The CEO of the Binance exchange, Changpeng CZ Zhao, wanted to provide clarity because some of the data was inflated.
In fact, while confirming high volumes of withdrawals, he made two important clarifications on the matter, because without these one might get the wrong idea.
Binance: CZ explains the loss of value
A lot of news has come out in recent days about the volumes of withdrawals from Binance since the SEC complaint.
CZ first pointed out that net withdrawals between Friday 9 June, and Saturday 10 June, were less than $400 million, while the figure that many have published was over $1 billion instead.
The fact is that both figures are correct, but they refer to different things.
CZ explained that many of these calculations are made by taking Binance’s AUM as a reference.
The exchange’s AUM (Asset Under Management) is a public figure, and refers to the total dollar value of all funds held by Binance on behalf of their clients.
Thus, it is possible to subtract from a specific day’s AUM figure that of the previous day to accurately calculate the daily reduction in assets under management.
But as CZ explains, AUM is calculated each day from the market values of the various assets at a given time, and these can also decline simply because of a drop in their prices.
Therefore, the calculation based on the change in AUM indicates only by how much the total value of the assets the exchange holds on behalf of its clients has declined, without distinguishing how much of this decline is due to withdrawals, and how much is due to declines in the prices of assets remaining under management.
The difference is apparently significant, since we are talking about hundreds of millions of dollars.
November’s record
But an even more interesting fact pointed out by CZ is the comparison with November 2022.
Indeed, at the time of FTX’s failure many people around the world rushed to withdraw their funds from many exchanges, including Binance.
CZ recalls that at that time they came to have to handle seven billion dollars of withdrawals in just 24 hours.
That was a critical moment not only for Binance, but also for other crypto exchanges for which a similar fate to FTX was feared.
FTX’s bankruptcy was generated precisely by a resounding surge in withdrawals, and was caused by the fact that the company did not hold enough funds on hand to be able to meet all the withdrawal requests.
In addition, at the time, proof-of-reserves of exchanges were not yet public, so no one knew how many funds Binance had on hand.
However, what matters most now is that between the $392 million in funds withdrawn between 9 and 10 June 2023, and the $7 billion withdrawn in a single day in November 2022, there is an abyss. So what happened last week appears to be very minor compared to what happened in the past.
The weekly data
Those cited by CZ are daily data, and not weekly.
It is worth mentioning that according to Nansen in one week a total of $2.36 billion in funds would have been withdrawn from Binance, plus $124 million from Binance.US, which is still less than the record daily outflow in November.
According to DefiLlama the outflow would have been 3.35 billion, while according to Glassnode it would have been 1 billion in Bitcoin alone.
However one looks at it, last week’s outflows were not record outflows at all, although they were very high.
Moreover, CZ pointed out that large outflows are absolutely normal during periods of volatility, and that they are also often accompanied by large inflows, usually due to traders who want to arbitrage and thus are forced to move a lot of funds from one exchange to another.
In this regard, it is worth mentioning that in recent days on Binance, but especially on Binance.US, there have been real sell-offs, with users agreeing to sell at significantly below market prices in order to get rid of cryptocurrencies held on those exchanges.
Therefore, it is entirely possible to imagine that arbitrageurs tried to take advantage of this en masse, even depositing large sums of money in order to be able to buy at bargain prices.
The situation therefore was certainly difficult, but less so than one might have believed without these necessary clarifications.
Source: https://en.cryptonomist.ch/2023/06/12/cz-not-many-withdrawals-binance/