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Forbes Alleges Binance Moved $1.78 Billion of Customer Funds to Shadowy Funds in Behavior Similar to FTX

According to Forbes’ latest article on February 27, Binance is accused of moving approximately $1.78 billion in customer funds to shadowy funds. The article claims that Binance engaged in “customer money shuffling” behavior similar to FTX.

Forbes reported that Binance transferred $1.78 billion in collateral assets to several shadowy funds. Among them, $1.1 billion was transferred to Cumberland DRW, which is said to have helped Binance convert money into BUSD.

Forbes also said that Binance sent an unspecified amount of money to Alameda Research, an investment fund associated with FTX. Forbes criticized Binance for repeating mistakes similar to FTX. In addition, Forbes named Amber Group and TRON as two projects that received “millions of dollars in collateral assets” from the exchange. Alameda, Amber Group, and TRON received a total of $201 million, according to Forbes.

Binance issued B-tokens to support other cryptocurrencies in the BNB Chain ecosystem. The exchange only issued B-tokens after storing 100% of the collateral assets of the original token. For example, 100 B-USDC must have 100 USDC as collateral.

However, Forbes claims that Binance violated the rules on August 17. Binance withdrew $3.63 billion from a fixed wallet to the “Binance 8” cold wallet. The company then transferred $1.85 billion back to the fixed wallet but transferred the remaining $1.78 billion to the “Binance 14” cold wallet. Binance then allocated this money to Cumberland, Amber Group, Alameda Research, and TRON.

Fluctuations in Collateral Assets Held by Binance’s Wallet | Source: Forbes

When Binance withdrew $1.78 billion in USDC on August 17, the company did not reduce the supply of B-USDC. Therefore, the collateral assets decreased to 0 for 4 months. The article also claims that B-USDC was under-reserved by over $1 billion at three different times. Forbes believes that Binance is abusing customer funds, similar to the FTX empire. During the time that USDC was transferred out, Binance still did not burn the issued USDC on the BNB Chain, meaning that they were not fully collateralized.

The amount of USDC issued on the BNB Chain (in gold) compared to the amount of USDC held by Binance as collateral (in blue) | Source: Forbes

On the same day, Binance denied taking $1.78 billion from users and transferring it to emergency funds. The company’s strategy director, Patrick Hillman, emphasized that the entire amount was taken from the exchange’s reserve fund. A Binance spokesperson also issued a statement regarding Forbes’ article, stating that the transactions mentioned were internal wallet management activities. While Binance has acknowledged errors in the management of collateralized assets due to tokens issued by Binance in the past, it has never affected users’ funds. The spokesperson added that their collateral asset management process is regularly conducted and verifiable through blockchain data.

Binance has been constantly targeted legally, the latest being the SEC and the New York authorities’ scrutiny of the BUSD stablecoin. The exchange has also been found to have insufficient reserves to guarantee the value of BUSD in 2021. Binance admitted to three instances where BUSD reserves for B-BUSD were short by over $1 billion. However, Binance stated that it has since addressed the system’s weaknesses and maintained a 1:1 collateralization ratio.

In 2020, Binance’s founder CZ sued Forbes for defamation and demanded the removal of an article containing false information. CZ later dropped the lawsuit after Forbes took down the post.

Meanwhile, some Twitter users accused Forbes of being biased towards FTX and deliberately writing unfavorable articles about Binance. In 2022, Irina Heaver, a cryptocurrency lawyer, wrote on Twitter that Forbes was publishing “misleading and inaccurate information.”

It is important to note that Forbes has been reporting on Binance’s legal issues and financial troubles, including allegations of money laundering, tax evasion, and regulatory violations. Binance has repeatedly denied these allegations and maintained its commitment to complying with regulations. However, these controversies have raised concerns among users and regulators about the safety and transparency of Binance’s operations.

Overall, Binance’s denial of taking users’ funds and its reassurance of its collateral asset management process may alleviate some concerns among users. However, the exchange’s past and current legal troubles and financial issues cannot be ignored and will likely continue to affect its reputation and operations in the future.

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