buying the exchange’s bespoke dollar-linked crypto-token, BUSD. This process was exactly the same thing as buying a product from Amazon.
According to Nansen, a blockchain analytics firm, Binance holds over $57.5 billion in customers’ funds. Sources reveal that Binance’s website showed the word “deposit” when users tried to purchase BUSD.
To this, a former US government has also taken a shot at the exchange. John Reed Stark, the former Securities and Exchange Commission (SEC) official, mocked the exchange and said that “these representations created the expectation that clients’ funds would be safeguarded in the same way as traditional cash deposits.”
Binance is currently dealing with a heap of regulatory actions against it which has highlighted transparency concerns. In March, the Commodity Futures Trading Commission (CFTC) targeted CEO Zhao and the COO, Samuel Lim. The regulator sued the exchange and Zhao alleging that the company intentionally offered unregistered crypto derivatives products in the U.S. against federal law.
The CFTC has charged several cases against Binance for violating federal laws related to offering futures transactions, illegal off-exchange commodity options, failing to register as a futures commissions merchant, designated contract market or swap execution facility, poorly supervising its business, not implementing know-your-customer or anti-money laundering processes and having a poor anti-evasion program.
However, this is not the problem for the exchange as the DoJ’s national security division is conducting an inquiry into whether Binance allowed Russian customers to access the exchange in violation of U.S. sanctions. Following all this, data suggest that the exchange Spot trading volume fell by 48.1% to $287 billion, making it the second-lowest monthly trading volume since 2021.
