Binance, the largest crypto exchange by volume traded, is not the next FTX, according a report from CryptoQuant.
The Seoul-based analytics firm points to on-chain data to support claims made in a recent audit that Binance is overcollateralized.
“At the time Binance’s Proof of Reserves report was conducted, CryptoQuant’s estimate of Binance’s BTC reserves (liabilities) was 591,939 BTC. This compares to the PoR report’s Customer Liability Report Balance of 597,602 BTC. We can see that CryptoQuant data covered 99% of Binance's liabilities,” CryptoQuant wrote, using the ticker symbol for bitcoin. Collateralization is 101% when taking the exchange's assets and debtors into account, it said.
Binance is not experiencing the same volume of outflows that FTX had in the days before its collapse, CryptoQuant wrote, citing on-chain data. While withdrawals have increased, they are small compared with the exchange’s overall reserves. In a tweet, Binance CEO Changpeng "CZ" Zhao said he “welcomes the stress test.”
Binance’s bitcoin reserves are up 4% since FTX's collapse, CryptoQuant wrote. Reserves for ether and stablecoins are down 6% and 15%, respectively.
CryptoQuant points out that Binance differs from FTX-Alameda in how "clean" the reserves are, or, to put it another way, how they're not reliant on the exchange’s proprietary token, BNB. A CoinDesk report that showed FTX sister company Alameda Research was materially backed by the exchange's FTT token kicked off a liquidity crisis that ultimately led to its bankruptcy.
For Binance, CryptoQuant says 88.95% of its reserves are clean. That compares with 56% for Huobi, 66.5% for Bitfinex, 81.64% for Kucoin, 97% for Crypto.com and 100% for OKX.
Data from Nansen pegs Binance’s total reserves at $57.4 billion versus $3.04 billion for Huobi, $2.47 billion for Kucoin, $3.36 billion for Crypto.com, and $6.67 billion for OKX. Nansen doesn’t have data for Bitfinex.
CryptoQuant says that Binance’s level of clean reserve is “acceptable.”
Trust on-chain
While there have been some questions about the financial health of Binance, Hochan Chung, CryptoQuant’s head of marketing, points to the availability of on-chain data to corroborate all claims, even if you don’t trust the exchange’s published report.
“Proof of reserve provides a real-time, transparent, and non-manufactured data, which is the first-time ever in the history of the financial market. The data is self-audited through blockchain technology,” he said in a Telegram message.
What on-chain data can’t account for is corporate control. FTX was known for lavish spending on employee perks, such as luxury apartments for staff, a generous DoorDash allowance for food delivery, and a chartered aircraft to fly Amazon deliveries to the Bahamas from the U.S.
"Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here," FTX’s new CEO, John J. Ray III, who was also involved in cleaning up Enron’s mess, said in a court document. "From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented."
Hal Schroeder, a former Financial Accounting Standards Board member and Rutgers University professor, told the Wall Street Journal that the audit Binance presented doesn’t comment on the quality of Binance’s internal controls.
“In light of what we’ve seen in the Bahamas, I don’t want to conclude that all the systems are that good,” he said.
Binance Chief Strategy Officer Patrick Hillmann recently tweeted corporate travel at company is more austere than at FTX.
“Binance literally booked me at a Citadines ($83 a night) the last time I traveled to our Paris office. Sign of a company founded during a bear cycle. No mansions, but I have a fun job without fear of the company being mismanaged,” he said.
Binance's BNB token has dropped almost 3% in the last 24 hours, CoinDesk data shows, to $265.
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