Is Binance SAFU Or The Next Crypto Empire To COLLAPSE?
Is Binance the next empire to come tumbling down?
The danger with centralized entities operating with crypto is permanent, as there is nothing SAFU when centralized.
The cryptocurrency exchange with the top trading volumes, Binance, has been suspected for years of foul play, mostly due to unexpected and unannounced blocking of withdrawals of various cryptocurrencies.
Suspicions arise regarding Binance's activities mimicking the legacy banking fractionalizing its reserves (the customer funds and assets).
Still, this is a common practice with many custodial services, and we've witnessed Celsius, BlockFi, and FTX containing enormous deficits in their balance sheets.
Crypto and fiat gaps, with extra Tether injections acting as a patch to the liquidity gap of these custodians.
$2.8 Billion Moved Out of Binance "Proof Of Reserves"
Binance, with the excuse of transparency and to differentiate from FTX practices, initiated a "proof of reserves" model, publishing addresses and balances of its cold wallets for each asset it holds.
The blockchain is public and transparent, so irregularities didn't go unnoticed.
Just 20 hours after Binance published its "cold" addresses, 2.75 Billion USDT moved to an undisclosed address, an address not mentioned in the Binance "proof of reserves" report!
Binance responded to this Reddit thread, and as we expected, its representatives unconvincingly tried to justify the immediate move of $2.75 BILLION from its reserves.
We should underline once again, this is 2,75 Billion USDT.
Yet, according to Binance, this is a standard policy of the exchange to move BILLIONS between networks without clarifying a reason, and doing that less than 24 hours after it published a "proof of reserves" report, which supposedly acts towards better transparency in the space.
(Kim Dotcom, Twitter)
This hastily formed concept, Proof Of Reserves, offers no actual transparency.
It only creates another negative impression, disregarding accepted accounting models, just as FTX did as a registered financial entity in the Bahamas.
Independent auditing by a top auditing firm is the only approach that will shed light on crypto companies. Showing your balances means nothing since any research requires hundreds more details to recognize the viability grade of a business.
As a personal remark, I may add that all these exchanges in this race, to prove their accountability with the “proof of reserves” practice, seem more suspicious than those that don’t.
However, exchanges evaluated in dozens of billions of dollars should publish such data (customer and exchange reserves) with daily updates, with full auditing reports of the exchange and any connected entities, with cash flows and details regarding intragroup payments and transactions.
(Kim Dotcom, Twitter)
Everyone has had enough regarding price manipulation, fractional reserves, and unethical advantages.
One report that 20 hours later, fundamental changes cannot represent transparency.
We read a lot about attestations regarding reserves from stablecoins too, but there’s no realistic trust in the shenanigans of Bahama crypto companies or Inspector Gadget banks.
There is no trust in any centralized exchange.
Crypto exchanges participating in this false exhibit of transparency are missing vital data from their reports that would allow analysts to audit their finances.
First, they skip reporting their fiat balances. Then, no exchange discloses their trading practices while they all have trading desks with the advantage of zero fees and inside information trading against their customers.
Funds move right after transparency reports until perhaps the time for the next transparency attestation takes place.
FTX was moving customer funds and selling assets to pump tokens. It was just pumping with no real money backing its trades, perhaps in a similar approach to Karpeles’ Willy bots.
Rehypothecation may apply to future markets operated by these exchanges. Here, the exchanges will use the collateral for any purpose that will profit them, even to trade against their customer’s positions using their trading desks, similar to how FTX was moving funds to Alameda.
Rehypothecation was a common practice until 2007, but hedge funds became much more wary about it in the wake of the Lehman Brothers collapse and subsequent credit crunch in 2008-09.
All this time, we find many influential personalities supporting every shady practice crypto exchanges conduct, but miss to signify the dangers these practices include.
So many crypto influencers promoted Tera Luna, Celsius, BlockFi, and shady VCs but failed to equally mention the dangers of centralized services.
Conclusion: The Devotion To The Legacy Financial Establishment Is Still Strong
FTX followed the path of Celsius, Terra Luna, Genesis, Coinflex, and more funds, custodians, and crypto companies in 2022.
However, more are ready to follow as we learn about issues lately with custodians BlockFi, Nexo, and Crypto.com casting doubts regarding their models, liquidity, and profitability.
FTX was not Lehman, and no crypto company is similar since the space is too young to relate. Nonetheless, we observed for years how ignorant fund managers dragged their customers into investments they didn't comprehend.
Exchanges should only be used to buy crypto and withdraw. They contain no other useful function.
The private key is the access to our cryptocurrency.
Self-custody is the only approach. Anything else (crypto cards, custodians, lending platforms) is an irrational attachment to the legacy establishment that brought us the new recession.
- Cover Picture: by intographics on Pixabay, Logo by imnamlas on Pixabay
(pixabay licence both)
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It is quite possible and probably very soon more centralised collapses can happen. The after shocks of Celsius, Terra and FTX still exists in Crypto market, another shake especially big elephant like binance will change the direction of whole market towards a new shape and vision.