Binance has registered $1.9bn of withdrawals in the past 24 hours, blockchain data firm Nansen said on Tuesday, as the world’s biggest cryptocurrency exchange said it had “temporarily paused” withdrawals of the USDC stablecoin.
How cryptocurrency exchanges, such as Binance and its now-bankrupt former rival FTX, handle customer deposits is under close scrutiny from users and regulators. FTX founder Sam Bankman-Fried was charged by the US Securities and Exchange Commission on Tuesday with defrauding investors.
Binance, whose dominance of the cryptocurrency market was cemented by the fall of FTX, last week tweeted a so-called “proof-of-reserves report” by audit firm Mazars. The report showed its holdings of Bitcoin exceeded customer deposits on a single day in November.
The $1.9bn of withdrawals of tokens based on the Ethereum blockchain mark the largest daily outflow over a 24-hour period since June 13, the Nansen data showed, and accounted for the majority of the funds being pulled in the last seven days.
“Binance’s withdrawals are increasing due to the growing uncertainty about its reserves report,” a Nansen spokesperson said.
The withdrawals were “business as usual,” Binance CEO Changpeng Zhao tweeted. “We saw some withdrawals today (net $1.14b ish). We have seen this before. Some days we have net withdrawals; some days we have net deposits.”
We saw some withdrawals today (net $1.14b ish). We have seen this before. Some days we have net withdrawals; some days we have net deposits. Business as usual for us.
I actually think it is a good idea to “stress test withdrawals” on each CEX on a rotating basis. 💪
— CZ 🔶 Binance (@cz_binance) December 13, 2022
A Binance spokesperson earlier said it always had “more than enough funds” to meet withdrawal requests. “User assets at Binance are all backed 1:1 and Binance’s capital structure is debt free,” the person said.
Asked whether Binance had enough USDC to meet USDC withdrawal requests, the person added it may need to move funds to online “hot” digital wallets from offline wallets, convert stablecoins from one another or carry out network upgrades, sometimes causing delays.
Binance said in a tweet about 16:54 GMT that USDC withdrawals had resumed.
Cryptocurrency news outlet CoinDesk reported earlier that Binance saw outflows of $902m on Monday.
Binance has already been under pressure from authorities. Splits between US Department of Justice prosecutors are delaying the conclusion of a long-running criminal investigation focused on Binance’s compliance with US anti-money laundering laws and sanctions, Reuters reported on Monday.
Earlier on Tuesday, Binance halted withdrawals of USDC, citing a “token swap” – where digital token holders exchange their crypto-coins, typically over different blockchains.
“On USDC, we have seen an increase in withdrawals,” Binance’s Zhao tweeted at around 08:20 GMT.
Binance said in September it would automatically convert user balances and new deposits of USD Coin and two other stablecoins into its own stablecoin, Binance USD.
Zhao said on Tuesday swapping USDC with two other tokens – Paxos Standard and Binance USD – requires using traditional dollars at a bank in New York. “The banks are not open for another few hours. We expect the situation will be restored when the banks open.”
USDC, issued by US-based firm Circle, is the world’s second-biggest stablecoin, and is used by investors to trade in and out of different cryptocurrencies without having to convert them to US dollars.
Dante Disparte, Circle’s chief strategy officer and head of global policy, said that there will be “challenges” relating to liquidity and redemptions when assets are swapped in the way Binance has done with USDC.
“The feature of liquid dollar digital currencies should be that they are redeemable on demand, and at par at all times, even during conditions of stress,” Disparte added.