FTX – at one point the third-largest crypto exchange by spot volume – processed around $37 billion in spot trades in October, the month before it collapsed, according to CryptoCompare. The second-largest exchange, Coinbase, processed $47 billion that month. Meanwhile, Binance’s spot trading volume in October totaled a whopping $390 billion. For over a month, Binance CEO Chanpeng Zhao (“CZ”), like other exchange leaders, has been on a quest to convince users that his product is wholly different from FTX – the SBF-led exchange that became insolvent after misusing user funds. Like FTX, though, Binance is largely unregulated, and not everyone is buying CZ’s repeated assurances of propriety. Over the past week, a shoddy audit of the exchange’s reserves – followed by news of criminal investigations into Binance executives – alarmed users enough to catalyze record withdrawals from the platform. While Binance appears to be weathering the storm so far (there are no glaring signs that the exchange has misappropriated user funds FTX-style), recent events have drawn attention to the fact that Binance, which exists beyond the scope of regulators and tracks customer holdings on its own servers rather than on public blockchains, asks for a tremendous amount of trust from its users in order to operate. In the “trustless” world of cryptocurrency, this is a bit hard to square. Still, some users continue to trust Binance. Compared to FTX, the exchange offers a relatively tame feature set and has a longer record of success (by two years). Also, on-chain data from Nansen – which can provide a limited window into an exchange’s health – suggests that Binance is far better capitalized than FTX ever was. While one can find some differences between Binance and FTX, it’s impossible to know what’s really going on at Binance behind the scenes. The Binance founder – in a manner not dissimilar to one-time-nemesis SBF – has been increasingly active on Twitter of late. It’s not hard to figure out why: For an exchange that is barely regulated, PR becomes the only way to convince users that things are humming along as promised. But, of course, a PR-blitz is also a double-edged sword. Just as CZ’s “all is well” tweet threads might well convince some users that his platform can be trusted, his statements will be viewed by others as a sign of desperation. If Binance is undercapitalized – however unlikely such a scenario might be – it surely won’t want users to panic-withdraw and find out for themselves. | 