Key Takeaways
- Binance has seen $3 billion of funds leave the platform in the last week
- USDC withdrawals were halted but are now back up
- Flood of outflows highlights how low confidence in the space is
Binance is in the thick of it once more.
The world’s largest cryptocurrency exchange is facing an unprecedented surge in withdrawals from its platform. Over $3 billion in funds has fled the platform in the last week, according to on-chain data.
This follows several stories which have spooked investors. The first was the report that criminal charges could be filed against CEO Chengpeng Zhao, in relation to a years-long investigation into money laundering.
Then there was the halting of withdrawals of the USDC stablecoin, which was due to an unexpectedly high outflow taking place outside of banking hours (the swaps had to be routed through New York-based banks). The withdrawals of USDC have since been resumed as normal, with a total downtime of about 8 hours.
Customers in panic after FTX collapse
But the real reason for the flood of withdrawals is that FTX’s spectacular collapse, for which former CEO Sam Bankman-Fried was arrested Monday, has severed trust in the crypto industry.
This is not necessarily fair to the honest firms out there, but it makes sense. Customers need to look after themselves first, and it is only logical to withdraw right now until the dust settles, as there really is no downside to doing so.
Binance’s official proof of reserves address shows that outflows in Bitcoin have also been significantly elevated over the last 48 hours:
Binance is also not helping itself with its shoddy attempt at proof of reserves, which has done nothing to quell concern in the industry. The disclosures do not show liabilities, meaning they are redundant when it comes to making a fair assessment of whether all assets are backed.
The concern around the halted USDC withdrawals and lack of transparency with proof of reserves ultimately was the straw that broke the camel’s back in terms of trust, and investors flooded for the exits.
Zhao warns of “bumpy” road ahead
Of course, funds flowing out is perfectly OK. That is, assuming everything is above board, for which there is no reason to believe is not the case. Nonetheless, the fact that customers cannot verify themselves and must trust the word of a CEO is not exactly reassuring.
Especially when, you know, a certain other CEO burned the entire industry last month.
But this is not the same situation as FTX.
“You’re definitely seeing larger than normal withdrawals from Binance. And so it is definitely worth keeping an eye on but as far as I can tell at this point in time, this is very different from the FTX situation“, said Alex Svanevik, CEO of blockchain analytics company Nansen, in an interview with CNBC.
Binance CEO Zhao affirmed that while there are challenges ahead, Binance will be just fine. “While we expect the next several months to be bumpy, we will get past this challenging period – and we’ll be stronger for having been through it”, Zhao wrote in an internal memo seen by Bloomberg.
Industry must change
The bottom line is that, despite what you may believe about Binance, the reality is that there is a lack of transparency here and investors are paranoid given the slew of scandals that have rocked the industry this year.
Whatever semblance of trust was left after the LUNA fiasco, which felled numerous firms such as the crypto lender Celsius, is now broken, following the staggering scale of the FTX debacle.
Binance has an obligation to hold itself to a higher standard, now that it holds such a dominant share of the market. Thus far, its efforts around proof of reserves have been lacking, with the crypto world again relying on the tweets of a CEO to assure them everything is going just fine.
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