Justice Department prosecutors are divided on whether there is enough evidence to file criminal charges against Binance CEO Changpeng Zhao Binance’s position in the industry is so dominant that any story about them is now very impactful Regardless of the accusations, the evidence Binance Bookings Failed to Meet Transparency Demands Crypto needs to change its entire ethos as customers are currently forced into blind belief that all is well Here we go again. According to a Reuters report, Justice Department prosecutors are divided on the next steps to take in regards to a Binance investigation. The exchange has been under investigation since 2018 for allegedly failing to comply with anti-money laundering laws and sanctions. The report states that some of the federal prosecutors want to move aggressively against the company. They believe they have enough evidence to file criminal charges against individual executives, including CEO Changpeng Zhao (CZ).
Table of Contents
Binance fires back
Binance blasted the report, to no one’s real surprise. “Reuters got it wrong again. Now they are attacking our amazing law enforcement team,” he tweeted. So is this the last storm in Cryptoland? Is Binance in trouble? Well, it’s easy to fall into knee-jerk reactions given the shenanigans in space by other actors (no need to name names, I’m tired of talking about certain people). But that’s not it. This was a long-running investigation, which began in 2018. Binance’s fights with regulators are no secret. Brian Brooks, former CEO of US subsidiary Binance.US, stepped down just three months after regulators closed. CZ said at the time that Binance would “become a fully regulated financial institution in the future” and that he would be “very open” to stepping down if a replacement CEO with more regulatory experience is found. This is therefore not a totally unexpected development, with the public well aware that this was an ongoing investigation.
More of the same for crypto
However, while this is not an alarming situation, it sums up major problems in the cryptocurrency industry. Nobody really knows what to make of this investigation, and that’s the point – Binance is far from transparent, which is not healthy for the industry at large. Crypto is also now at a point where CZ and Binance are vitally important to the space at large. A misstep on the exchange can be fatal. Its importance has never been more evident than when looking at the $1 billion fund created by CZ to support struggling players in the industry (in a move eerily reminiscent of Sam Bankman-Fried’s heritage as the “lender of last resort” in the recent past). It makes perfect sense that regulators would be flocking to the former “headquarters” exchange (which appears to not yet have a formal headquarters, by the way), given both its market dominance and lack of transparency.
Coinbase and Binance are the last two players, but one is more transparent than the other
Binance, next to Coinbase, is probably the most important company in the entire crypto industry. But they are very different. Coinbase is publicly listed and on a completely different level in terms of transparency. Required disclosures and other hurdles public companies must navigate can be burdensome, but provide peace of mind for customers. Binance, on the other hand, has skirted the law throughout its highly successful few years of existence. Not that this is a criticism of them – the industry literally came out of nowhere, with regulation completely non-existent. It was impossible to do anything else in the past. But the crypto industry has grown and Binance still presents itself as a complete mystery when it comes to its finances. This is despite several claims to the contrary. Your proof of bookings was largely intended to address this transparency issue. However, their process is far from satisfactory. I spent a few hours over the weekend trying to figure it out and left more confused than when I went in. Jesse Powell, CEO of Kraken, was notably critical of this, and I believe he raises positives.
Another misleading “PoR” AUP (not an audit) released today. Apparently, there is no consistent process used across exchanges. Again, the process strays far from the original spec.🤦♂️ 1. “interchangeable” assets
2. negative balance included
3. no signing
4. aggregation by “class” https://t.co/FGQ3Mn9kyo — Jesse Powell (@jespow) December 10, 2022
To be fair, CZ said he’s going to improve on this, and it’s still early days. But the information published so far reveals almost nothing about Binance’s inner workings or financial health.
Crypto at a tipping point
CZ is now the top man in crypto given Binance’s monstrous dominance of the market. These ongoing stories do nothing but drag the cryptocurrency’s reputation through the mud, which is its biggest problem right now. Institutions, traditional media and non-crypto natives will see these stories and roll their eyes. Many will be afraid to go near this industry now. In my opinion, it would be nice to see Binance make a concerted effort to establish true transparency. I think their efforts so far have been way below average, and just because they compare favorably to some bad actors in the space doesn’t mean they’re doing well in that regard. Given the chaos in the industry throughout the year, and especially recently with FTX, Binance is bound to hold itself to a higher standard, deserved or not. Events like the one below – while probably perfectly legitimate – are concerning for the industry because of what they could mean.
This is part of the Proof-of-Reserve Audit. The auditor require us to send a specific amount to ourselves to show we control the wallet. And the rest goes to a Change Address, which is a new address. In this case, the Input tx is big, and so is the Change. Ignore FUD! https://t.co/36wUPphIZk pic.twitter.com/2NkH5L5J9j
— CZ 🔶 Binance (@cz_binance) November 28, 2022
The spirit of cryptography is never to trust, but to verify. And yet, we all depend on the tweets of a collection of CEOs to make sure the funds are fine (and sometimes – just sometimes – certain people have been known to “bend” on this truth).
CZ has been very critical and vocal about other players in the space as of late. Personally, I prefer that he separate himself from this mess and focus on putting Binance in a place where it is as transparent as possible. Because it makes perfect sense that regulators are after these centralized crypto players. That’s exactly what they should be doing, until we have more transparency. But until that day comes, people just need to “hope” that Binance is acting in good faith and keeping things organized. For the avoidance of doubt, there is no evidence to suggest that this hope is misplaced. I just thought that one of the main advantages of crypto was that you didn’t just have to blindly trust centralized financial institutions to do the right thing…
