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- Binance is being blow-torched from all angles as US regulators close in on the world's largest crypto exchange.
- The SEC thinks it's operating unregistered securities, whilst some reports suggest Binance has engaged in secret fund transfers.
- Here's what's happening with Binance, and where the company is under pressure.
Binance, the world's largest cryptocurrency exchange, is braving one of the roughest patches since it was founded by Changpeng Zhao and He Yi in 2017.
Fighting on multiple fronts at the same time, the digital-asset giant is facing a raft of US regulatory probes while also trying to shore up investor confidence damaged by the so-called crypto winter and a string of high-profile bankruptcies and scandals in the industry.
Following the shocking implosion of Sam-Bankman Fried's FTX late last year, concerns have risen whether Binance faces similar risks. Type 'Binance' into search analytics tools such as AnswerThePublic and they throw up a raft of queries including "will binance collapse like FTX" and "can binance be trusted", or even "binance is next".
The company is now facing legal and regulatory probes over potential breaches of anti-money-laundering rules, and questions about whether it properly registered some crypto derivatives. The grilling comes as regulators tighten their grip on the crypto industry following FTX's collapse.
'FTX redux' fears
John Reed Stark, a former attorney of the US Securities and Exchange Commission, tweeted earlier this month that Binance is "FTX redux and an epic bank run seems inevitable".
Crypto industry experts, however, don't seem that worried about Binance's future.
Alex Svanevik, CEO of crypto analytics firm Nansen, and Marcus Sotiriou, an analyst at digital asset brokerage GlobalBlock, expressed faith in the exchange despite the recent hiccups. Tom Wan, a research analyst at 21Shares, noted that Binance has proved resilient despite the regulatory crackdown and market turmoil.
"I do not think Binance will be the next FTX. They've been more transparent about customer deposits than FTX ever was," Nansen's Svanevik told Insider.
Both Svanevik and GlobalBlock's Sotiriou highlighted Binance's $65 billion in reserves as an indicator that the company is in good shape.
"I think Binance is here to stay and has amassed an empire which will be hard to disrupt," Sotiriou said. "Despite there being concerns around the transparency of Binance, such as no corporate governance, no headquarters, no CFO and no reputable auditor, there is enough evidence for me to predict that they are sufficiently capitalized, if not 100% solvent," he added.
The exchange has never invested or "otherwise deployed" customer funds without their consent, a Binance spokesperson told Insider in emailed comments.
"Binance holds all of its clients' assets in segregated accounts which are identified separately from any accounts used to hold assets belonging to Binance. It's important to note that our users are able to withdraw their funds whenever they wish - as has been demonstrated time and time again," the spokesperson added.
'Gauntlet of regulatory inspection'
While the exchange may not face existential threats, it will likely remain under pressure from regulators and customers seeking greater transparency, Robert Le, a crypto analyst at data and software firm PitchBook, told Insider.
"We believe that post-FTX, the regulatory environment will be much less favorable for Binance and that they will face significant regulatory pressure across multiple jurisdictions. What this means is that the company will not only face substantial financial penalties but also the possibility of being forced to exit certain markets, restructure, or entirely segregate its various businesses," Le said.
Ed Moya, senior analyst at OANDA, holds a similar view.
"Binance is about to go through an intense gauntlet of regulatory inspection over their finances, operations, and compliance. The scrutiny will be relentless and potentially crippling for Binance. It appears that Binance will not have an easy path to operate in the US," he told Insider.
Binance is is boosting its compliance infrastructure by investing in related technology and human resources, according to the company's spokesperson.
Here are 5 instances where the crypto giant has come under fire from regulators or lawmakers.
A botched plan to dodge US regulators
A recent Wall Street Journal investigation revealed that Binance crafted a plan years ago to evade scrutiny from US watchdogs as authorities hinted their intention to clamp down on crypto businesses based overseas.
The strategy sought to create a US entity that was wholly independent of Binance's global operations – so it set up Binance.US in 2019. Founded in 2017, Binance.com had largely operated in a free-floating way out of hubs in China and Japan – putting it at a distance from regulatory checks.
But the plan proved to be flawed given the two platforms were more entwined than publicly disclosed, per the WSJ. They both mixed staff and finances, and even shared an entity that dealt with cryptocurrencies.
If US authorities decide the links meant the crypto exchange had control over the US platform, it could expose the company to enforcement action.
Customer funds
Binance is also fending off concerns about its handling of customer funds, following some reports that it used customer assets for its own purposes like FTX. The exchange transferred $1.8 billion in stablecoin collateral to hedge funds, leaving its investors exposed, according to Forbes, which reviewed on-chain data from August 17 to early December.
While the shift in funds may not be illegal, it could pose risk to Binance's investors. For example, Sam Bankman-Fried lost more than $8 billion in customer funds after allegedly transferring FTX deposits for operations at its sister trading firm Alameda.
Secret transfers
Binance secretly moved $400 million from its US partner to a company managed by the crypto giant's boss Zhao, called Merit Peak, Reuters reported last month.
Binance claims that Merit Peak and Binance's US partner Binance.US operate independently from the exchange.
Binance US's former CEO Catherine Coley called the transfers "unexpected," per Reuters.
Unregistered securities
Binance's American affiliate has also come under pressure after an SEC official said the company is operating unregistered securities in the US, per CoinDesk.
The accusations have raised hurdles for a $1.3 billion deal between Binance.US and embattled crypto firm Voyager, in which the former planned to snap up the latter's assets. However, Voyager subsequently received permission to sell its assets to Binance in a snub to the SEC.
The SEC have clamped down on large crypto firms, including Gemini, Genesis and Kraken for operating assets that's not been rubber stamped by US regulators.
BUSD
In another intervention by the SEC, crypto firm Paxos was ordered to stop minting Binance's dollar-pegged token BUSD because it was deemed an unregistered security.
That came after the regulator launched a lawsuit against Paxos for offering BUSD to its customers.
BUSD is the world's third largest stablecoin behind Tether and USD coin, with a market cap of more than $8.2 billion, according to CoinMarketCap.
"There is many unknown unknowns to jump to conclusion on Binance's; however, the coming months will be crucial to gain more transparency and clarity on Binance's overall financial health in light of the recent regulatory headwinds," 21Shares's Wan told Insider.