Regulatory scrutiny after FTX’s dramatic implosion has sparked a crisis of confidence for other industry players.
Perhaps no other company has been hit harder than rival cryptocurrency exchange Binance, which is responsible in no small part for the chain of events that led to FTX’s billion-dollar vaporization last November.
This comes as the world’s largest cryptocurrency exchange publicly admitted that its management of customer funds “isn’t always perfect,” according to a Reuters report published on Tuesday (24 January). , revealed that Binance has served as one of the major distribution channels for cryptocurrencies for many years. The exchange Bitzlato recently received federal approval.
The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued an order “imposing special measures against the remittance of funds involving Bitzlato.” It claims to be one of Bitzlato’s top three counterparties by volume of digital assets acquired.
Binance gets an ‘F’ for its finances
Binance is the only major cryptocurrency exchange among the list of top counterparties, according to a FinCEN report, along with the Russian-language darknet drug marketplace Hydra Market, a smaller exchange called LocalBitcoins, and Russia-based Finiko as Bitzlato’s largest partner by trading volume.
FinCEN described Finiko as a “suspicious cryptocurrency Ponzi scheme” in its Special Measures Order.
Hydra, which was subsequently seized and shut down, was the world’s largest and longest running darknet marketplace, according to a US Department of Justice (DOJ) report. The platform allowed users to purchase illegal drugs and other services anonymously using cryptocurrencies.
Deputy Attorney General of Monaco Lisa O. Monaco said in a release announcing the closure of Hydra, “The Department of Justice said darknet markets and cryptocurrencies would become safe havens for money laundering and the sale of hacking tools and services. I will not allow it,” he said.
Not the most encouraging company for Binance, especially since the global exchange’s U.S. arm is currently under federal investigation for unauthorized transfers, conspiracy, and criminal sanctions violations.
Another Reuters study last June, which referenced available blockchain data, found that buyers and sellers on Hydra’s darknet marketplace used Binance to make a combined $300 million, or $780 million. Made and received over $10,000 in cryptocurrency payments.
The mysterious exchange, which has not disclosed the location or headquarters of its parent company, is said to have processed at least $10 billion in payments to date for criminals and companies trying to evade US sanctions. .
As of this writing, Binance has not responded to a request for comment from PYMNTS.
A total of $346 million in digital assets were exchanged between Binance and Bitzlato in approximately 205,000 transactions. The figures were compiled by Chainalysis, a leading US blockchain researcher, according to a Reuters report. Chainalysis regularly works with governments on crypto industry data and analytics.
More than a quarter of that amount, or $90 million, was transferred. Binance said it would require users to provide valid identification to trade across its platform to combat illegal fundraising and laundering of funds.
Bitzlato has had its assets seized and its founder arrested in Miami last week (January 17), PYMNTS reports.
According to FinCEN filings, US and other financial institutions will effectively stop sending funds to Bitzlato starting February 1.
Read more: Binance Skeptics Want Answers About Similarities to FTX Crypto Business Model
Crypto companies’ control over customers’ retained earnings is a major threat to digital assets after FTX misappropriated the assets of its own user base to fuel bad betting and cause billions of dollars of catastrophic bankruptcy. It’s a hot topic in the industry. And the collapse of historic wealth.
The fact that Binance was reportedly storing token collateral in the same wallet as customer funds is very surprising and potentially disturbing in that context.
This is according to a PYMNTS report on Tuesday (January 24) that the exchange is aware of the issue and plans to change its procedures to address asset commingling.
This comes after New York’s premier financial watchdog, the New York State Department of Financial Services (NYDFS), has warned cryptocurrency companies to separate their customers’ cryptocurrency assets from their own, stifel CEO and traditional financial leaders, including chairman Ron Kruszewski, the crypto industry needs to do as well.
“DFS’s cryptocurrency regulations have protected New Yorkers since 2015,” said NYDFS Superintendent Adrienne Harris. “[Agency] The guidance reminds DFS-regulated cryptocurrency companies of our expectations regarding the custody of customer assets. ”
Major cryptocurrency actors have repeatedly said they are aware of their mistakes, but it remains to be seen whether they have learned from them.
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