Binance held a corresponding amount of USDC as collateral in a designated escrow wallet.īut, as Fortune reported, Binance withdrew all USDC funds from the escrow wallet on Aug. Fortune previously reported an incident, described below, related to Binance-peg USDC.īlockchain data from August shows customer accounts contained $1.779 billion of Binance-peg USDC, the BNB Chain-wrapped version of USDC. While these practices correspond with how wrapping arrangements take place on other blockchains, critics say the company’s handling of the Binance-peg tokens has been sloppy at best. In a post published in 2019, Binance specified that the Binance-peg tokens are always “100% backed by the native coin in reserve.” This implied that customers’ USDC funds converted to Binance-peg USDC were backed one-to-one by an escrow fund containing the original token. Binance holds the original tokens in an escrow wallet and issues a corresponding number of Binance-peg tokens that can operate on BNB Chain. To facilitate the wrapping arrangement, users deposit their original tokens with Binance, including BUSD (which counterintuitively only operates on Ethereum), or other non-native tokens, such as USDC. To allow users to bring non-native cryptocurrencies on to BNB Chain, Binance offers a wrapping mechanic in the form of Binance-peg tokens. In other words, wrapping is a common feature that allows non-native tokens to be used on different blockchains.īinance’s BNB Chain hosts a number of popular decentralized apps, including PancakeSwap.
To solve this, blockchain developers have developed so-called wrapped versions, where users can deposit Bitcoins and receive a corresponding amount of wrapped Bitcoin tokens that function on, say, Ethereum. Bitcoin transactions, for example, can only take place on its eponymous blockchain. Many cryptocurrencies only function on specific blockchains. These reserves were being held for an arcane set of assets that Binance offers called “Binance-peg tokens.” Binance’s wrapped tokens The new investigation by Fortune reveals that weeks before the auto-conversion policy, Binance appeared to be already moving USDC belonging to customers into BUSD-without their knowledge or permission-and with reserves that would not even be included in the later policy. The upshot is that Binance, without significantly disrupting customers, began capturing revenue from interest that previously went to competitors.
The arrangement let Binance customers make redemptions in the form of whatever stablecoin they had originally owned, but while those assets sat on Binance they were denominated in BUSD.
As a result, the Binance-branded stablecoin’s market cap soared by nearly 20% in just two months. This included the company’s September announcement that it would automatically convert customer funds held in three major stablecoins, including USDC, into BUSD. (The companies have not disclosed specifics of the revenue split).Īs interest rates soared in 2022, Binance moved aggressively to increase its share of the stablecoin market. regulators, while Paxos in return received a cut of the interest revenue the former earned on its stablecoin. For the stateless Binance, Paxos helped provide credibility with U.S. In the case of Coinbase, even as its net revenue fell over 57% from 2021 to 2022, its “interest income” rose more than 1,160%, accounting for almost a third of its fourth-quarter net revenue.Īfter launching in 2019, BUSD quickly became the fruit of a successful partnership between Binance and Paxos, a New York trust company with a reputation for compliance.
Stablecoin revenue has become particularly important for exchanges during the recent bear market since the tokens are not directly affected by drops in crypto prices and trading volume, and because interest rates have escalated in the last year-the rate for four-week Treasury bills, for example, has grown from 0.05% at the beginning of 2022 to around 4.5% today. “While Binance has previously acknowledged that these processes have not always been flawless, at no time was the collateralization of user assets affected,” the spokesperson said. “It’s either disastrous mismanagement or something intentionally in favor,” said Jonathan Reiter, the cofounder of the blockchain analytics company ChainArgos, who reviewed the data and previously published findings on collateral issues related to Binance tokens.Ī Binance spokesperson, when reached by Fortune, did not challenge the on-chain data, indicating that the publicly visible transactions related to internal wallet management. The new findings cast doubt on this claim and suggest that the irregularities were part of a deliberate strategy to increase stablecoin business at a time when trading revenue had slumped significantly across the crypto industry. In the past, Binance claimed that irregularities related to its stablecoin operations were accidental and the result of haphazard management.
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