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Questionable Practices: Inside Binance and FTX’s Operations

Binance vs FTX
Written by Andy

A recent FT headline came along these lines: “Has Binance blown its chance to rule the crypto markets?”. This implies that Binance failed to seize a market opportunity due to operational/execution missteps when, in fact, many regulators are accusing Binance of malfeasance and fraud.

Binance has exactly the same problems as FTX and I’d dare say it has more problems than that.

It’s an exchange (with none of the controls re- market abuse) + market maker (with none of the controls re transparency pre and post trade) + custodian (without being required to segregate client funds), + investment advisor (without carrying out suitability of investments for potential clients).

On top of that the ownership and governance structures of both FTX and Binance are opaque and in the case of governance both are at the level of a mom and pop cake shop.

The only 3 differences I can think of between FTX and Binance, is that FTX secured funding from well known sources (Sequoia, Softbank etc.), Bankman Fried was the true UBO of FTX/Alameda operations and FTX had a formal and established headquarters (the Bahamas).

Binance’s HQ is still unknown and Binance does everything in its power to keep that info secret, it’s unknown who are the seed investors in Binance giving rise to speculations that it’s a vehicle for state actors or the funding came from either illegal or unsavoury source and the person pulling the strings is an unknown see also Binance’s refusal to reveal the UBO when they applied for a licence with the FCA.

Additionally Binance is retreating from markets with established rules (see their decision to give up attempts to register in the Netherlands, Canada and Australia) which only exacerbates concerns that this is a shady operation. I think they did that because part of the requirement to register is to reveal ultimate beneficial owners, establish robust governance controls as well as sink money into compliance, risk management and AML, things that make CZ (and/or his handlers) nausea.

If you want to gamble with crypto, that’s fine by me (similarly if you want to gamble with stock market speculation, penny stocks, structured notes, pokers, race track etc. again good on you) but Binance is not the place to go.

Most of the crypto world presently can be thought of a 24/7 casino dressed up in the appealing language of technology innovation. When a casino introduces a new slot machine, they don’t put out press releases trying to look like scientific publications explaining how the machine’s novel algorithm practically guarantees you will win. In crypto such “whitepapers” are an essential part of the charade. Retail investors don’t understand a word, but influencers on social media will tell them that this new crypto is a revolutionary paradigm shift and they can get in on the ground floor.

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Andy

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