Binance, the largest crypto exchange by trading volume, summarized customer withdrawals for the stablecoin USDC tuesday after announcing a brief halt earlier in the day.
That halt came as Binance saw a massive wave of withdrawals as crypto markets continued to be unsteady in the wake of FTX’s collapse last month.
According to blockchain data platform Nansen, over the 24 hour period ending at 1 am on Wednesday, Binance saw about $3 billion in total outflows, its largest customer withdrawal event since June.
Assets tracked in known Binance controlled wallets by Nansen amount to $59 billion in assets, $36 billion of which is held in the BNB and BUSD tokens Binance has created.
“I wouldn’t be surprised if they are intentionally making it harder for USDC users to withdraw, while other stables and tokens are being withdrawn at ease,” Conor Ryder, a researcher with Kaiko told Yahoo Finance.
As Ryder noted, in recent months Binance has worked to phase out the use of USDC on its platform in exchange for its own stablecoin, BUSD. That means it converts USDC deposits on its platform to BUSD, and must convert them back to meet withdrawal requests. The exchange’s BNB token, which carries use as a native token for its own blockchain, is used on the platform for fee discounts like to FTX’s failed FTT token.
“If there’s any risk that we fail, it all depends on how we fail,” Binance’s founder and CEO Changpeng Zhao said during an Ask Me Anything over Twitter.
“As long as we fail honorably and credibly, we let people withdraw their funds because the company ran out of money, that’s okay,” Zhao added.
As Zhao pointed out, crypto exchanges aren’t banks. That means when faced with a run of heavy customer withdrawals, crypto exchanges should still be able to give customers all their money back, even if the process puts them out of business.
As Reuters reported earlier this week, the Justice Department is now weighing whether to press charges against Binance for violating sanctions and money laundering laws after a multi-year investigation.
Along with other exchanges such as Houbi, Bitmex, and Bybit, Binance has gone to great lengths to publish a proof of reserves report, in addition to a report from auditing firm Mazars a week ago.
The Mazars report was an Agreed Upon Procedure (AUP), not an audit, and showed 97% of Binance’s bitcoin holdings ($9 billion) were collateralized, meaning it hadn’t achieved a 1:1 backing of bitcoin deposits to liabilities.
However, the report noted it did not include “out-of-scope assets,” meaning margin and loans taken out for BTC in other tokens. With those other tokens, Binance’s bitcoin deposits would be “101% collateralized” according to Mazars’ findings.
When asked why Binance doesn’t show more transparency surrounding what Mazars called “out-of-scope assets,” Zhao said proving asset reserves “is not as simple of an exercise as people think” and that the company will roll out more information “ in the next couple of weeks.”
“I don’t know exactly,” Zhao said in reference to the timing on additional reserves data. “In Binance, internally, we don’t use a lot of deadlines. People work pretty fast already. We try not to push.”
On Monday night, FTX’s founder and former CEO Sam Bankman-Fried was arrested in The Bahamas. On Tuesday, the US Justice Department, Securities and Exchange Commission (SEC) and Commodities and Futures Trading Commission (CFTC) filed charges against the 30-year old, alleging he and his company committed fraud by spending FTX customer deposits.
The shocking collapse has put the money of more than a million customers into the hands of Chapter 11 bankruptcy, and caused major investors from Sequoia, to BlackRock, to Temasek, and the Ontario Teacher’s Pension Plan to write off their equity investments in the exchange to zero.
According to data tracked by blockchain forensics company, Chainalysis, the impact of the FTX collapse has proven to be the third largest sell off in digital coins this year.
In May, the collapse of algorithmic stablecoin Terra (UST) cost crypto holders an estimated realized loss $20.5 billion, while the bankruptcies of Three Arrows Capital, Voyager Digital, and Celsius Network a month later accounted for as much as $33 billion in weekly realized losses .
FTX’s demise has left investors with a largest weekly realized loss of $9 billion. Over the course of this year, the overall value of crypto assets has dropped by about two-thirds.
Recent revelations regarding how FTX handled customer funds has also forced many crypto investors to reassess the viability of the emerging asset class, with hearings on Capitol Hill this week seeing the industry again under pressure amid an onslaught of criticism from lawmakers.
“FTX is just the latest in the series of major crypto industry failures, failures of centralized crypto intermediaries like Celsius, and failures of DeFi offerings like Terra Luna,” Hilary Allen, a professor at American University Washington College of Law said during a Wednesday Senate Banking, Housing and Urban Affairs Committee hearing on FTX.
“These failures arose in large part because of a feature that is unique to the crypto industry, crypto assets can be made up out of thin air.”
David Hollerith is a senior reporter at Yahoo Finance covering the cryptocurrency and stock markets. Follow him on Twitter at @DsHollers
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