After the fall of FTX, is Binance next? Users have started pulling out
Cryptocurrency exchange giant Binance is facing intense scrutiny after agreeing this week to monumental fines from U.S. authorities totaling over $4 billion. The company pleaded guilty to numerous criminal violations for failing to prevent transactions tied to illegal activities like terrorism and drug trafficking.
As part of a settlement deal with the Department of Justice and other agencies, Binance has pledged to overhaul its practices to better detect and block illegal crypto transactions moving forward. However, the damage may already be done to its reputation.
Binance's famous founder and CEO Changpeng Zhao has taken responsibility for past compliance failures and stepped down from leading the company.
CZ, as he is widely known, built Binance into the world’s largest player in cryptocurrency trading since launching it in 2017. But lax oversight attracted criminals exploiting cryptocurrency’s pseudo-anonymous qualities according to regulators.
U.S. Attorney General Merrick Garland stated on Tuesday, “Using new technology to break the law does not make you a disruptor. It makes you a criminal.”
The DOJ investigation found that Binance processed transactions related to terrorism, illegal drugs, and countries under American sanctions. Internal messages revealed executives were aware controls were needed but prioritized business growth instead.
In addition to forfeiting $2.5 billion and paying federal penalties of $1.8 billion, Binance signed an agreement to implement stricter anti-money laundering measures over the next three years. An outside monitor will be appointed to ensure compliance. But surviving this PR crisis intact will be an uphill battle.
In the 24 hours since the news broke, over $1 billion in crypto assets have reportedly been withdrawn from the Binance platform by nervous investors. Trading volume is also down sharply and Binance’s own BNB token which powers Binance’s ecosystem has lost substantial market value.
With reserves still holding tens of billions in crypto, many experts believe Binance can eventually stabilize and move past calls for users to abandon Binance.
But undoubtedly there will be short-term impacts and uncertainty swirling around the cryptocurrency leader in the wake of this reckoning. Once seen as an unstoppable juggernaut revolutionizing finance, Binance is being forced to transform its focus from explosive growth to playing by the rules through stricter regulatory adherence.
With other exchanges like Coinbase and Kraken also battling legal inquiries, increased authority oversight seems inevitable for legitimizing cryptocurrencies. For all CZ’s visions of an open permissionless economy, the real-world complexity of combating crime threatens decentralized ideals of survival.