The uncertainity surrounding Binance hasn’t become any clearer inJuly of2024. How much trouble might Binance find itself inand what can weexpect from the world’s most popular exchange? Let’s divein!
Drew
Jul 1, 2024July 1, 2024 15 min read15 minutes read
In this article
- Impact on Binance
- Reduced Market Access
- Main Takeaways for Investors Regarding Binance
- Key Findings
- Several Key Executives Have Left Binance in 2023
- Key Developments Surrounding Binance.US Workforce Cuts and Regulatory Issues
- Binance's Shift Away from Bitcoin Dominance
- Binance's Shift Away from Bitcoin Dominance: Understanding Its Business Model Evolution
- Overview of Binance Launchpad
- Definition and Implications of Unregistered Securities
- Know Your Customer (KYC)/Anti-Money Laundering (AML)
- SAFU?
- Binance Proof of Reserves and Security Measures
- Binance Chain Hack
- Legal Challenges Faced By Binance in Various Jurisdictions
- Recent Developments: Key Updates
- So, is Binance in Trouble?
The CEO ofBinance HoldingsLimited (aka Binance), the largest cryptocurrency exchange inthe world, pleaded guilty inNovember 2023 and agreed topay $4 billion toresolve the investigation into violations related tothe Bank Secrecy Act (BSA)—i.e., failure toregister asamoney-transmittingbusiness.
How did thishappen? Let’s divein.
TL; DR:
Settlement Terms
Zhao agreed topay apersonal fine of$50million.
Binance will pay afine of$4.3 billion aspart ofthe pleadeal.
Zhao was released ona$175 million bond and will besentenced inFebruary 2024.
CZ’s Response
Onthe same day, CZannouncedthe news onTwitter:
Impact onBinance
Despite the settlement allowing Binance tocontinue its operations temporarily, the exchange’s legal challenges remainunresolved. Internal communications from 2018 (just ayear after Binance launched) disclosed that compliance issues were acknowledged early on.
Reduced Market Access
Non-compliance has led toBinance being denied access tomarkets, facing operational restrictions, and encountering reluctance from governments and financial institutions toengage with them ortheirpartners.
What DoThese Troubles Mean toInvestors?
The SEC emphasizes the risks and lack oftransparency associated with theseplatforms. Asaresult, existing customers risk experiencing arange ofadverse outcomes, including but not limited to:
Increased scrutiny ofoperations
Potential disruptions inservices
Withdrawal halt/pause
Increased KYC requirements tofulfill withdrawal requests
Potential legal and financial consequences for the exchange significant loss ofliquidity
Main Takeaways for Investors Regarding Binance
Legal Concerns
Anotable observation from recent legal documents isthat Bitcoin was mentioned only six times inthe 136-page document, none ofwhich had negative implications.
Key Issues Investors Should BeAware Of
Serious Legal Concerns:Growing uncertainty about Binance’s compliance has led many investors towithdraw Bitcoin from the exchange while seeking clarity onits legaltroubles.
Potential Violations:Multiple government lawsuits suggest possible breaches oflaws and regulations, including:
Fraud
Wash Trading
Money Laundering
Expert Insights
InanApril 17th blog post, Swan Lead Analyst Sam Callahan published anin-depth report,Binance: Raising Eyebrows Since 2017, shedding light onlong-standing concerns surrounding Binance’soperations. You can access this detailed analysishere.
Exclusive Report Access:The original report was provided exclusively toSwan Private clientsonApril 14, 2023.
Binance Liquidity Concentration Confirmed byKaiko
Key Findings
According toKaiko’s latestCrypto Liquidity Concentration Report, Binance:
Market Depth:Accounted for 30.7% ofthe global market depth in2023.
Trading Volume:Controlled asignificant 64.3% ofglobal crypto tradingvolume.
Insights for Investors
Market Dominance:The report reveals that the eight largest exchanges collectively control 91.7% ofmarket depth and 89.5% oftradingvolume.
Market Impact:Binance’s dominance means changes inits liquidity, regulations, oroperations can significantly impact the broader cryptomarket.
Learn more details intheKaiko Insight Report.
Kaiko ResearchInsight into the Latest Filing
The SEC’s recent filing raises concerns about the audit ofBinance.US and highlights difficulties inensuring the company was fully collateralized.
The filing further alleges that Binance has used BAM, the entity managing Binance.US, for unlawfulpurposes.
Wall Street Journal Exposé
The Wall Street Journal published anexposé over the Christmas 2023 weekend titledThe Crypto Queen Pulling the Strings atBinance, shedding light onYiHe’s significant influence over Binance’s marketing and investmentoperations.
YiHeisaformer talk show host and Changpeng Zhao’s longtime romanticpartner.
Several Key Executives Have Left Binance in2023
Sept. 6, 2023: Helen Hai announces her resignation.
Sept. 6, 2023: Vladimir Smerkis announces hisdeparture.
Sept. 6, 2023: Gleb Kostarev announces his resignation.
Sept. 4, 2023: Mayur Kamat, product lead atBinance, announces his resignation.
Aug. 31, 2023: Leon Foong, head ofAsia-Pacific atBinance, announces his resignation.
July 7, 2023: Steven Christie, senior vice president for compliance atBinance, announces his resignation.
July 6, 2023: Patrick Hillmann, chief strategy officer ofBinance, announces his resignation.
July 6, 2023: Han Ng, general counsel atBinance, announces his resignation.
July 6, 2023: Steve Milton, global vice president ofmarketing and communications atBinance, announces his resignation.
July 6, 2023: Matthew Price, senior director ofglobal investigations and intelligence atBinance, announces his resignation.
October 19, 2023: Stéphanie Cabossioras stepped down from her position asthe Executive Director ofBinanceFrance.
October 19, 2023: Saulius Galatiltishas stepped down aschief executive officer ofBifinity UAB, apayment processor that serves asagateway for fiat transactions bycustomers oftheBinancecryptocurrencyexchange.
Key Developments Surrounding Binance.US Workforce Cuts and Regulatory Issues
Workforce Reductions
September 13, 2023: Binance.US laid off one-third ofits workforce and lost its CEO BrianShroder.
Employee Concerns
Atasummer meeting after the layoffs, employees voiced their concerns toChangpeng Zhao (CZ). According tomessages reviewed bythe Wall Street Journal, one anonymous employee criticized the lack ofadvance notice and the two-week severance package, asking ifitwas a“respectful” way totreat laid-offemployees.
Regulatory Obstacles
Russian Bank Involvement
Inlate August, the Wall Street Journal revealed that some Binance customers were involved with sanctioned Russianbanks. Binance has faced scrutiny over potential violations and addressed the issue byfully exiting the Russianmarket.
Discontinuation ofRUB Support
OnSeptember 27, Binance published ablog post explaining its sale toCommEx and the decision todiscontinue support for the Russian Ruble (RUB).
Binance denied media claims that ithelped customers transfer funds from sanctioned Russian banks out ofthecountry.
The decision follows the exchange’s denial ofmedia reports, two months ago, suggesting its involvement inassisting customers intransferring funds from sanctioned Russian banks out ofthecountry.
SEC’s Concerns Surrounding Ceffu and Binance’s Operations
Investor Points ofInterest
Ceffu’s Role
The SEC isscrutinizing Ceffu, aninstitutional crypto custodian and Binancepartner.
The regulator suspects Ceffu facilitated the transfer ofU.S. customer funds between Binance.US and Binance Holdings, potentially moving these funds outside the U.S. jurisdiction.
Financial Transactions Under Investigation
Convertible Note Details
Legal documents from Binance.US’s legal team reveal that BAM Management U.S. Holdings issued a$250 million convertible note toChangpeng Zhao (CZ) inDecember.
The documents also state that Zhao used Binance USD (BUSD), allocating $183 million toPaxos Trust Company (issuer ofBUSD) toconvert the stablecoin intoUSD.
Implications
Regulatory Scrutiny
These activities have attracted regulatory attention due topotential financial improprieties, emphasizing the importance ofcompliant fund management practices withinBinance.
Investor Awareness
Keeping upwith these developments iscrucial for investors tounderstand the evolving landscape ofcrypto regulations and potential risks associated with Binance’s globaloperations.
Learn more about Ceffuhere.
Twitter Allegations and CZ’s Response
Allegations byDylan LeClair
OnTwitter, crypto analyst Dylan LeClair criticized Changpeng Zhao (CZ) for the $250 million BUSD transfer between Binance.US and Binance’s internationalexchange.
CZ’s Response
CZresponded bystating that “Binance.US has never utilized Ceffu orBinance Custody.”
Contradictory Findings from SEC Documents
Unsealed SEC Documents
Newly revealed documents contradict Zhao’s claims, indicating that Binance.US “obtained custody software and support services from Ceffu,” aninstitutionalcustodian.
Historical Financial Transactions
Earlier Reports
InFebruary, Reuters reported that Binance.US transferred $400 million from its platform toMerit Peak Ltd., atrading firm managed byZhao, based onbank records and internalmessages.
Impact onBinance.US Operations
October 16th Announcement
OnOctober 16th, Binance.US announced that itwould stop supporting USD withdrawals.
Updated Terms
Find the updated terms ofuse, including the PDF version, here.
Binance’s Shift Away from Bitcoin Dominance
Initial Focus onBitcoin Trading
Initially, Binance had alimited selection oftokens, featuring cryptocurrencies like Bitcoin (BTC), Ethereum (ETH), and its native coin, Binance Coin (BNB).
However, itlater gained fame for offering anextensive range ofcryptocurrencies and digitalassets. Binance continues toexpand its token offerings and supports launching new projects through programs like the Launchpadplatform.
Binance’s initial shift away from Bitcoin toamostly altcoin-dependent exchange and business model can beattributed toseveral factors:
Byexpanding its altcoin offerings, Binance attracted traders interested inabroader range ofcryptocurrencies.
Altcoins often provide different features, use cases, ortechnologies than Bitcoin, which can appeal totraders seeking varied investment opportunities.
Binance recognized the growing interest and demand for altcoins among traders and adjusted its business model tocater tothese preferences.
Binance has actively supported new altcoin projects through Initial Coin Offerings (ICOs) and token launches onitsplatform. ICOs provide the ideal conditions for aCantillon Effect distribution ofnetwork control bythe token team.
Binance’s Shift Away from Bitcoin Dominance: Understanding Its Business Model Evolution
Initial Focus onBitcoin
Early Days:Binance initially focused onpopular cryptocurrencies like Bitcoin (BTC), Ethereum (ETH), and its native Binance Coin (BNB), offering alimitedselection.
Transition toaDiverse Altcoin Portfolio
Expanded Offerings
Binance gained popularity for listing many cryptocurrencies, evolving its business model tofeature manyaltcoins.
Programs like Launchpad facilitate new project launches, offering token-based fundraising.
Reasons for the Shift
Broader Asset Options
Byoffering more altcoins, Binance enabled traders todiversify their investments.
Market Demand and Trends
Responding tothe growing demand for altcoins, Binance tailored its offerings toalign with emerging markettrends.
Innovation and Token Launches
Binance actively supported new altcoin projects through Initial Coin Offerings (ICOs) and token launches, providing aninnovative platform for networkgrowth.
Competitive Advantage
Expanding its altcoin offerings gave Binance acompetitive edge, attracting users interested invaried investment opportunities beyondBitcoin.
Supporting New Projects
Initial Coin Offerings (ICOs)
Binance facilitated ICOs, which enabled altcoin teams todistribute tokens and control thenetwork. Learn more about ICOshere.
Cantillon Effect
The distribution ofnew tokens often mirrors the Cantillon Effect, where initial participants gain the mostbenefits. Learn more about the Cantillon Effecthere.
Overview ofBinance Launchpad
Crowdfunding Platform
Binance Launchpad isaBinance-owned crowdfunding platform that helps crypto startups raise funds byoffering their tokens toBinanceusers.
Birth ofthe IEO Model
Launchpad was the first tointroduce theInitial Exchange Offering(IEO) model, apopular fundraising method many crypto startups use acrossexchanges.
How Binance Launchpad Supports Startups
Global Access
Startups can leverage Binance’s global user base toreach alarge audience and securefunding.
Secure and Trusted
Users trust the IEO process because Binance vets each project, reducing the risks often associated with other fundraisingmethods.
Comprehensive Support
Launchpad provides startups comprehensive resources, from project assessment totechnical advice and marketingsupport.
The Impact ofIEOs
Efficient Fundraising
IEOs offer astreamlined fundraising process through the exchange, giving projects immediate access tofunds and participants.
The Launchpad has come under increased scrutiny inrecent years for several reasons:
Regulatory compliance concerns
Questions about project quality and due diligence
Allocation and fairness issues
Market volatility and speculation
Investor protection concerns
See AlsoBinance.US review 2024
Definition and Implications ofUnregistered Securities
SEC’s Charges Against Binance
OnJune 5th, the SEC filed charges against Binance Holdings Ltd., its U.S. affiliate BAM Trading Services Inc., and CEO Changpeng Zhao (CZ) for violating securitieslaws.
Binance was accused ofmisleading investors byclaiming itrestricted U.S. customers from accessing Binance.com while secretly allowing high-value U.S. customers totrade ontheplatform.
Failure toRestrict U.S. Investors From Accessing Binance.com
Misleading Investors
Know Your Customer (KYC)/Anti-Money Laundering (AML)
Binance has anotorious reputation for allowing actors touse its exchange for various money laundering schemes, terrorist financing, and other illicit activities.
Exchanges must enforce strong KYC and AML measures todeter money laundering, terrorist financing, and illicitactivities.
The U.S. has found evidence that American investors could easily access and use the platform due tolax KYC/AML account setup and maintenancestandards.
SAFU?
SAFU: Secure Asset Fund for Users
Binance created the 'Secure Asset Fund for Users' (SAFU) inJuly 2018 toprotect userfunds.
Binance allocates aportion ofits trading fees tothis fund, which includes BNB, BTC, USDT, and TUSD wallets.
During unexpected maintenance, CZtweeted areassuring message tousers:
Origin ofthe Term
In2018, aviral YouTube video byBizonacci popularized the phrase “Funds Are Safu” after CZreassured users during unexpected maintenance. This meme evolved into acommunity term meaning user funds are secure
“Not Your Keys, Not Your Coins”
Despite SAFU, user funds are never completely secure onany exchange because withdrawals can behalted atany time for anyreason. Users are left with norecourse ifthishappens.
NOTE: There isnothing the end user can doonce this happens.
Binance Proof ofReserves and Security Measures
Proof ofReserves
1:1 Asset Backing
Binance claims its user assets are fully backed ataminimum ratio of1:1.
However, most ofBinance’s corporate holdings are stored inseparate wallets not included inproof-of-reserves calculations.
Binance Chain Hack
Binance Chain Hack
October 2022 Attack
InOctober 2022, Binance Chain suffered ahack involving the withdrawal of$2 million BNB, valued at$570million.
Learn more about the hack and ecosystem update from BNB Chainhere.
Importance ofDue Diligence for Investors
Protecting Against Scams
Thorough due diligence helps investors safeguard themselves byproviding insights into aproject’s:
Legitimacy
Team
Technology
Use case and financial health
Due Diligence Criteria
Comprehensive research and analysis should cover the following:
Fundamentals:Key financial and marketfactors.
Technology:Quality and security ofthe technologyinvolved.
Team:The qualifications and experience ofthe projectteam.
Market Viability:Demand, growth potential, and competitivelandscape.
Regulatory Compliance:Adherence torelevant regulations.
Binance’s Legal Battles and Compliance Challenges
Regulatory Challenges
Binance has faced numerous legal issues, including:
Alleged regulatoryviolations.
Non-compliance with securitieslaws.
Challenges adapting toevolving regulatory standards.
Legal Challenges Faced ByBinance inVarious Jurisdictions
Binance operations have faced regulatory scrutiny and legal challenges inseveral jurisdictions, including:
United States (U.S.)
Regulatory Concerns
Binance had been operating inalimited capacity inthe U.S. through its subsidiary, Binance.US.
U.S. regulators have scrutinized Binance’s subsidiary, Binance.US, over compliance issues with local laws, such asregistration requirements and potential securitiesviolations.
InJune 2023, the SEC charged Binance with misleading U.S. investors
United Kingdom (U.K.)
FCA Scrutiny
The Financial Conduct Authority (FCA) demanded that Binance halt its regulated activities and expressed concerns over regulatory compliance, due diligence, and anti-money laundering (AML) measures
The Financial Conduct Authority (FCA) demanded that Binance halt its regulated activities and expressed concerns over regulatory compliance, due diligence, and anti-money laundering (AML) measures.
OnOctober 8, 2023, Binance tried restoring some local services via apartnership with aregulated entity, Rebuildingsociety.comLtd.
Aweek later, onOctober 16, Binance stopped onboarding new U.K. users.
China
Initial Ban
In2017, China’s government banned domestic crypto exchanges, prompting Binance torelocate its headquarters.
Despite the ban, Binance continues tohandle $90 billion inmonthly transactions involving Chinese traders, accounting for 20% ofglobal volume
Japan
FSA Warning
InMarch 2018, the Financial Services Agency (FSA) warned Binance ofoperating without proper registration
Binance plans toobtain alicense tooperate inJapan and comply with local regulations.
Canada
OSC Investigation
InMarch 2021, the Ontario Securities Commission (OSC) accused Binance ofviolating securities laws byoperating anunregistered trading platform.
India
Government Crackdown
Inlate December 2023, India began blocking local access tointernational exchanges like Binance, asreported byBloomberg.
Apple removed Binance, Kucoin, and OKX apps from its App Store after agovernment order.
OnJanuary 12, 2024, Google removed Binance and other global crypto apps from its Play Store inIndia.
Recent Developments: Key Updates
Prominent Delisting
Monero Delisting
OnFebruary 6, Binance announced that itwould delist Monero (XMR) from the exchange onFebruary 20, 2024.
CZ’s Guilty Plea
OnNovember 21, 2023, Changpeng Zhao (CZ) pleaded guilty inU.S. court toviolating the Bank Secrecy Act byfailing toimplement adequate KYC and AML protocols for U.S. customers.
Aspart ofthe plea deal, heplaced $15 million inatrust account and secured guarantors pledging $250,000 and $100,000. CZisscheduled for sentencing onFebruary 23, 2024.
Fines and Penalties
Zhao and the DOJ agreed toa$50 million fine without prison timementioned.
Binance will pay $4.3 billion inpenalties tovarious federal agencies and will undergo oversight from multiple monitors for fiveyears.
Settlement Agreements
Binance settled charges with FinCEN, OFAC, and the CFTC, addressing issues related tomoney laundering, sanctions, and commodities regulations.
Leadership Changes and Restrictions
CZ’s Resignation
Aspart ofthe DOJ settlement, Zhao resigned from Binance and cannot participate inits operations ormanagement for three years following the appointment ofamonitor.
YiHe’s Influence
YiHe, Zhao’s romantic partner and the mother ofhis three children, isnow the largest Binance shareholder currently working for thecompany.
She oversees Binance’s marketing and investment departments and significantly influences the company’s overalloperations.
So, isBinance inTrouble?
Even though CZisstepping down, the exchange isnot out ofthe woodsyet. Act accordingly. Get your Bitcoin off ALL exchanges today and consider moving itinto aBitcoin IRA.
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Drew
Drew, aclass of2013 Bitcoiner, isaResearch Analyst for Swan Bitcoin.
Hehas worked ininstitutional VC/PE, FinTech, and DLT consulting for over six years. Healso brings over twelve years ofexperience working with national nonprofits and start-ups ineducation and software development inseveral leadership roles.
In this article
- Impact on Binance
- Reduced Market Access
- Main Takeaways for Investors Regarding Binance
- Key Findings
- Several Key Executives Have Left Binance in 2023
- Key Developments Surrounding Binance.US Workforce Cuts and Regulatory Issues
- Binance's Shift Away from Bitcoin Dominance
- Binance's Shift Away from Bitcoin Dominance: Understanding Its Business Model Evolution
- Overview of Binance Launchpad
- Definition and Implications of Unregistered Securities
- Know Your Customer (KYC)/Anti-Money Laundering (AML)
- SAFU?
- Binance Proof of Reserves and Security Measures
- Binance Chain Hack
- Legal Challenges Faced By Binance in Various Jurisdictions
- Recent Developments: Key Updates
- So, is Binance in Trouble?
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