Myth of Money: Is Binance Going to Make It?
Welcome to this week’s edition of Myth of Money, a weekly newsletter on the digital asset markets read by 12,000+ investors.
Disclaimer: The following is not intended as investment advice. Do your research.
All eyes are on Binance this week as the industry worries that the exchange will follow a similar fate to FTX.
IMAGE CREDIT: CryptoDrunk #2: CZ Binance - Funds are SAFU
Here is everything we know so far:
Reuters reported that U.S. officials are contemplating immediate criminal charges against CZ and his role in the fall of FTX
Mazars (auditing provider) ceases Proof of Reserves audit activity of all crypto clients, and then removes Binance PoR from the website, firing them as a client
~$8B of net exchange withdrawals (12% of total)
~$3.6B of BUSD redemptions (16% of total)
Binance freezes spot BNB borrow
We witness very jittery behavior from CZ on TV and Twitter, acting akin to SBF and Mashinsky before the collapses of their respective companies
Large, unexplainable BNB wallet activity on the Binance beacon chain
ERC-20 USDC withdrawals were halted as Binance runs out of inventory
Jump, Wintermute, and Justin Sun appear to be facilitating BUSD-USDC conversion for customer withdrawals, indicative of mismatched assets/liabilities
Mazars PoR audit parameters were found to be totally insufficient
Abnormal activity in Binance Perps, potentially indicative of manipulation
Binance refuses to refund Mithril $50mm after delisting, claims to be in violation
Kevin O'Leary tells Congress CZ caused the FTX collapse
Binance user accounts hacked through third-party 3 Commas
BTC -2%, BNB -17%
Last year, SBF bought out CZ’s stake in FTX. A total of $2.1B but CZ claims they only have $500M left since then due to the decline in FTT. One recent concern is that Binance could be forced to return the entire $2.1B in bankruptcy court as a fraudulent conveyance.
Binance's CEO was also questioned on his refusal to be audited by one of the four major accounting firms. CZ replied that these firms do not know how to audit cryptocurrency companies, even though Deloitte is the auditor for Coinbase.
In the same interview, CZ reaffirmed that audited reports will come at some point.
It is unclear if Binance is going to make it through this phase, although one thing is clear - the failure of Binance would result in a catastrophic blow to the industry and our portfolios.
This Week By the Numbers 📈
Top Stories 🗞️
According to a new tweet by SushiSwap CEO Jared Grey, the decentralized exchange (DEX) experienced a $30 million loss over the past 12 months on incentives for liquidity providers (LPs). As explained by Grey, SushiSwap currently employs a token-based emission strategy to incentivize LPs, but the current rate is “unsustainable.” Moving forward, Grey plans to rework SushiSwap’s tokenomics so that LPs are no longer subsidized with emissions and redesign the entire model of bootstrapping liquidity on the exchange. “In Q1 2023, we will bring innovation to scale swap volume & prioritize TVL. As LPs experience a more profitable swap experience, others should migrate to Sushi,” wrote the DEX executive.
Following the collapse of FTX and its Nov. 11 bankruptcy filing, $73 million worth of its political donations are currently at risk of being recalled to repay the failed exchange’s creditors, according to a report by Bloomberg. Speculators online allege that the former FTX CEO and his executives sought to influence industry regulations with their generous multimillion-dollar donations to politicians and super PACs. Sam Bankman-Fried and executives Ryan Salame and Nishad Singh are believed to have been high-paying donors to both the Republican and Democratic United States political parties. Many politicians at the receiving end of FTX’s generosity now face difficulty regarding what to do next, as they may be forced to return the money to the bankruptcy trustee.
A global standard for banks' exposure to crypto assets has been endorsed by the Group of Central Bank Governors and Heads of Supervision (GHOS) of the Bank for International Settlements (BIS). The standard, which sets a limit of 2% on crypto reserves among banks, must be implemented on January 1, 2025, according to an official announcement on Dec. 16. The report, dubbed "Prudential treatment of crypto asset exposures", introduces the final standard structure for banks regarding exposure to digital assets, including tokenized traditional assets, stablecoins, and unbacked cryptocurrencies, as well as feedback from stakeholders collected in a consultation launched in June. The Basel Committee on Banking Supervision noted the report will soon be incorporated as a new chapter into the consolidated Basel Framework. BIS's announcement highlights that the global banking system's direct exposure to digital assets remains relatively low, but recent developments have outlined "the importance of having a strong minimum framework for internationally active banks to mitigate risks."
Elon Musk reinstated the Twitter accounts of several journalists that were suspended for a day over a controversy on publishing public data about the billionaire’s plane. The reinstatements came after the unprecedented suspensions evoked stinging criticism from government officials, advocacy groups, and journalism organizations from several parts of the globe on Friday, with some saying the microblogging platform was jeopardizing press freedom. A Twitter poll that Musk conducted later also showed that a majority of the respondents wanted the accounts restored immediately. “The people have spoken. Accounts who doxxed my location will have their suspension lifted now,” Musk said in a tweet on Saturday.
The legal troubles are mounting for Sam Bankman-Fried, the disgraced founder of the crypto exchange FTX. The United States Securities and Exchange Commission (SEC) said on Dec. 12 that it is preparing to file charges against the Alameda Research co-founder, which will be separate from the ones leading to his most recent arrest in the Bahamas. In a statement on Twitter, the SEC tweeted a quote from its division of enforcement director Gurbir Grewal on Dec. 12 stating that the agency has “authorized separate charges relating to his violations of securities laws.” The SEC’s announcement comes only hours after news broke of Bankman-Fried’s arrest in the Bahamas.
Thank you for reading this week’s edition of the Myth of Money.🚀
Until next week,
By Tatiana Koffman
Hi there and thanks for reading. If you stumble upon my newsletter, you will notice that I write about money, economics, and technology. I hold a JD/MBA and spent my career in Capital Markets working across Mergers & Acquisitions, Derivatives, Venture Capital, and Cryptocurrencies. I believe in empowerment closing the financial education gap and creating equal opportunity for the next generation. I have invested in 20+ companies and funds. Check out my portfolio here.
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