Founder Changpeng Zhao admits “stress test” after more than a billion dollars is pulled out of Binance in a single day
The founder of cryptocurrency exchange Binance has sought to reassure investors spooked at the spectacular collapse of rival FTX.
Binance founder and chief executive Changpeng Zhao, known as CZ, reacted after more than a billion dollars were pulled out of Binance in a single day.
CZ insisted that the $1.14bn withdrawals were simply proof of the sound footing that Binance has, and he labelled the huge withdraws a “stress test”, while reassuring depositors that the exchange’s reserves were sound.
CZ issued the reassurance in a tweet on Tuesday, saying the exchange has seen such withdraws before, and it is business as usual.
We saw some withdrawals today (net $1.14b ish). We have seen this before. Some days we have net withdrawals; some days we have net deposits. Business as usual for us.
I actually think it is a good idea to “stress test withdrawals” on each CEX on a rotating basis. 💪
— CZ 🔶 Binance (@cz_binance) December 13, 2022
Zhao insisted that Tuesday was not even in the top five days for net withdrawals.
“We think that it’s important to note that yesterday’s market sell-off resulted in approximately $1.14bn being withdrawn from our platform in a 12-hour period, which was managed with ease,” Binance was quoted by the Guardian as saying in a statement.
“We passed this extreme stress test because we run a very simple business model – hold assets in custody and generate revenue from transaction fees.”
But the outflow came after Binance was forced to halt withdrawals in one particular cryptocurrency (stablecoin USDC) because, Zhao said, the company could not fulfil them until its American banking partners opened for business.
In a memo to staff on Wednesday, Zhao admitted that the next several months would be “bumpy”, according to Bloomberg News, but reportedly reassured them: “We will get past this challenging period – and we’ll be stronger for having been through.”
Last week Binance published an “audited proof of reserves”, which showed that it held assets worth 101 percent of all consumer deposits. But critics noted that the document said nothing about Binance’s liabilities.
Binance of course played a role of the collapse of rival crypto exchange FTX.
Binance had carried out due diligence on FTX’s balance sheet, and said that it had significant concerns that convinced it to back out of the deal.
Soon after the FTX collapse, Binance’s Changpeng Zhao said he was in favour of closer regulation of the crypto industry, but that laws cannot protect anyone from a “bad player”.
FTX founder and former CEO Sam Bankman-Fried was denied bail this week, after he had been arrested on Monday evening when US prosecutors accused the 30-year-old of misappropriating billions of dollars and defrauding investors.