Binance wobbles as reassurances fail to quell reserves doubts, DoJ fears

The world’s biggest cryptocurrency exchange said it was suspending withdrawals of USD Coin overnight, as customers pulled over $2 billion from it in less than 36 hours after the exchange’s latest efforts to prove its financial soundness fell flat.

Customers’ concerns were also fed by a Reuters report on Monday indicating that several senior officials in the U.S. Department of Justice are ready to file charges against the exchange in connection with a long-running investigation into suspicions that it helped money-launderers. Exchange founder Changpeng Zhao has repeatedly denied those suspicions.

USD Coin, one of the world’s biggest stablecoins, typically acts as a gateway between the world of cryptocurrency and fiat currency. As such, redemptions are often the result of investors leaving the crypto space altogether, while demand for USDC usually reflects a demand for digital assets in general.

Zhao had attributed the suspension of USDC withdrawals to a technical bottleneck governing transactions out of two other stablecoins, PAX and Binance USD. The latter, issued jointly by the exchange and by New York-based crypto infrastructure Paxos, is a stablecoin used by Binance customers chiefly to channel funds between other, less liquid tokens and investments on its platform.

“The channel to swap from PAX/BUSD to USDC requires going through a bank in NY in USD. The banks are not open for another few hours. We expect the situation will be restored when the banks open,” Zhao tweeted during the European morning. He played down any suggestions of Binance itself being unable to meet withdrawal requests.

“These are 1:1 conversions, no margin or leverage involved,” Zhao tweeted. “We will also try to establish more fluid swap channels in the future. In the meantime, feel free to withdraw any other stable coin, BUSD, USDT, etc.”

Binance, a centralized exchange like its rival FTX, has been under pressure to prove the quality of its own reserves ever since it triggered FTX’s collapse by pulling over $2 billion in funding from it. Last week, it published a ‘proof of reserves’ document from global tax and auditing firm Mazars which ostensibly showed that it had enough assets to cover customers’ deposits. However, Mazars stated pointedly that it had only examined what Binance instructed to examine, and refrained from giving the findings its own stamp of approval.

“We do not express an opinion or an assurance conclusion,” Mazars had said. “Had we performed additional procedures, other matters might have come to our attention that would have been reported.”

The report had drawn criticism from both users and industry experts.

“Binance’s “proof of reserve” report doesn’t address the effectiveness of internal financial controls, doesn’t express an opinion or assurance conclusion, and doesn’t vouch for the numbers,” former SEC official John Reed Stark said via Twitter. “This is how I define ‘red flag'”