CZ Strives to Show Binance is Different From FTX |

Just like FTX, Binance maintains billions of dollars worth of its own tokens on its balance sheet. So is the globe’s No. 1 cryptocurrency exchange vulnerable to the same type of bank run that poleaxed Sam Bankman-Fried’s exchange last week? 

That’s a pertinent question as Binance, which does $14B in daily trading volume, leans into playing the role of savior at a perilous moment for digital assets. 

Liquidity Shortages

On Monday, the Cayman Islands-based exchange unveiled an “Industry Recovery Fund” to bail out projects suffering liquidity shortages. Changpeng Zhao, Binance’s loquacious co-founder and CEO, has called for the formation of a global association to formulate industry standards. 

And with Bankman-Fried out of the way, Zhao has flexed as crypto’s leading evangelist. On Tuesday he released a primer called “Six Commitments for Healthy Centralized Exchanges.” 


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It calls for marketplaces to shun using native tokens as collateral — a tacit criticism of FTX’s fatal use of its FTT coin to support its sister company, the hedge fund Alameda Research — and to show “live proof” of assets by sharing details of hot and cold wallet addresses.

But will Binance practice what it preaches?


On Nov. 10, Binance published its cold wallet addresses to demonstrate that it has enough capital on hand to withstand a bank run. The exchange also shared its wallets for the six largest crypto assets by market cap. 

The wallets hold $65B worth of assets combined, including 21.3B BUSD — a stablecoin issued by Paxos in partnership with Binance, and $6B worth of BNB — Binance Smart Chain’s network token. The two tokens account for 42% of its known reserve assets.

Binance’s largest holdings also include $13.4B in USDT, almost $8B worth of BTC, and $6B worth of ETH. “This is not a complete set of data, which will be shared later in the full audited report,” Binance added.

Binances largest holdings include $13.4B in USDT, almost $8B worth of BTC, and $6B worth of ETH. This is not a complete set of data, which will be shared later in the full audited report, Binance said.

At first glance, Binance’s heavy BNB and BUSD holdings appear comparable to the FTT that comprised 40% of Alameda’s balance sheet on June 30, the datapoint that unraveled the No. 2 exchange in a matter of days. 

CoinDesk reported that $2.2B worth of FTT — 15% of Alameda’s assets at the end of June — was earmarked as loan collateral for some of its $7.4B in liabilities. The news shook confidence in FTX and triggered a landslide of withdrawals, and as the exchange’s reserves dwindled it held just $900M in “liquid” assets and nearly $9B in liabilities on Nov. 10, according to The Financial Times. The balance sheet also showed $5.5 billion in “less liquid” assets and US$3.2 billion in “illiquid” assets.

The next day FTX filed for bankruptcy in Delaware as the U.S. Department of Justice and securities regulators mounted investigations

But Zhou, who is known as CZ, says Binance doesn’t have the same binary model of an exchange and interdependent hedge fund. He denounced the practice of obtaining loans collateralized against self-issued assets. 

“Never use a token you created as collateral,” CZ tweeted on Nov. 9. “Don’t borrow if you run a crypto business… Have a large reserve.”

Transparency Reports

CZ rejected the suggestion that holding large quantities of BUSD could pose a threat to Binance’s solvency, and emphasized that BUSD is issued by Paxos, a regulated blockchain infrastructure firm, and audited by New York state’s Department of Financial Services. 

According to transparency reports from Paxos, BUSD is fully backed by USD. 

Zhou argued that a large portion of an exchange’s balance sheet should be composed of stablecoins during a bear market. CZ added that people should be wary of exchanges that have low stablecoin holdings as industry players begin to produce proof-of-reserves.

“If their assets do not include a large percentage of stablecoins, that is a risky sign,” he said. “In a bear market, a lot of people have converted from Bitcoin, Ethereum, BNB into stablecoins… Our proportions are actually very, very healthy.”

‘Very Simple’

During a Nov. 14 ask-me-anything session on Twitter Spaces, CZ said that Binance’s business model is “very simple.” 

“We don’t have loans, we don’t have debt,” he said. “I believe, in the industry, we don’t owe anybody any money.” 

CZ stressed that Binance does not give user assets or its own funds to third-party asset managers to generate yields, nor does it trade futures or operate a trading firm. 

“We make money through trading fees,” he said. “We run a very simple exchange business.”

We want to help those projects to survive this turmoil. We actually think that this is a pretty good time to invest because most of those projects valuations are much more reasonable than they were a year ago. 


When asked if any of Binance’s subsidiaries or portfolio companies were exposed to FTX, CZ said he was unsure, but none have approached Binance in a state of crisis. “We have invested in something like 150 portfolio companies, I don’t know the state of all of them,” Zhou said, adding that Binance has not yet heard any cries for help.

By contrast, FTX boxed itself into a corner by running a balance sheet dominated by tokens it issued to projects in its own ecosystem and investment portfolio; many of FTX’s positions were too large to liquidate without tanking the markets. Stablecoins were not among its top four holdings. 

Serum Falls

Its largest holding as of Nov. 10 was $2.2B worth of SRM, the native token of Serum, the Solana-based DEX founded by Bankman-Fried. In the last week, SRM has lost a third of its value and has a market cap of $109M, which is less than one-eighth of the paper-value of FTX’s SRM stash, according to CoinGecko.

FTX’s third-biggest position was a $616M stash of MAPS that is now worth $372M. However, the market cap of MAPS is listed at just $4.8M.FTX also held a $736M SOL position that is equal to 14% of Solana’s circulating supply.


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As for the Binance’s Industry Recovery Fund, CZ said it aims to assist healthy projects that may experience a short-term liquidity crunch due to their exposure to FTX. 

“We want to help those projects to survive this turmoil,” CZ said. “We actually think that this is a pretty good time to [invest] because most of those projects’ valuations are much more reasonable than they were a year ago.” 

Binance has not disclosed how the fund will be compensated by recipients of this largesse. 

Good Cleanse

Zhou said that five funds have since reached out to express their interest in participating in the initiative, alongside several projects from the crypto industry.

Looking ahead, CZ predicted that the projects that survive this tumultuous period are going to be much stronger in the long term. 

“As negative as things look right now, we actually think this is a very good cleansing period,” he said. “[With] the weak projects gone, the industry is actually much healthier… We want to invest in strong projects right now.”

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