The blockchain data examined by Forbes revealed that Binance, the world’s largest cryptocurrency exchange, moved $1.8 billion of collateral intended to back customers’ stablecoins for other undisclosed uses without informing customers. The move has left holders of over $1 billion of B-peg USDC tokens without collateral, despite being promised 100% backing by Binance.
Of the raided customer funds, $1.1 billion was channeled to Chicago-based trading firm Cumberland/DRW to transform collateral into its own BUSD stablecoin. Amber Group, Alameda Research, and Tron were among the other companies that received hundreds of millions of collateral that had been transferred.
The exchange’s Chief Strategy Officer, Patrick Hillmann, downplayed concerns about commingling different investors’ funds, implying that despite what balances may show in Binance’s publicly viewable exchange wallets, the firm has its own proprietary records to track funds.
This move had sparked concerns about the exchange’s solvency and trustworthiness, with class action lawsuits already filed against crypto-focused banks Silvergate and Signature over claims they aided Sam Bankman-Fried’s efforts to misappropriate customer funds before his exchange blew up.
The exchange’s efforts to demonstrate solvency through proof-of-reserves exercises have been undermined by having two sets of books, making it very difficult to verify the solvency it claims independently.
The move is reminiscent of FTX’s maneuvering before 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 separate from those of other exchange customers.
Additionally, Binance tokens (B-tokens) are compatible versions of stablecoins such as tether, with $3.2 billion in circulation, and popular cryptos, including ether, at $956 million. There are more than 90 other coins, many with much smaller circulations, where Binance versions have been created.
Binance CEO Responds To Forbes Accusations
However, Binance co-founder and CEO Changpeng Zhao took to Twitter the following day to tackle the “FUD” (fear, uncertainty, and doubt). Zhao wrote on Twitter that he was “reluctantly spending time on FUD again” and accused Forbes of intentionally misrepresenting facts and using negative spin.
He went on to explain that the exchange’s users are free to withdraw their assets at any time and that their withdrawals are easily traceable on the blockchain. He also pointed out that users must deposit funds with Binance to withdraw them and that these deposit transactions are easily traceable as well.
Zhao further defended Binance’s reputation, stating that the exchange has “stood the test of time” and that users had safely withdrawn billions of dollars in December.
In addition, he mentioned that he had been spending time with industry leaders in Dubai and that Binance had implemented a new zero-knowledge (ZK) approach to proof-of-reserves, protecting user security and privacy.
Zhao expressed disappointment that Forbes continued publishing “baseless” articles and suggested that his Chinese ethnicity had been brought up unfairly in the article.
However, the Binance CEO’s response has been met with support from the cryptocurrency community, with many praising his transparency and commitment to addressing concerns about the exchange.