Binance is Allegedly Practicing Maneuvers Similar to FTX
Binance has transferred $1.8 billion in stablecoin collateral to hedge funds without informing its customers, Forbes reports says. This move has left other investors exposed, raising concerns about the transparency and solvency of Binance
According to blockchain data analyzed by Forbes, holders of more than $1 billion of B-peg USDC tokens were left with no collateral for instruments that Binance claimed would be 100% backed by whichever token they were pegged to. B-peg USDC tokens are digital replicas of USDC, a dollar-pegged stablecoin issued by Boston-based Circle Financial.
Of the raided customer funds, $1.1 billion was channeled to Cumberland/DRW, a Chicago-based high-frequency trading firm. Other crypto traders, including Amber Group, Sam Bankman-Fried's Alameda Research, and Justin Sun's Tron, also received hundreds of millions of shifted collateral from Binance.
Binance's lack of transparency and compliance with regulations has been an ongoing concern, with a corporate structure that appeared to be designed to evade regulators and reported federal investigations for money laundering and tax evasion. Last week, the Securities and Exchange Commission opposed Binance.US's plan to take over failed crypto lender Voyager's customer accounts citing inadequate disclosure about the safety of customer assets.
Patrick Hillmann, Binance's chief strategy officer, has downplayed concerns about commingling different investors' funds, suggesting that the movement of billions of assets among wallets is part of the exchange's normal business conduct.
The implication of Hillmann's comments is that despite what balances may show in Binance's publicly viewable exchange wallets, the firm has its own set of proprietary records to keep track of funds. This would seem to undermine Binance's recent efforts to demonstrate solvency through proof-of-reserves exercises. Having two sets of books means that the company is asking customers and regulators to trust its accounting while making it very difficult to independently verify the solvency it claims.
This recent case of behind-the-scenes asset shuffling is reminiscent of FTX's maneuvering prior to bankruptcy when its trading affiliate Alameda Research was alleged to have benefited from FTX's disregard for pledges made to customers that their assets would remain discrete from those of other exchange customers. Binance's move to transform the collateral into its own Binance USD (BUSD) stablecoin has also raised questions about its intentions.
Justin Sun Sam Bankman-Fried Binance.US Binance Binance USD TRON