December 20, 2022
By Murtuza Merchant
The world’s largest cryptocurrency exchange, Binance, is currently under criticism amid mounting worries that the empire of its CEO, Changpeng Zhao, may be resting on a weak footing.
Is it true that false allegations are being leveled against a trustworthy corporation at this time, or is it more likely that another organization is preparing to harm investors and destabilize the cryptocurrency markets?
It is interesting to note that Binance’s native cryptocurrency has lost 20% of its value in the past week and is still declining.
Only Bitcoin, Ether, Tether, and USD Coin are more valuable cryptocurrencies than BNB, which has a market cap of over $38.5 billion.
While this is going on, other cryptocurrencies like Aave, Atom, Litecoin, and Dogecoin have had price declines of 15%, 16%, 18%, and 25% during the past two weeks, respectively.
Is It fireless smoke?
One of Binance’s many issues is the crypto exchange FTX’s ongoing bankruptcy procedures. The business was the first to invest in FTX, and in exchange for giving up its stock position in the business last year, Binance earned almost $2.1 billion in compensation.
Zhao had a significant role in driving FTX into bankruptcy by publicly warning about the risks of having tokens. This has an impact on individuals since they may lose money they had on the exchange and there is no guarantee they will be able to get it back.
Investors started taking their money out of the cryptocurrency exchange despite Binance being a strong proponent of transparency, declaring proof of funds, and hiring auditing company Mazars to conduct the exchange’s audit.
Mazars, which has since removed Binance’s proof-of-reserves evaluation, noted that the report “express an opinion or an assurance conclusion” and that it “makes no statement regarding the appropriateness” of its work for the cryptocurrency exchange.
Only the Bitcoin holdings and liabilities of Binance were the subject of the Mazars report.
Even yet, it chose not to include any of the numerous more cryptocurrencies that are kept and traded on Binance in the scope of its assessment.
The auditors stated in their statement, “Had we performed additional procedures, other matters might have come to our attention that would have been reported.”
After being told that funds were secure on Celsius, Voyager, and FTX by their top executives, the crypto community has learned that crypto CEOs are about as trustworthy as traditional corporate CEOs. Therefore, why keep money on Binance when there is nothing to gain and simply a chance of losing?
Regulators want to slay Binance
The US Department of Justice is another target on Binance’s back (DOJ).
According to Reuters, the DOJ is debating whether to accuse Binance and Zhao of conspiring to launder money without a license, transmit money without a license, and violate criminal sanctions.
Stopping withdrawals of USDC
Another negative development for the business is Binance’s decision to halt USDC withdrawals from the exchange platform.
Denying customers access to their money is the quickest way to erode their trust, especially in the case of USDC, which is regarded as one of the safest crypto assets.
According to Binance, a token swap produced this. However, any investors who have money parked there might not feel more confident in Binance as a result of this decision.
Can Binance withstand the pressure?
Due to the realization that centralized platforms might not be in their best interests, investor confidence in cryptocurrency exchanges is at its lowest level since 2017.
Binance still has sufficient reserves to cover investor withdrawals, and while Mazar’s audit may not be flawless, there are no immediately noticeable issues with the company’s balance sheet.
If there was, there would be a mad rush to remove all the platform’s assets.
Furthermore, the CEO of Binance does not oversee a hedge fund associated with his cryptocurrency exchange, unlike the hidden tie between FTX and Alameda Research.
Binance has a solid reputation and has been creating money for some time.
Additionally, political contributions and collaboration with governments to enact legislation are not evident.
A $570 million breach was attempted on the Binance Smart Chain in October.
In comparison to other platforms that were exploited, Binance made sure that everyone was made whole and handled the issue far better.
Permanent Damage To DeFi Should Binance Fail
If Binance falters and the BNB cryptocurrency falls, the DeFi ecosystem could suffer irreversible damage.
While Ethereum is intended for white-collar DeFi customers who can afford to pay transaction fees in ETH that are equal to USD, the Binance Smart Chain serves as DeFi for regular people.
However, BSC is geared toward the working class.
BSC does triple the amount of transactions on Ethereum. Imagine the impact if all of these DeFi pioneers disappeared since BNB pairings would then be worthless.
Conclusion
The irony is that centralized entities offer the greatest threats even though the goal of cryptocurrencies is to become more decentralized.
However, Binance exceeds FTX in terms of leadership, balance sheet (and war chest), and counterparty risk, making it impossible to claim that it cannot collapse like FTX.
About the author
Murtuza Merchant is a senior journalist and an avid follower of cryptocurrencies and blockchain.
