Cryptogram - 16DEC2022

Is Binance going down?

16 December 2022

In this issue

Hello, Finally, FTX founder SBF got arrested last week.

Based on an indictment by the US Attorney’s Office and charges filed by Bahamian authorities themselves, the disgraced crypto icon was put behind bars in the Bahamas and was later denied bail. Meanwhile, more details continue to emerge about the FTX debacle – this time, right from the top. FTX’s former co-CEO Ryan Salame, who is now said to have blown the whistle to the Bahamian authorities in November, has pointed fingers at three people who could have moved funds from FTX to Alameda. But the controversy of the moment is undoubtedly Binance and CZ. Over the last week, we have seen guns slowly being drawn against CZ from all sides – the government, traders and investors, and some people who are REALLY pissed with him for his alleged role in the FTX implosion – Kevin O’Leary is NOT happy with CZ.

CZ has tried to control the panic, but we all know how things go down in the crypto world – founders are brimming with confidence until the very last moment they file for bankruptcy. So, no thank you, but we will go with just facts.So, are we seeing the slow unraveling of Binance in front of our eyes? Can Binance really go down, and if so what happens to all of us? That’s what this issue is all about. 

The newsletter is put together by Giottus Crypto Platform and The News Minute’s Brand Studio. You can read all the previous issues of Cryptogram here.

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WEEKLY PRICE TRACKER

Price movements from last Friday

BTC:  by a meagre 1.5% as Fed raised interest rates again by 50 basis pointsETH:  0.9% due to BTC reacting to inflation and FOMC's decisionBNB: 

9% with major FUD on its authenticity of proof of reserves

DOGE: 

12% as BNB whales could be selling

TON:  24% with Safepal planning to support Toncoin very soon

WHAT'S HOT

Project to watch out for:Aztec - Aztec is building blockchain encryption without trade-offs using UTXO architecture inspired by Bitcoin.Coins to watch out for:Toncoin (TON) TON is a fully decentralized layer-1 blockchain designed by Telegram to onboard billions of users. It boasts ultra-fast transactions, tiny fees, easy-to-use apps, and is environmentally friendly.USDD (USDD) Tron's stablecoin claimed to be overcollateralized by 200% has depegged to $0.97 and should be keenly observed.

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THE BIG STORY

Binance is crypto, crypto is Binance…

… and we are not saying that lightly, and we get no pleasure in saying this. It is pretty bad how big a monopoly Binance has become now, so if Binance goes down, things will be pretty crappy for the ecosystem. But we will get to this a bit later, first let’s understand……how bad are things for Binance? The recent Mazars AuditSouth African accounting firm Mazars stated that Binance is fully collateralized in a report published on December 7. The report has been met with much doubt and criticism by experts in the crypto space. According to a July report by the Financial Reporting Council, “[Mazars has] been growing too fast, picking up higher risk audits being dropped by their peers, without adequate controls to ensure high quality audits”.Here is what we can infer from the report on Binance POR:

Jessica Jung, the spokesperson of Binance said that the net liability balance (factors in Bitcoin lent out as loans to customers) is actually 575,742 bitcoins, which implies that Binance are actually overcollaterized by 1%.Not everyone believes the spokesperson’s statement above. Our deduction from this is that while things do not look very bad for Binance, there is reason enough to be cautious. Withdrawals spikingRetail investors and traders are spooked. In Dec 13, blockchain data firm Nansen said Binance saw withdrawals of $1.9 billion in 24 hours, the largest such outflow since June this year. Users have pulled out $3.7 billion worth crypto assets from global exchanges over seven days to Tuesday. Binance also temporarily halted withdrawals of the major stable coin USD.BNB is down 10% since last week. CZ is clearly getting irate with all this – he complained about self-custodial wallets on a Twitter spaces and said that 99% of the people who use then will end up losing the cryptos. CEO Changpeng Zhao assured investors in a tweet stating that, "Yesterday was not the highest withdrawals we processed, not even top 5."CZ may be right, but the flight of crypto from Binance signifies a considerable loss of confidence among investors and traders not just in Binance, but in Centralised Exchanges as a whole. Legal pressuresThe legal pressures faced by Binance are also significant. According to a Reuters report, US prosecutors say that they have enough evidence to justify filing charges against not just senior Binance executives, but CZ himself.  While splits between U.S. Department of Justice prosecutors is delaying the case, it would be hard to believe that he would be let go easily. CZ himself has a few “bumpy” days coming up with the regulators. TOO BIG TO FAILAll of these things are a bit worrying, and yet, Binance is a long way from going down – simply because it is too big now. You know, too big to fail. Binance has become a behemoth in the global crypto industry and is used by top local exchanges extensively including by Indian ones. 1. Binance is EVERYWHEREBinance, which calls itself an “ecosystem,” has set up at least 73 entities, mostly controlled by CEO Changpeng Zhao. He declines to identify the entity behind the main exchange.

Stats on their Investments:Portfolio Companies: 151

Funds:Binance Labs invests in technical teams that build and support the decentralised web. They have invested in 200+ project in 25+ countries over the span of 3 years. They have set up two funds to invest in companies from the digital assets sector and enable adoption among masses. Startup Fund: $500 million (Jun 2022)Ecosystem Fund: $1 billion (Oct 2021)2. Binance is a global market leader in crypto – it processed 75% of all trade volume in November.

Top Indian exchanges use Binance for some of their services. CoinDCX holds more than 50% of its reserves in Binance.

Other notable exchanges (including Giottus) also use Binance for some of their withdrawal and other services.3. BNB chain (and token) is growing in adoptionAverage transaction fees of BNB Chain are 97% lower at US$0.32 as compared to US$13.1 for Ethereum (Jan – Sep 2022).BNB Chain has the second highest TVL in the DeFi ecosystem (after Ethereum) with a 10.86% market share.512 protocols are currently active or building in the chain.BNB has also done exceedingly well (in terms of price action) in 2022 compared to Bitcoin and Ethereum.

Data from coinmarketcap

The TakeawayYour crypto portfolio’s short-term health is dependent on Binance emerging resilient from the current crisis. While a regulatory level impact may only affect Binance’s business model and BNB’s price without impacting its reserves, the impact of a FTX style implosion may be catastrophic to the industry. That said, the platform has so far weathered the storm well, and will continue to do so. But be sure to understand that the weather ahead for Binance is not smooth.

That’s all we have for this issue, see you next week! 

If you have any questions or feedback for us, write to us at [email protected]. You can check out the previous issues here.

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