Another crypto drama might be looming on the horizon, even bigger than the continuing FTX-related one. Customers are moving their money from Binance, concerned about the safety of their assets amid the fuss caused by the recent audit gone wrong.
The world's biggest crypto exchange platform failed to prove the effectiveness of its internal financial controls, triggering red flags related to collateralization issues, discrepancies between the total Bitcoin liabilities, not achieving 1:1 ratio of reserves to user assets, and lack of clear information about the platform's corporate structure and the identity of its parent company.
Over $3 billion withdrawn in 24 hours
On top of that, it turned out that the verification performed by the auditing firm Mazars' South African affiliate, wasn't even an audit but an agreed-upon procedures engagement, whereby a contracted party is engaged "to carry out procedures to which the practitioner and the engaging party have agreed and to communicate the procedures performed and the related findings."
Now, Binance has to deal with reputation damage and the growth of distrust among customers. The exchange saw a massive outflow of assets. In just 24 hours, users withdrew over $3 billion – a hefty amount, nevertheless "tolerable" considering $60 billion in crypto assets held by Binance in publicly disclosed wallets. In the last week, the outflow reached $8.7 billion, partly compensated by $5.1 billion in inflows, resulting in a $3.66 billion net "loss."
Read also: Santiment: 40,620 BTC moved to crypto exchanges on Monday amid a massive sell-off
All the numbers were provided by Nansen.
"Stress test withdrawals" may contribute to "the industry health"
Note that Nansen's data refers only to Ethereum and ERC-token transactions. Etherum-based assets make up 63% of Binance's portfolio, leaving plenty of space for unrecorded movement of other types of assets. The negative balance of asset transfers at Binance by far exceeds the current results of other crypto exchanges, which only adds to customers' anxiety.
Changpeng "CZ" Zhao, the CEO of Binance, tries to play things down to business as usual and goes on to suggest "stress test withdrawals on each CEX on a rotating basis," which, in his opinion, would keep the industry healthy.
FUD around Binance is a result of "post-traumatic disorder" and "general fear"
Earlier, CZ reposted a tweet attributing the panic reaction around Binance's quasi-audit to "post-traumatic disorder" of the "people who failed to see the FTX insolvency" and their "wishing harm to people on Binance."
Read also: Binance temporarily paused withdrawals and deposits via Polygon
In an interview for CNBC International, Alex Svanevik, the CEO of Nansen, said that the issue Binance is dealing with "is very different from the FTX situation," stressing that Binance has a much larger reserve of assets. Svanevik also suggests that much of the Binance-related FUD (fear, uncertainty, and doubt) is a result of "the general fear" and people "taking the cautious route of withdrawing from the exchanges" and transferring their assets to hardware wallets.
