Binance: Staying Strong In The Face Of Adversity (BNB-USD)

This article was co-authored by Mandela Amoussou

What You May Have Missed

All eyes are on Binance (BNB-USD) following rumors of potential FTX-like insolvency at the world’s largest cryptocurrency exchange.

At the onset of the FTX (FTT-USD) collapse following the report released by CoinDesk that showed assets to liability mismatch on Alameda Research’s (FTX trading arm) balance sheet, Binance was quick to announce it will liquidate all of its FTT (FTX’s token) holdings. There was a Twitter (TWTR) back and forth between the CEO of Binance Changpeng Zhao (known by the initials CZ) and Sam Bankman-Fried (“SBF”), the fallen CEO of FTX.

Binance’s exit triggered more sell-off of crypto-assets by FTX customers, leading to the opening of a can of worms at FTX, and a subsequent bank-run-like implosion.

Since the FTX fiasco, Binance is one of the entities constantly reassuring the crypto community—via tweets, published statements, and novel initiatives—that not every centralized exchange (CEX) has the underlying problems FTX had. The reassurances via tweets and statements have not quelled the weeks-long FUD surrounding major CEX, including Binance. Last week, customer outflows from Binance exceeded $3 billion, including withdrawals of about $2 billion in a single day.

As the largest cryptocurrency exchange, Binance has been under scrutiny by the crypto community and lawmakers in certain jurisdictions where it operates. The crypto community seems to be on the alert as a result of the FTX surprise collapse last month.

Quest for Transparency: Merkle Tree Proof-of-Reserves Audit

The recent insolvency and implosions in the crypto industry have pushed the demand for greater transparency in the crypto space. One of the steps towards transparency that CEX have taken is to make third-party financial audits public via Proof of Reserves (“POR”).

Binance was one of the first crypto exchanges to publish its PoR after the collapse of FTX. On November 22, auditing and accounting firm Mazars took a snapshot of assets on Binance including customers’ spot, options, margin, futures, funding, loan and earn accounts for Bitcoin (BTC-USD) and Wrapped Bitcoin (WBTC-USD) held on the Bitcoin, Ethereum (ETH-USD), BNB Chain and Binance Smart Chain blockchains.

Mazars’ audit of Binance’s assets on November 22, 2022, showed that Binance was 101% collateralized. Binance had enough assets to cover all of the users’ funds on the exchange and a little extra. Other crypto exchanges audited by Mazars include Crypto.com and KuCoin.

In the latest developments, Mazars has deleted the reports related to crypto firms’ audits on its official website. Mazars, in a report, said that crypto-related audit works are now put on hold.

Mazars cited concerns regarding how the public understands these reports and the intense media scrutiny the reports have generated. The concerns were cited in an email from Mazars, according to a Bloomberg report.

Mazars’ withdrawal and the hesitation of other big auditing firms to provide auditing services to crypto exchanges are largely seen as a way to maintain their reputation as most of these auditing firms fear being entangled in an FTX-like collapse. In a recent CNBC interview, Binance CEO Changpeng Zhao said, “Many audit firms are scared to work with crypto businesses.”

The news of Mazars’ withdrawal of its published audits resulted in some FUD, causing price drops in BNB (Binance ecosystem native coin) and other altcoins.

Lawmakers Probe Binance

As the world’s largest crypto exchange, Binance is the subject of scrutiny by lawmakers in different jurisdictions where the exchange operates.

Authorities in Singapore commenced an ongoing investigation into Binance, accusing the crypto exchange of a possible breach of local payment services rules, Bloomberg reported.

US prosecutors are looking into Binance and its activities. Sources who spoke to Reuters say the US Department of Justice (DoJ) is mulling over the decision to file charges against Binance and its top executives, including CEO Changpeng Zhao.

Prosecutors are, however, divided on whether to file charges immediately based on gathered evidence or wait until more concrete evidence is obtained.

The potential charges stem from a 2018 investigation related to Binance’s compliance with US anti-money laundering laws, according to sources who spoke with Reuters.

Binance’s attorneys are said to have negotiated a plea deal with DoJ authorities, fearing the catastrophic effect a criminal charge will have on the crypto market which is yet to recover from the FTX contagion.

Binance to the Rescue

In the crypto space, Binance has continued to play a leadership role during times of crisis. Following the implosion of FTX, Binance announced an initiative it calls the industry recovery initiative (“IRI”). Binance made a $1 billion initial IRI commitment; other key industry players, including Polygon Ventures, Aptos Labs, Animoca Brands, and Jump Crypto, have made contributions to the initiative.

In a similar vein, Binance.us—the US-based subsidiary of Binance—is set to acquire Voyager Digital (OTCPK:VYGVQ) for $1 billion as part of Voyager’s chapter 11 bankruptcy proceedings. Voyager filed for bankruptcy in July. The TerraLUNA-induced implosion of Three Arrows Capital (3AC); 3AC, a crypto hedge fund, owed Voyager funds which it couldn’t repay.

Is BNB worth the risk?

Binance is one of the crypto entities that face a lot of scrutiny in the industry. The news of possible criminal charges by US prosecutors last week created FUD, (fear, uncertainty and doubt) leading to huge customer outflows from the exchange.

Data analytics firm CryptoQuant has said it has performed an analysis of Binance’s proof-of-reserves audit and has ascertained that the reserves are truly accounted for, backing the now-expunged audit report of Mazars.

BNB, the native coin of Binance, is an important crypto asset in the Binance ecosystem. BNB undergoes periodic buybacks and burns by Binance, a process the firm says will continue until 50% of the BNB supply is burnt. The introduction of BEP-95 has also added to the deflationary mechanism of BNB. Generally, in crypto, the more deflationary mechanism a coin has, the more it tends to maintain its value.

From a purely fundamental perspective, BNB is certainly a valuable coin. Unlike, say, FTT or other coins that support an ecosystem, BNB is regularly burned, and the Binance Smart Chain is popular with many developers, as it allows for fast transactions.

The big issue here is how Binance will deal with attacks from centralized powers. Binance operates from Hong Kong but was originally a Chinese company. This might be one of the reasons why it is not looked at so favourably in the West, and regulation could make it difficult for Binance to continue growing.

Still, I see Binance building a powerful crypto ecosystem. The crypto exchange and its strong team seem to always push the exchange to a greater height despite the FUD and criticisms.

Takeaway

Binance has shown it can hold on strong, despite the accelerated withdrawals, and I have even verified this myself, withdrawing funds from the exchange as a test. Like in any industry, there are good companies and bad. FTX turned out to be not so great, but Binance is doing things right, and I personally use the exchange and hold BNB. With that said, minimizing the funds held in centralized exchanges is always a smart idea.