Binance founder insists ‘business as usual’ after $1bn pulled out in a day | Cryptocurrencies

More than a billion dollars were pulled out of Binance in a single day, according to the largest cryptocurrency exchange’s founder Changpeng Zhao, as investors across the sector continue to react to the collapse of its rival FTX.

Zhao, better known as CZ, insisted that the withdrawals were simply proof of the firm footing that Binance has, calling them a “stress test” and reassuring depositors that the exchange’s reserves were sound.

“We saw some withdrawals today,” Zhao said tweeted on Tuesday. We have seen this before. Some days we have net withdrawals; some days we have net deposits. Business as usual for us.

“I actually think it is a good idea to ‘stress test withdrawals’ on each CEX on a rotating basis,” he added, with a biceps curl emoji. Zhao insisted that Tuesday was not even in the top five days for net withdrawals.

In a statement from Binance, the company said: “We think that it’s important to note that yesterday’s market sell-off resulted in approximately $1.14bn being withdrawn from our platform in a 12-hour period, which was managed with ease. We passed this extreme stress test because we run a very simple business model – hold assets in custody and generate revenue from transaction fees.”

But the outflow came after Binance was forced to halt withdrawals in one particular cryptocurrency because, Zhao said, the company could not fulfill them until its American banking partners opened for business.

Withdrawals of USDC, a “stablecoin” that is widely seen as one of the safest assets in the sector, since it is issued by a US-based company that complies with financial regulators and pegged to the US dollar, was paused for more than eight hours over the course of Tuesday.


What is a stablecoin?


A stablecoin, like the name suggests, is a type of cryptocurrency that is supposed to have a stable value, such as US$1 per token. How they achieve varies: the largest, such as tether and USD Coin, are effective banks. They hold large reserves in cash, liquid assets, and other investments, and simply use those reserves to maintain a stable price.

Others, known as “algorithmic stablecoins”, attempt to do the same thing but without any reserves. They have been criticized as effectively being backed by Ponzi schemes, since they require continuous inflows of cash to ensure they don’t collapse.

Stablecoins are an important part of the cryptocurrency ecosystem. They provide a safer place for investors to store capital without going through the hassle of cashing out entirely, and allow assets to be denominated in conventional currency, rather than other extremely volatile tokens.

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The pause alarmed some investors because it suggested that customer assets may not be kept in the same form that they are deposited.

In a memo to staff on Wednesday, Zhao admitted that the next several months would be “bumpy”, according to Bloomberg News, but reportedly reassured them: “We will get past this challenging period – and we’ll be stronger for having been through .”

Last week the company published what it described as an “audited proof of reserves”, which showed that it held assets worth 101% of all consumer deposits. But critics noted that the document said nothing about Binance’s liabilities, including potential loans it had due to other companies, and that it was not a true audit but simply an “agreed-upon procedures” report, where the audit firm agrees not to look beyond the scope of the arrangement.

In a tweet, Zhao said the company would be doing an independent audit on liabilities, but that “liabilities are harder”, adding: “We don’t owe any loans to anyone. You can ask around.”

The jitters over Binance came as Sam Bankman-Fried, the founder and chief executive of FTX, once Binance’s chief rival, was charged by the SEC, CFTC, and Department of Justice for his role in the catastrophic failure of his crypto exchange. The various charges include multiple counts of wire fraud and securities fraud, campaign finance violations, and money-laundering offences.

Bankman-Fried was a denied bail in the Bahamas, where he is being held pending extradition to the US.

John Ray III, the bankruptcy expert who succeeded Bankman-Fried as the head of FTX as part of its winding-up process, told a congressional hearing on Tuesday that he had “never seen such an utter lack of record keeping” as he did at the exchange, which had “absolutely no internal controls whatsoever”.

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