all41author Binance, the world’s largest cryptocurrency exchange, is struggling to hold onto assets. In the wake of the collapse of rival FTX, investors have been pulling their crypto in recent weeks, and despite assurance from CEO Changpeng Zhao that the situation had stabilized, outflows are accelerating. Customers withdrew a net $360 million on Friday, according to data from crypto data firm Defillama.
On December 13, Nansen, a separate crypto data firm broke the news that Binance had lost $3 billion of assets over the previous week, representing 4% of the firm’s total at the time. A Forbes investigation revealed that, in fact, Binance lost 15% of its assets since a Twitter posting by Zhao (widely known as CZ) on the same day as he downplayed the Nansen report withdrawals. Still nearly a quarter of Binance assets left the exchange in less than two months. Forbes reached out to Binance seeking comments for this story but did not receive a response by publication time.
Investors’ lack of trust is best seen in the performances of Binance Coin (BNB) and Binance USD (BUSD), the two tokens bearing the exchange’s name. BNB lost 29% of its value in the past two months, and Forbes estimates that leaves about 29 million of the tokens at Binance, 51% less than disclosed by the exchange on November 10. Meanwhile the number of BUSD stablecoins at the firm sank by 40%.
There are also more subtle ways in which Binance seems to be losing trust and influence. While net assets dropped by 24% since November, the investors in well-known tokens like matic, ape, and gala pared their assets at the exchange by 40-50%.
Although it remains the largest cryptocurrency exchange by volume, Binance is not unscathed by the nearly yearlong decline in digital assets. Its BNB token is down almost 37% from 12 months ago, according to Nomics, and the exchange’s decision to stop charging fees for spot bitcoin trading as the market faltered cost it about $3 billion a year in lost revenue, Forbes calculates. The overall value of cryptocurrencies has shown an even larger decline, dropping 56% over the past year, to $848.7 billion, CoinMarketCap data show.
CZ himself contributed to the demise of FTX in November when he announced on Twitter that he was planning to sell his holdings of the rival exchange’s FTX tokens, then worth about $580 million, citing “recent revelations that have came to light.” He followed that with a quickly rescinded rescue offer, claiming FTX’s “issues are beyond our control or ability to help,” implying that an initial look at company’s books showed a more severe situation than previously thought.
This story could also be about the lack of conventions for categorizing assets held inside crypto wallets. Crypto data firms have yet to agree over what to include in their assessment of assets, evidenced by the wide ($37 billion-$56 billion) estimate of just how much Binance can claim as the year begins. Classifying assets systematically is challenging, particularly when there are no standards for what to include and whether to report it net of exchange generated tokens or bundling assets by the blockchains in which they operate.
What follows is a breakdown of how these firms quantify Binance’s wallet contents. We note that included in Binance’s net decrease of assets are also a few sharp rises in two stablecoins–USD coin (USDC) and tether (USDT)—that occurred in recent weeks.
There’s substantial controversy about whether Binance’s BNB–a token whose minting and supply the exchange controls–represents a genuine asset that can meet external obligations in times of distress. If it can, data firms disagree on how much value to attribute to those holdings.
Breaking with its habit of not disclosing sensitive financial information, Binance issued a public transparency statement almost two months ago, listing select crypto holdings. At that time, the firm did include $17 billion denominated in BNB, which represented nearly a quarter of its assets.
Fast forward to today, BNB’s priced at $262 is a third lower than on November 4. The closest that an independent observer gets to the exchange’s official view on the BNB tokens on its balance sheet these days conceivably comes from CoinMarketCap (CMC), which is the largest crypto website in the world and is owned by Binance. But CMC says that it supplements Binance data with that of Nansen and Defillama.
The CoinMarketCap January 4 BNB figure attributed to Binance represents 57 million BNB tokens and is equivalent to 31% of the exchange’s total assets. This BNB percentage is higher than any other data firm and Binance’s November statement. But this 57 million BNB is of questionable reliability because it contrasts sharply with the 22-40 million BNB identified by three data firms and the 16 million BNB Forbes identified using the publicly available etherscan tool. If the CMC BNB token count is accurate, it also means that a great portion of the Binance’s wealth comes from IOUs of its making sprinkled with crypto pixie dust.
In terms of dollar equivalent, Glassnode places the value of BNB at zero, while Nansen and Arkham put that amount closer to $6 billion and Defillama and Messari see it near $10 billion. Messari, however, bundles the value of Binance holdings on three chains–BNB, ETH, and Tron–which suggests that the almost $10 billion in the BNB grouping comprises many other tokens, not just BNB.
Forbes also found wild discrepancies in Binance’s bitcoin (BTC) holdings, ranging from $4.8 billion (CoinMarkeCap) to $9.6 billion (CER.LIVE). The number of tokens held thus varied sharply from 287,000 BTC to 577,000 BTC. This is probably due to faulty queries on the part of some data companies, not searching all Binance wallets. Even so, shrewd observers can well wonder how CER.LIVE has identified $9.6 billion of BTC assets in Binance wallets, more than twice the amount shown by Glassnode and CoinMarketCap.
The number of BUSD tokens fell by $8,724 (40%) between November 4 and January 4. There was general agreement by four of the data providers (Nansen, Glassnode, Defillama and Arkham) in terms of how many BUSD tokens Binance held on its wallets as of January 4, approximately $13,468 million, which is an average of the four data firms.
CoinMarketCap showed a balance of $9.58 billion BUSD on January 4, more than $3.5 billion lower than the $13.1 billion and $13.2 billion respectively published by Nansen and Defillama, the two outside firms that contribute to CMC’s BUSD tally. Thus, the figure is problematic because for it to show a $9.39 billion average, the data from Binance itself would have to be several billion dollars below the Nansen and Defillama estimates. Of course, a lower value of BUSD tokens is a bad thing for Binance.
Using an average of ether (ETH) figures from the four previously mentioned data firms, Forbes estimates that Binance has 4.49 million Ether (ETH) tokens, equivalent to $5,498 millions. Conversely, CoinMarketCap’s much lower estimate of $3.3 billion implies that Binance only has 2.58 million ETH tokens – 1.91 fewer tokens that the Forbes average. The Messari ETH estimate (equivalent to $28.6 billion) is in a league of its own, representing not just the ether held but all tokens held at Binance that run on the Ethereum chain. This discrepancy is significant. It is one where the CoinMarketCap implies Binance holds 2.6 million ether tokens, compared with 4.48-4.85 million tokens by all other data sources and Binance itself.
According to Defillama data, the decline in BUSD holdings has been steady, with large drops (at least $1 billion) on November 25 and December 14, the latter being the day after CZ issued his calming statement on Twitter. During this second major BUSD plunge, the net decline in just one day was a whopping $3.46 billion. Binance also saw a simultaneous doubling of USDT and USDC tokens to a combined $6.27 billion on January 4.
Together, these abrupt and synchronous changes suggest that one or more large investors swapped BUSD for rival stablecoins USDT and USDC.
The backstory to the massive dumping of BUSD and pick up in USDC and USDT holdings involves a number of crypto market makers including Jump Crypto and Wintermute withdrawing large sums of money from Binance before December 12. After that date, other whale-sized players started to quietly do the same.
Arkham Research saw red flags in how Justin Sun, founder of Tron and advisor of Huobi exchange, broadcasted via Twitter on December 13 how he had deposited $200 million to show others that investing in Binance was safe, but did not disclose large withdrawals that followed. In a tweet the next day, Arkham Research concluded: “Over the past 24 hours, this Paxos deposit address has seen >$200M BUSD of inflows, all from Binance.” It added “This suggests that this entity is likely moving funds off of Binance, rather than on to Binance.”
On January 6, Coindesk reported of “drama” taking place at Sun’s Huobi exchange after he reportedly fired at least 20% of employees and required the rest to accept payment in USDC and USDT. Arkham Research looked into unusual Sun transactions on ledger and concluded that he may have lost a key banking relationship, making it hard to move large sums or even making payroll to foreign employees. Sun’s stablecoin USDD has been falling this week but is trading at $0.9760, which admittedly below its dollar peg but still within a level of deviation it has seen multiple times during the past year. The influx of Sun money raised questions for CZ, who as usual used Twitter to downplay the Sun funds as boosting Tron activity on Binance but later deleted the tweet, presumably because it generated more questions about whether Binance was in need of or had asked money from whales out there.
The South China Morning Post quoted Sun as refuting the theory that he is the owner of Huobi, although he revealed in October that he was a member of an advisory committee of the exchange. Separately, Huobi said in a in Chinese-language tweet that “only” 20% of employees were fired. Huobi and Sun did not respond to requests for comment.
At heart of Binance’s methods is the oft repeated narrative that auditors don’t know how to audit an exchange – ignoring the fact that, for example, Big Four auditors have been auditing Bitstamp for six years and counting. It is noteworthy that Binance has operated without a chief financial officer since June 2021, when Wei Zhou abruptly left the firm. It also stands to reason that the lack of key financial personnel contributed to the abrupt decision by audit firm Mazars to call off on December 19 the proof-of-reserves analysis it had been performing for Binance. Blockchain records viewed by Forbes show that a Binance wallet sent $232 million of BUSD tokens to a Binance U.S. wallet on December 31, sharply boosting available funds at Binance U.S.
Forbes reached out to Paxos, an entity with U.S. banking and New York Department of Finance licenses, with questions regarding BUSD activity but it declined to comment. Instead it issued a short public response to Forbes indicating that it had given a “robust statement about BUSD on December 13” and referred us to its latest report and BUSD information on the etherscan website.
Etherscan identifies wallet addresses presumably owned by Binance, such as “Binance 8” and “Binance: Binance Peg-Tokens,” which respectively hold 38.1% and 32.4% of all issued BUSD. The Binance 8 wallet had $100 million of assets in early 2021 and grew to as much as $15 billion in mid-November 2022, but has bled out almost 9 billion BUSD tokens in the past three weeks.
The argument can be made that the asset declines Binance is experiencing are similar to those at most exchanges, but data from Defillama shows that during the past 30 days there is only one of 23 rivals with proof of funds information publicly available–a low-profile exchange called MaskEX–that lost a greater percentage of assets than Binance’s 15%.
The situation indicates there are trust issues concerning Binance, and its position as the largest crypto market raises the possibility of contagion should those prove well-founded. But that is not necessarily a doomsday scenario for digital assets, and activity could easily shift to other markets around the world.
The bottom line is that a growing number of Binance investors are leaving the exchange or sharply reducing their exposure to it. This sharp drop is taking place at a steady pace without much media attention or market reaction. What makes this story significant is that by its own inertia Binance is getting close to a precipice where this soft run on the bank could intensify.
Errata. An earlier version of this article incorrectly showed that Bitstamp was audited by Deloitte for the past six years. Bitstamp confirmed that it has been audited by Big Four firms that long, but that its current auditor is Ernst and Young.
