By
Benjamin Njiri
April 23rd, 2024
Binance has indicated that the fund transfer was among its standard practices and did not create any problems for its traders.
The Binance cryptocurrency exchange, the largest by daily traded volume and global user base, is under tight scrutiny following the collapse of FTX and Alameda late last year. Although the company has provided on-chain data to support its reserve metrics, crypto analysts have uncovered nasty transactions within its wallets. Among them, Binance has been identified to have issued BEP20 and BEP2 tokens without the proper collateralization. Thereby leaving its customers with crypto tokens not backed by the original network’s coins. Recently, stablecoins issuer Circle accused Binance of minting USDC on its BNB Chain without having the collaterals and selling them to its customers.
Such incidents have tarnished the company’s reputation among global investors, thereby resulting in the migration of its customers to competitor exchanges, including DEXs.
Binance and Its Reserve Data Under Scrutiny
According to a report by Forbes, Binance moved approximately $1.8 billion of collateral meant to back its customers’ USDC stablecoins to hedge funds, including the collapsed Alameda and Cumberland/DRW, last year. Reportedly, the company transferred the reserve funds without adequately informing the customers. However, Binance has indicated that the fund transfer was among its standard practices and did not create any problems for its traders.
Binance’s chief strategy officer, Patrick Hillman, reiterated that the movement of money among wallets was a common practice initiated by the company frequently.
“There was no commingling,” Hillman said, because “there’s wallets, and there is a ledger.”
According to a Binance spokesperson, the exchange has never invested users’ assets without consent under the terms of specific products. “Binance holds all of its clients’ assets in segregated accounts which are identified separately from any accounts used to hold assets belonging to Binance,” the company’s spokesperson said.
The spokesperson added that the transactions identified by Forbes related to internal wallet management and did not affect the collateralization of user assets.
“While Binance has previously acknowledged that wallet management processes for Binance-pegged token collateral have not always been flawless, at no time was the collateralization of user assets affected. Processes for managing our collateral wallets have been fixed on a longer-term basis, and this is verifiable on-chain,” the spokesperson noted.
Notably, the company has admitted that the original coins did not always back BUSD stablecoins on its smart chains.
Side Notes
The cryptocurrency market is facing steep regulatory scrutiny ahead to ensure mainstream adoption. Different global jurisdictions are working to regulate centralized exchanges mostly to protect investors from predatory exploitations. As a result, the cryptocurrency winter is expected to continue for subsequent quarters before clarity is obtained. Moreover, the United States, through the Securities and Exchange Commission (SEC), intends to classify all digital assets as unregistered securities, with Bitcoin as an exception.