“Crypto service providers’ fundamental responsibility is to protect user funds. Customer assets should only be used in the ways that the customers have explicitly authorized” Binance stated in the post. The article was posted amid the exchange facing troubles with the regulator, causing users to massively withdraw their funds.
Binance committed that users’ assets will always be secured with 1:1 reserves and not used for unauthorized purposes.
“Users who trust us with their money have every right to verify the safekeeping of their assets held in a centralized exchange’s custody at any time – through proof of reserves or a similar disclosure system,” Binance wrote.
However, just a day later, Reuter’s investigative filings show that more than $400 million was transferred from an account controlled by Binance.US to the merchant company Merit Peak in 2021.
Merit Peak is a billion-dollar company managed by Changpeng Zhao, CEO of Binance. This information matches the announcement of the US Securities and Exchange Commission (SEC) about the investigation into Binance.US and a trading company in February 2022.
Binance.US representative has yet to respond to questions about transfers kept on bank records. This person only said it was outdated information, claiming Merit Peak does not provide any services on the Binance.US platform.
According to Reuters, Binance.US executives spotted the unusual transaction and asked the Binance Global CFO for an explanation of the funds, but received no reply. This means that the global Binance exchange controls the finances of Binance.US, even though this is prohibited in the US. The US Department of Justice and the SEC have always put the relationship between Binance and Binance.US in the spotlight, due to suspicions that the world’s largest cryptocurrency exchange is only using Binance.US as a cover for doing business in the US.
According to analysts, the continuous negative news shows that the crisis of Binance is spreading and has no signs of stopping.
The company began to be targeted by the US Department of Justice in 2018, related to alleged violations of anti-money laundering laws. In March 2021, the US continued to review records on whether Binance offered crypto derivatives without registering.
By December 2022, the crisis started when rumors surfaced that Binance’s reserve accounts were not transparent. Users rushed to withdraw hundreds of millions of dollars from the exchange.
In early January, the Washington Post, citing a separate source, said that the US was expanding its investigation with Binance. According to Forbes, as of January 10, Binance had withdrawn about $12 billion in less than 60 days, equivalent to a quarter of the exchange’s assets. Binance’s financial situation is considered to have many similarities with FTX before bankruptcy. Users also simultaneously exchanged BUSD, Binance’s stablecoin, for other stable cryptocurrencies.
On January 17, the financial analysis platform Datafinnovation confirmed that Binance had problems managing tokens for a long time. The exchange admitted this mistake, resulting in the loss of more than a billion dollars in collateral.
On February 13, Paxos announced to end of its relationship with Binance and stop issuing BUSD from February 21, at the request of the New York Department of Financial Services (NYDFS). Soon after, $2.8 billion was withdrawn from the exchange by users in just 24 hours, according to data from blockchain research firm Nansen.
The instability is striking hard on the community’s trust in Binance. Many are looking to move their assets off the exchange, fearing that a crash similar to FTX could come at any time.