Binance's Books As Transparent As A Black Box, Reuters Probe Shows
The world's biggest crypto exchange, Binance, is battling to shore up confidence after a surge in customer withdrawals and a steep drop in the value of its digital token.
Photo Insert: Binance declines to say where Binance.com is based and doesn't disclose basic financial data such as revenue, profit and cash reserves.
Binance said it dealt with net outflows of around $6 billion over 72 hours last week "without breaking stride" because its finances are solid and "we take our responsibility as a custodian seriously."
After the collapse of rival exchange FTX last month, Binance's founder Changpeng Zhao promised his company would "lead by example" in embracing transparency, Tom Wilson, Angus Berwick and Elizabeth Howcroft stressed in an investigative report for Reuters.
An analysis of Binance's filings shows that the core of the business – the giant Binance.com exchange that has processed trades worth over $22 trillion this year – remains mostly hidden from public view.
Binance declines to say where Binance.com is based and doesn't disclose basic financial data such as revenue, profit and cash reserves. It has its own crypto coin, but doesn't reveal what role it plays on its balance sheet.
It lends customers money against their crypto assets and lets them trade on margin with borrowed funds. But it doesn't detail how big those bets are, how exposed Binance is to that risk, or the full extent of its reserves to finance withdrawals.
Reuters found out that more than $10 billion could have been laundered through Binance apart from the $2.35 billion in illicit funds that passed through its intricate network. Binance has not raised any new money since 2018 and its subsidiaries in 14 countries don’t know where the deep pool of funds is located, stressing they earn money through transaction fees.
Binance charges fees of up to 0.1% on spot trades, with a more complex fee structure for derivatives. On spot trading volume of $4.6 trillion in the year to October, Binance may have earned revenue of up to $4.6 billion, Reuters calculated, based on data from researcher CryptoCompare.
Charging fees of up to 0.04% on its derivatives volumes of $16 trillion, Binance may have earned revenues of up to $6.4 billion. John Todaro, a senior analyst covering crypto and blockchain firms at US investment bank and asset manager Needham & Co., and Joseph Edwards, an independent investment consultant, said the Reuters calculations appeared to be in the right range.
Binance's promotions such as zero-fee trading and other discounts may mean the revenues were lower, Edwards said. A third crypto analyst who declined to be named also agreed with the figures. Binance is not required to publish detailed financial statements because it is not a public company, unlike US rival Coinbase, which is listed on the Nasdaq.
And, as Reuters reported in October, Binance has actively avoided oversight. Zhao approved a plan by lieutenants to "insulate" Binance's main operation from US regulatory scrutiny by setting up a new American exchange, according to company messages and interviews with former employees, advisers and business associates. Zhao denied signing off on the plan and said the unit was set up with advice from top law firms.