27 February 2023

And the Other Shoe Drops

It looks like crypto exchange Binance is manipulating its assets in an identical manner that crypto exchange FTX did when it tried to hide its insolvency.

If you are wondering if the whole cryptocurrency space is little more than a Ponzi scheme, the answer is, "Yes."

Late last year, as crypto markets were struggling to regain their footing, the world’s biggest cryptocurrency exchange quietly moved $1.8 billion of collateral meant to back its customers’ stablecoins, putting the assets to other undisclosed uses. They did this without informing their customers. According to blockchain data examined by Forbes, from August 17 to early December–about the same time FTX was imploding–holders of more than $1 billion of crypto known as B-peg USDC tokens were left with no collateral for instruments that Binance claimed would be 100% backed by whichever token they were pegged to. B-peg USDC tokens are digital replicas of USDC, a dollar-pegged stablecoin issued by Boston-based Circle Financial, that exist on blockchains not supported by the firm such as Binance’s proprietary Binance Smart Chain. Each stablecoin is worth one U.S. dollar.

Of the raided customer funds, which consisted of USD stablecoin (USDC) tokens, $1.1 billion was channeled to Cumberland/DRW, a Chicago-based high frequency trading firm, whose parent was founded in 1992 and began trading crypto in 2014. Cumberland may have assisted Binance in its efforts to transform the collateral into its own Binance USD (BUSD) stablecoin. Until a crackdown in mid February by the New York State Department of Financial Services on stablecoin issuance, Binance was aggressively seeking to gain market share for its dollar-backed token against rivals like Tether and Circle’s USDC.


The implication of Hillmann’s comments is that despite what balances may show in Binance’s publicly viewable exchange wallets, the firm has its own set of proprietary records to keep track of funds. This would seem to undermine Binance’s recent efforts to demonstrate solvency through proof-of-reserves exercises. Having two sets of books means that the company is asking customers and regulators to trust its accounting while making it very difficult to independently verify the solvency it claims.

It's all a scam.

If fraud is possible, it will happen.  This is why you need those meddling regulators.


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