Binance Denies Moving $1.8 Billion In Collateral To Hedge Funds

A new report by Forbes has claimed that Binance had moved around $2.8 billion of collateral meant to back customer assets to a bunch of hedge funds. 

Binance, on its part, has denied that its actions impacted any users, with others in the crypto ecosystem suspecting that Forbes is spreading Fear, Uncertainty, and Doubt (FUD) against Binance. 

Binance Accused Of Moving Stablecoin Collateral 

A new report published by Forbes has accused the world’s largest cryptocurrency exchange, Binance, of malpractices similar to those which brought the FTX exchange down. According to the report, Binance moved $1.8 billion worth of stablecoin collateral to hedge funds last year. Forbes stated that it discovered the transfer after exploring the on-chain activities of Binance, which showed the transfer of $1.78 billion of collateral to several hedge funds. 

The report stated that the exchange transferred the collateral to hedge funds such as Cumberland/DRW and Alameda Research and did not inform any of its customers about the movement of funds. Forbes added that it had explored blockchain data between August to early December, the same time period that saw FTX unravel. However, Binance has denied any wrongdoing, with the larger crypto community also having doubts about the veracity of the claims. 

Is Binance Bending The Rules? 

According to the Forbes article, Binance completely drained its collateral for the B-Peg USDC but did not reduce its supply. The B-token is issued by the exchange only after it has stored 100% collateral for the original token. However, Forbes states that the exchange broke its own rules when it withdrew $3.63 billion from its peg wallet to the Binance 8 cold wallet. The exchange then returned $1.85 billion to the peg wallet but transferred the remaining amount ($1.78 billion) to a Binance 14 cold wallet. These funds were then distributed to companies, including Amber Group, Cumberland, Alameda Research, and TRON founder Justin Sun. 

However, a Binance spokesperson clarified in January that the funds were moved due to an error, and there was no commingling of funds. 

Misusing Customer Funds? 

The article states that B-USDC was left without any collateral for four months. This was because when Binance withdrew the $1.78 billion, it did not decrease the supply of B-USDC. This left the collateral at zero, with the exchange not correcting it for the next four months. The article also added that B-USDC was down by over $1 billion in collateral on three occasions in the recent past, leading the publication to accuse Binance of misusing customer funds, just like FTX. 

Binance Denies Wrongdoing 

Chief Strategy Officer of Binance Patrick Hillman countered Forbes, stating that the movement of money was an entirely normal phenomenon and that there was no problem in the movement pattern. 

“There was no commingling because there’s wallets and there is a ledger.”

Binance categorically denied the accusations leveled by Forbes regarding customer funds, stating that the exchange has never deployed or invested user assets without consent, as under the terms of every specific product. It added that the exchange holds all customer funds and assets in segregated accounts. These accounts, according to the exchange, are identified separately from accounts used for assets belonging to Binance. It further stated that the transfers in question were related to internal wallet management and at no time impacted the collateral or collateralization of user assets. 

“While Binance has previously acknowledged that wallet management processes for Binance-pegged token collateral have not always been flawless, at no time was the collateralization of user assets affected. Processes for managing our collateral wallets have been fixed on a longer-term basis, and this is verifiable on-chain.”

The exchange also added that it was in the process of moving to a semi-automated approach to help it better manage its reserves. 

Kid Gloves For Sam Bankman-Fried? 

Meanwhile, the crypto community has pointed out that Forbes has been triggering FUD against Binance and Changpeng Zhao while seemingly having a soft spot for FTX founder Sam Bankman-Fried. Irina Heaver, a crypto lawyer, tweeted about Forbes last year, accusing them of spreading lies and misinformation. Zhao had also sued Forbes for defamation, but the case was dropped in 2020.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.