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Crypto expert reveals why users should be concerned about Binance following SEC probe
The United States Securities and Exchange Commission is investigating whether Binance, the world’s largest crypto exchange, sold unlicensed securities in its ICO. So how safe is Binance for users?
“The SEC probe into the launch of BNB coin reinforces the trend we have identified in our recent Crypto Exchange Safety Index research. Crypto exchanges tend to use concepts (raising funds through the issuance of certain instruments, may they be coins or securities) and products (such as derivatives, leveraged products, etc.) coming from traditional finance. Meanwhile, they also try to argue that these things should be treated differently by regulators because they exist within the crypto ecosystem (i.e. outside of traditional finance).
The SEC, coming from a consumer protection perspective, relies on the ‘duck test,’ saying ‘if it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck,’ which within the world of financial regulation was translated by Dr. Philip Paech into ‘same function plus same risk equals to same regulation’.”
In BrokerChooser’s Crypto Exchange Safety Index research Binance was featured as one of the less safe crypto exchanges. These are the main concerns users have to be aware of:
“Whilst the SEC investigate Binance all eyes are now on the brand themselves who seem to be lacking transparency across entities as it is unclear how Binance is related to other brands falling under the same umbrella. This concern grows as they are investigated further and it becomes clear that the business is perhaps implementing strategies to evade effective regulatory oversight and accountability. There have been a huge number of regulatory warnings and procedures initiated against Binance challenging its practices and regulatory status.
Instead of holding an insurance policy (like Coinbase or Crypto.com) Binance relies on a ‘self-insurance mechanism’ called ‘Secure Asset Fund for Users’ (“SAFU”) to give some form of protection for users should their crypto assets be stolen as a result of a hacking attack for example, something Binance has a history of. SAFU consists of BTC and BNB which value tend to be quite volatile affecting the available pool as well as unlike an insurance policy here there is no legal or other guarantee that SAFU won’t be used to cover something else instead of providing protection for customers.
Transparency also continues to be an issue. There is no credible information available regarding the corporate structure and operations of the Binance Group, nor about its financial results. It also offers very complex products (crypto derivatives, leveraged tokens etc) and high leverage. Its consumer contracts do not seem to be fair and transparent, with them not even containing who the contracting entity is on Binance’s behalf whom the customers are facing.
The very object of the SEC investigation, BNB token, is a prime example of potential conflict or interest and market fairness issues. BNB only imitates crypto as it is issued entirely privately, traded on different exchanges and Binance controls absolutely everything about it and it works however the company needs it to at the time (e.g. see when Binance secretly changed the BNB white paper), plus 40% of the issued BNB coins is owned by the Binance founding team.”
I thought this might be of interest to your readers and, as such, thought I’d send it over. Please do not hesitate to let me know if you need any further insights or commentary from BrokerChooser’s analysts.