- Binance halts withdrawals of USDC
- The biggest crypto exchange saw $1.6 billion in outflows over the last 24 hours
- Binance had previously decided to auto-convert USDC tokens to BUSD for all depositors
Facing an unprecedented surge in withdrawal requests, Binance was forced to halt withdrawals of the USDC coin.
In a statement released Tuesday, 13 December, cryptocurrency exchange Binance said that it is pausing USD Coin (USDC) withdrawals due to token swap operations.
“USDT & BUSD withdrawals are available and unaffected. USDC withdrawals will reopen once the token swap is completed,” the exchange wrote on Twitter.
Binance CEO Changpeng “CZ” Zhao acknowledged that the exchange saw increased withdrawals of USDC. CZ claims that there’s no risk to user funds. Rather, Binance elected to pause withdrawals because the token swaps involved going through a traditional bank in NYC.
"The banks are not open for another few hours. We expect the situation will be restored when the banks open," he said.
CZ further insisted that there would be no leverage or margin trading involved in these swaps. “These are 1:1 conversions, no margin or leverage involved. We will also try to establish more fluid swap channels in the future. In the meantime, feel free to withdraw any other stablecoin, BUSD, USDT, etc,” CZ said.
The swap operations seem connected with Binance’s earlier decision to cease support for USDC.
Instead, Binance would convert USDC into its BUSD. At the same time, Binance allows users to withdraw USDC and any other stablecoins.
The USD Coin is managed jointly by the crypto exchange Coinbase and Circle. CZ said Binance has a “commercial relationship” with Circle to convert USDC to BUSD at a one-to-one peg.
Net $2 Billion Outflow of Reserves
Binance initially saw outflows rise after reports emerged of a potential criminal investigation into the exchange.
Over the last 24 hours, Binance has seen a net outflow of $1.6 billion. In the last week, that figure was almost $2 billion. The figures account only for tokens on the Ethereum blockchain, and total withdrawals could be larger.
According to blockchain analytics firm Nansen, Binance has $62 billion worth of crypto in its publicly provided wallet addresses. It’s important to note that almost 40% of its reserves are in its own tokens, BUSD and BNB.
Despite providing its public wallet addresses, many investors are not convinced that Binance provides enough transparency. In particular, the wallet balance doesn’t reveal anything about the exchange’s liabilities.
To quell some concerns, Binance requested a “proof of reserve” report from an auditing firm. The report showed that the company had a reserve backing of 101%, enough to pay all depositors.
However, critics remained unconvinced. For one, the report only looked at a snapshot of Binance’s reserves on Nov. 22, 2022. Mazers, the auditing firm that wrote the report, noted that they “did not express an opinion or an assurance conclusion” about Binance’s reserves.
On the Flipside
- It is unlikely that halting USDC withdrawals indicates Binance’s lack of solvency. However, questions arise as to why Binance and Circle need traditional banks to do token swaps. This could reflect how much crypto still depends on the traditional banking system.
Why You Should Care
Due to events earlier this year, investors have grown wary of crypto firms halting withdrawal operations for any stated reason, with many having fallen to the wayside in the days that followed.
With the collapse of FTX and its subsidiaries, Binance is by far the largest exchange in the world, and the implications of any potential fallout would have a huge influence on the crypto markets.
Wintermute and Justin Sun Deposit 253M USDC in Binance
Hours ahead of Binance pausing withdrawals, big crypto players deposited USDC in Binance. The deposits likely gave momentarily respite to Binance but were apparently insufficient.
On Tuesday, Wintermute Trading withdrew 153 million USDC from Coinbase and transferred about 150 million USDC to Binance.
Traders noticed the transfer because of Wintermute’s track record. The trading firm was one of the largest market-makers in FTX. Last month, they made headlines for making the right call about the FTX collapse.
Wintermute took out their funds from FTX days before the exchange halted withdrawals and declared bankruptcy.
Later on Tuesday, TRON founder Justin Sun also deposited $100 million USDC in Binance. Binance’s CEO addressed the move, saying he wasn’t directly involved with the transaction. “This is part of deploying BUSD on TRON, I think,” CZ said.
The deposit comes after Sun withdrew 33,9 million Binance USD (BUSD) and 15 million Tether (USDT) from Binance.
At the time, Sun tweeted that the transfers represented “normal business cooperation” and did not represent any “judgment or speculation about the market.”
"In the future, we will cooperate more with exchanges to jointly promote the progress and development of the industry," Sun stated.
However, not all those transactions follow this pattern, as trading firm and market maker Jump Trading withdrew over $140 million from Binance over the last week.
Read about exchanges getting nervous over their stablecoin reserves:
Coinbase Questions Tether’s (USDT) Stability Amid Growing Concerns Over Stablecoins
Read how Binance addressed the allegations of criminal charges:
Binance Responds to Allegations that the US DOJ May Charge the Company with Money Laundering