Special Report: Binance’s books are a black box, filings show, as it tries to rally confidence

LONDON, Dec 19 (Reuters) – The world’s greatest crypto trade, Binance, is battling to shore up confidence after a surge in buyer withdrawals and a steep drop within the worth of its digital token.

The trade mentioned it handled web outflows of round $6 billion over 72 hours final week “with out breaking stride” as a result of its funds are strong and “we take our duty as a custodian critically.” After the collapse of rival trade FTX final month, Binance’s founder Changpeng Zhao promised his firm would “lead by instance” in embracing transparency.

Yet a Reuters evaluation of Binance’s company filings reveals that the core of the enterprise – the enormous Binance.com trade that has processed trades value over $22 trillion this yr – stays largely hidden from public view.

Binance declines to say the place Binance.com relies. It does not disclose primary monetary info such as income, revenue and money reserves. The firm has its personal crypto coin, however does not reveal what function it performs on its steadiness sheet. It lends clients cash towards their crypto belongings and lets them commerce on margin, with borrowed funds. But it does not element how large these bets are, how uncovered Binance is to that danger, or the total extent of its reserves to finance withdrawals.

Binance will not be required to publish detailed monetary statements as a result of it will not be a public firm, not like U.S. rival Coinbase, which is listed on the Nasdaq. Nor has Binance raised exterior capital since 2018, trade knowledge present, which suggests it hasn’t had to share monetary info with exterior traders since then.

And as Reuters reported in October, Binance has actively prevented oversight. Zhao authorised a plan by lieutenants to “insulate” Binance’s predominant operation from U.S. regulatory scrutiny by establishing a new American trade, in accordance to firm messages and interviews with former staff, advisers and enterprise associates. Zhao denied signing off on the plan and mentioned the unit was arrange with recommendation from high regulation corporations.

Binance’s big function within the crypto market – it accounts for over half of all buying and selling quantity – has made its operations a eager subject of curiosity for U.S. regulators. The firm is beneath investigation by the U.S. Justice Department for potential money-laundering and sanctions violations, and Reuters reported this month that some prosecutors imagine they’ve gathered adequate proof to cost Binance and a few high executives.

In an effort to look inside Binance’s books, Reuters reviewed filings by Binance items in 14 jurisdictions the place the trade on its website says it has “regulatory licenses, registrations, authorisations and approvals.” These areas embrace a number of European Union states, Dubai and Canada. Zhao has described the authorisations as milestones in Binance’s “journey to being absolutely licensed and controlled world wide.”

The filings present that these items seem to have submitted scant details about Binance’s enterprise to authorities. The public filings don’t present, for instance, how a lot cash flows between the items and the principle Binance.com trade. The Reuters evaluation additionally discovered that a number of of the items seem to have little exercise.

Former regulators and ex-Binance executives say these native companies serve as window dressing for the principle unregulated trade.

“They are co-opting the nomenclature of regulation to create a veneer of legitimacy,” mentioned John Reed Stark, a former chief of the U.S. Securities and Exchange Commission’s Office of Internet Enforcement. Stark mentioned Binance’s operations have been extra opaque even than these of FTX. “There is completely no transparency, no daylight, no affirmation of any variety about its monetary place.”

Binance Chief Strategy Officer Patrick Hillmann mentioned the Reuters evaluation of the items’ filings within the 14 jurisdictions was “categorically false.” “The quantity of company and monetary info that has to be disclosed to regulators in these markets is immense, typically requiring a six-month-long disclosure course of,” he mentioned. “We are a non-public firm and are not required to publicize our company funds,” he continued, evaluating the trade to privately-held corporations such as U.S. sweet maker Mars. In a assertion, Mars mentioned it was “absurd” to examine its company governance and monetary reporting necessities with Binance’s, including that its items and companies are “extremely regulated.”

Hillmann additionally famous that FTX’s founder stands accused by U.S. authorities of fraud. If these allegations are true, he mentioned, “it would have been fraud no matter what laws have been in place.”


Binance’s surge in outflows final week was attributed by analysts to concern over how crypto exchanges maintain consumer funds and the Reuters report on the DOJ investigation. The trade additionally halted withdrawals of some crypto tokens. On Friday, Binance’s makes an attempt to reassure traders have been set again when an accounting agency it employed to confirm its reserves suspended all work for crypto corporations.

There are glimpses of Binance’s funds in public feedback by Zhao, previous firm statements, blockchain knowledge and enterprise capital offers.

Binance has mentioned it has over 120 million customers. Its buying and selling volumes totalled $34 trillion in 2021, Zhao mentioned in June. He informed an interviewer final month that “90-something %” of Binance’s revenues depend upon crypto buying and selling. The firm is worthwhile and has “pretty massive money reserves,” he added. Binance has remodeled 150 enterprise investments totalling $1.9 billion since 2018, in accordance to PitchBook knowledge. Zhao additionally created a $1 billion fund to spend money on struggling crypto firms after the autumn of FTX.

Reliable estimates of Binance’s trading-dependent revenues are scarce, nonetheless, regardless of the general public availability of buying and selling quantity knowledge.

Binance expenses charges of up to 0.1% on spot trades, with a extra complicated price construction for derivatives. On spot buying and selling quantity of $4.6 trillion within the yr to October, Binance might have earned income of up to $4.6 billion, Reuters calculated, primarily based on knowledge from researcher CryptoCompare. Charging charges of up to 0.04% on its derivatives volumes of $16 trillion, Binance might have earned revenues of up to $6.4 billion.

John Todaro, a senior analyst overlaying crypto and blockchain corporations at U.S. funding financial institution and asset supervisor Needham & Company, and Joseph Edwards, an unbiased funding marketing consultant, mentioned the Reuters calculations appeared to be in the suitable vary. Binance’s promotions such as zero-fee buying and selling and different reductions might imply the revenues have been decrease, Edwards mentioned. A 3rd crypto analyst who declined to be named additionally agreed with the figures.

Binance’s Hillmann didn’t touch upon the Reuters estimates. “The overwhelming majority of our income is made on transaction charges,” he mentioned, including that the trade has been in a position to “accumulate massive company reserves” by retaining bills down. Binance’s “capital construction is debt free” and the corporate retains its cash created from charges separate from the belongings it buys and holds for customers, Hillmann mentioned.

Binance permits customers to deposit collateral within the type of crypto and borrow funds to leverage the worth of their derivatives trades by as a lot as 125 instances. For the consumer, this may lead to big features or big losses. Hillmann mentioned Binance backs all consumer deposits for derivatives and spot buying and selling with its personal reserves at a ratio of 1 to one – that means deposits must be safe and straightforward to withdraw. Binance, he mentioned, has strict liquidation protocols that dump customers’ positions if their losses exceed their collateral’s worth. If customers’ positions grow to be damaging “due to excessive market volatility,” Binance has “very-well capitalized” insurance coverage funds to cowl the deficit, he mentioned. Hillmann didn’t present specifics and Reuters couldn’t independently confirm all of his statements.

Asked in regards to the scale of any losses on the trade this yr, Hillmann mentioned: “Binance’s danger division manages what is among the trade’s most risk-averse packages. This protects our customers and our platform.”

The guarding of Binance’s monetary info by Zhao, a Canadian citizen who was born and raised in China, echoes the strict tradition of secrecy he has enforced all through his firm’s rise, the Reuters report in October confirmed. The article was certainly one of a sequence of stories this yr by the information company on Binance’s monetary compliance and relationship with regulators the world over.

Even Binance’s former chief monetary officer, Wei Zhou, didn’t have entry to the corporate’s full accounts throughout his three-year tenure, in accordance to two individuals who labored with him. Zhou, who left final yr, didn’t reply to requests for remark.

Reuters Graphics


Zhao and different executives have constantly declined to publicly determine which entity controls the principle trade. But in a non-public courtroom submission filed in 2020 in an arbitration case within the Cayman Islands, Chief Compliance Officer Samuel Lim mentioned it is owned and operated by a Cayman Islands firm, Binance Holdings Limited.

This yr, Binance has gained licenses or approvals from authorities in areas together with France, Spain, Italy and Dubai. Zhao lauded these advances, saying in May that Binance’s registration as a crypto service supplier in Italy would enable it to function “in full transparency.” Yet not one of the items registered with native regulators present a clear window into the principle Binance trade, the Reuters evaluation confirmed.

Reuters requested authorities in all 14 jurisdictions about their oversight of Binance’s native items. Of the eight that responded, six – in Spain, New Zealand, Australia, Canada, France and Lithuania – informed Reuters their function didn’t contain supervising the principle trade, and mentioned the items have been solely required to meet native necessities on reporting suspicious transactions.

Reuters additionally requested representatives of the native Binance items and associates about their relationship with the principle Binance trade. Only one responded, a South African agency known as 5West. Its managing director, Pierre van Helden, mentioned Cape Town-based 5West receives a “minimal yearly license price” from Binance to facilitate crypto derivatives buying and selling for Binance’s South African customers.

“How Binance operates globally is unclear to us,” van Helden mentioned. He added that Zhao’s firm was “cooperative” on compliance and mentioned 5West has common conferences to guarantee necessities are met.

In Italy, Binance’s public company filings element simply the unit’s capital base and its possession by a separate Binance firm in Ireland. The Italian firm, Binance Italy S.R.L., has its listed deal with in a block of retailers and flats within the southern metropolis of Lecce. It didn’t reply to a request for remark, nor did the Organismo Agenti e Mediatori authority with which it is registered.

Just two of the Binance items analysed by Reuters supply extra substantial particulars of their filings.

One, a Lithuanian agency known as Bifinity UAB, provides essentially the most detailed image. Bifinity described itself in a single regulatory submitting as the “official fiat-to-crypto funds supplier for Binance.” Fiat means {dollars}, euros and different conventional currencies.

Bifinity additionally disclosed that Binance and its firms are its “predominant strategic enterprise companions.” In a 2021 annual report, Bifinity reported 137 million euros ($145 million) in web revenue and belongings of 816 million euros. Bifinity mentioned it had made funds of 421 million euros to a single associated get together, with some 185 million euros in “associated bills,” however didn’t specify whether or not this get together is Binance.

Bifinity, whose annual report mentioned it has 147 staff, doesn’t have a web site or publicly present any contact particulars. The firm’s chief government, Saulius Galatiltis, didn’t reply to requests for remark. At its registered deal with at a enterprise centre in Lithuania’s capital Vilnius, Bifinity will not be listed on the tenants’ board.

The different Binance unit that gives greater than barebones monetary particulars is in Spain. It registered in July with the Spanish central financial institution and reported meagre income of some 1.5 million euros final yr and a revenue of simply 9,000 euros. Reuters couldn’t attain anybody from the unit, Binance Spain SL, for remark. A reporter visited its registered deal with, at a co-working area in Madrid. The receptionist mentioned a small Binance Spain staff had relocated a month in the past, with out leaving contact particulars.

In the Gulf, Binance has gained a license or permission this yr in Abu Dhabi, Bahrain and Dubai. Zhao informed Bloomberg in March that he can be primarily based for the “foreseeable future” in Dubai. Filings by Binance’s Dubai entities give no particulars of its monetary exercise or its ties to the principle Binance platform.

Even for some staff inside the corporate, such particulars have been unclear.

Binance did not disclose international revenue figures throughout its utility for a license in Dubai, in accordance to a particular person with direct information of the applying. Nearly all shoppers within the United Arab Emirates registered with Binance’s predominant trade, and till at the very least late summer time the licensed Dubai agency was not experiencing important buying and selling revenues, the particular person mentioned.

Reuters was not in a position to contact the unit, Binance FZE, registered to a WeWork workplace by the Dubai World Trade Centre. Binance’s Middle East and North Africa head didn’t reply to a request for remark. Nor did Dubai’s Virtual Assets Regulatory Authority.


Many crypto exchanges, together with Binance rivals Huobi and OKX, function from offshore areas such as the Seychelles – as did Bahamas-based FTX. Standards on company transparency and monetary reporting are sometimes looser in such jurisdictions than within the United States.

Coinbase (COIN.O), the largest U.S. trade, listed on Wall Street in 2021. Like different public firms, it should file audited quarterly earnings statements and annual monetary stories. In its newest earnings assertion, Coinbase reported knowledge together with income, revenue, money holdings and buying and selling volumes.

“It’s actually night time and day,” mentioned Mark Palmer, head of digital belongings analysis at U.S. monetary companies agency BTIG, of the distinction between disclosures by a listed firm and different offshore exchanges.

“Coinbase is a publicly traded firm and is required to share that info with traders, whereas we are a non-public firm and do not need public traders to whom we are beholden,” Binance’s Hillmann mentioned. “The predominant purpose to go public is to increase cash, however as Binance does not want to increase cash, there is no such thing as a want to go public at the moment.”

A Coinbase spokesman, Elliott Suthers, mentioned the corporate’s financials have been reviewed quarterly by Deloitte, one of many “Big Four” accounting corporations, “so clients do not have to depend on our phrase.” “We imagine exchanges have a duty to share their financials with their clients,” Suthers mentioned. “We encourage different exchanges to take this similar method.”

Some privately held exchanges reveal monetary knowledge throughout fundraising, as did FTX prior to its collapse. Binance, nonetheless, has not raised cash from exterior traders since 2018, in accordance to knowledge from enterprise info supplier Crunchbase. “We do not need VC investments, so we do not owe anyone any cash,” Zhao informed CNBC on Dec. 15.

U.S. prosecutors final week charged FTX founder Sam Bankman-Fried with defrauding fairness traders and clients of billions of {dollars}. It has emerged that cash was secretly shifting from FTX to Bankman-Fried’s hedge fund, Alameda Research, which functioned as a market maker, a supplier that deepens liquidity by shopping for and promoting the identical belongings.

Reuters couldn’t decide if Binance or Zhao additionally personal any market-making corporations that function on its platform. In December 2020, the SEC issued a subpoena to Binance.US, the separate American trade, requesting it present details about all its market makers, their house owners, and their buying and selling exercise.

As a part of a “dedication to transparency,” Binance final month printed on its web site a “snapshot” of its holdings of six main tokens and promised to share a full set of information at an unspecified future date.

Data agency Nansen mentioned the holdings, value round $70 billion on the time of the Nov. 10 snapshot, had fallen to $54.7 billion by Dec. 17 after withdrawals and worth fluctuations. Two “stablecoins” that are pegged to the greenback – Binance’s BUSD and market chief Tether – accounted for nearly half of its holdings. Around 9% of the belongings have been in BNB, its in-house token which Binance itself has issued, the Nansen knowledge confirmed.

BNB is the fifth-largest crypto coin in circulation with a market worth of round $40 billion, trade knowledge present. Holders of the token obtain reductions on Binance’s buying and selling charges. Zhao has mentioned that Binance doesn’t use BNB as collateral. Alameda used FTX’s in-house FTT token as collateral when borrowing from FTX and different lenders.

After FTX’s collapse, Zhao mentioned audits of crypto exchanges weren’t assured to stop bankruptcies. “More audits are actually good, however I’m unsure if they might stop this explicit case,” he informed a TechCrunch interviewer.

Zhao informed a convention in April that Binance is “absolutely audited.” Asked by the Financial Times who was auditing Binance’s monetary outcomes and steadiness sheet, Zhao mentioned the corporate had “a number of auditors in a number of locations … I haven’t got the entire record in my head.”

He now advocates so-called “proof-of-reserves” checks on the crypto holdings of exchanges. The system is meant to enable customers to affirm that their holdings are included in checks of blockchain knowledge and that the trade’s reserves match shoppers’ belongings.

Binance employed accounting agency Mazars to verify Binance’s bitcoin holdings. The agency examined the holdings as they existed on the finish of at some point in November. In a Dec. 7 report, Mazars discovered that Binance’s bitcoin belongings exceeded its buyer bitcoin liabilities. It mentioned the verify, identified as an “agreed-upon procedures engagement,” was “not an assurance engagement” through which auditors personally log out on their attestations of accounts. Nevertheless, Zhao tweeted, “Audited proof of reserves. Transparency.”

Mazars later deleted the webpage containing the report. Its communications director, Josh Voulters, mentioned on Friday it had “paused” its proof-of-reserves checks for crypto corporations “due to issues relating to the best way these stories are understood by the general public.” Voulters did not reply to requests for extra element.

While this checking system provides a diploma of perception into an trade’s reserves, it’s no substitute for a full audit, seven analysts, legal professionals and accountancy specialists informed Reuters.

In providing solely a restricted snapshot of an trade’s crypto, the system lacks safeguards, two legal professionals mentioned. Others mentioned it couldn’t yield the identical degree of element on company funds as a conventional audit.

“In phrases of the steadiness sheet from Binance, there actually is not any color,” mentioned Todaro, the analyst at Needham & Company.

((reporting by Tom Wilson, Angus Berwick and Elizabeth Howcroft in London; Additional reporting by Mathieu Rosemain in Paris, Andrius Sytas in Vilnius, David Latona in Madrid, and Olzhas Auyezov in Almaty; modifying by Janet McBride))

Our Standards: The Thomson Reuters Trust Principles.


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