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Half a year ago, the U.S.-based platform of the largest cryptocurrency exchange by trading volume, Binance US, found itself in an unusual situation — it was running out of Tether (USDT), the most traded stablecoin on the crypto market. The scarcity was so severe that USDT and USDC (another popular stablecoin) withdrawals had to be paused for several hours, raising concerns among users of Binance's US subsidiary.
Just when things seemed dire, substantial USDT deposits began to flow in, replenishing Binance US's depleted wallets. Today, we have a clearer picture of this mysterious replenishment. The U.S. Securities and Exchange Commission (SEC) has confirmed that the funds came from the Sigma Chain, owned by Changpeng Zhao (CZ), the CEO of Binance.
6 months ago, BinanceUS ran out of USDT and withdrawals were halted
— Conor (@jconorgrogan) June 7, 2023
After a few hours, the wallets were topped up by Binance funds- Today the SEC confirmed that the CZ-owned Sigma Chain was behind the cash infusion pic.twitter.com/qWNl8z0ttH
Considering the trading volume that USDT represents on Binance US (with three pairs bringing in $64 million in volume in the past 24 hours), this lack of liquidity was a significant issue. Not only does it halt a considerable portion of trading activity, but it also raises questions about the exchange's solvency and reliability.
Gamza KhanzadaevOn the surface, CZ's move may seem like a helping hand during a liquidity crisis. However, from a regulatory standpoint, this raises concerns. If a significant portion of an exchange's liquidity comes directly from the CEO's funds, it could open doors to potential manipulation and conflicts of interest. The exchange's dependence on its CEO's personal assets could cast doubt on its financial stability.
While the incident did not affect the day-to-day operations of Binance US substantially at the time, it highlighted potential gaps in the exchange's operational resilience. If market conditions were to turn unfavorable suddenly, would CZ be ready to bail out the exchange again?
Dan Burgin
Alex Dovbnya