This week's civil enforcement action filed by the United States Commodity Futures Trading Commission (CFTC) against Binance, the world’s largest centralised digital asset exchange, raises interesting issues and questions about how such a company operates across borders, and how a single country's regulator can oversee such an entity within its jurisdiction.
The CFTC accuses Binance of willful evasion of US federal law and operating an illegal digital asset derivatives exchange, or running a calculated strategy of regulatory arbitrage for commercial benefit. In its 74-page complaint the CFTC alleges numerous violations of the Commodity Exchange Act (CEA) and CFTC regulations.
It alleges Binance, which began operating in New Zealand last October, disregarded applicable US federal laws while growing, maintaining and concealing its US customer base since July 2019 because it was profitable to do so. A key revenue source for Binance is charging its customers transaction fees for trades made on its platform.
Named as defendants are Binance owner and CEO Changpeng Zhao, three Binance group companies being the Cayman Islands incorporated Binance Holdings Limited, and two companies incorporated in Ireland being Binance Holdings (IE) Limited and Binance (Services) Holdings Limited, Also charged is Samuel Lim, Binance’s chief compliance officer from 2018 to 2022.
The CFTC is seeking disgorgement, which requires a party that profits from illegal or wrongful acts to give up any profits they made as a result of that illegal or wrongful conduct, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the CEA and CFTC regulations.
Chinese born Canadian citizen Changpeng Zhao, who calls himself CZ, says the CFTC filed an unexpected and disappointing civil complaint, despite Binance working cooperatively with the regulator for more than two years. In an initial response CZ says; "Upon an initial review, the complaint appears to contain an incomplete recitation of facts, and we do not agree with the characterization of many of the issues alleged in the complaint."
"At Binance, we look for amicable solutions to all problems. We are collaborative with regulators and government agencies all around the world. While we are not perfect, we hold ourselves to a high standard, often higher than what existing regulations require. And above all, we believe in doing the right thing by our users at all times. In this journey towards freedom of money, we do not expect everything to be easy. We do not shy away from challenges," says CZ.
In terms of the CFTC complaint, it sets out the allegations that Binance runs an "intentionally opaque" structure in order to dodge regulation. It alleges that despite soliciting and relying on customers located in the US to generate revenue and provide liquidity for its various markets, Binance has never been registered with the CFTC in any capacity and disregarded federal laws including laws requiring the implementation of controls designed to prevent and detect money laundering and terrorism financing. The CFTC says as "of at least May 2022," Binance hadn't filed a single suspicious activity report under anti-money laundering laws in the US.
The CFTC move follows Bloomberg and Reuters reports in 2021 and 2022 highlighting concerns US authorities, including the Department of Justice, had about Binance and investigations into the company.
Binance registered in NZ to provide services that don't require licencing or certification
In New Zealand Binance registered as a financial service provider with the Ministry of Business, Innovation & Employment (MBIE) last September and launched here in October. A Binance press release at the time said this registration allows Binance NZ to offer a range of financial services, including spot trading, staking, which is a way of earning rewards while retaining ownership of cryptocurrencies, and non-fungible tokens (NFTs).
“A lot of major tech firms are slow to open a New Zealand office. I guess for some, it’s easy to overlook as it’s a smaller market but we see significant value in having a serious New Zealand presence. The history of fintech innovation in New Zealand is very well known, with one of the earliest and most rapid uptakes of digital transactions in the world," the release quoted CZ saying.
“We see New Zealand as a bit of a pioneer, so from that perspective, I think there’s a lot to be learned here with our local team working with Kiwis to envisage the future of currency, transactions and the web.”
On its website Binance NZ says it's part of the Binance group. This, it says, is; "a global blockchain and ecosystem centred around an online exchange for virtual assets trading, which provides users with a trading platform to buy and sell virtual assets, an integrated custody solution allowing users to store their virtual assets and other virtual asset-related services."
Binance is registered on the financial service providers' register (FSPR) under the name Investbybit Ltd. Investbybit was registered as a NZ company in November 2018. Individuals, businesses and organisations offering financial services in NZ must register on the FSPR. Investbybit's director is listed as Australian resident Nicholas Falzon.
Investbybit's shareholder is listed as Binance (AP) Holdings Ltd, an Irish company which is not named in the CFTC complaint. There is nothing in the CFTC complaint to suggest Binance's NZ operations have come under the US regulator's spotlight.
Vanessa Cook, MBIE's Manager of Integrity and Enforcement, says Investbybit/Binance NZ's registration means it's allowed to provide the following services to customers in NZ or overseas:
- Changing foreign currency
- Creditor under a credit contract - non-consumer credit contract
- Issuing or managing means of payment
- Keeping, investing, administering, or managing money, securities, or investment portfolios on behalf of other persons
- Operating a money or value transfer service
Registration on the FSPR does not in itself mean regulation by a NZ regulator.
"While [MBIE's] integrity and enforcement team has responsibility for the registration of financial service providers under the Financial Service Providers (Registration and Dispute Resolution) Act, enforcement of any breaches of the Act’s offence provisions is the responsibility of the Financial Market Authority. Being registered on the FSPR does not in itself subject Investbybit to active regulation or oversight by a regulator and the services that Investbybit is registered to provide are not services that require licencing or certification," Cook says.
Investbybit is supervised by the Department of Internal Affairs under the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Act as a virtual asset service provider.
On its website Binance NZ notes; "Investbybit Limited is not licensed by a New Zealand regulator to provide the Binance services. Investbybit Limited's registration on the New Zealand register of financial service providers does not mean that Investbybit Limited is subject to active regulation or oversight by a New Zealand regulator."
Pre-registration scrutiny
Cook says Investbybit applied to register on NZ's FSPR in August 2022 and was subjected to scrutiny before its registration was completed. In this MBIE sought clarification of the following:
- the specific activities Investbybit would be undertaking
- the intended address from which Investbybit would be carrying on business
- the intended customers of Investbybit
- residential addresses of the director and Senior Manager of Investbybit
- employees of Investbybit
- bank accounts and client money held by Investbybit
- the controlling owner of Investbybit and;
- the AML/CFT requirements of the entity.
"After all the above information was provided to and verified by [MBIE's] integrity and enforcement team, Investbybit’s application proceeded to registration, with registration being completed on 10 September 2022," Cook says.
The ability of entities to register on the FSPR without necessarily being regulated by NZ authorities has lead to exploitation by a wide range of NZ registered, but primarily overseas operating, companies over the years. You can see more on this here, here and here.
MBIE says changes in the law and processes have strengthened the registration process for companies and financial service providers over recent years. These include the Registrar of Companies, Sanjai Raj, gaining law enforcement powers on the direction of the police, to obtain information on the controllers/beneficial owners of companies. Also the introduction of thresholds where in order to be registered or remain registered, providers must be providing or expect to provide financial services to more than the specified number of NZ residents and the amount is more than the monetary figure specified. MBIE says this ensures that the provider has more of a connection with NZ in relation to their financial services.
"At its most basic, the minimum threshold for a person or entity carrying on business as a financial service provider is providing financial services to 10 New Zealand resident financial services clients, with $10,000 of financial services transactions in total with its New Zealand resident clients," Cook says.
"In the first six months after registration the providers must have achieved half of the threshold, so providing financial services to a minimum of five New Zealand resident financial services clients, with $5,000 of financial transactions in total."
Interest.co.nz has sought additional comment from Binance NZ.
Following the CFTC announcement, the Financial Times alleges Binance hid extensive links to China for several years contrary to the company's claims it left the country after a 2017 ban on crypto. There's more on this, and a response from Binance, here.
CFTC allegations detailed
Below are details of a range of allegations made in the CFTC complaint.
Binance purposefully obscures the identities and locations of the entities operating the trading platform. For example, Binance’s customer-facing “Terms of Use,” purports to be a contract between the customer and something simply called the “Binance operators,” which is a term that has no concrete meaning.
While Binance has maintained offices in numerous locations, including Singapore, Malta, Dubai, and Tokyo at various times during the Relevant Period, Binance intentionally does not disclose the location of its executive offices. Instead, Zhao has stated that Binance’s headquarters is wherever he is located at any point in time, reflecting a deliberate approach to attempt to avoid regulation. Zhao explained this strategy during a June 2019 internal meeting, stating that Binance conducts its operations through various entities incorporated in numerous jurisdictions to “keep countries clean [of violations of law]” by “not landing .com anywhere. This is the main reason .com does not land anywhere.”
Zhao, Lim, and other members of Binance’s senior management have failed to properly supervise Binance’s activities and, indeed, have actively facilitated violations of U.S. law, including by assisting and instructing customers located in the United States to evade the compliance controls Binance purported to implement to prevent and detect violations of U.S. law. Binance and its officers, employees, and agents have instructed U.S. customers to use virtual private networks (“VPNs”) to obscure their location; allowed customers that had not submitted proof of their identity and location to continue to trade on the platform long after announcing such conduct was prohibited; and directed VIP customers with ultimate beneficial owners, key employees who control trading decisions, trading algorithms, and other assets all located in the United States to open Binance accounts under the name of newly incorporated shell companies to evade Binance’s compliance controls.
Auto-delete Signal messaging
Binance officers, employees, and agents have used numerous messaging applications for business communications during the Relevant Period. In addition to email and internal messaging applications, Binance’s personnel have also used at least Telegram, WeChat, and Signal to communicate internally and with Binance customers.
The Signal messaging application allows a user to enable an auto-delete functionality to cover their tracks after communicating about inculpatory matters. Zhao and others acting on behalf of Binance have used Signal—with its auto-delete functionality enabled—to engage in business communications, even after Binance received document requests from the CFTC and after Binance purportedly distributed document preservation notices to its personnel.
Zhao has communicated over Signal with the auto-delete functionality enabled with numerous Binance officers, employees, and agents for widely varying purposes. For example, the following Signal text chains or group chats collected from Zhao’s telephone were among those set to auto-delete:
a. a group chat between Zhao, Binance’s then-head of institutional sales, and Binance’s head of “Big Data,” which is the operational group responsible for
creating and maintaining Binance’s data and databases including the database that contains customer- and transaction-related information;
b. a text chain with a senior member of Binance’s VIP team;
c. a text chain with a compliance consultant who participated in the creation of the strategy concerning the launch of Binance.US and Binance’s attendant
efforts to retain U.S. customers;
d. a text chain with an accounting employee who participated in the preparation of Binance’s monthly revenue reports for Zhao;
e. text chains with senior operations personnel; and
f. group chats titled “Finance,” “HR,” “Mkt hr,” and “CEO office.”Zhao has also instructed Binance officers, employees, and agents to use Signal to communicate with U.S. customers. On information and belief, Binance does not have a corporate communications policy and continues to use Signal for business communications.
Binance has actively solicited customers in the United States through its marketing efforts including on numerous social media applications such as Twitter.
'House accounts'
During the Relevant Period, Binance has traded on its own platform through approximately 300 “house accounts” that are all directly or indirectly owned by Zhao, as well as accounts owned by Merit Peak and Sigma Chain. Zhao has also traded on the Binance platform through two individual accounts. At various times during the Relevant Period, Merit Peak has entered into OTC transactions with Binance customers (and settled such trades by depositing digital assets directly into its counterparties’ Binance accounts), while Sigma Chain has engaged in proprietary trading in Binance’s various markets, including its markets for digital asset derivatives. On information and belief, Binance’s proprietary trading activity on Binance’s own markets is directed by Binance’s “quant desk.”
Binance does not disclose to its customers that Binance is trading in its own markets in its Terms of Use or elsewhere. Consistent with its apparent attempt to keep its proprietary trading activity on its own markets top secret, Binance has refused to respond to Commission-issued investigative subpoenas seeking information concerning its proprietary trading activity on Binance, including transaction data and communications among the members of the Binance “quant desk.”
On information and belief, Binance has not subjected the trading activity of Merit Peak, Sigma Chain, or its approximately 300 house accounts to any anti-fraud or anti-manipulation surveillance or controls and to the extent Binance purports to have required its officers, employees, and agents to abide by a relatively new “insider trading” policy, Binance’s approximately 300 house accounts are exempt from that policy.
From Binance’s early days, Zhao has known that U.S. customers trade on the platform. Zhao has personally interacted with Binance’s U.S. customers. For example, in 2017, and in connection with Binance’s early phase of targeting U.S. customers, Zhao provided instructions to a U.S. resident with respect to an English-language customer support channel over the Telegram messaging application.
'Confused its own Chief Strategy Officer'
Binance’s reliance on a maze of corporate entities to operate the Binance platform is deliberate; it is designed to obscure the ownership, control, and location of the Binance platform. Consistent with this design, Binance’s enigmatic Terms of Use define “Binance” as “an ecosystem comprising Binance websites (whose domain names include but are not limited to https://www.binance.com/en), mobile applications, clients, applets and other applications that are developed to offer Binance Services, and includes independently-operated platforms, websites and clients within the ecosystem” and the “Binance Operators” to include “all parties that run Binance, including but not limited to legal persons (including Binance UAB), unincorporated organizations and teams that provide Binance Services and are responsible for such services.”
Binance is so effective at obfuscating its location and the identities of its operating companies that it has even confused its own Chief Strategy Officer. For example, in September 2022 he was quoted as saying that “Binance is a Canadian company.” The Chief Strategy Officer’s statement was quickly corrected by a Binance spokesperson, who clarified that Binance is an “international company.”
Throughout the Relevant Period, Binance purposefully grew, maintained, and simultaneously concealed its U.S. customer base while also failing to implement an effective AML program that is required of financial institutions such as FCMs [future commission merchant] to detect and prevent terrorist financing or other criminal activity, among other things. One component of this failure to implement an effective AML program is Binance’s ongoing lack of effective KYC [know your customer] procedures or a CIP [customer identification programme] that would enable it to determine the true identity of its customers, whether from the United States or elsewhere. Further, as of at least May 2022, Binance had not filed a single suspicious activity report (“SAR”) in the United States despite having filed such reports in other jurisdictions.
For approximately the first two years of its operations, Binance did not take any steps to limit or restrict the ability of U.S. customers to trade on the platform.
'Fo sho'
Even after Binance began to purportedly restrict access to its platform from certain jurisdictions in mid-2019, it left open a loophole for customers to sign up, deposit assets, trade, and make withdrawals without submitting to any KYC procedures as long as the customer withdrew less than the value of two BTC in one day. Binance has referred to this two BTC-no KYC loophole by various labels, including “email registration,” and “tier 1” customers. The two BTC withdrawal limit was effectively meaningless—the notional value of two BTC in July 2019 was more than $22,000 and in March 2021 was more than $100,000.
Binance has been aware that its compliance controls have been ineffective. As Lim—at the time Binance’s CCO—recognized in an October 2020 chat with other Binance compliance personnel, Binance’s compliance environment has amounted to “email sending and no action . . . for media pickup . . . I guess you can say its ‘fo sho.’”
Zhao’s strategy of refusing to implement effective compliance controls at Binance was widely known within Binance. In a January 2019 chat between Lim and a senior member of the compliance team discussing their plan to “clean up” the presence of U.S. customers on Binance, Lim explained: “Cz doesn’t wanna do us kyc on .com.” And Lim acknowledged in February 2020 that Binance had a financial incentive to avoid subjecting customers to meaningful KYC procedures, as Zhao believed that if Binance’s compliance controls were “too stringent” then “[n]o users will come.”
Binance also intentionally tried to hide the scope of its compliance program’s ineffectiveness from its business partners. For example, in or around October 2020, Binance underwent a compliance audit to satisfy a request from Paxos. But according to Lim, Binance purposely engaged a compliance auditor that would “just do a half assed individual sub audit on geo[fencing]” to “buy us more time.” As part of this audit, the Binance employee who held the title of Money Laundering Reporting Officer (“MLRO”) lamented that she “need[ed] to write a fake annual MLRO report to Binance board of directors wtf.” Lim, who was aware that Binance did not have a board of directors, nevertheless assured her, “yea its fine I can get mgmt. to sign” off on the fake report. Around the same time as the referenced “half assed” compliance audit, in November 2020 the MLRO exclaimed to Lim in a chat, “I HAZ NO CONFIDENCE IN OUR GEOFENCING.”
Facilitating potentially illegal activities
Internally, Binance officers, employees, and agents have acknowledged that the Binance platform has facilitated potentially illegal activities. For example, in February 2019, after receiving information “regarding HAMAS transactions” on Binance, Lim explained to a colleague that terrorists usually send “small sums” as “large sums constitute money laundering.”
Lim’s colleague replied: “can barely buy an AK47 with 600 bucks.” And with regard to certain Binance customers, including customers from Russia, Lim acknowledged in a February 2020 chat: “Like come on. They are here for crime.” Binance’s MLRO agreed that “we see the bad, but we close 2 eyes.”
'Instructing customers to use VPNs to conceal their true location'
One reason Binance’s IP address-based compliance controls have not been effective is that Binance has instructed U.S. customers to evade such controls by using VPNs to conceal their true location. VPNs have the effect of masking an internet user’s true IP address.
VPN use by customers to access and trade on the Binance platform has been an open secret, and Binance has consistently been aware of and encouraged the use of VPNs by U.S. customers.
At least as early as April 2019, Binance published a guide on the “Binance Academy” section of its website titled “A Beginner’s Guide to VPNs.” Binance’s VPN guide explained to Binance customers that “[i]f you want to be private about the websites you visit – and your location – you should use a VPN.” Binance’s VPN guide also hints: “you might want to use a VPN to unlock sites that are restricted in your country.”
Zhao wanted U.S. customers, including VIP customers, to transact on Binance because it was profitable for Binance to retain those customers. Binance has tracked the sources of its revenues by customers’ geographic location, among other analytical methods. Zhao routinely received reporting that unambiguously demonstrated that U.S. customers contributed a substantial amount of Binance’s revenues. For example, Binance tracked revenues derived from U.S. customers and summarized that information in the Binance monthly revenue reports. In addition, Binance’s “Futures Team” created periodic reports that showed the trading volume, revenue to Binance, and other account and transactional information concerning U.S. customers’ derivatives trading.
'UNKWN a code word for United States'
Binance’s revenue reports rely on data drawn from Binance’s internal database. The monthly revenue report for September 2020 reflects that 2.51 million customers were located in “U.S.” That same month, Binance’s revenue report shows 0.31 million Binance customers’ locations were “UNKWN.” This report, provided to Zhao and at least certain members of Binance senior management
Then in October 2020, the same month a rival digital asset exchange and its principals were sued by the CFTC, Zhao directed Binance personnel to replace the U.S. value for certain data fields in Binance’s internal database with the value UNKWN. As a result, Binance’s October 2020 monthly revenue report identified approximately 2.83 million customers’ locations as UNKWN, while omitting any reference to U.S. Thereafter, Binance’s revenue reports continued to attribute U.S.-derived customers and revenue to UNKWN and did not reflect the presence of any customers from the U.S.
It is widely understood by Binance personnel that UNKWN is a code word for United States for purposes of interpreting Binance’s internal documents and data. For example, on October 2, 2020, Binance’s Director of Operations told a colleague: “The recent Bitmex incident has had a great impact on the industry. Please remove US data from all our charts together with Big Data. Everyone in the future will not see our US data, except for financial and very few people.” And in a November 17, 2020 internal chat, the Director of Operations explained: “at present, the keyword US for internal information is also a sensitive word, so you have to use Unknow to mark the country.”
19 Comments
A lengthy but good overview of the situation with Binance. Now, from a user perspective, one of reasons why American users want to use the global Binance platform over Binance U.S. is that the latter sucks. It only offers about 10 trading pairs and no leverage. And a certain kind of punter wants that so they have no choice but to go to the Binance International platform.
So the average American is being prevented from trading supposedly for "their own protection", according to govt agencies. The govt agencies' position is duplicitous. Let's look at two examples.
1. Americans can gamble to their heart's content in Las Vegas. So if crypto is little more than speculation, how does the gambling industry get rights that Binance doesn't have?
2. In the tradfi world, accredited investors get rights that the average American cannot access. Arguably, it's not a level-playing field. Furthermore, more often than not, the little guy needs to line the pockets of the accredited investors to get a piece of the action.
So the U.S. govt is somewhat of a hypocrite. And the war against crypto is in full swing. Binance is a target. Question people should be asking themselves is what are they afraid of.
War on crypto is in action. Good luck to the USA and any power that thinks they can restrict it. Decentralized applications are replacing the full services of exchanges like Binance. Who do you punish when no one is behind the system?
Perhaps the US needs to look at how to accurately control it's own banking system before touching things it can not control :)
Waiting for boomers that don't know anything about Bitcoin and crypto to step in with comments.
Horses for courses. Not everyone is a "big trader." You're making the assumption that this is what the industry is all about.
And my example of Bitbank is a relatively painless spot exchange that is far better regulated and safer to use than the likes of Binance or FTX. Therefore it has greater "trust."
No no. Why use a centralized company that you need to trust? I only mentioned big traders because they are the money makers for Binance, especially leverage traders.
The average Joe which will buy bitcoin and sit on it, perhaps swap a few times here and there can easily use DEX and their own wallet.
The business case for a binance has an expiration date. The crypto industry doesn't need them.
Been in crypto for 7 years and I see binance either being gone in 5 years or no longer as big as it currently is.
What I'm saying can be briefly summed up by the following:
"If I am an individual or a business and I want to hold digital assets for payments and / or collateral. A CEX offers me 100% security on my fiat and digital asset holdings. The fiat value is 100% guaranteed through a digital bank that can integrate with my bank accounts. My digital assets can be sent to cold storage with basic KYC information shared with the exchange and fulfills regulatory obligations."
For many, that is a compelling proposition. In fact for many, better than a DEX. It's easy to understand that the benefits offered are different to what one might receive with a DEX.
You're thinking binary. One of my pet issues with many in the crypto space. It's limiting. I'm not arguing that DEX's are somehow inferior. It's just a different application.
"If I am an individual or a business and I want to hold digital assets for payments and / or collateral. A CEX offers me 100% security on my fiat and digital asset holdings. The fiat value is 100% guaranteed through a digital bank that can integrate with my bank accounts. My digital assets can be sent to cold storage with basic KYC information shared with the exchange and fulfills regulatory obligations."
A CEX does not offer 100% security, never has and never will because they can't offer 100% if theft or loss of funds takes place. What CEX is backed by a digital bank?
As an individual or business, the use case of a CEX is gone. Why use a CEX in the first place when you don't need to? Set up your own wallet and if you need to trade use a DEX, they all connect to your wallet and it's near seemless, with no central party ever holding your assets, ever.
You're referencing the traditional system that still has failed to secure funds. Mt Gox, Cryptopia, FTX, Celsius Network, must I go on...
I don't see how it's a more compelling proposition when a. the fees are higher using a CEX, b. you don't legally own the funds in your account and c. you're taking the risk of when you want to access your funds, they are gone.
DEX for trading and wallet for storage, so simple, far more secure and no one to trust but yourself.
To add, any business investing in crypto or using crypto should not be storing their assets on any CeFi company. How that gets passed directors let alone shareholders is insane. It would be like giving gold that the business owns to a random on the street rather than storing it in their own vault.
A CEX does not offer 100% security, never has and never will because they can't offer 100% if theft or loss of funds takes place. What CEX is backed by a digital bank?
You haven't read anything I wrote. I gave you an example and even gave you an illustration below. The digital assets world is not defined by Binance or the U.S. ecosystem.
It is defined by its record of constant failures globally though.
Trusting a third party with assets that can't be recreated is just not going to work. Even if banks offer crypto custody, what happens when they misplace keys or get hacked, they can't reprint the customers missing bitcoin
Your concept of trust is incomplete. With centralisation and law abiding exchanges their comes some form form of accountability thus recourse. With a DEX you are suggesting that they won't just one day disappear. Who's going to get your money back then? How many "DEX's" have been rugged already? Plenty. There is also the illusion of decentralisation that needs to be accounted for. DYDX is a "DEX" but it is horrifically centralised and manipulated so I'm not sure an exchange like that deserves to fall under your blanket view of decentralised trust. They were supposed to unlock their tokens earlier this year so the token price pumped, but... oh wait they changed it because they can... because they don't have any laws to abide by. They just vote for what is best for their "decentralised" selves. Crypto folk tend to ignore the pros of centralisation in hope that decentralisation will solve all the issues that centralisation has and I think it is unfortunately a fallacy. Humans are inherently involved in some way and as long as tokens can be traded trust and safety are limited in their success. I'm certainly not saying trad world isn't horribly corrupt but I also don't think DEX's are immune to their own issues. We could comb through numerous examples of failures and theft. Even beyond exchanges the decentralised nature of crypto currencies has seen massive fraud and theft. Well beyond levels or legal entities % wise.
With a DEX you are suggesting that they won't just one day disappear. Who's going to get your money back then?
A long post and I don't think you understand. Anyone that uses DEX and CEX has no right to "get their money back" if they lose it. That is the point. Individual responsibility. If the exchange can protect your funds, then that is a value-added benefit for which they deserve to be paid.
Why do you think FTX Japan customers got all their funds back?
1. The FSA requires Japanese exchanges to keep at least 95% of customers' crypto in cold wallets. Because cold wallets are not connected to the internet, they are more secure against hacking and internal fraudsters. For the 5% of customer's crypto that can be kept in a less-secure hot [internet connected] wallet, Japanese exchanges must back each unit of hot-walleted crypto with exchange-owned crypto held in a segregated cold wallet. So, for example, if an exchange holds 5 BTC of customer funds in a hot wallet, it must hold another 5 BTC of its own personal coins in reserve, for a total of 10 BTC.
2. Japanese crypto exchanges must segregate customer fiat and crypto from the exchange's own crypto. That is, they can't deposit the exchange's own operating funds into the same account, or wallet, as their customers' funds.
3. Japanese exchanges must entrust customers' fiat money balances to a third-party Japanese institution – a trust company or bank trust – where they are managed by a trustee with customers designated as the beneficiaries.
4. A more explicit bankruptcy protection stipulates that customers of Japanese exchanges are entitled to receive payment in priority to general creditors in the case of bankruptcy.
I don't think you understand how this all works. It is trust without needing to trust.
I think probably the misunderstanding works the other way.
While energy has been expended researching the inherent brilliance of this software, it's been at the expense of understanding what's required to port it over into the real world.
A supposed advantage of crypto is lower transaction costs, but that only exists within its own vacuum. If you understood the cost structures and compliance of traditional banking, you'll see profits from transactions are actually very slim, and most of the costs are to satisfy compliance. Security, insurance and fraud prevention mechanisms all cost money, and if you want to transact in a world of laws and regulations people want the security of a regulated system.
There's a very long road before a crypto is able to partake in a formal economy.
I'm a big fan of Binance, they are a great platform providing great services.
This entire complaint seems to be about Binance trying to avoid the regulatory lawfare of the United States against Crypto services providers.
I guess they are struggling since their own exceptionally dodgy FTX collapsed and its slimeball founder was somehow bailed out for 250m.
If I wanted to acquire Monero because I don't want the state tracing my crypto transactions and because I want to dodge KYC laws, Binance is the place to go.
The US financial industry and its state apparatus hate and fear Cryptocurrencies for their potential.
This entire complaint seems to be about Binance trying to avoid the regulatory lawfare of the United States against Crypto services providers.
No. Binance U.S. is 100% compliant. There is no regulatory framework for offshore exchanges and Binance International has been pushing as to what it can get away with.
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