According to a new report from Dirty Bubble Media, Binance.US is allegedly transferring American customers’ funds offshore and executing trades using liquidity from Binance’s offshore operation.
Binance is the world's largest CEX, but it’s barred from operating in the US. Binance is a bit shady: the company frequently relocates its headquarters, and it's under investigation in the US and UK for money laundering. Binance owns and operates a legally distinct company in the US called Binance.US that’s supposed to service American customers lawfully.
Old Allegations: Offshore Binance Is Shady
In October 2020, Forbes received a leaked document from 2018 that laid out Binance’s plans to create Binance.US as “a ploy to trick U.S. regulators into focusing on the compliant local exchange, while the parent exchange went free to do its own business.” Binance responded by suing Forbes, then when that didn’t work Binance invested in Forbes’ parent company.
So those are the old allegations, and they aren’t that bad: Binance’s offshore operation may be up to some shady business, so Binance operates a squeaky clean US-based operation to service American customers.
New Allegation: Binance.US Is Also Shady
Dirty Bubble Media’s reporting suggests Binance.US may not actually have all of its customers’ funds onshore. Binance claims that Binance.US is a unique entity, but according to the leaked documents, Binance.US is intended to be more of a “regulatory inquiry clearing house.” The two entities are not separate. Dirty Bubble Media found wallets used by Binance to pass billions in crypto–mostly stablecoins–between Binance.US and Binance's offshore operation.
Yesterday, Binance.US halted USDT withdrawals because it apparently didn’t have enough USDT on hand to cover its deposits. So did Binance.US trade some of its BUSD for USDT to re-open withdrawals? Of course not! Binance.US took a $9M USDT injection from offshore Binance. Does this mean that US customers’ assets were stored offshore?
So Binance.US may not be holding your crypto, and the exchange is apparently executing trades using liquidity from the offshore Binance operation. This kind of makes you wonder: if Binance.US isn't holding all of its customers’ deposits, then is it holding the crypto it sells to those customers?
Binance is currently in the midst of its own FUD frenzy, and its half-baked proof of reserves report didn't help matters. It doesn’t seem likely that Binance will collapse like FTX, but I can’t blame investors for withdrawing their funds to wait out this storm.