Binance, the world’s largest cryptocurrency exchange, is in the middle of a firestorm of controversy. Over the past day, rumors about potential problems have spread like wildfire, leading to more than $3 billion in net withdrawals from the platform.
Binance faced over $4 billion in withdrawals on Tuesday, according to DeFi TVL aggregator DefiLlama. Previously, the exchange faced $1 billion in withdrawals on Monday and Tuesday. Binance currently has around $60 billion in assets on its exchange. Nansen, which is a blockchain analytics firm revealed that the outflows for the exchange have been in surplus as compared to the inflows which is a negative sign. The outflows accounted for $8.7 billion whereas the inflows were $5.1 billion leaving the exchange with approximately $3.6 billion of net withdrawals.
What’s causing the withdrawals for Binance?
As the distrust of the crypto community for centralized exchanges is already at its peak since the collapse of FTX, other centralized exchanges have also faced the backlash in form of withdrawals. Crypto investors are also changing their preference to store their assets in non-custodial wallets or hardware wallets. However, that’s not the primary reason why Binance is facing withdrawal orders for the past week.
Binance recently published its audit report which was conducted by Mazars. The report claimed that the exchange’s Bitcoin reserves have a 101% collateralization ratio. This meant that there is more reserve held than is actually needed and also secures and safeguards customer funds on the exchange. However, as soon as the report was published, it started to receive backlash from both professionals and the community.
Francine McKenna, a lecturer in financial accounting at The Wharton School at the University of Pennsylvania, emphasized that the evaluation is not an officially recognized audit. Rather than performing an independent comparison process among banks and custodians, McKenna claimed the assessment was merely a comparison between public key addresses sourced from Binance’s management.
Binance Halted USDC Withdrawals
Binance’s decision to suspend USDC withdrawals fueled the fire. According to the company’s CEO, Changpeng Zhao, withdrawals were halted while they performed a “token swap,” which could only be completed once banks in New York reopened, enabling BUSD to fiat and then USDC conversion. Withdrawals have since resumed on the platform.
All these latest incidents might hint that Binance is also getting surrounded by dark clouds but the CEO of Nansen, Alex Svanevik does not believe that the world’s largest exchange is in any trouble. He said that there’s definitely a rise in withdrawals for the exchange which could be a concern but as per the financials, Binance stands at a different position as compared to FTX.
CZ has publicly called the recent incident “FUD,” but has stated that it will help the platform gain legitimacy. “FUD brought “stress test”, which in turn helps to build the credibility for exchanges that pass the test,” he tweeted.