Billionaire withdrawal calls alert, however Binance remains to be removed from being the following FTX
Involved with the financial collapse of FTX after giving up on buying the competitor’s operation, Binance is the latest victim of the consequences of the implosion of its rival’s business. On Tuesday, December 13, investors withdrew $1.14 billion in assets that were allocated at the cryptocurrency exchange.
A day after confirming the withdrawals, Changpeng Zhao, CEO of Binance, went public and, via Twitter, wrote that “things seem to be stabilized” and that “deposits are returning”. Already in an internal memo obtained by the agency Bloomberghe highlighted the expectation that the coming months will be “turbulent”.
Publicly, Zhao tries to reassure the exchange’s customers, who fear that Binance will also have a liquidity crisis. According to him, the withdrawal of assets was not even one of the five largest ever recorded in a single day by the company. “We’ve seen this before. It’s business as usual,” he said.
In a note sent to NeoFeedBinance reported that Tuesday’s withdrawal of funds was “extreme stress test because we run a very simple business model: keep assets in escrow and generate revenue from transaction fees.”
For experts, even if the value is billions, you need to analyze the whole context. “Definitely worth keeping an eye on, but as far as I can tell at this point, this is very different than what happened with FTX,” said Alex Svanevik, CEO of Nansen, a company that works with blockchain data analytics, in an interview with american network CNBC🇧🇷
According to Svanevik, Binance witnessed the withdrawal of around $3 billion of its funds in the last week. He recalled, however, that the company has more than US$ 60 billion in assets on the exchange and that withdrawals still represent a small percentage of that amount.
Even so, this movement reinforces the attention on companies in the sector. Pressured by investors, Binance issued a document last month in which it claims to have a reserve ratio of 101%. This means that the company has enough cash to cover all deposits in case of a liquidity crisis.
The problem is that this proof of booking has not been seen as definitive proof that the company is financially secure. Mazars itself, the auditor hired by Binance to prove the reservations, stated in its report that such a point “does not express an opinion or a conclusion of guarantee”.
On Twitter this Wednesday, Zhao again claimed that he holds asset reserves from individual users of the exchange. He also said that he intends to release another batch of booking vouchers in the coming weeks.
According to the company, a process to prove escrow reserves of this magnitude “is very complex, new and unique to the industry and requires different degrees of internal and third-party verification on the blockchain compared to traditional financial institutions.”
Binance is not the only one suffering from the fallout from the FTX collapse. The American Genesis even suspended withdrawals from the platform in a decision that could also affect Gemini, the cryptocurrency exchange owned by twins Tyler and Cameron Winklevoss.
That was even left for Sequoia, one of the exchange’s investors, who had to explain herself to the LPs and stated that she would look more zealously and ask companies for more guarantees in their investments in the future.
The FTX case
As Svanevik states, there are differences between the FTX and Binance cases. Sam Bankman-Fried, founder and CEO of FTX, has been criminally charged with acts that constitute, among other unlawful practices, the crime of fraud. The charge is the transfer of funds from the brokerage to Alameda Research, FTX’s sister company.
To make matters worse, Alameda Research has lent at least $4 billion to executives linked to FTX and the brokerage’s legal subsidiary companies. Bankman-Fried, for example, borrowed $1 billion, as documents from the Delaware District Bankruptcy Court in the United States show.
At a recent event by The New York TimesBankman-Fried denied that the brokerage had committed fraud and claimed that the problems stemmed from “an accounting error”, which caused US$ 8 billion to be incorrectly calculated.
The justification was seen as a lie and delirium by executives at Coinbase and Galaxy Digital, other cryptocurrency companies. “Even the most gullible person should not believe Sam’s claim that this was an accounting error,” wrote Brian Armstrong, CEO of Coinbase, on Twitter.
On Monday, the 12th, Bankman-Fried was arrested in the Bahamas after US prosecutors filed criminal charges against the executive, who is expected to be extradited to the US to face trial.