During 2017, Binance skyrocketed to prominence as a cryptocurrency exchange, eventually becoming the largest of its kind in the world. Problems arose fast. It ran mostly out of China and then Japan, but one in five of its customers were in the United States, where regulators have hinted at an impending assault on uncontrolled offshore crypto players. That would protect the larger Binance.com exchange from scrutiny from U.S. regulators, effectively blocking access from the United States. The plan was to create a minimal American platform, Binance.US, which would use Binance’s technology and brand under licence but would otherwise give the impression of being completely separate from Binance.com.
According to interviews, communications, and documents obtained by the Journal, however, Binance and Binance.US have been considerably more connected than the firms have reported, sharing staff, finances, and an affiliated entity that purchased and sold bitcoins. China-based Binance had access to potentially sensitive information about American customers since Chinese Binance developers managed the software enabling Binance.US consumers’ digital wallets. A Binance official warned colleagues in a 2019 private chat that a lawsuit from U.S. regulators would be like “nuclear fall out” for the company and its officers. According to letters and papers from 2018–2020 seen by The Wall Street Journal, as well as interviews with former workers, it appears that Binance, fearing prosecution, set out on a plan to disarm U.S. authorities.
How it all began
On Thursday, a group of lawmakers from both parties demanded answers to a list of questions stating that Binance had “kept basic financial data from its consumers and the public.” Even in nations where it is legal to do so, Binance has found itself in the crosshairs of regulatory authorities. After the failure of several cryptocurrency exchanges last year, including FTX, Binance emerged as the industry leader. In the wake of FTX’s rapid demise, U.S. regulators shifted gears and are making concerted efforts to rein in the $1 trillion cryptocurrency market.
‘Binance.US was formed exclusively to offer U.S. clients with services and goods that comply to U.S. rules and regulations,’ a representative for Binance.US explained. During those early years, we did not have enough compliance and controls in place,” a Binance representative said. Regarding legality, we are a totally different organisation now. How well Binance manages the current industry upheaval and interacts with U.S. regulators will be a barometer of crypto’s long-term viability. Binance’s chief strategy officer, Patrick Hillmann, stated last month that the exchange is prepared to pay fines to end ongoing regulatory and law enforcement probes in the United States.
Binance’s intimate connection
A Binance employee in Shanghai accidentally enabled trading on the U.S. platform a few minutes before the scheduled launch date in September 2019, prompting a discussion in a Binance-specific Telegram group. The Binance.US platform will reportedly continue to have essential software functionalities maintained by developers in Shanghai until at least the summer of 2021. According to the source, the contracts between the Shanghai developers and Binance and not the US platform.
Prosecutors claim that the loss of billions of dollars in customer funds at the defunct FTX platform was caused by an unlawful link between the market and an associated trading firm, Alameda Research. A representative for Binance.US stated that the company does not share user information with Binance and that all customer data for U.S. customers is maintained within the United States. According to the Binance.US spokesperson, “Binance.US has never—and will never—trade nor lend out customer funds,” which is in stark contrast to FTX. When asked about the nature of their partnership, representatives for both Binance and Binance.US referred to licencing agreements governing the use of Binance’s underlying technology.
According to her, Merit Peak’s participation in Binance.US ceased in 2021. The topic of Sigma Chain was not up for discussion. Binance had tremendous growth in its first two years of existence, 2017 and 2018, because it was unbound by government oversight. According to the WSJ, the SEC has also been investigating the connection between Binance.US and Merit Peak Ltd. and Sigma Chain AG, two trading entities with ties to Mr. Zhao. Binance.com was accessible from anywhere in the globe, and users were not required to do the same know-your-customer checks that are standard at banks and brokerages.