- The position of the exchange is unclear, and its management is confused in explanations
- Sometimes top management even descends to insults to the media
- At the same time, the Forbes investigation raises very uncomfortable questions for Binance.
- And most of them just don’t have the answers.
This week, Forbes magazine published a diatribe against Binance. The portal accused the exchange of misuse of client funds. CEO Changpeng Zhao denied this information and criticized the publication.
CZ said that Forbes operates with outdated information and deliberately distorts the facts, attributing client transfers to the platform. But is it possible to say that Zhao is definitely not disingenuous?
Two theories
In its article, Forbes puts forward two main assumptions about this whole situation. First, Binance used a remortgage mechanism. Funds from the b-USDC reserve were loaned to other counterparties. This is in line with what Zhao himself admitted — BUSD and other b-assets were under-backed for a while.
Second, the exchange exchanged USDC for BUSD. So Binance could collect interest on positions from the reserve instead of Circle. These include, for example, Treasury bonds.
In the first case, the situation really resembles the one that unfolded around FTX. Then the exchange runs the risk of repeating the fate of a competitor. In the second, we are talking about ordinary business practice, but there is a nuance. This scenario means that b-USDC was backed by high-risk BUSD for some time, not USDC.
Binance management is confused in the testimony
For their material, Forbes interviewed Patrick Hillmann, director of strategy for the exchange. He said that network wallets are meaningless, and the movement of assets is noted in the internal registry. This means that until the introduction of the Proof of Reserves concept, all assurances of Binance in its transparency were lies.
But this is not the main thing. Requested by CoinDesk came This is the response from the exchange:
“Binance holds client capital in segregated accounts independent of any wallets used to store assets owned by Binance.”
So do network wallets matter or not? Why does the statement of the director of strategy of the exchange contradict the official comment of its press service?
Next, Zhao’s answer. His claim of “internal rebalancing” does not stand up to even the slightest scrutiny. It turns out that these transactions were not mediated by Binance at all, and Cumberland DSW took control of 1.2 billion USDC and cashed out this amount in one day. It is hard to believe.
As a result, on March 1, the company publishes material “How and Why Assets Move Between Binance Wallets”. Only one really important thesis can be singled out from the entire article – the institutionalists withdrew their own funds from the platform. This explains the movement of those same 1.78 billion USDC.
And in general, the material rather repeats Hillman’s words about the unreliability of on-chain statistics. But then what about the conclusions that follow? So Binance is opaque? How can customers trust the platform after this?
In addition, the company is completely inconsistent in its assessment of the media. On the one hand, Binance advocates an “independent audit”, on the other hand, it accuses Forbes of clickbait and attempts to “ride on the hype”.
We do not claim that Binance actually used client funds to remortgage. The purpose of this material in another way is to push the audience to think. After all, the situation is ambiguous, and who knows what conclusions can be reached in the end.
